Multilevel Marketing Has a ‘Goodwill Ambassador’ in the Classroom

Channelle D. James teaches a seminar about companies that do good in the world — fight poverty, slash pollution, empower women. For the class’s capstone project, her students learn about the wonders of the Cocoa Exchange.

The company, which sold fair-trade chocolate, worked with a nongovernmental organization to extend small loans to female cocoa farmers in West Africa. Stateside, it was also improving the lives of the American women (and men, in smaller numbers) who signed up to sell its products. Sellers would get all the information they needed to start a small business, along with a flexible schedule, leaving time for other projects — like attending classes. “There are some kids who put themselves through college” with companies like the Cocoa Exchange, one seller tells James in an interview her University of North Carolina at Greensboro students were assigned to listen to.

The seller had tips for success: Look constantly for opportunities to sell. Surround yourself with positive people. Recruit others to join. “I found that that’s really the key,” the seller said, “not to always look at my sales numbers, but to look at my people’s numbers. How can I help them raise their ship?”

That’s multilevel marketing in a nutshell. Companies like the Cocoa Exchange distribute their goods and services through sellers who are treated like independent contractors. To expand their sales force, multilevel-marketing companies depend on sellers to recruit others, and sellers can earn money based on the sales of their recruits, of their recruits’ recruits, and so on. It’s a controversial business model that critics have assailed as rife with fraud and a potential cover for illegal pyramid schemes.

In James’s teaching material, the Cocoa Exchange and its multilevel model seem feasible and empowering, not controversial. That portrayal was paid for by a group that stood to benefit: the Direct Selling Education Foundation, the charitable foundation of multilevel marketing’s industry group.

The DSEF works closely with the industry group, the Direct Selling Association, with no pretense of independence for the foundation. They share the same president and office in Washington, D.C. On tax forms, they list each other as related organizations. To create her Cocoa Exchange teaching module, James used part of a grant that came about through the foundation’s academic fellowship program, which aims to shape the way the industry is portrayed in college classrooms.

Critics of the program say the fellowship program crosses a line, laundering questionable business practices through the ivory tower by presenting them in a favorable light to impressionable students.

But several fellows said that’s not the case. So did Gary M. Huggins, the Direct Selling Education Foundation’s executive director, who says the motivations of the group are aboveboard. Its leaders want to make sure direct selling “is taught accurately.” The industry is also interested in improving its “performance and competitiveness” by consulting with researchers.

He denied that the foundation sought to burnish the reputation of multilevel marketing or of the broader business model that encompasses it, direct selling. “If it’s well understood how the model works, how the channel works, all of that takes care of itself,” he said. He said the foundation’s leaders are not trying to influence curriculum. “Aspirationally, of course, as we create content, we hope they use it,” he said. “No fellow is required to use any particular content or teach the content.” James, who was a fellow, created her Cocoa Exchange module using a combination of her own research and materials from the Direct Selling Association. Her funds came from a colleague’s $30,000 grant to develop curriculum incorporating direct selling.

Over the last several years, through the fellowship program and other Direct Selling Education Foundation initiatives, the multilevel-marketing industry has been making quiet inroads into academe. Marketing researchers use data the foundation helped them access. Business-school classes host multilevel-marketing executives as guest speakers, and explore multilevel companies as case studies. Students learn about “direct selling” not as potential pyramid schemes, but as a route to market like any other.

In business schools, deans and leaders welcome industry connections, and students want to see real-life examples in action. Multilevel marketing is eager to provide those examples. And some instructors are just as eager to accept them.

History suggests that, from the beginning, the goal of the Direct Selling Education Foundation has been reputation building.

Executives from the Direct Selling Association started the foundation in 1973, in an era when activists and the federal government were looking more critically at business. Contemporary surveys “revealed endemic consumer distrust” in direct selling. The foundation’s creators “had one objective in mind — to improve the image of Direct Selling in the mind of the public,” Lawrence B. Chonko, a professor of marketing then at Baylor University, wrote in 1999, in the Journal of Personal Selling and Sales Management. (At the time, the journal received funding from the Direct Selling Education Foundation.)

