Shock, Denial, Anger, Depression and Acceptance — You may recognize these as the stages of grief; However, in our industry, I have observed these exact same stages when company owners and leaders experience the effects of a major compliance issue.
The Direct Selling model has many benefits, one of the top being the ability to market products quickly and efficiently. Conversely, one of the biggest challenges is the unique considerations and regulations about advertising and marketing — that are imposed from F.D.A. and F.T.C. — that create frustration, and confusion in our industry.
While we do not have a clear legal answer to many of the questions in our industry, what we do know is that companies with a strong Compliance Department fair a heck of a lot better than those who do not. Though this lens, there are some great reasons you can get your team excited about Compliance.
In this post, we will explore 8 reason why a compliance department may be just the thing your company needs to elevate your brand experience in the New Year!
Building a robust Compliance Department protects your Company, your brand, your products, your distributors, and customers.
- A compliance department moves the Company from reactive to proactive in detecting and preventing misconduct.
- This protection will help you sleep better at night because you know you have an active Compliance department who is setting the ethical tone at the Company, making it easier for distributors to make the right choices.
2. To Uphold Policies:
Policies and procedures (P&P) are an essential part of every direct selling company, and necessary for any type of accountability of enforcement activity.
- Policies are essential because they address critical issues, such as what constitutes acceptable behavior.
- Utilizing policies and procedures during decision-making ensures that companies are consistent in their decisions.
- A Master Intake Log is established to track the coordination of reported violations, sanctions, and results of communication with Distributors. Correct documentation is essential for Compliance Department protocol. As a result, your Company will have a written history of enforcement Federal Trade Commission regulators look for when evaluating Compliance procedures.
Don’t just borrow a set of policies from another company. That’s like borrowing a Compensation Plan. You don’t honestly know what you’re getting. There are key sections to Polices that must be customized to align with your culture and Company. Be honest, will you read a 44-page document designed for another company to know what their violations and sanctions are? Policies designed for your Company from an M.L.M. Expert Attorney can make a big difference.
3. Reduces Time & Stress:
Owners, corporate staff, and even distributors spend countless hours addressing compliance issues. It is NOT the role of the owner, the owner’s spouse, or a distributor to take on Compliance and all it entails. When an objective, neutral party runs Compliance efficiently and adequately, you delegate that headache to others, and they update your staff and field leaders regularly. When Owners try to perform these duties, it creates conflict in the field and is ineffective.
4. To Monitor the Field for Compliance:
A robust Compliance Department must include a comprehensive and documented monitoring system. Your Company is responsible for monitor the field for non-compliant activities. With social media pervasive in almost everyone’s life, part of your Compliance Strategy MUST include Social Media Management. Social Media is known as a place where regulators go to look for compliance violations, so don’t think what goes online disappears. It does not. Evidence proves Social Media is a hotbed for non-compliant activities.
5. Establishes Sanctions:
The Compliance Department assesses issues and implements sanctions or consequences for the actions of their distributors. It would be smart to review what penalties have been established in your Policies before a Compliance issue comes up.
Sanctions can include:
- Monitoring a distributor’s conduct over a specified time -period to assure Compliance.
- Issuing a written warning or requiring a distributor to take immediate corrective action.
- Imposing a fine that may happen immediately or withheld from future commission payments.
- Withholding commission payments until the Distributor provides adequate assurance of future Compliance.
- Suspension from participation in Company events, rewards, or recognition.
- Suspension of his or her Distributorship and position for one or more pay periods.
- Involuntarily terminating the Distributor Agreement and position.
- Any measure the Company deems feasible and appropriate to resolve injuries caused by the Distributor Policy violation or contractual breach.
- Legal proceedings for monetary or equitable relief.
Each Company can define its policy sanctions based on their culture and what is considered reasonable consequences for their violation. Some companies even determine what violations hold what sanctions long before any actions are necessary. It is up to the Company to equally issue sanctions based on behavior. In some cases, when a more serious one is violated, it may be worthwhile to have your MLM Expert Attorney advise the most legally advantageous sanctions for the situation.
