Neways, Inc.

views updated

Neways, Inc.

2089 West Neways Drive
Springville, Utah 84663
U.S.A.
Telephone: (801) 418-2000
Fax: (801) 418-2195
Web site: http://www.neways.com

Private Company
Incorporated: 1992
Employees: 600
Sales: $400 (2005 est.)
NAIC: 325411 Medicinal and Botanical Manufacturing

Neways, Inc. is a multilevel marketing company that develops, produces, and distributes personal care products, cosmetics, and nutritional supplements that are free of the toxic ingredients the company says are to be found in everyday products. Critics, on the other hand, say Neways distorts scientific research and engages in scare tactics to promote its products as healthy alternatives. The privately held company has created a distribution network that spans 23 countries. In addition to its Springfield, Utah headquarters, Neways (through subsidiary Neways International) maintains offices in 11 other countries, including Australia, Canada, Germany, Israel, Japan, Malaysia, Mexico, New Zealand, Russia, Singapore, and the United Kingdom.

ORIGINS

Neways was founded by Thomas E. Mower and his wife, Leslie D. Mower. According to company information, Mower was a research scientist. In the 1970s he and his wife launched a commercial chemical company called Nubrite. Leslie Mowers's background, as she told Utah Business, was more less academic: "[Mower] put herself through beauty school and nursing school…. At 18, she began working with the Salt Lake City Police Department on their narcotics squad." In an interview she gave to Icon magazine, Mower said she "trained as a nurse, later as a secretary and then spent two years in make-up artistry." Nubrite, according to Icon, "used harsh chemicals in more than 400 different industrial products, including engine degreasers, which they sold to airports, garages and convalescent centers. Each product was governed by OSHA (Occupational Safety Health Hazard) and inspectors would come in to check if the people mixing the chemicals were wearing gloves, goggles and protective clothing."

After running Nubrite for a dozen years, the Mowers came to a crossroads in their business careers when Tom Mower asked his wife why she needed such a wide assortment of cosmetics and other skin care products. According to Icon, "they looked at the ingredients on the back of the product labels and were shocked to see the same ingredients in Dee's beauty products that OSHA had told them not to get on their employees' skin." This was the event that led the couple to begin researching the ingredients found in personal care products. Company material maintains that Tom Mower came to realize that many of these ingredients "were ineffective and very out of date in relationship to the technological breakthroughs and discoveries that had been made in biochemistry. In addition, many of the ingredients were now found to be potentially harmful to the skin, to many of the internal organs, and to the general health of people using them." According to Icon, "Tom and Dee started making toxin-free products slowly from home, until in 1987 they realized they needed a proper office and manufacturing plant and Dee asked her father for a loan to pay for their expansion."

The Mowers, who were no longer involved with Nubrite and had been using their kitchen table and a shed behind their Fairview, Utah, home, now set up shop in Salem, Utah, to develop their own line of personal care products, sold under the Neways label. To market them, the Mowers chose to pursue a multilevel marketing program, combining direct marketing and franchising, best known for its use by Amway Corporation. Individuals were recruited as independent contractors on a franchise basis to sell the Neways products and also to recruit new franchisees. They then received commissions on the products they sold as well as from the sales of the franchisees they brought into the network. Explaining why the Mowers chose multilevel marketing, company literature maintained, "Conventional advertising is expensive and really doesn't tell anything about the products being sold other than to enhance name recognition and support illusionary cosmetic benefits. Neways felt that word of mouth is the best form of advertising." More so, "By avoiding the outrageous sales and advertising costs that almost all other cosmetic companies bear, Neways was able to pay for the expensive ingredients necessary to give the products the performance people were looking for."

Starting out with hair care and skin products, Neways quickly moved beyond the United States, spreading its network of independent contractors to Canada. "And once NAFTA (the North American Free Trade Agreement) went into effect, pushing Canada into recession," Tom Mower told Success in a 1998 article, "we thought it only natural to expand overseas." According to Success, Neways' first stop was Australia, "which, by virtue of its being English-speaking, allowed the company to transfer its marketing, packaging, and promotional strategies seamlessly. Once established down under, Mower expanded the company's operations into New Zealand and Malaysia, two countries with ties to Australia."