The foundation pins the start of its academic fellows program to 2016, but something like it has existed since at least the days of dial-up. In his paper, Chonko described himself and a handful of other professors as “fellows,” who served on the executive board of the foundation and brainstormed about its future. They were academics who cooperated openly with the industry. It was good for students, too, Chonko wrote. They got real-life knowledge and examples of “how to do business.”

These days, online and in tax filings, the foundation is plain about its aims. “We’re able to shape the knowledge, shape the dialogue as to what direct selling is all about,” an executive says in a YouTube video about the fellowship program. “We strive toward a global marketplace that understands and embraces direct selling,” one handout says. According to the foundation’s latest tax forms posted by the Internal Revenue Service, it is “the goodwill ambassador of the direct selling industry.”

The multilevel segment of that industry has long attracted skepticism. Some companies and sellers have promised false riches — “unlimited income opportunity” and “financial freedom” — to recruits. The most recent available independent data suggests most joiners won’t make a dime. In 2017, the AARP surveyed a representative sample of 601 Americans who were in multilevel marketing at the time of the survey or had participated in the past. More than 90 percent said they had intended to make at least some money. (The rest joined solely to get product discounts.) Yet 74 percent reported breaking even or losing money. An additional 19 percent made less than $10,000 a year.

Huggins said the AARP survey isn’t representative of the industry. Numbers published by the Direct Selling Association state that only a small minority of people involved with association member companies are truly seeking an income and that the majority of joiners are “preferred customers” only, who want to buy products at sellers’ prices. The official industry line is that many participants are only looking for “supplemental income” or “Christmas money,” and most don’t expect to make money at all.

Nevertheless, some government regulators think many joiners are seeking to support themselves and could use stronger protection. The Federal Trade Commission is considering whether to regulate more strictly the potential-income claims that multilevel marketers and other entities make. “Unfair and deceptive earnings claims underpin some of the worst and most financially ruinous scams Americans face,” Rebecca Kelly Slaughter, one of the FTC’s five commissioners, wrote in a recent notice of proposed rulemaking. “Pyramid schemes, phony investments, and multi-level-marketing all exploit people’s hopes — for financial stability, for a chance to improve their lives — with false promises.”

Stacie Bosley is an associate professor of economics at Hamline University who has served as an expert witness on behalf of the government in prosecutions alleging specific multilevel-marketing companies are pyramid schemes. She said the Direct Selling Education Foundation once reached out to her about supporting her research, and she declined. She feared such a relationship would potentially bias, or present the appearance of bias, in her scholarship. Since then, she’s watched the growth of the fellowship program with unease.

“Every time an example pops up of how the DSEF has supplied materials or other resources for the classroom,” she said, “I’ve never seen an instance where I felt comfortable with what I’m seeing.”

She felt that way about James’s Cocoa Exchange module, too, after The Chronicle had shared it with Bosley. “The students are given a curated set of information that seems to have the intended purpose of promoting the industry,” she said.

James said she didn’t see herself as “promoting” multilevel marketing. “Examining an industry, I see that,” she said. In a followup email, she wrote that when she has taught the module previously, students “discussed the pros and cons of the business” in class. She sees multilevel-marketing participants as entrepreneurs, and she and her students understand that many entrepreneurs’ ventures flounder. This fall, she planned to add readings on the AARP survey and a Washington Post story about the chocolate industry’s decades-long failure to eliminate child labor in the cocoa harvest.

James looked for a well-functioning company to feature. The Cocoa Exchange was a subsidiary of an established retailer, the Mars candy company. It had gotten fair-trade certification for some of its products. The seller James talked to seemed happy and successful. All that suggested to James that direct selling “can be something that does work.”

The Cocoa Exchange appears to no longer be in operation. As part of the unit, James’s students have tried to figure out why, but they haven’t found anything conclusive. James plans to teach a version of the module this fall.

The cooperation between academics and the multilevel-marketing industry has ramped up since the formal founding of the Direct Selling Education Foundation’s fellows program in 2016. As recently as December 2021, the foundation’s website listed 239 fellows, the large majority of them faculty members at U.S. colleges. The Chronicle interviewed more than a dozen fellows, including 11 on the record. The foundation has since taken down its list of fellows.

