A business model is claimed to be a pyramid scheme if its operations are considered fraudulent. Further, for most multilevel businesses, there exist a thin line for an investor to know if a business is legitimate or otherwise because in both marketing activities involves recruiting new members to sell the goods ( Ferrell& Fraedrich, 2016) . This text, therefore, discusses why the Herbalife compensation model was accused of being a pyramid scheme, the differences between a legitimate and a pyramid scheme and how Herbalife business has demonstrate social responsibility.
Herbalife has faced allegations that claimed it illegitimate. These claims were initiated by an activist investor William Arkmen who claimed that his company had investigated the firm for a whole year, and using 342 slides he demonstrated the accusations. Some of the accusations laid out include: The company targeted vulnerable immigrants and Africans who had low incomes and aggressively recruited them, the firm `s nutritional clubs were harmful to the community since they were too costly to be run and the owners lost more than they had bargained for ( Ferrell& Fraedrich, 2016) .
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The difference between a legitimate and a pyramid scheme business can be analyzed as follows: For the former, no amount is required to enter into a contract while for the latter, a person has to pay a huge amount of money in order to sell a company`s products. Also, while a person earns money from the sale of products to consumers for the legitimate business, in a pyramid scheme money is earned when one recruits other sellers. Further, genuine trade produces high quality goods while pyramid offers low quality goods. It is an obligation to earn from investment by sale of goods in a legitimate model while for a pyramid, internal consumption of goods is a given choice ( Carroll 2009).
Herbalife Company has continued to demonstrate social responsibility by upholding ethics since it considers the firms image as the greatest asset. Indeed, employees are encouraged to interact fairly with all the people in the firm and external actors. Further, legalities and boundaries are set regarding gifts in order for employees to differentiate between gifts and bribes. Also, the firm engage in philanthropic programs where it support children at risk by offering funds and voluntary activities ( Ferrell& Fraedrich, 2016) . Finally, the firm aims at ensuring the wellness of its internal stakeholders by ensuring that they are health and fit in all dimensions.
In conclusion, it is clear that there are major differences between legitimate and pyramid scheme businesses that each investor should take consideration before taking a deal. Further, based on the social responsibilities of the Herbalife, it is with no doubt that it should be considered a legitimate business model.
References
Carroll, A. B. (2009). The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders. Business horizons , 34 (4), 39-48 .
O.C Ferrell, John Fraedrich, (2016).Business Ethics: Decision making and cases. Retrieved from https://www.google.com/search?q=multilevel+Marketing+Under+Fire:+Herbalife+Defends+Its+Business+Model&tbm=isch&tbo=u&source=univ&sa=X&ved=2ahUKEwjpkd-z3_HcAhVJMt8KHXQJCagQsAR6BAgEEAE&biw=1366&bih=662
