Ethics Plays an Important Role in Many

ETHICS plays an important role in many areas of our business world. Take direct selling, for instance. How can you tell the difference between a legitimate business and a disguised pyramid scheme? To answer this question, we need to back up and look at what "ethics" are all about and, why they are important. Then we will look at the legitimacy of the two direct selling methods.

What are ethics? Here is the most recent textbook definition from a college MBA (Masters in Business Administration) updated required reading selection, "Ethics are the moral principles that govern the actions and decision of an individual or group," Marketing 7th Edition (Kerin, 2003, 100). In other words, to choose a course of action in moral situations, we use ethics, our cornerstones or guidelines to follow.

Why are ethics important in the business arena? Because every person is a part of the whole and similar to an apple, when one person or portion of the fruit turns bad, the rest is affected. Or in the words of John Donne (1572-1631), "No man is an island, entire of itself; every man is a piece of the continent, a part of the main..." And business is no exception. Every one in the business arena affects everyone else. If a company steals from one person or group, their actions affect many. And people who aid in this immoral schematic, help steal from the whole society. Thus good ethics is good business.

About 80% of businesses establish a code of ethics, a formal statement of business principles and rules of conduct, according to Marketing 7th Edition. Usually this code covers issues like bookkeeping, professional conduct, objectives, general standards and government factors. For example Rule 202 of the Compliance with Standards section in the Code of Professional Conduct for the American Institute of Certified Public Accountants states:

member who performs auditing, review, compilation, management consulting, tax, or other professional services shall comply with standards promulgated by bodies designated by Council. (et202.htm).

An example of code in the general business community can be taken from the Direct Selling Association's (DSAs) Code of Ethics, "No member company of the Association shall engage in any deceptive, unlawful or unethical consumer or recruiting practice."

Unethical Corporation Behavior

Now we can look at how to tell the difference between a legitimate business and a disguised pyramid scheme. First we refer to the DSA and see if the company in question fits into their Code of Ethics. In a nutshell, the DSA says that pyramid schemes seek to make money from you (and quickly) whereas multilevel marketing companies seek to make money with you as you build your business (and theirs) selling consumer products.

Then you need to ask yourself these three questions:

1. How much are you required to pay to become a distributor?

Will the company buy back unsold inventory?

Are the company's products sold to consumers?

Compare your responses with those from respected, known professionals in the industry. If the answers are not sound and reasonable, the company in question may be practicing in an unethical manner.

When you review a business involved in direct selling, there are four areas to investigate; company sales, company representatives' training, the company marketing plan and how customer complaints are handled. Unnecessary risks are not advised. The DSA advises that you:

Take your time.

Ask questions.

Get written copies.

Consult with others.

Investigate.

One example of one direct selling case in question was The Mormon's Purchase Plan operation in Columbus, Ohio. The business presented a sound selling background campaign among a supposed group of trusted members of the community. Purchase Plus offered an array of products and services to the community for a small membership fee. The Mormon church decided to sell this Purchase Plus plan to church members, but business went sour. Church members invested large amounts of money into Purchase Plus membership cards, but the cards did not work as promised. There was no long distance telephone savings, for instance. According to an article in the Columbus Dispatch, "Purchase Plus Open Again Amid Criticism," (29 Sept. 2000), the Ohio attorney general's office received more than 4,300 complaints about this program. There were no promised $20 vacations to Puerto Vallarta, no herbal supplements, no Internet access, no discounted long distance. Church members who had invested $400 and more each for Purchase Plus cards to resell and had been promised $11,000 each in return did not see profit from their investments. The venture turned out to be a pyramid scheme. Consequences? Church members lost a lot of money and the church leaders were looked down upon for lack of good, sound business judgment.

Other examples are gift amount chain letters and the Charles Ponzi scheme. In a nutshell, both ideas are for people to invest a small sum of money. Then those investors were supposed to turn around and recruit other investors and make money off of them. Similarly to how David Love Place demonstrates on his website, Pyramid Schemes, Ponzi Schemes, and Related Frauds, the scheme would work like this:

The first level of investors has ten people. They each send a dollar to the original investor, so that person would collect $10.

The next level has a hundred people. So the original investors would collect $100 each. (Each of the original ten investors receives ten more.)