Herbalife has promoted Stephan Paulo Gratziani to president, as the network marketing giant moves forward on a succession plan for the eventual departure of CEO Michael Johnson. 

Third time’s the charm 

Johnson has already stepped down as CEO more than once. He first took the role in 2003. In early 2017, the company announced that Rich Goudis, also a long-time Herbalife executive, would replace Johnson as CEO during that year. Johnson retained his board chairman position. 

That succession plan was derailed, however, in early 2019 by a scandal involving Goudis. A recording made of a conversation some years earlier surfaced in which Goudis was heard advising another Herbalife employee to ignore rules about providing perks, which was seen as a violation of anti-bribery laws that govern the behavior of American firms in foreign markets. 

Herbalife agreed to pay a $123 million fine to settle the case. Goudis was ousted, and Johnson took up the CEO reins again. 

In early 2020, Johnson stepped aside to allow Dr. John Agwunobi, the company’s former chief medical officer and a former admiral in the U.S. Public Health Service Commissioned Corps, to take the CEO’s chair. However, in October 2022, Agwunobi was ousted during a period of falling sales and Johnson again took over as interim CEO. 

Related:Herbalife says new digital platform, renewed in-person events will return company to growth

Gratziani was appointed the company’s chief strategy officer in August 2023. At that time, the company stated that Gratziani, one of its star independent distributors, had been paid more than $5 million in commissions the previous year. 

“Stephan hit the ground running and has demonstrated his extensive knowledge of the business and strategic strength in his role as Chief Strategy Officer,” Johnson said in a Jan. 2 news release announcing Gratziani’s new role as president. “Stephan has an innate ability to lead, drive change and inspire others. We believe his innovative mindset and vast experience as a former leading independent distributor position him well to lead our global sales initiatives and guide Herbalife towards our next chapter of growth.” 

Strong sales growth, but more than $300 million in fines, too 

During Johnson’s tenure, revenues increased dramatically. Annual revenues soared from $1.6 billion in 2003 to $5.1 billion in 2022. Herbalife is now the world’s largest multi-level marketing company devoted solely to the sales of nutritional products and the No. 3 MLM of all types. 

The company’s share price endured a bumpier ride during that time. Herbalife shares first traded in the $3 to $4 dollar range in the mid-2000s. Share prices rose to more than $58 in 2019 before declining to about $13 today (the company went through a 2 for 1 stock split in 2019). 

However, Herbalife has also been a leader of sorts in fines levied against the company by the government. In addition to the $123 million fine mentioned earlier, in 2016, Herbalife was slapped with a $200 million levy to settle a case brought by the Federal Trade Commission that alleged the company had been operating an illegal pyramid scheme. Herbalife agreed to the settlement without admitting guilt. 

The settlement required Herbalife to restructure how it compensated its distributors. The goal was to tie commissions to product sales to consumers, not to the recruitment of new distributors. In addition, the company agreed to stop misleading new distributors about their potential earnings. 

Pushback on pyramid scheme allegations 

According to a blog post this week by Kevin Thompson of Thompson Burton PLLC, a law firm that advises MLMs, Herbalife’s results in the ensuing years have underscored the company is a legitimate business and not a pyramid scheme, contrary to previous allegations by regulators and hedge fund manager Bill Ackman.  

He noted the settlement required Herbalife to eliminate monthly volume requirements and garner at least 80% of its revenues from retail sales. Thompson also pointed to “volume points,” which he described as “the key metric Herbalife uses to measure product flow.” 

“The data is crystal clear,” Thompson wrote, pointing to a graph in the blog that he said suggests “Herbalife's volume points have not only stabilized post-settlement but have shown considerable growth.” 

"If Herbalife was truly a pyramid scheme, there’s zero chance they would have been able to meet the 80% benchmark,” the lawyer added. “Yet, contrary to opinions of critics, product continued to flow. “