For my Herbalpeople to get a better insight of Herbalife. Part of a paper for grad school.

1. Running head: Herbalife International 1
Herbalife International
Jake Freeman
ORG530-1: Business Ethics and Sustainability
Colorado State University – Global Camus
Victoria Figiel, Ph.D.
March 3, 2013

2. Herbalife International 2
Herbalife International
Herbalife International LLC was founded in 1980 by Mark Hughes as a direct to
consumer nutritional supplementation company. Herbalife started as a simple idea of Hughes’ to
“change the nutritional habits of the world” (iChange, 2012). Hughes’ mother died due to an
overdose brought on by a cocktail of diet pills prescribed by doctors to assist with weight
problems which were in turn brought on by a poor nutrition plan. After the death of his mother,
Hughes determined to find or found a simple and effective nutritionally complete healthy meal
replacement program.Within one year it grew into a multi-million dollar company and within 13
years it grew into a billion dollar company (Beach, 2013). For Fiscal Year 2012 the company
enjoyed strong corporate financial performance, netting a profit of $4,100,000,000 (Investor
Relations, 2013).
The company is organized into two parts: corporate and sales. Corporate Herbalife
focuses on research, development, marketing, sponsorships, ethical and legal considerations of
the company as a whole. As such, it is answerable to outside agencies and organizations such as
the FDA and FTC. The sales portion feeds off of the product development, brand recognition,
and marketing drives created by corporate. Each sales distributorship is an independent entity
who has gained permission to use Herbalife logos, products, and support (Distributor Policies-
Code of Honor, 2013).In the following paragraphs, these two main entities which make up
Herbalife will be discussed. Due to the complexity of sustainability practices within a dynamic
two part company, some sustainability issues will be discussed throughout, including the
Corporate Sustainability Model as well as structure and accountability.

3. Herbalife International 3
Corporate
The corporate wing of the company is broken up into separate entities. Germane to this
paper are the ethics, research and development, and community outreach departments. Each
department is staffed with full time employees. Corporate employees may not also be
independent distributors of Herbalife products due to conflict of interest issues. The ethics
department has significant authority within the company and is known by the mantra “Protecting
the Golden Goose” (Herbalife Today Magazine, 2011). Their task is to enforce stringent ethical
guidelines corporate has in place to protect consumers and distributors from unethical behaviors
on the part of errant distributorships. As a personal experience, recently there was a Millionaire
Team member who posted photos of his income pay checks as part of a power point presentation
to a large seminar. This is considered as unethical baiting by Herbalife rules and guidelines.
After investigation, Herbalife ethics shut down the member’s distributorship and nutrition clubs
and banned him from the organization for two years, costing him millions. Ethics are constantly
discussed at Herbalife meetings and events and distributors will frequently observe each other
and give guidance on ethical questions.
Herbalife has a robust team of recognized scientists working within research and
development, to include Dr. Louis Ignarro, Nobel Laureate, and Dr. David Heber, named “Best
Doctor in America” at least once (Herbalife Science, 2013). Lead by this team, product
development is relatively slowly. The deliberate pace is for sustainability purposes, often taking
a year or more per product. Each product goes through a conceptualization stage, feasibility stage
where distributor stakeholders are asked for input, and formulization stage where refinement and
exploration on the long term ingredient availability and quality are determined. Through this
method, Herbalife releases at least one key market product per year (Product Development,

