Crisis Ripples Rock Herbalife’s Boat

Legal actions against an entirely different company create crisis management scenario for vendor

You don’t always have to do something wrong to land in crisis, just ask nutrition supplement vendor Herbalife, whose shares dropped a worrying 11% as a result of the U.S. Federal Trade Commission’s actions against a completely different organization.

Here’s the story, from a Financial Times article by Dan McCrum:

Shares in Herbalife began falling during the morning when investors learnt the Federal Trade Commission was to hold a news conference later in the day to reveal action against a pyramid scheme which at that stage it did not name. They rebounded when it emerged that the commission was targeting Fortune High Tech Marketing, a Kentucky direct seller which is unconnected with Herbalife. Later shares began to fall again.

Herbalife does operate by selling to a network of individuals who then re-sell product to friends, relatives, etc., which makes it easily associated with pyramid schemes, and in fact the company has some vocal detractors who claim that’s exactly what it is.

This is a great example of a known risk. Much as companies that drill for oil can expect to face troubles related to spills, or doctors can anticipate the possibility of a malpractice suit, Herbalife should be well-prepared to cope with the possibility of being confused for, or even prosecuted as, a pyramid scheme.

Known risks are actually some of the easiest to prepare for in terms of crisis management. You often have the luxury of examining similar situations in the past, and can evaluate what worked and what didn’t for others. Of course, many known risks have potentially volatile outcomes, and as such the stakes are high, so take your advantage and work it!

Put the most solid plans possible into place, practice them thoroughly, and you can leave your mind free to focus on business at hand knowing you’ve done all you can to prepare for the possibility of trouble.

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