It may be hard for an owner to hand out sanctions to their highest leaders or distributors who have become good friends over the years. This is another compelling reason to have a Compliance Department.
6. Provides a Process for Escalation:
A Compliance Department indicates the Company has Compliance Standard Operating Procedures (S.O.P.s,) which clearly outline the process for handling a violation from start to finish. The S.O.P.s show the exact path of how an offense is treated. The violation intake process provides for initial documentation of the issue using the 5 W’s (what happened, when, to who, where, and if know, why). As much information as possible is collected regarding the issue or case.
Once a case has completed the intake phase, it is vital to gather evidence supporting the case. Do NOT take the word of the reporter as gospel. A capable Compliance team will research and request supporting evidence. Evidence can be an email, a messenger, a letter, a text, or a phone recording. Anything that substantiates the claims is required. The last thing you want is a “he said, she said” situation.
If a violator has been notified three times or more, and does nothing, it may be time to escalate the case to your legal team. It’s prudent to escalate cases involving fraud, theft, criminal behavior, extreme poaching, and more. The Compliance Department is always the entity that escalates the process resulting in enforceable consequences.
Escalation to an attorney requires a case history to provide documentation. Give your attorney all the information you’ve collected on the case in writing. The Compliance Officer will stay with the case. If it escalates, they remain in the loop and continue providing a written report for the attorney.
7. To Educate:
Once a Distributor clicks the “Agree” button pertaining to Company Policies, they rarely think about those Polices again. In the eyes of the regulators, the Company is responsible for providing ongoing Compliance training to the entire field team.
Virtual compliance training is becoming increasingly popular as a necessary part of your Compliance strategy. More and more companies elect to provide a customized compliance-training course for distributors. Many require the successful completion of this course prior to being authorized as a Distributor. The secret to Compliance in the direct selling industry is monthly Compliance Training for all distributors. Randomized testing is also highly recommended.
Training can come in a variety of methods. When a new Distributor signs up, a welcome letter can include a sentence about Compliance responsibilities and introduce the Compliance Course. When the new Distributor enters their website back office for the first time, a pop-up may appear stating the Compliance Course is a requirement to become a Distributor.
Some companies provide a “click here video” that outlines the Company’s compliance policies. The necessary information is taught – no URLs with the Company name, which violates the Company trademark; no emails with the Company name in it unless it is part of the self-replicated name.
Some essential things taught during the initial phase of Compliance training is how to recognize and avoid making claims. You will want to ensure the field be educated about the perils of drug claims, income claims, poaching, and cross-recruitment activities before it becomes an issue.
Training should be divided into snippets taught in bite-size pieces. It’s easier to remember, and it provides an opportunity to reveal why the violation is critical to the importance of a viable organization when Distributors understand why this training is much more effective.
8. Prepares and Maintains Compliance Documentation:
In the case of a regulatory investigation, preparation is vital. The department must keep accurate, easily retrievable documentation which provides evidence of an active working Compliance Department. It is inappropriate to have Policies and Procedures in place, but if your Company does nothing to enforce them, it’s almost worse than having no Policies at all.
In conclusion, we’ve identified numerous reasons for having a “robust” Compliance Department. The Company that can easily prove the existence of an active Compliance Department is in far better shape when a regulator knocks on the door. Your active Compliance Department is critical. Don’t overlook the power and safety of having one.
Thank you for allowing me to share with you some of the reasons why a working Compliance Department is essential to your ongoing success. If you have any questions on how to effectively set up your department up, I’m here to help.
Donna Marie Serritella, Compliance Expert
Author of the Compliance Management System and Manual, Donna Marie has provided Compliance Department education to Network Marketing companies worldwide. Donna Marie educates and mentors Compliance Managers on best practices to maintaining a Compliant Network Marketing company in today’s volatile regulatory times.
For more information, please see: www.directsellingsolutions.com