4. Herbalife International 4
2013). The inclusion of distributors allows the company to avoid marketing disasters where a
product is generated with excitement in the lab, but met with complacency in the marketplace.
Products under development will often be hinted at or even sampled in larger gatherings called
Success Training Seminars, Leadership Development Weekends, or the annual keynote event,
the Herbalife Extravaganza.
In view of philanthropy and like external outputs, the community outreach department
has several initiatives through which distributors can volunteer time and money. The three most
popular are the Herbalife Family Foundation, Casa Herbalife, and the African American
Initiative. (Social Responsibility, 2013). Herbalife Family Foundation and its subsidiary, Casa
Herbalife, focus on humanitarian services around the world and provide“$2 million in funding
and volunteer assistance each year to more than 90 organizations worldwide. These funds bring
nutrition to more than 8,165 children in over 50 countries on a daily basis” (Herbalife, 2009;
Herbalife Family Foundation, 2013).The African American Initiative is the result of Herbalife
leadership recognizing that as a demographic, the African American community is hard hit by
nutritional and economic issues (African American Initiative, 2013). Herbalife recruits rising
African American sales and corporate representatives within its sales and corporate wings to act
as emissaries to African American communities about proper nutrition as well as the possible
financial benefits that can be derived from Herbalife Wellness Coaching.
Sales
Distributors are the only mechanism through which the company markets its products.
Through its well-developed recognition programs, easily accessible training and distributor
service programs, thorough research into new and existing products, and corporate focus on
environmental and community synergy, Corporate Herbalife protects its lifeline of distributors.

5. Herbalife International 5
The following paragraphs outline how Corporate Herbalife supports its human resources and
gleans financial resources from them, Perhaps this is why not only has the new distributor corps
grown but experienced distributors have stayed within the organization and a rate of 50%, above
industry average (Press Release 2012).
High quality products, if not married with an effective marketing system, may not be able
to last. In view of this, corporate has established an inexpensive and robust online platform so
that distributors can sell products online.Distributorscan order (wholesale) a customer’s product
(retail) which is sent from central warehouses “just in time” without ever seeing those specific
products themselves. As such, there is no need to keep an inventory on hand, which minimized
overhead costs. Using this model, fledgling distributors with limited financial options can create
on online business for under $130, including an partnered outside merchant account services
such as ProPay, which benefits the company by opening their doors to individuals with desire
and sufficient skills or willingness to learn who do not have the capital available to launch a
traditional business. It assists communities by opening up the doors for entrepreneurship to
community members who desire self-employment. Distributors can purchase wholesale products
in large quantity and keep a stock on hand for instant sales, but this is typically not recommended
for reasons discussed later. In short, massive quantities are purchased for operation of so called
“nutrition clubs” rather than using the “just in time approach” Regardless of the method of
transacting business, there is no fault or fee associated with not creating a certain sales volume.
The online sales nomenclature allows people up several levels in the organization to monitor
volume point production and identify inappropriate activity.
In regards to labor practices and employee benefits, the sales portion is organized after
the multiple-income stream model, commonly called multi-level marketing. It encompasses

6. Herbalife International 6
some 2.7 million independent distributors (Annual Report, 2012), called “Wellness Coaches”,
and their subsidiary distributors.In a business context this model is easily corruptible and often
results in poor returns for entering members (Greene, 2012). However, it is important to
differentiate between a legitimate MLM and a pyramid or Ponzi scheme. In essence, in a Ponzi
scheme there is not a legitimate end product available, and the method by which participants
make money is by bringing new members into the actual organization. In Herbalife,
distributorships derive no benefit from simply recruiting new distributors. To keep rosters clean,
every year on the date of original purchase of membership, each distributorship is charged a $14
processing fee. If a distributor does not pay it, they are scrubbed from the Herbalife distributor
account and unable to become distributors again for two years.
For those who wish to remain active either as wholesale purchasers for personal use or
actual Wellness Coaches for others, independent distributors are able to purchase product at a
25% wholesale and then sell retail, essentially keeping $25 of each $100 sold. The intent is to
produce enough “volume points” (approximately $1 per volume point) to attain 35%, 42%, and
finally 50% wholesale savings, which increases their retail profit margins. The 50% level is
referred to as the “Supervisor” level.Once a Supervisor, a person can bring interested individuals
into the business and train them how to successfully act as a Wellness Coach to clients using
practicable and duplicable business methods. Recognizing the effort it takes to train a new
person, corporate Herbalife will match 25% of each new distributor’s sales revenues as an
override to their trainer, payable no later than the 15th of each month.
Beyond attaining “Supervisor” status, a distributorship can, completely alone and with no
distributor organization built under them, build enough consecutive volume point production to
attain World Team. This means that for four months in a row a distributor has achieved 4000