SWIFT GROWTH: 1990–2000

In 1992 the Mowers incorporated Neways, ushering in a number of developments in the 1990s. Also in 1992 the company introduced a line of nutritional products, added distributors in the United Kingdom, and began developing a line of cosmetics, which were unveiled in 1994, sold under the Leslie DeeAnn label. In that same year, the company established itself in Russia, which in turn opened up Eastern Europe. As the business grew, Neways's manufacturing and distribution facility was hard pressed to keep pace, and in 1997 the company completed a major expansion of its Salem operation. It also introduced in 1997 one of its best-selling products, a nutritional supplement called Maximol Solutions. Neways then entered Japan in 1998 followed by the Philippines and Israel. According to what Tom Mower told the press, Neways did about $170 million in worldwide sales in 1997 and $300 million in 1998.

If Mower's numbers were accurate, Neways was indeed a major success story, but the company's rise did not occur without a measure of controversy. In 1993 the company was forced by the Food and Drug Administration to recall a weight-loss product called "Quickly" because it contained potentially dangerous amounts of furosemide, a powerful diuretic that required a doctor's prescription and should only be taken under medical supervision. Neways was also accused of misrepresenting scientific research to scare consumers away from common products and steer them to Neways's "safer" products.

COMPANY PERSPECTIVES

Neways is committed through its worldwide efforts to seek, develop, and acquire the safest ingredients and breakthrough technologies currently available for personal care and health science. Neways further pledges to manufacture and distribute safe, effective and innovative products that address common health concerns. The Neways business opportunity promises Distributors one of the most lucrative compensation plans available in the industry and a standard of Distributor support unparalleled in the world. Neways mission is to enhance the health, wealth and well-being of people around the world.

In 1993 the company supported its claim in a products usage brochure that sodium lauryl sulfate (SLS) and sodium laureth sulfate (SLES), found in shampoos and soaps, had toxic properties and could present dangerous side effects by citing research conducted by Dr. Keith Green, Regents Professor of Ophthalmology at the Medical College of Georgia. According to syndicated columnist and author Paula Begoun, Neways reported, "A study from the Medical College of Georgia indicates that SLS is a systemic, and can penetrate and be retained in the eye, brain, heart, liver, etc., with potentially harmful long-term effects. It could retard healing and cause cataracts in adults, and can keep children's eyes from developing properly." Begoun interviewed Green, who insisted that his work was completely misquoted: "There is no part of my study that indicated any [eye] development or cataract problems from SLS or SLES and the body does not retain those ingredients at all. We did not even look at the issue of children, so that conclusion is completely false because it never existed. The Neways people took my research completely out of context and probably never read the study at all." Moreover, Green told Begoun, "The statement like 'SLS is a systemic' has no meaning. No ingredient can be a systemic unless you drink the stuff and that's not what we did with it. Another incredible comment was that my study was 'clinical,' meaning I tested the substance on people, [but] these were strictly animal tests. Furthermore, the eyes showed no irritation with the 10-dilution substance used! If anything, the animal studies indicated no risk of irritation whatsoever!" Green also said he dropped this line of research and maintained that no follow-up studies on SLS and SLES were conducted by researchers "because the findings were so insignificant."

In the summer of 1993 Dr. Green contacted Neways about its misleading characterization of his research and in September of that year Tom Mower sent a letter to all Neways distributors admitting that its brochure's assertions about Green's research were "either partially or wholly incorrect. We wish to issue a public apology to Dr. Green for the mistakes made in mixing information from different sources which was attributed to him. In the future, please do not refer to Dr. Green and his studies." The matter did not end there, however. References to Green's work continued to appear in Neways's literature and audio tapes, prompting legal counsel, Andrew Newton for the Medical College of Georgia, in 1997 to threaten legal action if the company did not cease citing Green's study. In November 1997 Neways once again sent a letter to distributors telling them to stop distributing company literature using the misinformation and to refrain from using it on their independent web sites. Nevertheless, in 1998 Newton once again contacted Neways, writing, "At first, I was willing to give you the benefit of the doubt that these were the lingering effects of your previous publications, for which you might not necessarily be responsible. However, I was quite alarmed when I visited your web site today (August 26, 1998), and found the exact same false and libelous reference to the Medical College of Georgia…. This must stop."

