In this article, I am going to discuss how Le-Vel approaches and views regulatory compliance and why it is vital for companies and leaders in our space to proactively move their companies and the industry forward in this critical area. However, this piece is not intended to proclaim that Le-Vel is perfect with regards to regulatory compliance—we are not—or that every company should do exactly as we do. Each company has its own way of dealing with this subject, and there is no one “right way.”
As the President and Chief Legal Officer of Le-Vel, I am laser-focused on growth, on morale in the field, on excitement, and on generating continued forward motion from a business perspective. Therefore, know that all of the actions discussed in this piece are done with those non-negotiable business fundamentals in mind, as well as, legal and regulatory considerations.
At Le-Vel, the significance of regulatory compliance is ingrained throughout our entire culture. Beginning with our co-CEOs Jason Camper and Paul Gravette, myself, our Chief Compliance Officer Christopher Schmidt and including the entire corporate team and our leaders in the field, we pride ourselves on the amount of time and resources we put into regulatory compliance. These efforts are employed, in conjunction with the outstanding guidance provided by our primary regulatory counsel at Covington & Burling, in an effort to continually stay ahead of the curve and anticipate the many twists and turns in an ever-evolving regulatory landscape.
The FTC and Our Industry
Our industry has been the subject of increasing regulatory scrutiny for years. And now, with Operation Income Illusion announced in December, coupled with other recent actions taken and statements made by the FTC (such as “Seller Beware”, the Keynote by Commissioner Noah Joshua Phillips at the DSA Legal & Regulatory Summit on October 15, 2020), the glare of regulatory oversight is only getting brighter. It is incumbent upon all of us who serve and lead in this industry to set the right tone and send the proper messages throughout our organizations. When we do this, it not only helps our individual companies, it also helps the industry at large.
Foundational Elements of Le-Vel’s Regulatory Compliance Program
Le-Vel, from day one, has operated with an eye towards regulatory compliance. There has never been a signup fee, website fee, or fee of any kind to join or remain with Le-Vel as a Promoter or a customer. There have never been sales minimums or quotas required in order for Promoters to earn commissions. We have never paid commissions for recruiting. Our product has always shipped directly to the end consumer rather than being purchased and resold by Promoters.
In addition to the above elements that have been part of the company since inception, there are many other compliance-related practices, tools, and policies we use and have implemented that have served us well. Some examples include: maintaining a strict policy prohibiting the sharing of income or commissions earned; our marketing focusing primarily on the products as opposed to the opportunity, leading to less risk of improper lifestyle or income claims and a very robust customer to promoter ratio; using an automated system, as well as a manual auditing system, to scour social media and the web for any non-compliant posts, and using non-compliant posts as an opportunity to reach out to Promoters to provide 1-on-1 training; utilizing an abundance of targeted training videos; sending continuous and timely compliance communications to the field.
We have incorporated these practices for many reasons, both business-oriented and for legal/regulatory considerations. For the purposes of this article, there are two primary regulatory risks that we are attempting to mitigate through the use and implementation of the above practices.
First, our conservative policies, training and proactive compliance program help to minimize the likelihood of illusory income claims and improper lavish lifestyle claims, which are a major focus of the FTC. It is imperative that individuals not be misled by marketing, requiring transparency and clarity regarding the opportunities available and the likelihood of success.
Second, because there are no fees, quotas or required reselling, any potential harm to individuals is substantially minimized. If, after joining Le-Vel, a person decides the company is not for him/her, the individual can leave without any dollars spent outside of their personal product purchases. From the standpoint of a regulator, this inquiry—what harm do individuals incur—is very important in determining whether action should be initiated.
Aligning your business fundamentals and regulatory program with those two aspects in mind:
1. Minimizing improper claims and ensuring transparency regarding the opportunity
2. Minimizing any potential harm to participants
—not only mitigates regulatory and legal risk, it is also an excellent business practice, encouraging business sustainability and long-term growth.
Three New Compliance Practices
Given my view that regulatory scrutiny will increase in the future, we decided that the aforementioned steps, policies, and practices should not be the end of the equation and greater safeguards were required. As a result, we have taken many steps to mitigate regulatory and legal risk over the past 18 months. Three such substantial steps are detailed below.
