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Father John Sheridan taught Latin back at my Jesuit high school, and if I remember any of it correctly, the above means that “a common danger will bring forth unity.” It’s a lesson originally stated by Aristotle, and repeated in one way or another by people ranging from the philosopher Frederick Nietzsche to former Secretary of State Condoleezza Rice—and now me.
If you haven’t been tuned into that common danger, you should be, as it is the most recent manifestation of a misunderstanding and/or misrepresentation of direct selling, the channel of business that unites all the readers of this publication. It is potentially the greatest threat we have seen in years to the goodwill, understanding and progress that the Direct Selling Association, Direct Selling Education Foundation, direct selling companies and many others have worked to create. For generations, DSA and our colleagues have worked to ensure that pyramid schemes are adequately defined and put out of business, that regulators understand and appreciate the contributions direct sellers make to their communities, and that the public understands those differences as well and are open to the opportunities direct selling can provide to them to create a better life.
Now a common danger has arisen, borne from an unlikely source—short sellers. For those not familiar, short sellers pursue an investment strategy that benefits them when the stock prices of their “shortly” held investments go down. The insidious part of that strategy comes into play when the short investors and their cohorts decide to try to manipulate the market to make the stock price go down instead of letting the marketplace perform its normal function. That is where the misinformation, misrepresentations and a common danger come into play.
Take for example, the recent pronouncement of one hedge fund that has taken a short position on a major direct selling company. Rather than assess the relative strengths and weaknesses of the company in the marketplace, make appropriate investments and let the market work, this celebrity-level investor staged his own PR attack with the obvious intention of creating a self-fulfilling prophecy. In his effort to drive stock prices down, this “short” let loose a wrongheaded cacophony of allegations and misstatements of law and practice about direct selling and pyramid schemes.
Some financial analysts and press have picked up these allegations as fact, and many of the outdated myths about direct selling and multilevel marketing have been repeated by these unknowing observers. Happily, the company has undertaken an authoritative, persuasive, competent and fact-based response. DSA, for its part, has spoken consistently about the facts and law related to direct selling and has assertively described the model, supported our case with data and facts, described our industry’s work with consumer protection authorities, explained the real state of the law, and explained the differences between pyramids and legitimate direct selling.
As a result, many members of the investment community, the press, academics and others have seen through the motivations of the blatantly self-interested short sellers and begun to look at the facts. Beyond the rhetoric, the anecdotal reports, and the distorted misrepresentations of the shorts, there is a community of goodwill, of lives positively affected by direct selling, and a long history of direct selling’s consumer service and salesperson opportunity that is hard to ignore.
The “common danger” remains, however, because for the investors there is much money at stake. Other unscrupulous short sellers have undertaken similar attacks against publicly traded direct selling companies in recent months and years, and it is quite possible that this barrage will continue for a while.
Most direct selling companies are not publicly traded, and so are somewhat less vulnerable to the specific tactics of these short sellers. Nonetheless, the misstatements and misunderstanding about our direct selling channel will continue to echo, and it is incumbent upon DSA and the entire industry to respond effectively, consistently and accurately to these false allegations about our channel. For the moment, regulators, legislators and public-policy makers have not been engaged and we at DSA are confident that the good work this industry has done over many years will hold us in good stead. Nor has the public at large paid particular attention to these unfounded attacks, which seem more relevant to a few financial behemoths than the average person on the street. But a continuing drumbeat of misinformation—however unreasonable—could eventually result in regulatory, financial and marketplace consequences.
DSA and its members are engaged in a multifaceted strategy to respond, and we will be sharing more details with DSA members. That strategy, already underway, involves:
- Arming our members with accurate information and rebuttals to possible charges
- Continued data gathering and research in support of the industry
- Outreach to major press outlets to better inform these opinion-shapers
- Outreach to lawmakers at the federal and state levels to preempt any possible errant and misguided legal efforts to regulate or even prohibit legitimate direct selling
- Pursuit of effective anti-pyramid law that clearly defines pyramids and makes clear our legitimacy
- Mobilization of our almost 16 million salesforce members to speak in support of the industry
- Identification of those non-direct selling opinion and thought leaders who support direct selling and understand its importance to the American community
- Education of the financial community
Senior leadership of DSA companies understand this common danger and have come together to respond. Our response will no doubt be continuing and strengthened. As Father Sheridan might have said, “Vis unita fortior” — “Union is strength.”
Joseph N. Mariano is President of the U.S. Direct Selling Association.