According to Neways's critics, the flap with Dr. Green was not an isolated incident. A competitor in the natural products field, Melaleuca, Inc., issued a white paper, "Are Your Personal Care Products Safe?," in which it contended that Neways spread rumors about the dangers of common ingredients: "It is easy to understand why they stick to their story—even when authorities like their own 'experts' and respected organizations like the American Cancer Society and the Cosmetic, Toiletry, and Fragrance Association say they are wrong," opined the paper's authors. "They have gained thousands of customers because of their tactics. It has worked for them."

KEY DATES

1987:: Thomas and Leslie Dee Ann Mower begin selling Neways products.
1992:: The company is incorporated.
1994:: Neways enters Russia.
1998:: Neways enters Japan.
2003:: Neways pleads guilty to selling a product containing prescription human growth hormone.
2005:: Thomas and Dee Ann Mower and former corporate counsel are convicted by a federal jury on tax evasion changes.

LEGAL CHALLENGES IN 2000

Although such criticism could be dismissed as the sour grapes of a jealous rival, there was no disputing the legal difficulties Neways and its founders faced in the new century. In 1999 the company began distributing an oral spray called BioGevity, which it claimed could improve sexual performance, lower cholesterol, decrease wrinkle appearance, help reduce body fat, and provide other rejuvenating benefits. FDA investigators discovered, however, that BioGevity contained human growth hormone (HGH), illegal without a doctor's prescription and when misused by adults could lead to cardiovascular disease, nervous disorders, and the enlargement and distortion of facial features. The company sold about 100,000 bottles of BioGevity by April 2000 before pulling the product. Neways was subsequently charged by the government and settled the matter in October 2003 by agreeing to pay a $500,000 criminal fine and forfeiting $1.25 million in profits it realized from the sale of BioGevity from March 1999 to April 2000. A spokesperson for Neways acknowledged the company's mistake in selling a product containing HGH, adding, "We relied on advice from vendors who told us there was no problem."

In the meantime, Neways founders, who divorced in 2000 yet continued to run the company together, became caught up in their own legal problems. In December 2001 Tom Mower and Leslie Mower both were charged with one count of conspiracy and six counts of tax evasion. The indictment alleged that they failed to report $3 million in commission income on their personal joint tax returns for 1992 through 1997 and that they used the unreported income to buy assets such as 1,400 acres of land. Moreover, the indictment alleged that they used false names and Social Security numbers to conceal the income, falsified corporate books and records, used a fraudulent loan document to conceal commission income from Australia, and also placed themselves in an advantageous position at the top of Neways's marketing structure in the United States, Australia, and Malaysia. The Mowers pleaded innocent. In April 2003, a federal grand jury indicted former Neways attorney, James Thompson, charging him with conspiracy and obstructing an IRS investigation. A second conspiracy charge also was lodged against the Mowers, who were accused of working with Thompson to conceal another $1 million in Neways sales.

By this point the Mowers had given up their corporate posts, and in June 2002 Michael Cunningham was named Neways's chief executive officer. Cunningham had been with the company for ten years and had headed the Australian office, Neways's most profitable market. The company continued to prosper despite the legal difficulties facing its founders. In April 2003 Neways opened a new corporate headquarters in Springville, Utah, and the Mowers stood together at the podium for the ceremony. While Cunningham portrayed the occasion as a "kind of a crossroads" for Neways, maintaining that the company had "gone from an entrepreneurial company to stretching our legs and growing and becoming a worldwide operation," he could not escape questions about the charges facing the Mowers. "It's not an issue that we're going to discuss and it has nothing to do with this company," Cunningham told the press. "It's a personal issue with Tom and Dee and it should be left there … we wish them the best."

Distancing the Mowers from Neways was difficult given that some of the hidden funds were supposedly used to fund the building of a Salem warehouse. They couple also continued to travel around the world promoting Neways, and their son, Thomas Mower, Jr., served as Neways's president. In March 2005 the Mowers were convicted by a federal jury of income tax evasion and conspiracy, and Thompson also was found guilty of conspiracy and corruptly impeding the due administration of tax laws. Sentencing was scheduled for June 2005, but was delayed as the Mowers sought to have a U.S. district judge reverse the conviction and grant a new trial. Their motions were denied in August 2005 and, barring a successful appeal, they still faced the prospect of serving time in prison.