Social Media Disclosures
Stemming from a comprehensive internal review, we implemented a new policy mandating that Promoters include a simple and conspicuous disclosure when posting about the rewards available to Promoters.
This social media disclosure contains a link to our Income Disclosure Statement (“IDS”). The IDS sets forth average income, likelihood of hitting certain ranks, time it takes on average to hit certain ranks, likelihood of achieving certain rewards, and more for two sets of Promoters:
1. Any Promoter who orders product
2. Team building Promoters
In short, when an individual sees a post showing the success of a Promoter in achieving a certain reward, the accompanying disclosure clearly and accurately provides such an individual with the information necessary to understand the likelihood of achieving that reward, as well as a simple and accurate understanding of the overall opportunity.
We were unsure if the field would take to this policy right away. However, adoption has been incredible, in large part because we explained the purpose of the policy and showed them how this not only protects their businesses but will also help them further connect with consumers through greater transparency. We found that being open and transparent with our field, rather than simply setting the policy without explanation, was unequivocally the right choice.
Although this policy was a bold step, after countless hours of discussion, we knew it was the right path forward. Individuals must know the chances of achieving success and qualifying for specific rewards so that they can make an educated decision whether or not to participate. This policy ensures such transparency and openness. Consequently, I believe industry-wide adoption of such a policy is in the best interest of individual companies, as well as the industry as a whole.
IDS Review Added To Sign Up Process
The second step involved a change to our sign-up process. When an individual comes to Le-Vel.com to enroll as a Promoter, they must first view our IDS and affirm that they reviewed it. As a result, individuals will see black and white data regarding average earnings and the likelihood of receiving certain rewards before deciding whether or not to join Le-Vel. Further, it allows us to show, if necessary, that individuals were not only given access to such information but did review this information prior to joining Le-Vel.
This is a simple and easily implemented practice that adds meaningful value from the standpoint of transparency.
Promoter Certification Program
The most effective compliance programs are ones in which the field buys into the program and understands the details, the purpose, and the benefit of the program and specific policies. With that in mind, Co-CEO Jason Camper envisioned the use of an engaging and interactive Compliance Promoter Certification Program, which we recently kicked off. This Program, which utilizes quizzes and other interactive tools, reinforces our policies and moves our Promoters from passively reading policies and passively viewing compliance videos to proactively thinking through important compliance issues and their solutions.
The field has embraced the Program, proudly posting about being certified and showing off their certified “badges.” Given that compliance is generally not considered the most exciting of topics, it has been great to see both our executive leadership and the field view this important area as a valuable and essential piece of the company.
There is no exact formula or perfect compliance and legal program. A successful program emerges from a combination of factors, including thoughtful decisions based upon facts available, the assistance of experts on the subject, and company-wide acceptance that a proactive compliance program is critical to the long-term success and sustainability of the business.
While there is no perfect formula, there are two pieces that must be present.
It is imperative that companies seek to:
1. Manage and minimize lavish lifestyle/income claims and provide transparency to potential and current participants
2. Ensure the business is not operating in a manner that causes harm to participants in the business.
Consequently, companies must implement solution-based policies, tools, and practices with an eye towards these two fundamental issues.
Regulatory compliance is good business. It is right for both customers and potential customers, for individuals participating in the business, for companies, and for the industry as a whole. I know others see it the same way, and I appreciate companies that look to lead in this area.
I suggest that, as leaders of this industry, we continue to be focused, continue to listen, and continue to be willing to make changes when necessary. A company should not make wholesale changes simply for the sake of making them, but, rather, we should all be prepared to wholeheartedly embrace change when major shifts occur and the writing is on the wall. In other words, proactivity is key and putting one’s head in the sand is not the proper course of action.
If we lock arms and focus on moving forward together, the world and regulators alike will see what we already know—lives are being enhanced on a daily basis and our industry and the companies operating the right way serve as the vehicle for such incredible transformations.Drew Hoffman is the current President and Chief Legal Officer of Le-Vel Brands.