6 Steps Critical to Mitigating Environmental, Social and Governance Risks
By: Brent Kugler, Guest Contributor
Because many companies favor keeping transfer upon death policies in their consultant agreements, it is critical that these policies are drafted in a manner to not conflict with other key provisions in the agreement.
As important as it is to ensure that the transfer upon death provision does not conflict with or negate language in the consultant agreement, it is just as important for companies to avoid mistakes when facilitating the transfer of the business to the heir or beneficiary.
Many—some would even say a majority—of direct selling companies have provisions in their consultant agreements that allow a sales consultant to pass their business to an heir or
beneficiary upon their death. It’s a great marketing tool. How many jobs, professions, or business opportunities allow a worker to pass their hard work and success on to their children or heirs?
By: Robert G. Kreklewetz, Guest Contributor
Canada is often viewed as a natural extension of the American direct selling ecosystem: It has a common dominant language, similar culture, convenient land border and a market of over 38 million people.
While having many similarities, there are still unique legal and regulatory features that prove to be risk areas for direct selling businesses operating in Canada. But all of this can be easily avoided with the right planning, structuring or advice, including an appropriate “Canadianization” of Plan Documents and overall business strategies.
Below, is a review of five recent Canadian developments that direct selling companies operating (or thinking about operating) in Canada should consider knowing about.
By: Larry Steinberg and William Miller, Guest Contributors
In early 2021, a client of the Buchalter law firm received a notice from California’s Employment Development Department (EDD) that the EDD was conducting an audit to determine whether the client’s independent distributors were properly classified as independent contractors, instead of employees.
Though, over the years, the firm has handled scores of such audits on behalf of its clients, this was the first time the firm handled an audit which targeted a client that used a multilevel-marketing model. What also contributed to the unusual nature of this particular notice is that this client is based outside of the State of California.
While the client has no employees in California, and only a handful of non-distributor independent contractors, it does have thousands of independent distributors based in California.
The ostensible purpose of the EDD audit was to determine whether the client was properly paying all of its state payroll taxes, but the company and its counsel immediately understood that if the EDD decided the company’s distributors were misclassified employees, such a finding could have broad-ranging implications—including the possibility of a flurry of tagalong litigation, such as class actions and representative claims under California’s Private Attorney General Act
Kerry Tassopoulos, Guest Contributor
During 2021, the challenges to direct sellers were frequent and intense: the COVID-19 pandemic, the Great Resignation, the Federal Trade Commission’s (FTC) actions, continued criticism from academics and the media. Now that 2022 is in full swing, it is time for direct selling companies to regroup and decide what action they can take to exercise more control over their business and reputation.
No Escaping Legislative Impacts
To focus on the opportunities and threats, one area of opportunity is a company’s relationship with elected officials. Whether they like it or not, every direct selling company is impacted by the laws and regulations enacted in Washington, D.C., and state capitals across the United States.
The list of issues is endless—independent contractor status, pyramid scheme legislation, regulations on product ingredients, import/export challenges, tax issues, etc. But by being more engaged when dealing with government officials and applying the same principles of successful business, direct sellers can achieve better outcomes for their companies and their distributors.
By: Brian Brown, Sr.
Risk is ever-present. It lives and breathes in relation to your people, product, and processes. Regardless of your time and effort to dismiss it away, it will survive. The objective reality isn’t to eliminate risk, it’s to mitigate it.
That’s nothing new for 2022. Every sound business leader is constantly running the numbers. They’re taking calculated risks, making moves to best navigate a challenging array of opportunities and threats.
When it comes to mitigating risk in sales tax compliance, all bets are off on the rates and processes remaining the same everywhere, for everything. It’s just not going to happen. Something somewhere is always being revised. The cards are stacked against direct selling organizations that have to navigate a particularly challenging environment of thousands of jurisdictions, unique product taxability, and W9 and 1099 document management, among the dozens of other compliance complexities.
Regulators stayed busy in 2021, reminding direct sellers of the unique legal challenges faced by the channel throughout the year. Combined with the ever-increasing importance of addressing ESG and fraud risks facing the entire corporate landscape, we have selected the key insights and advice from our knowledgable contributors to keep SSN’s readers ahead of the curve. Please visit SocialSellingNews.com for the complete articles.
By: Colt Passey
Historically, businesses have focused on loss prevention as part of their fraud strategy and want to reduce the impact of fraud on their profit and loss statements. Ideally, they would be able to avoid fraud, but most organizations accept a certain level of fraud-related loss, albeit reluctantly.
Implementing strict fraud prevention practices and multi-factor authentication has become standard practice. However, fraud prevention can also focus on trust and safety by not insulting customers—for instance, by incorrectly identifying legitimate interactions as fraudulent and making interactions intolerable through repeated high-friction challenges. While this statement refers to customers, the same applies to distributors.
By: Donnelly L. McDowell (with content from John E. Villafranco)
With the FTC’s fight on the Hill for new 13(b) authority ongoing, two recent enforcement actions signal that the Commission plans to use its civil penalty authority in novel ways with significant implications for the direct selling industry.
In the wake of the Supreme Court’s unanimous decision in favor of AMG Capital Management—which stated that the FTC lacks authority to obtain monetary redress under Section 13(b) of the FTC Act—then Acting Chair Rebecca Slaughter vowed to lobby Congress in response.
Her goal was to “restore and strengthen the powers of the agency” and consider new ways to obtain money from companies through enforcement. Two months after the AMG decision, the
FTC continues to make good on those promises.
By: Miguel Pena
Corporate sustainability isn’t a quick fix or a one-and-done initiative. It is a valuable practice for companies and a source of strategic insights for risk managers and decision-makers.
Over the past decade, environmental, social and governance (ESG) risks have risen to the top for enterprise risk-management teams.
Mitigating these risks, sometimes known simply as “corporate sustainability,” is playing a greater and greater role in a company’s success.