Like more evidence is needed on the AQ business model, but I located this memo from Jerry Scriven, an IBO from the UK, addressing worrisome trends within the business from five (that's right, five!) years ago. Very similar to what Orrin had been bringing to the corporation's attention. It pretty well speaks for itself. Enjoy! PRIVATE & CONFIDENTIAL 6 May 2003 Re: John Brockman Director, Worldwide Business Opportunity Amway Corporation Ada, Michigan USA Dear John When I received your response of the 15th April to the document I presented to the IBOA Board (“Saving Amway in Europe”) I was deeply shocked. I felt like the look out on the Titanic who runs back to tell the senior officers that he’s seen an iceberg, only to be met with a long explanation of why icebergs could not exist this far south. This response was an exercise in denial and misinformation. To not be aware of the reason for the decline is an important sector of the business (Europe) is a matter of great concern. To try and deny the evidence when it is brought to your attention is worse. In a nutshell the observations that Pat Gregory and I had brought up were these. The business in most of Europe has declined because: 1. IBO gross income (bonus) has decreased in real terms 2. IBO net income has decreased drastically in real terms 3. That there was a real difference in US and UK incomes for the same effort Your response totally ignores some major (presumably unwelcome) areas. In others it reaches totally misleading conclusions. I am responding separately to these points in an appendix attached, but the only conclusion I can reach is that the Company Managements’ approach to these major problems is to deny or minimise them. It’s a bit like the Chinese Government and the SARS virus……or the South African Government and the AIDS virus. How can IBO’s be confident that the Company is going to solve the problems if it spends so much energy denying them? I was, however, relieved to receive your second response of the 2nd May. In that you clearly say that Amway Management “understands Amway income has not kept up with the cost of living and/or the average wage increase” and you suggest meeting to further discuss the issues we’ve raised. Good. When the Titanic safely makes it to port we will set up a focus group on iceberg research!! Kind regards, Jerry Scriven Copy: Doug de Vos Jim Payne Pat & Greta Gregory Mark Beiderwieden Bris & Kerry Bovill Simon van Zuydam Trevor Lowe Andy Norman Colin Jones Fred Harteis Jerry Meadows Kanti Gala Tim Foley Don Held Appendix Comments on Amway’s response to “Saving Amway Europe” 1. Performance Bonus schedule over the last 17 years. You state, “In the past 17 years, the BV at the 21% level has increased 127% (9,260 vs. 4,075). At the same time, annual income has also increased 127% (11,668 vs. 5,135). The BV is equal to IBO cost.” While this is true it is by no means the whole truth. If you look at these results in the context of what else is going on in the world you come to a less positive conclusion. You omit to mention that in the same period wages increased by 139%. With same effort an employee’s income increases by 139%. To get a (smaller) 127% increase an IBO had to increase their effort by 36%. 2. Two graphs. These two graphs are spurious. Whilst an employee can live off his wage an IBO incurs costs to generate a bonus. He/she has to live on his/her net income. This real issue has been deliberately ignored. To add insult to injury, not only have costs been totally ignored, but his/her bonus has not kept pace with inflation, even though he/she has to put in 36% extra effort to remain at the 21% level. 3. The UK compared to Europe for IBO’s at the 21% level. This table is irrelevant. Knowing that we are theoretically doing marginally better than Portugal and marginally worse than Greece is unimportant. How many people are actually qualifying at the 21% level compared to 10 years ago – a fifth? A tenth? The ultimate test of a business opportunity’s viability is the market place. Amway is not passing the test in the UK and Ireland. Or, for that matter in Greece, Portugal, etc. 4. Product Pricing You state “In most competitive businesses, when the number of units sold remains the same for 16 years, total income will decrease. This is also true for an Amway Business.” I find this conclusion bewildering and worrying. Do you really believe this? It’s simply not true. A hot dog salesman can maintain the same standard of living selling the same amount of hot dogs each year. This is true of any business. You also state “there are only two ways to increase IBO income: i) Raise prices ii) Increase effort” This is simply not true. This is thinking well inside the box. I can think of at least one other way of increasing IBO incomes. You state “In summary over the past 17 years effort to reach the 21% level has increased 36% while IBO income at the 21% level has increased 96% using only Dish Drops as an example.” This is positioned as good news. It isn’t! For comparison the average employee’s income has increased by 139% in the same period for no extra effort. 5. Annual Income This section is deliberately misleading. You state “The difference between “Qualified Volume” and “National Volume” in the US is 3%. This means that North America has very little advantage over the UK when it comes to using National Volume vs. Qualified Volume. North America gets 3% more volume.” I find this statement absolutely incredible. Firstly, I raised the issue of Diamond bonus. In your response you quote differences in Emerald bonus. Secondly, you correctly inform us that the difference in Diamond bonus paid in the States if you changed from full National volume to Qualified volume would only be 3%. I wasn’t highlighting, however, the low level of Diamond bonus in the States, I was highlighting the low level of Diamond bonus in the UK. In the UK maintaining Qualified volume as the criteria for calculating Diamond bonus could reduce it by 80% in the UK. Hence our conclusion, “if a US Diamond earns $10,000, a UK Diamond would earn $1,340 on the same volume” still stands. This is a scandal and if the European press got hold of this fact could cause the Company major embarrassment. I certainly wouldn’t try and answer it as you have above. John, when I was in Grand Rapids you immediately accepted that the use of Qualified volume greatly disadvantaged the UK and had possibly major implications for Australia in the near future. Why does your written response contradict what you said to me on the day? Conclusion: Taking the response as a whole it reads more as a ‘cover-up’ than a genuine attempt to respond to the issues. Until I received your second response I thought preparing the report “Saving Amway Europe” with Pat Gregory had been a waste of effort and my trip to the States a costly waste of time.