7. Herbalife International 7
volume points. In theory, these volume points can be from personal consumption or personal
sales.Although a subsidiary organization of distributors can be built by a distributor prior to this
point, no more real growth can occur after this point unless an organization is created.
Regardless of personal sales or revenue after World Team, no more advancement can come
unless a distributor can show leadership enough to teach others top do what they have done.
After World Team, a distributor can achieve Tabulator Team status which entails each
subsequent level above it. Established by strict business and ethical guidelines as set forth by
corporate these levels includeGlobal Expansion Team, Millionaire Team, President’s Team, and
Founder’s Circle. It must be noted that these additional levels are not based on the raw amount of
distributors a supervisor brings into the organization. Subsidiary distributorship is irrelevant. As
a sustainability check, a distributorship gains nothing if a new distributor joins their organization,
unless that new distributor experiences some modicum of success themselves.This aids in
eliminating the risk of the organization becoming a “pyramid scheme”, as product must be
purchased and consumed. The various levels are simply a measuring stick to success. The real
benefit comes from additional training and networking with those who have discovered
practicable methods for success. A simple way to view the levels is this: Global Expansion Team
(GET) requires any number of subordinate supervisors attaining a net of 20,000 volume points
(approximately 5 fully active supervisors creating 4000 volume points per month each, of which
the GET member will receive royalty overrides of 5% from the three levels of distributors below
them); Millionaire team requires 4000 royalty points for three consecutive months; President’s
Team requires 10,000 royalty points for three consecutive months. The royalties override
percentage earned are typically the same per level, but the larger organizations make the higher
levels more lucrative.There are reports from time to time that some distributorships try and

8. Herbalife International 8
influence their team members to purchase massive quantities of product themselves in order to
inflate their own numbers. Unless purchases are made to operate a nutrition club, large purchases
run counter to corporate ethics guidelines and are looked at as unsound business practice
(Distributor Policies- Expenditures, 2013). Common sense rules of business apply.
The company responds well to external requirements of sustainability. An example of
this is the companies’ use of ephedra, the popular but now banned organically derived weight
loss ingredient. The US Food and Drug Administration banned the substance in 2004, which sent
many manufacturers scrambling to find a quick alternative to avoid catastrophic market share
loss. Herbalife, however, faced no such issue. Although used in products during the 1990s,
Herbalife discontinued its’ use in 2002 due to emerging research on the dangers of the ingredient
prior to any dictate from the government. Internal correction is a truly sustainable practice
(Epstein, 2008).
An oft heard challenge on both the corporate and sales venues is to “change the
nutritional habits of the world” (iChange, 2012). Based on that internal drive and even after the
death of Hughes in 2000, the company researches and develops new products at a slow and
highly vetted rate. As a safeguard against falling for short term marketability pressures at a
possible risk of long term sustainability, Herbalife CEO, Michael O.Johnson hired Vasilios
Frankos M.S., Ph.D., former head of the Food and Drug Administration’s Supplementation
Division to oversee Herbalife’s consumer safety and quality control (Press Release, 2010).
Frankos and his team have the autonomy and responsibility to audit and, if necessary, shut down
any manufacturing or processing cycle at any point based on professional assessment of
sustainability violation. Often, this leads to shortages in key products. However, the Herbalife
Distributor Relations Center responds to complaints by stating that product integrity takes

