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Not Taught at Harvard: Multilevel Marketing

December 19, 1995

When it comes to endorsements, there are few more sterling names to invoke than Harvard, as in Harvard University and Harvard Business School.

But when the endorsement has no basis in fact, Harvard gets its hackles up. Of particular concern these days is the increasing number of claims that the business school endorses multilevel marketing, in which distributors earn commissions on products that they or their recruits sell. ``If the registrar’s office had a dollar for every call we’ve had over the years over whether Harvard Business School teaches multilevel marketing or has studies on it, we could throw a very nice Christmas party,″ reads one internal business-school memo. ``This claim is harder to kill than a dandelion.″

What was once a nuisance now looks like grounds for potential defamation or libel lawsuits, says Frank J. Connors, a Harvard lawyer. Some handouts, for example, now claim _ falsely _ that Harvard has conducted ``extensive research in the network marketing industry,″ and that the business school calls multilevel marketing ``a once-in-a-lifetime opportunity.″

These claims come at a time when multilevel marketing appears to be on the rise in the U.S. About 6.3 million people are engaged in direct sales, with the vast majority affiliated with multilevel companies, says the Direct Selling Association, an industry trade group in Washington. That’s up from about 4.7 million salespeople in 1990.

Although many reputable companies such as Amway Corp. and Mary Kay Corp. are based on multilevel marketing, many other multilevel operations have turned out to be scams. And while multilevel executives insist that the 50-year-old industry is becoming more ethical, the currency given the Harvard claims indicates that big problems remain. A look at how these claims began and proliferated tells much about the industry and shows how a bit of erroneous information came to be widely cited _ and readily accepted _ as absolute truth.

Many of the current myths about Harvard and multilevel marketing stem from a 1984 article widely used to recruit distributors, multilevel experts say. The article, by multilevel consultant Beverly Nadler, states without attribution that Harvard teaches multilevel marketing. (It also states that The Wall Street Journal once said that ``between 50 percent and 65 percent of all goods and services will be sold through multilevel methods by the 1990s.″ The Journal never reported this statement.)

Ms. Nadler couldn’t be reached for comment. But in her 1992 book, ``Congratulations, You Lost Your Job,″ she admits that she didn’t verify some information in her original article.

Harvard Business School marketing Prof. Robert J. Dolan worries that people may join multilevel marketing companies because they mistakenly believe Harvard condones the practice. ``You hate to see your name used in a way that you haven’t approved,″ he says. ``Then you think of all the people who are being led down a path to some financial distress.″

One who was attracted to multilevel marketing by the purported Harvard connection is Neita Cecil, a newspaper reporter in The Dells, Ore. Interested in becoming a distributor for a long-distance telephone company that sells its service through multilevel marketing, Ms. Cecil says she initially hesitated _ until an acquaintance told her ``that Harvard calls this a once-in-a-lifetime opportunity,″ and she also heard that Harvard Business School taught and promoted multilevel marketing. ``That’s what hooked me.″

Last summer, Ms. Cecil became a part-time distributor for the long-distance company, which she declines to identify. In September, she decided to use the Harvard connection as a recruiting device. But when she called the business school, she discovered that she had been misled about its position on multilevel marketing.

``I was let down,″ Ms. Cecil says. Nevertheless, she intends to keep her distributorship. ``I guess I still think it’s a good opportunity,″ she continues.

Some multilevel executives say the decentralized nature of the industry, whose sales depend entirely on independent contractors, makes it hard to control overzealous distributors. But critics contend that multilevel businesses could easily deter salespeople from telling tall tales. The same sophisticated systems that the industry uses to communicate new-product information and selling tips also could squash rumors about Harvard’s links to multilevel marketing, for example.

``Some (multilevel) companies don’t mind people making false claims,″ says Towru Ikeda, president of World Telecom Group Inc., a Mountain View, Calif., multilevel concern that sells calling cards. In October, one World Telecom distributor anonymously put out a widely distributed voice mail message about alleged ``Harvard″ research on multilevel marketing.

World Telecom says it pulled the message immediately because it violated company policy about false statements. Mr. Ikeda says he thinks that some multilevel companies may feed their distributors false information.

Excel Telecommunications Inc., a Dallas long-distance provider with multilevel marketing, says that it suspends or dismisses distributors who make false claims. The company says it also must approve any ``custom″ marketing materials created by distributors.

Not all sales representatives adhere to Excel’s policy, though. Harvard officials say they received brochures last month from an Excel distributor that touted nonexistent Harvard research on multilevel marketing. Indeed, as printed material has replaced mere hearsay, ``the nature of the misstatements has changed,″ says Mr. Connors, the Harvard lawyer. ``They are even more egregiously inaccurate.″

Still, some multilevel proponents can’t see what all the fuss is about. ``I’m sorry that Harvard feels besmirched by being associated with multilevel marketing,″ says John Milton Fogg, editor of an industry newsletter in Charlottesville, Va. After all, he says distributors eagerly accept _ and perpetuate _ the Harvard rumor because of the luster of the Harvard name.

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