Overview

On 22 July shareholders in Avon Products Inc., the direct-selling cosmetics giant, sued its board and three former directors over their alleged failure to prevent improper payments in China. The payments relate to travel, entertainment, gifts, and other expenses allegedly provided to a senior official from the Chinese Ministry of Commerce.

Like many large corporations, Avon has been eager to exploit the commercial opportunities presented by China’s emergence as a major economy. However, the late 1990s saw China impose restrictions on direct selling - Avon’s preferred sales medium. This forced Avon to sell its products through shops and boutiques. As Avon’s business model relies on its traditional methods of door-to-door sales, the company lobbied Chinese authorities for the relaxation of the laws.

In April 2005 the Chinese government granted Avon permission to run a pilot door-to-door selling campaign in Beijing, Tianjin, and Guangdong Province, before introducing new regulations governing direct selling in December that year. Avon was awarded China’s first direct-selling licence from the Chinese Ministry of Commerce in February 2006.
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