9. Herbalife International 9
precedents over available supply. Certainly, distributors will likely not be happy nor successful if
key products are constantly out. As such, Herbalife maintains high standards for product
development, to include ingredients and manufacturing (Holistic Therapies- Belfast, 2013).
Herbalife manages inputs into the organization rather well and the processes by which
they do it are interesting. For instance, leadership in Herbalife is a results based enterprise. On
the sales side of Herbalife, only high and consistent producers are invited to speak and mentor at
main events. Outside speakers are not hired. Typically in national or regional events, Millionaire
team, President’s team, and Founder’s Circle lead the training. Rising leaders within the
organization are able to mentor within their own organizations or organizations to which they are
invited. However, promising Supervisors and World Team members are sometimes invited to
speak and convey their strategies for success. Enabling fairly new coaches to be recognized is an
invigorating practice for other new distributors. Many may regard such recognition as evidence
that they too could be recognized for achievements.
As a specific example of the type of leadership Herbalife attempts to instill, the case
study could be Michael O. Johnson, former CEO of Walt Disney International, who Herbalife
hired as their new CEO. Upon the untimely death of Mark Hughes, Herbalife was leaderless and
faced a crisis. Johnson filled the void and took company into its new future. With his tenure as
president, Herbalife has shown renewed and deepened dedication to sustainability. He currently
leads Herbalife Corporate and communicates the organizations values and development of a
corporate sustainability strategy (Epstein, 2008).Johnson has led the organization toward greater
sustainability practices and active sustainability audits, making results and metrics reports
available to the public (Audit Committee Charter, 2013).His tenure has led to awards and
recognition for Herbalife’s sustainability practices. (Awards and Recognition, 2013). This entails

10. Herbalife International 10
building design (Press Release, 2009) to product development. From explanations gathered
from current Herbalife distributors who were distributors prior to Hughes’ death, while Hughes’
initial vision and charisma led the company to the success it had, the direction Johnson has taken
has been an increasingly sustainable and lucrative one. When Johnson took over, the company’s
popular Formula 1 meal replacement shakes was its primary marketing success (Beach, 2013).
Desiring to develop greater market diversity, Johnson led the company’s expansion into high
grade athletic meal replacements, pre-workout, post-workout mixes, and 12:1 carb-to-protein
during workout mixes, the Lift-Off® energy drink supplement, and so forth.
On product development, the story of Herbalife’s new athlete’s line of supplements is
useful. Johnson happened upon Dr. John Heiss, a recent UCLA PhD graduate, while on a hill
climb cycling exercise in the hills above Los Angeles.Dr. Heiss was marketing from the trunk of
his car a new nitric oxide pre-workout blend he had developed. After speaking with the scientist
and having a good first impression, he took samples back to the Herbalife lab for testing. Once
the composition and quality of the sample was proven to be legitimate, Johnson and Herbalife
hired Heiss, the company gained proprietary rights for the supplement, and provided funding and
labs for Heiss’ further research and development of what became the popular line of products
called “24”. According to Heiss’ vision, the line is so termed as it is designed for “the 24 hour
athlete” (Calbay, 2011). That expanded the market for Herbalife and took pressure off of the
foundational meal replacement program, which in turn made the company more sustainable
economically. It also showed Johnson’s willingness to support local scientists and entrepreneurs,
bringing them into the framework of Herbalife.With the previously mentioned team of scientists
and researchers on staff, an argument could be made to keep idea generation inside the company.
That Johnson would entertain the research and product development of a new Ph.D. vending his

11. Herbalife International 11
work from the back of a car shows a local attitude underneath the power and prestige of an
international multibillion dollar publicly traded firm.
Seemingly, the company’s reputation amongst stakeholders and their reaction to the
company’s sustainability performance has been mostly positive. Revenues are increasing which
means more products are being purchased, which means positive brand recognition. Enough
capital has been created to purchase and build a new botanical refinement plant in Changsha,
Hunan Province, China, and stocks are on the rise. The Changsha refinement plant is an
interesting evolution for Herbalife. Herbalife is striving towards a sustainability lifecycle concept
first spoken by Mark Hughes prior to his death called “Seed to Feed”. According to the concept,
Herbalife would own the entire process of their production from the fields ingredients are grown
in to the manufacturing plants where the products are created (Holistic Therapies- Belfast,
2013).While this has not happened in every Herbalife department, the Changsha botanical plant
is a major step. This is evidence of Herbalife’s capital budgeting and sustainability strategy: the
company wishes to own its resources for greater sustainability in the future. Since Herbalife’s
focus is on balanced nutrition and wellness, it seems logical that the company would attempt to
manage the risk of unreliable third party supplier stakeholders by owning their own farms,
processing plants, and refinement centers.That way, the company can ensure that unwanted
chemicals or cross contamination are kept to a minimum.
One recent negative point was raised by stock specialist William Ackman when he made
a 3 hour presentation on what he saw as the unsustainability of the Herbalife model and
likelihood of the FTC suddenly declaring Herbalife’s business model an illegal pyramid
scheme.(Herbalife, 2012; Hotaling, 2013). Essentially, his argument was that Herbalife relies on
new distributors to enter the company for established distributors to make revenue and as such

