The following is a condensed and edited version of an article that appeared in a newsletter published recently by our firm’s “go to guy” for direct selling company compliance investigations and consulting, Greg Caldwell, CEO of White Hat Solutions, LLC. It’s a cautionary report of a scenario that frequently leads start-up companies into troublesome and very costly relationships. You can contact Greg and learn more about White Hat Solutions at www.whs-pi.com or at www.direct-sales-compliance.com
We were recently contacted by a Direct Sales Company looking for some compliance assistance. We obviously referred them to Direct Sales Compliance Management (“DSCM”), White Hat Solutions’ division which handles that business.
During the intake interview, the client mentioned he was also considering our competitors. Since our compliance services have been unique to the industry for over thirteen years, we were naturally curious about any new competition.
It turns out, the client had been approached by two gentlemen, both allegedly with “years of experience” in network marketing. They offered to bring their “vast compliance experience” to help this startup company. The client said they appeared to know of what they spoke and their “price” seemed reasonable, especially for a startup’s limited budget.
After speaking with our DSCM representatives, the client soon realized that had he “hired” these two men, it may have proven to be a costly mistake. Why?
The men had offered their services but only if they were given a top-tier position in the genealogy. And, they reserved the right to continue doing this with other clients as well!
Now we don’t know these two gentlemen, nor do we know anything of their experience or backgrounds. What we do know is how a compliance department should work. It should be autonomous, independent and impartial; we know that all complaints should be investigated and resolved without regard to the income production of the representative or the situation being investigated.
What these consultants were proposing, on its surface, would give rise to the appearance of a serious conflict of interest.
While we can’t speak to the motives of these two individuals we believe a warning is appropriate. In light of these individuals demanding a position in a client’s genealogy as payment and not being exclusive to that one client sends up red flags for White Hat. Proceed with caution.