“When I took over in 2003, Herbalife was a multilevel-marketing company that sold nutrition products. Now it’s a nutrition company that uses multilevel marketing as its distribution channel.”
– Michael O. Johnson , CEO of Herbalife
Mark Hughes’ Era
Herbalife , one of today’s largest direct selling enterprises, was launched in Los Angeles by Mark Hughes, a high school dropout and a juvenile delinquent. The year was 1980 and Mark Hughes was 24. His main product was Formula 1 , which at the time came only in vanilla flavor. The company shortly became a success. Sales was $2 million in its first year, $10 million the next year and $58 million in 1982. Company’s sales reached $300 million by 1985.
In 1982, Canada was opened as the next market. Herbalife went public and was listed on the NASDAQ in 1986. The same year, Jim Rohn , a well-known business philosopher and motivational speaker, teams up with Herbalife.
By the year 2000, Herbalife was already operating in more than 40 countries all over the world. But Herbalife’s 20th anniversary year was also marked by a tragic event. Its charismatic founder Mark Hughes was found dead at the age of 44 in his mansion in May 2000. The findings showed that the reason was the mixing of overdose of alcohol and an antidepressant Mark had been using. Alongside the loss of this visionary leader who ran the company for 20 years, one can also imagine this event’s negative publicity impact on the company that had been championing health and well-being.
Following the death of Mark Hughes, Herbalife entered into a period of chaos. This included a legal war around Alex Hughes, Mark’s 13-year-old son who was the sole beneficiary of the estate. This era would be remembered with “allegations of adults lining their pockets at the teenager’s expense, of sexual harassment of his mother, a former beauty queen, and of lengthy personal vendettas ”.
In 2002, Herbalife was delisted from the NASDAQ, making it once again, a private company after 16 years. Herbalife was acquired by an investor group led by the equity firms Whitney & Co. and Golden Gate Capital. The investors paid $685 million for this acquisition. Herbalife’s revenue in 2001 was $1.7 billion.
Under Michael O. Johnson’s Leadership
CEO Michael O. Johnson joined the company from Disney in 2003, where he headed international operations. He was not initially very keen when he was approached by a headhunter, he says. “I basically hung up on her,” Johnson recalls . “Like many people, I had an impression of Herbalife that was not correct.” But the investors manage to convince him and he takes the offer.
Herbalife goes public in December 2004 through an IPO to be listed on the New York Stock Exchange, this time. Share price was announced as $14.
Under Michael O. Johnson leadership, Herbalife went through a very successful period. Below table shows that from 2003 to end-2015, company revenue has increased about four times, operating and net income even more than that. Herbalife’s sales growth in the first three quarters of 2016 was up 2.2% on a year-over-year basis.
Michael O. Johnson admits it was not so easy for him in the beginning. “It was very, very rough,” he says while speaking about his transition. “There were a lot of issues I didn’t understand. A language was spoken that I didn’t get.” The product he decides to launch without consulting the distributors fails and there was a mistrust on the field towards his leadership.
Apparently he overcomes these but his days later on in his office was also far from being easy. He had to tackle quite serious issues, to mention a few here:
Apart from the legal problems, Michael O. Johnson and his team also had another important issue to deal with: Bill Ackman’s attacks. To remind, Bill Ackman was an activist investor who bet on the stock market that Herbalife shares would not only go down, but would even be valued at “zero”. According to Ackman, this would soon be realized because Herbalife was the “best-managed pyramid scheme in the history of the world.” His bet was estimated to be worth $1 billion and since he made his infamous 3-hour presentation in December 2012 announcing his short-position, Ackman did everything possible to convince the public that he was right. And this war has not ended yet. A documentary film titled “Betting on Zero” is expected to hit U.S. theaters in less than two months .
Herbalife announced in November 2016 that Michael O. Johnson would leave the CEO office and transition to the role of executive chairman of the company. Current COO Richard P. Goudis would succeed Johnson as the CEO, effective as of June 1, 2017.
Herbalife is now the largest public direct seller by market capitalization and the second largest by revenue, after Avon. Herbalife share was valued at $14 during the IPO in 2004. It is worth close to $60 nowadays.
Johnson leaves the office with numbers showing a success. However, Herbalife is not without challenges. It will first of all, need to make significant changes in the way it conducts business as the FTC settlement requires. There are also other issues like the recent bribery allegations in China.
Now, Herbalife employees and field members will have to overcome such challenges and take the company to the next level. This time, it will be without Michael O. Johnson in the office whose charisma and vision inspired so many of them.
Hakki Ozmorali is the Principal of WDS Consultancy, a consulting firm specialized in providing services to direct selling firms. He is also the publisher of The World of Direct Selling, global industry’s leading weekly online publication. He is an experienced professional with a strong background in direct sales. Hakki was the first corporate professional in the Turkish network marketing industry. His work experiences in direct selling include Country Manager roles at Oriflame, Herbalife and LR Health & Beauty Systems, and Regional Director, North America role at Lifestyles Global Networks.