The fellows’ comments give a sense of the impact the fellowships have had on their teaching and research. Some taught about multilevel marketing with little discussion of the debate about whether the structure may be harmful to joiners. Others, wittingly or not, ended up fluffing the foundation’s public network of academics. A few mentioned concrete benefits to students from their fellowships.

Most appear not to have received funding from the foundation, although some had travel to industry conferences paid for. Individual grants mentioned on CVs were small, ranging from $2,000 to $20,000.

Among the fellows who had the most nuanced approaches were those who had seen their students join direct selling. (Cutco, a knife company, seems perennially popular with students.) These fellows acknowledged multilevel marketing’s risks, but unlike some critics, tended to believe that the sales model could work, if structured ethically. They said they took seriously the responsibility of advising students about whether, and what companies, to join. They drew personal lines. One fellow, for example, would use foundation data for research, but not the teaching material.

“I really, truly believe that one of our roles, if not duties, as academics, is to be open-minded about different business models,” said Jonathan Ross Gilbert, an assistant professor of marketing at Northern Arizona University. “The onus is on us to make sure we fully understand and can speak intelligently to those different approaches.”

Other fellows were more straightforwardly enthusiastic.

Christopher D. Hopkins, a professor of marketing at Auburn University, found the fellowship to be “a tremendous resource.” The foundation recently helped him access proprietary company data for a research paper, which he thought enabled it to be accepted by a more prestigious journal than would otherwise have been possible. He also appreciated the industry news the foundation sent him, which he used in class. “It gives you some credibility as a professor because you’re in touch with industry and what industry’s doing,” he said.

Asked whether he addressed consumer-protection complaints about multilevel marketing in his teaching, he said he was told that the foundation “doesn’t deal with pyramid schemes.” Advocare is a Direct Selling Association member that in 2019 settled charges from the FTC describing it as a pyramid scheme. The government has sued another member, Neora, calling it an illegal pyramid scheme; that suit continues. Advocare did not admit to wrongdoing as part of its settlement, and Neora has denied wrongdoing.

One of Hopkins’s colleagues in the marketing department, O.C. Ferrell, was an even bigger cheerleader. “Anything we can do to help the direct-selling industry,” Ferrell said.

Ferrell directs Auburn’s Center for Ethical Organizational Cultures, and is a member of the Direct Selling Education Foundation’s academic advisory council. In his view, multilevel marketing is not so bad, with strengths and challenges, just like any other industry. Citing the Direct Selling Association’s numbers, he said that it’s a myth that most joiners are looking to make a living, and so are harmed when they can’t.

He considers the industry to be well regulated. For instance, it’s illegal to recruit people into multilevel marketing by telling them that they can earn big, if the average joiner doesn’t. The Direct Selling Association funds an independent self-regulatory council that calls companies out for bad behavior, and can refer cases to the Federal Trade Commission. But critics say it’s not enough.

“It’s my job as a professor at a state university to provide outreach and assistance to any company, organization, industry trade group that contacts me,” Ferrell said. “We don’t feel an obligation to everyone that contacts us, but we’re open to communication.” He said he’d never turned down anyone, except a request to be part of a case involving Purdue Pharma, the maker of OxyContin.

A few professors are fellows despite appearing to have gaps in their knowledge about the industry or whether they’re even a fellow at all.

Some fellows who are listed on the website said they had limited interactions with the Direct Selling Education Foundation, or were active long ago and didn’t know they were still fellows as of December 2021. Interviews suggest there are no concrete criteria for becoming a fellow, and no clear way for a fellowship to end. A few fellows said there was an “expectation” or “commitment” to teach about direct selling in their classes, which Huggins, the foundation’s director, disputed. Sara Cochran, a clinical assistant professor of management and entrepreneurship at Indiana University at Bloomington, said she fills out an annual survey on what foundation materials she used and in what classes. The foundation wants to know, she said, “how many students were exposed to this?” But for others, any contact with the foundation seemed to be enough to be listed.