12. Herbalife International 12
should be closed by the FTC. When this happened, he predicted, Herbalife stock would fall to
zero. He shorted the company 20 million shares. Conversely, Carl Icahn,John Hempton (Taub,
2013) and Daniel Loeb (Greenberg, 2013) derided his conclusions, pointed out that distributors
do not make revenue from simply recruiting, and that even if the FTC closed Herbalife’s US
market, 80% of Herbalife’s revenue is international and thus a zero dollar stock is highly
unlikely. The two brokers purchased large amounts of stock in the company.
Herbalife could strengthen its position as a world leader in wellness products, education,
and sustainability by creating more available information on plant certification, metrics utilized
for audits, and as Ackman stated in his critique, tighter accounting of which distributors actually
distribute and which simply purchase for personal use (Hotaling, 2013). The building of a new
plant in China and recently unveiled plans to open a new 500 employee factory in Winston-
Salem, NC (Associated Press, 2012) seems to indicate that the company expects growth. Growth
will likely not be unnoticed, which likely means additional scrutiny. As the previous pages may
have indicated, Herbalife is not slow or reluctant to adapt. Both outsiders and insiders would
benefit from more clear documentation and records of fiscal and sustainability activity within the
company(Schaefer, 2013). This will not only make it less of a target for the Ackmans of the
world, but likely give distributors greater confidence in dealing with those who have questions.
Herbalife, the 33 year-old multi-billion dollar international wellness, weight-loss, and
physical performance company, has strong sustainability characteristics. With a professional and
dedicated corporate staff, a strong focus on ethics, and a talented team of scientists and market
analysts behind it, the sales side of Herbalife is set up for success in marketing Herbalife
products. This would not be so without the code of honor and attitude toward sustainable thought
and action by corporate leadership, which percolates throughout the organization. Community

13. Herbalife International 13
outreach and volunteer programs give back to the areas where Herbalife distributors operate, and
certain demographics can benefit from programs such as the African American Initiative. As
with any large, successful organization, Herbalife has its critics. Yet, if certain corrections are
made and the organizations remains as sustainable and flexible as it has in the past, perhaps
Hughes goal of changing the nutritional habits of the world can be realized, at least in part.

14. Herbalife International 14
References
African American Initiative. (2013). Raising awareness and helping to reverse the obesity trends
in the African American community. Dallas African American Initiative. Retrieved from
http://www.dallasaai.com/
Audit Committee Charter (2013). Herbalife audit committee charter. Retrieved from
http://ir.herbalife.com/documentdisplay.cfm?DocumentID=8107
Annual Report. (2012). Herbalife 2011 annual report – Form 10-k – February 21, 2012.
Retrieved from www.secdatabase.com
Associated Press. (2012). Herbalife to hire 500 at NC plant. Charlotte Observer. Retrieved from
http://www.charlotteobserver.com/2012/12/19/3736318/herbalife-to-hire-500-at-nc-
plant.html
Awards and Recognition. (2013). Herbalife investor relations. Retrieved from
http://company.herbalife.com/recognition-and-awards
Beach, E. (2013). History of Herbalife. eHow. Weight management &body image. OTC weight
loss products. Herbalife. History of Herbalife. Retrieved from http://www.ehow.com
/about_5292905_history-herbalife.html
Calbay, C. (2011). Herbalife launches new product line for the 24 hour athlete. Competitor.
Retrieved from http://running.competitor.com/2011/05/nutrition/herbalife-launches-new-
product-line-for-the-24-hour-athlete_28114
Distributor Policies-Code of Honor. (2013). Herbalife distributor’s code of honor, revision
03/11. Retrieved from https://www.myherbalife.com/Account/Profile/DocumentsAnd
Policies.aspx?type=policies

