Former Los Angeles Mayor Antonio Villaraigosa has been named Senior Advisor to Herbalife's Chairman and CEO, Michael O. Johnson and the company's board of directors. On Thursday, Herbalife released a statement that "Villaraigosa will provide counsel on strategic business development and global community outreach." The Los Angeles-based global nutrition company praised Villaraigosa as someone who knows the company well.
"He understands our nutrition products as well as the way our business model works and the value it can bring to communities," Herbalife Chairman & CEO Michael Johnson said in a statement. "His years of experience leading a major U.S. city give Antonio a unique understanding of the opportunities Herbalife can bring to people across the globe."
Brent Wilkes doesn't think the former mayor knows all that he should. Wilkes is the national executive director of the League of United Latin American Citizens (LULAC), and he says he was "surprised and disappointed" when he learned the news.
"We think the world of Antonio Villaraigosa - he's an incredible statesman," Wilkes told KPCC. "Every time I've ever dealt with him, he seemed to have his heart in the right place on most of the important issues impacting our community. It's just surprising to me how he would have gotten involved with this company. I imagine he wasn't fully briefed on the downside of Herbalife."
Wilkes group, LULAC, is one of a handful that say Herbalife misleads people about how they can make money selling its products. LULAC, the Hispanic Federation, and the National Consumer's League have sent letters to the Federal Trade Commission asking for an investigation into the company's business practices. Congresswoman Loretta Sanchez of Orange County has also expressed concern.
Herbalife markets its products via "independent distributors." On its web site, prospective distributors learn of a "business opportunity" in which they can "earn what [they're] worth; help people live healthier, active lives, spend more time with family and friends; work from home, the beach...wherever!" The structure of distributors and their relationship to Herbalife can be confusing to outsiders.
Herbalife calls itself a multi-level marketing operation, but some consumer groups as well as some investors have called the business model a pyramid scheme. Latino groups like LULAC and the Hispanic Federation are concerned because at least 60 percent of the company's distributors are Latino.
"The truth is, for the vast majority of people who become distributors, they will lose money," said Wilkes of LULAC. "Only about one half of one percent of the distributors who've been lured into this business by promises of rags to riches stories actually make $25,000 [per year] or more."
Hedge Fund manager Bill Ackman drew a similar conclusion last December and took a billion-dollar short position against Herbalife. But Herbalife has defended its business model vigorously, saying it operates with high ethical standards and is constantly reevaluating its practices. In a February statement refuting reports the FTC was investigating the company, Herbalife said:
Since its founding in 1980, Herbalife has positively impacted the lives and health of consumers. For a direct selling company of our size, we have had a relatively low number of complaints to the FTC. However, we take every one of them seriously and stand by our record of doing right by our distributors and all consumers of our products.
In the statement announcing his engagement with Herbalife, Villaraigosa called the company "a solid member of the Los Angeles business community and a strong presence within the Latino community since the company was founded here in 1980." Villaraigosa praised the company for choosing to locate its corporate offices in the LA Live complex in downtown Los Angeles and its association with the LA Galaxy and the Herbalife LA Triathlon.