How Herbalife's Gospel of Health and Wealth Fuels a Billion-Dollar Deception
If Whole Foods and Joel Osteen got together and had a child, it would probably look something like Herbalife. The nutrition company takes the transformative promise of natural products, mixes it with the ethic of the prosperity gospel, and then sells it through a model that looks suspiciously like a pyramid scheme.
That’s a profitable cocktail. Legally speaking, it’s also pretty sketchy. Herbalife embodies a kind of spiritualized optimism that has thrived in modern America. But its latest brush with regulators also illustrates the fine line between the lawful and unlawful sale of hope.
Herbalife makes shakes, protein bars, vitamins, tea concentrates, and supplements, mostly focused on weight loss and muscle gain. Instead of marketing directly to customers, the company bundles its products and sells them to individual distributors, called Members, who then turn around and sell them to friends, relatives, strangers—whoever they can find.
For the past couple years, Herbalife has been trying to convince the Federal Trade Commission that this is multi-level marketing—not a pyramid scheme. Drawing that line, though, is a fickle and complicated affair.
Herbalife’s travails started in 2012, when the activist investor Bill Ackman took on a one billion dollar short on Herbalife, betting that their stock would tank. Then he set about trying to destroythe company. Ackman made an Herbalife takedown website, supported anti-Herbalife groups, and managed to get the FTC to open an investigation into Herbalife’s sales model in 2014.
It may have been all for naught. The conflict surfaced again last week when Herbalife’s CEO told investors that the company was nearing a settlement with the FTC. Those comments boosted Herbalife’s share prices and renewed speculation about whether Ackman’s bet would pay off.
Since its inception in 1980, Herbalife has survived an investigation from the state of California, a Senate inquiry, the dramatic death of its charismatic founder, and plenty of bad press. It wouldn’t be surprising if it survives Ackman, too.
But even if things are legally on the level, a certain kind of razzle-dazzle is baked into Herbalife’s model. If we were feeling generous, we could call this razzle-dazzle a fantasy. Alternatively, we could call it a deception.
At some level, everyone in the weight loss business is selling the prospect of personal transformation. Herbalife, though, is doubly in the transformation business. It sells the prospect of bodily metamorphosis to its customers—and it sells the prospect of financial ascent to its salesforce. Of the two groups, the Members (who are also encouraged to use the products) might be the more important. After all, they’re the ones who actually write Herbalife’s checks. Fundamentally, the company sells people the possibility of making a sale.
This pitch lends itself to a distinctively American gospel of rebirth, which is what Herbalife founder Mark Hughes seemed to have realized. Hughes started the company in 1980, when he was 24 years-old. As the Los Angeles Times explained in a 2001 article, Hughes intended “ to start his own operation that would combine the Eastern philosophy of herbal medicine with the vitamin and mineral technology of the West.” By 1985, the company had $423 million in sales.
Hughes gave motivational talks to his sellers. These talks took on the aura of sermons. They “were part revival meeting, part Richard Simmons-style pep talk, part the Apostle Paul finding his vocation as a missionary,” wrote the Los Angeles Times.
Videos of these speeches still float around YouTube, where seemingly pirated compilations like “Timeless Wisdom Of Mark Hughes DVD Collection – Volume 2 – Foundational Concepts” rack up tens of thousands of hits. Hughes’ rhetoric is relentlessly focused on the future, and profoundly democratic—no matter what your background, Hughes insists, it is possible to get rich. Watching Hughes, it is easy to understand why Herbalife has thrived among immigrants. “It’s not important where I’m at right now. It’s where I can be in the future that’s important,” Hughes said in one speech. “That has really been the miracle of Herbalife.”
At times, his vision grew to encompass the world:
Let me tell you something, gang. If we want to make a better world, it starts with us. It isn’t gonna happen at the election, it isn’t gonna happen through our government. It’s gonna happen with people like ourselves taking charge with our own lives, taking charges for not only our health, our financial situation—all of us together…we can all make this a better world for people to live in.
The basic tenets of Hughes’ pitch will sound familiar to anyone who has seen a prosperity gospel preacher, experienced The Secret, or even watched certain TED Talks: attitude determines outcomes. Success is possible regardless of circumstances. Personal well-being can transform the world.
These are ideas that thrive along the borderlands of commerce and spiritual rebirth. And through Herbalife, they seemed to have reached an unusually sad, profitable fruition. The company itself pulls in $4.5 billion in sales each year. But very few Members make any real money off the products, as is apparent from the company’s compensation disclosures, which look like, well, a pyramid. There are a few big sellers on top, and a lot of people at the bottom with very little revenue. As for the products themselves, they rely on health claims backed by sketchy nutrition studies, pseudoscientific language, and endorsements from researchers—including the Nobel laureate Louis Ignarro—who receive sizable checks from Herbalife.
Hughes himself was the Jimmy Swaggart of nutrition: big charisma, big influence, big fall. He was arrested in 1996 for driving with a blood alcohol level of 0.22. And after making a fortune selling wholesome living, Hughes died in 2001 from a toxic cocktail of anti-depressants and alcohol.
The truth is, it’s perfectly legal to sell deceptive long-shots to the optimistic and the vulnerable. Just look at the lottery, or the dieting industry, or, for that matter, the world of prosperity gospel preachers, whose claims about the relationship between faith, donations to the church, and personal well-being strike many outsiders as a straightforward, money-motivated swindle. In the business of hope, there’s already very little overlap between the legal and the ethical—and, it seems, little clarity on where the legal marketing ends and the illegal stuff begins.
What’s clear is that dreams are good business. It’s fitting that Herbalife’s current Chairman and CEO, Michael Johnson, along with its president, Des Walsh, are both former executives at the same company: Disney.