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November 02, 2009

DSA News

The Changing Face of Ethics: Highlights on Changes to the DSA’s Code

by John Webb


For any trade or professional association, a code of ethics plays an important role. It creates an environment in which members understand and respect the need for a reasonable set of guidelines for conducting business. Self-regulation is a powerful commitment that speaks to many audiences internally (members and business partners) and externally (regulators, legislators and the public at large). While not wielding the power of law, codes of ethics and their specific provisions may prevent unnecessary government action if the standards are viewed as appropriate benchmarks with a high level of compliance.

Having a code of ethics for an industry or profession is quite common, but the mere existence of a set of written statements means little unless it can adapt to changing times and is enforced effectively.

The Direct Selling Association (DSA) Code of Ethics is no different. Since its adoption in 1970, the code has been expanded and amended to adapt to new marketplace standards and address emerging issues. The code is under constant review by DSA staff and members, but this year, the DSA’s Ethics and Self-Regulation Committee undertook a comprehensive review of the code with an eye toward updating a number of provisions to become compliant with the World Codes of Conduct. The World Codes are promulgated by the World Federation of Direct Selling Associations (WFDSA), a global body of direct selling associations around the world.

At the recent quarterly meeting of the DSA board of directors, a slate of changes and enhancements to the code were unanimously approved. These important changes bring an even higher level of credibility to companies that abide by the code. For these provisions to have the full effect, each member company must review and understand the new code requirements, making internal changes as appropriate. These changes also increase the importance of the provision requiring companies to educate their sellers, who must put many of these code provisions into practice.

So, what do these changes mean for DSA member companies? The answer is, quite a lot.

The amendments address a range of provisions within the code of ethics, including recruiting practices, promotional literature and training and other materials.

Here are the highlights:

Statements Regarding Other Companies: Member companies are specifically prohibited from making misleading comparisons of another company’s direct selling opportunity, products or services. All comparisons must be based on objectively substantiated facts.

Promotional Materials: Promotional literature, advertisements and mailings may not contain product descriptions or other information that is false, deceptive or misleading. All literature must also contain the address and telephone number of the direct selling company and may include contact information for the independent salesperson.

Training and Materials: Independent salespeople may not market supplemental materials that are inconsistent with the member company’s policies and procedures. Further, the materials must be reasonably priced and cannot be a required purchase. The materials must also have a return policy consistent with that of the company itself.

Sales Receipts and Cooling Off:
In the case of sales made in a non-face-to-face manner, such as via mail, phone or the Internet, a written order or receipt must be provided either in a printable or downloadable form via the Internet or with the initial order. Consumers must also be offered a clearly written description of the cooling-off period, permitting cancellation of an order within three days for a full refund of the purchase price.

Inventory Loading:
Companies must reasonably ensure that sellers who receive compensation for downline sales are consuming, using or reselling the products they purchase. In other words, salespeople should not be purchasing product for the sole purpose of qualifying for their downline commissions.

Fees: Any fees charged by a company to become a salesperson must be directly related to the value of materials, products or services provided in return. This provision does not prohibit a company from making a profit on their sales kit or other fees, but it would prohibit, for example, a $300 sales kit that includes nothing more than a set of pamphlets worth $20.

Extraterritorial Effect:
U.S. DSA member companies operating in a country where they are not a member of the local DSA—or where a DSA does not exist—must comply with the World Code to the extent it is not inconsistent with U.S. law.

These changes will serve to enhance direct sellers’ commitment to ethical sales practices. In today’s consumer-driven marketplace, being a member of DSA and ascribing to the code gives consumers yet another reason to be confident they are purchasing products from a reputable company.

If you have any questions about the code of ethics, its amendments, or any other issue concerning the DSA Ethics and Self-Regulation Committee, please contact the DSA’s Associate Legal Counsel John Webb at 202-416-6410 or via e-mail at jwebb@dsa.org.


John WebbJohn Webb is Associate Legal Counsel and Senior Director, Government Relations, for the Direct Selling Association.