A lot of distributors (and quite a few company executives) wonder whether Policies and Procedures are really necessary.  To the extent that some of these individuals might acknowledge the need for them, they are quick to qualify their approval by explaining – “The Policies and Procedures should not be more than four or five pages long.”

So, does any MLM company really need Policies and Procedures?

If the answer is “yes,” is it best to limit them to four or five pages?

As you are probably aware, the Policies and Procedures are a part of the Distributor Agreement.  In fact, they are invariably incorporated into the Distributor Agreement.  Instead of presenting prospective Distributors with a 20 or 30 page document, most companies elect to utilize a one page Distributor Application and Agreement.  The legal issues that cannot be addressed in the Distributor Application and Agreement (about 98% of them) are left for inclusion in the Policies and Procedures.

Contractual documents, like the Distributor Application and Agreement and the Policies and Procedures exist to accomplish several things.  First, the Policies and Procedures specify the rights and obligations of the parties.  The number of issues that can arise between a company and its distributors can literally be in the hundreds.  For example, what rights do distributors have to use the companies’ trademarks, copyrights, and other intellectual property?  What rights to they have regarding advertising, marketing, and other promotional activities? 

Well-drafted Policies and Procedures go beyond dealing only with legal matters.  They also address many of the administrative or operational issues that arise between distributors and companies.  How should product returns be handled?  How are renewals handled?  How should complaints be treated?

Additionally, Policies and Procedures provide three different types of protection.  First they protect the company and its distributors from legal and regulatory risks.  They do so by prohibiting activities that could lead to possible violations of consumer protection laws like anti-pyramid laws, franchise or business opportunity laws, or food and drug laws.  The wrong-doing of a handful of distributors can jeopardize a company’s ability to do business, and thereby, jeopardize the business of every distributor.

Second, the Policies and Procedures protect the company and its distributors from non-regulatory legal risks.  There are many activities that do not raise regulatory issues, however, they can pose significant threats to companies, distributors, their downlines, and their businesses.  An example of this type of risk using a downline or genealogy report to solicit a distributor’s entire downline to another company.  Such activities do not violate consumer protection laws, and thus, regulators have no interest therein.  However, these activities do pose substantial risks to distributors.

Finally, the Policies and Procedures protect distributors from legal risks posed by other distributors.  Again, these issues do not raise any regulatory issues.  Nevertheless, they can pose substantial risks to distributors.  A good example of this is an anti-cross-line policy.  One of the fundamental tenets of direct selling is that downline organizations must be inviolate.  The only party in the position to protect downlines is the company.  An anti-cross-line policy prohibits cross-lining (the solicitation of distributors from one downline organization within the company, to a different downline organization within the same company).  An effective anti-cross line policy will also provide sanctions and remedies to correct with cross-lining.

With respect to an appropriate length for the Policies and Procedures, we believe it takes between 30 and 35 pages to adequately address the breadth of issues that normally arise with companies and distributors.  One of our largest clients had what we would consider a very appropriate set of Policies and Procedures – about 30 pages.  Understandably, the company got a great deal of pressure from its distributor leaders about their desire for something considerably shorter.  Although we strongly advised against it, the company elected to “abridge” their Policies and Procedures.  They shrank from 30 pages to 5 pages.  With a year, the company had returned to its former 30 page Policies and Procedures.  It found that the “abridged” version simply was not workable.  It did not address all of the issues that needed to be addressed, and it forced the company to deal with these unaddressed issues in a very ad-hoc fashion.

In the final analysis, comprehensive Policies and Procedures that address the complete panoply of potential issues that arise relative to companies and distributors really are necessary.  If a company fails to address all of the potential issues on the “front-end” (namely, it the Policies and Procedures), it will be forced to address them on the “back-end.”  “Back-end” treatment of these issues unfortunately often ends up being very ad-hoc and can yield inconsistent (in not arbitrary) results. 

The bottom line is – comprehensive Policies and Procedures provide the very highest levels of protection, help level the playing field, and promote consistent and even-handed treatment for everyone.