Maintaining generous criteria for being listed, and keeping the list long, could help the foundation’s reputational goals. “If you have got a bunch of faculty all over the country who are members, it does give some sort of credibility to your organization,” said Rajesh Srivastava, a professor of marketing at Middle Tennessee State University who was surprised that he was still listed before the “fellows” page was taken down. He joined in January 2018, and a fellowship is supposed to last only three years. He has had little contact with the DSEF in the interim. Huggins said the point of the list was to allow likeminded academics to find each other.

Not unlike in multilevel-marketing selling and recruiting itself, where sellers often tap their social networks, the long, loose ties of reputation and obligation also seem to have helped keep the foundation’s list robust. Nine of the 18 fellows with whom The Chronicle spoke at any length, including those who spoke on background, said they joined because a colleague in the field had recommended them. Seven said their recommender was someone senior to them, such as a mentor or department head.

Some fellows seemed to have little knowledge of the foundation. Some didn’t know it had the explicit objective of improving public perception of the industry. At least one fellow did not understand until later that direct selling encompassed multilevel marketing, and several didn’t know what proportion of Direct Selling Association companies are multilevel. (Some direct-selling companies operate at a single level, where sellers can’t earn on multiple levels of recruits. But a Chronicle analysis suggests the large majority of Direct Selling Association members are multilevel.)

The presence of big names in marketing, like Ferrell, reassured some that they didn’t need to look deeper. “You take a recommendation from a colleague who you trust and whose opinion you value,” said Thomas Pittz, an associate professor of management at the University of Tampa. “Then you sometimes get real busy. Seems like there’s a lot of scholarly organizations out there. And there’s certainly an incentive, to be totally frank, for folks in our industry to put more lines on their CV. I don’t know that that was my motivation in this particular case, but yeah, through the recommendation and the ease of the process, I certainly didn’t fight it and I didn’t do my due diligence.”

Now, Pittz said, he wants to check the foundation’s funders and hear criticisms of its associated organizations before deciding whether to continue as a fellow. Until then, he was withholding judgment. “Maybe it’s a great organization,” he said. “It could very well be. I don’t want to disparage it.”

Many disciplines deal with thorny questions around industry influence. In business schools, where students are looking for industry interactions and industry jobs after they graduate, there’s a friendlier climate for businesses of all types, including multilevel marketing.

“We encourage robust experiences with industry,” said Caryn L. Beck-Dudley, president of the Association to Advance Collegiate Schools of Business, an accreditor of business schools. Beck-Dudley previously served as dean of three different business schools and is not a DSEF fellow. In her mind, one of the advantages for students who earn a business degree is getting exposed to a wide array of industries, which will inevitably include those that, like multilevel marketing, have been caught in wrongdoing and slapped with regulation. Banking also comes to mind.

When considering what industry partnerships are appropriate, Beck-Dudley thinks in terms of what the partner wants in return for access to students. The things that the Direct Selling Education Foundation wants — like having fellows teach about direct selling, use the foundation’s curricular materials, and treat multilevel marketing as a mainstream business model — are “pretty standard,” she said. Many associations come to business schools seeking similar benefits, and perhaps all, to some extent, are looking to polish their reputations. It’s up to professors to teach subjects in a balanced way.

Red flags that Beck-Dudley watches for are heavier-handed attempts at influence, such as explicit terms conditioning grant money on what’s taught or what research results look like, or attempts to keep rival firms or organizations from visiting campus.

Several fellows said they never felt pressure from the Direct Selling Education Foundation about their teaching and research. Some academics, however, remain leery.

William W. Keep, a professor of marketing at the College of New Jersey’s school of business and a longtime critic of multilevel marketing and the Direct Selling Education Foundation, sees wrong in every aspect of the fellowship program. “To have a bunch of senior faculty members in the same discipline, explicitly joining an organization with the goals of advancing industry, and in the process gaining some professional benefit, directly or indirectly?” he said. “I find that very problematic and I find it raises issues of academic integrity.

“These people have walked away from their responsibility as social scientists and teachers.”