Herbalife Ltd., which has spent the last few years absorbing blow after blow from activist investors, litigious shareholders, government regulators and gadfly commentators, is coming back swinging.
Under the direction of former Obama administration aide Alan Hoffman, who was brought on last year as executive vice president of global corporate affairs, the multilevel nutritional supplements marketer has nearly doubled the size of his division, especially on the government affairs side.
The additions come amid a war of attrition with hedge fund manager Bill Ackman, who placed a $1 billion bet against Herbalife, shorting its stock in the belief the downtown L.A. company would collapse after it was found to be a pyramid scheme. It’s a bet that has yet to pay off.
“The reality is Bill Ackman’s campaign against the company definitely forced us to increase the outreach we have been doing only because he was doing significant outreach himself,” Hoffman said, referencing the tens of millions of dollars spent by Ackman. “When looking at $75 million coming against the company, it’s unprecedented. We’re going to do everything we’ve got to do to protect the company.”
Ackman’s New York-based Pershing Square Capital Management started shorting the stock in May 2012, betting that Herbalife shares would plummet.
He launched a website condemning the company the next year and has been relentless in his attacks ever since. Herbalife vehemently denies the allegations and unveiled its own site – about two months ago – criticizing the hedge fund manager.
That delayed response, coupled with the recent boost in staffing at its lobbying arm, raised the question of why it took Herbalife so long to muster its forces.
“I think the company was evolving,” Hoffman said.
Whatever Herbalife is doing to improve its image, crisis communications consultant Sam Singer thinks the time to get ahead of any issues was long ago.
“It is striking that it’s taken Herbalife so long to get to the place where it’s taken this threat as seriously as it should have, not just when Ackman challenged them, but years ago when this was just raised as a general rumor,” said Singer, president of San Francisco public affairs firm Singer Associates Inc.
But companies sometimes don’t rush to shell out cash on a problem until absolutely necessary.
“Oftentimes companies don’t spend money on a thing like lobbying and PR until they really start to feel the pain,” said Ivan Adler, lead government affairs consultant for Arlington, Va.-based executive search firm the McCormick Group. “Once they do, the flood gates open because the opportunity costs of losing are so high.”
Escalating battle
The stakes have been raised in the ongoing tussle with Ackman.
In addition to an initial inquiry from the Securities and Exchange Commission and an investigation launched last year by the Federal Trade Commission about Herbalife’s business practices, the company recently revealed it had received an inquiry from the Justice Department.
Among other challenges the company has had to deflect was a suit brought last year by an investor who alleged he lost money when Ackman’s claims that the company was a pyramid scheme sent its stock price tumbling. A federal district court judge ruled earlier this year that the allegations brought by the investor, who was joined by a pair of pension funds, weren’t sufficient evidence of fraud and dismissed the suit.
It hasn’t been smooth sailing for Ackman either.
He told CNBC in March that he changed the form of his short position by early 2014 because he was getting squeezed by fellow billionaire activist investor Carl Icahn and others who were buying up big positions in Herbalife.
Ackman’s team is also being scrutinized. He acknowledged earlier this year that federal investigators had subpoenaed a contractor working for him on the campaign against Herbalife, investigating possible market manipulation of the supplement maker’s stock.
Representatives of Pershing Square declined to comment.
The intensified scrutiny from law enforcement might have motivated Herbalife to double-down on well-connected hires, said Brent A. Wilkes, national executive director for Washington, D.C.-based League of United Latin American Citizens, which has criticized the company’s business practices.
“I think they’ve been doing it all along, bringing on new folks from the very beginning,” Wilkes said. “As they get a bit more aware of where the law enforcement threat is coming from, they’re bringing on specific people with ties to those law enforcement entities.”
He added that he thinks the real battle isn’t with Ackman but with the feds. (Wilkes said his organization had accepted a donation from Pershing Square but subsequently returned the money.)
Other motivations
Hoffman said efforts to bolster Herbalife’s government relations and community outreach teams were not entirely related to the fight with Ackman, citing broader trends playing out with other large corporations that are taking outward-facing departments like communications, government relations and philanthropy and putting them under one roof to collaborate better.
Whether or not the company’s expansion of its corporate affairs group is a direct result of the protracted battle with Ackman, the company is certainly investing heavily in its public image.
Hoffman joined Herbalife last summer, having been hired away from his post as senior vice president for global public policy at PepsiCo Inc. Before Pepsi, he served as deputy chief of staff to Vice President Joseph Biden, deputy assistant to President Barack Obama and in external relations for Rand Corp.
At Herbalife, Hoffman’s team includes public policy, corporate communications, government affairs, community relations and philanthropy. He’s added two divisions, state and local affairs and member engagement, with a third public-policy division in the works.
“I think there’s an appreciation of the need to make sure certain people are better informed about who the company is and what we do,” Hoffman said, emphasizing that his team’s strategy is based on educating the public and transparency.
“Like any company, you’re going to face regulatory and legislative issues, and you want to have a voice by having folks in D.C. and other countries and capitals who are able to have a say and input at the state and local level,” Hoffman said. “More and more companies are figuring out the importance of engaging with the media and thought leaders and NGOs and trying to get ahead of any challenges or public-policy problems.”
Though Herbalife did not disclose how much the expanded corporate affairs team is costing the company, the firm spent more than $3 million on lobbying efforts last year, up from $2 million the prior year, according to the Center for Responsive Politics, which tracks U.S. lobbying dollars.
Last year, the highly regulated consumer product companies that Herbalife identifies as its peer group in regulatory filings spent about $370,000 on average on lobbying. The next closest spender was Hershey Co., which dropped $1.63 million.
The company’s attempt to integrate its community and government affairs efforts could be seen as part of a broader movement that’s redefining lobbying from just “shoe leather on the hill,” said Sue Zoldak, a public affairs specialist with Levick Strategic Communications in Washington.
“Grass-roots outreach to think tanks, the media, all those things are now being integrated into this bigger umbrella term of lobbying,” Zoldak said. “Lobbying in person, via Twitter, emails, having a website; those are all part of the bigger picture now and required everyday activity.”
As to whether all this work is paying dividends, Hoffman said it might be too soon to gauge that.
“I think we measure in the long term by how we are impacting people’s lives, how we are improving the communities in which we operate,” he said.