15. Herbalife International 15
Distributor Policies- Expenditures. (2013). Policy Statement On Expenditures By New
Distributors 07/16/12. Retrieved from https://www.myherbalife.com/Account/Profile/
DocumentsAndPolicies.aspx?type=policies
Epstein, M. J. (2008). Making sustainability work: Best practices in managing and measuring
corporate social, environmental, and economic impacts. Greenleaf Publishing Limited.
Sheffield, UK
Greene, Jody. (2012). Is MLM a bad word? Chic CEO. Forbes Magazine. Retrieved from
http://www.forbes.com/sites/chicceo/2012/09/27/is-mlm-a-bad-word/
Greenberg, H. (2013). Selling the American dream. Herb Greenberg- Linkedin. Retrieved from
http://www.linkedin.com/today/post/article/20130114160252-29478030-selling-the-
american-dream
Herbalife, L. d. (2009). Herbalife Family Foundation provides grant to help bring good nutrition
to children in Beijing. Business Wire (English).
Herbalife, L. d. (2012).Herbalife statement in response to Ackman presentation.Business Wire
(English).
Herbalife Bios. (2013). Michael O. Johnson. Herbalife Bios. Retrieved from
http://www.herbalifebios.com/
Herbalife Family Foundation. (2013). Our mission is simple. Retrieved from
https://www.herbalifefamilyfoundation.org
Herbalife Science. (2013). David Heber, PhD. Retrieved from
http://www.herbalifescience.com/quality/product-developmentDavid Heber, M.D., Ph.D.,
F.A.C.P., F.A.C.N.

16. Herbalife International 16
Herbalife Today Magazine. (2011). Protecting the golden goose. Herbalife Today Magazine.
Retrieved from www.herbalifetoday.com/tm_download/TM_en-GB_166.pdf
Holistic Therapies- Belfast. (2013). Seed to Feed. About Herbalife. Herbalife. Home. Retrieved
from http://www.holistictherapiesbelfast.com/index.php/herbalife/about-herbalife/seed-
to-feed.html
Hotaling, Scott. (2013). Is the Herbalife squeeze coming? Seeking Alpha. Retrieved from
http://seekingalpha.com/article/1234511-is-the-herbalife-squeeze-
coming?source=google_news
iChange (2012). The Mark Hughes story. Herbalife iChange. Retrieved from
http://www.ichange.com/user/Herbalife/journal/the-mark-hughes-story
Investor Relations. (2013). Herbalife- Investor relations. Retrieved from
http://ir.herbalife.com/
Press Release. (2010). FDA official joins Herbalife. Release detail. Herbalife. Retrieved from
http://ir.herbalife.com/releasedetail.cfm?ReleaseID=543461
Press Release. (2009). Herbalife offices earn LEED certification. Release detail. Herbalife.
Retrieved from http://ir.herbalife.com/releasedetail.cfm?releaseid=543776
Press Release. (2012). Herbalife Ltd. Announces record Fourth Quarter 2011 and full year
results, record sales leader retention, and raises 2012 earnings guidance. Release detail.
Herbalife. Retrieved from http://ir.herbalife.com/releasedetail.cfm?ReleaseID=650343
Products Development. (2013). Product Development. Retrieved from
http://www.herbalifescience.com/quality/product-development

17. Herbalife International 17
Schaefer, S. (2013). Herbalife says it will clarify distributor disclosures, Ackman doesn't buy it.
Forbes.com, 14.
Social Responsibility. (2013). Social Responsibility. Herbalife. http://company.herbalife.com
/social-responsibility
Taub, Stephen. (2013). The morning brief: Bronte Capital CIO joins Herbalife supporters.
Institutional Investor’s Alpha. Retrieved from http://www.institutionalinvestorsalpha.com
/Article/3137425/The-Morning-Brief-Bronte-Capital-CIO-Joins-Herbalife-
Supporters.html