An opportunity for franchise associations, consultants and advisors

News stories highlighting misconduct in the franchise sector over the past few years reflected the need for a meaningful inquiry to take place. But despite the widespread coverage of misconduct within the sector, some professionals still believe that it’s only a tiny percentage of franchise systems doing something wrong.

This is despite 2019 rolling in with new horror stories in the sector, notably Jump! Swim Schools. We also receive emails and phone calls on a consistent basis from franchisees in systems we’ve never even heard of.

To paint a picture of how industry has reckoned with poor coverage, the National Retail Association at a separate inquiry labelled the systemic wage theft at 7-Eleven as just a “few bad apples” (Page 7). This is despite the 7-Eleven Wage Repayment Program itself back paying workers upwards of $160 million (page 14). The way some industry representatives have responded to serious misconduct is a question of deniability, responsibility, and accountability.

Why are some sector players resisting or denying the reality of franchising for a number of stakeholders?

When we hear these representatives claim that it’s not all bad; that it’s only a few bad operators; that it’s just a media blow-up; we inquire as to whether they knew about the various scandals before they hit the papers. These representatives move around in the sector, they promote its health and are no doubt well connected with other franchise professionals. It’s a fair question.

The answer is nearly always “no”. These reps who have been in the sector for, in some cases, decades, should know a lot more about its operation than us, who only started investigating the franchise sector in 2013 and 2016 (even then, on an on/off capacity). It is questionable, then, as to how they can confidently conclude that franchise misconduct isn’t widespread.

In a perfect world, unscrupulous franchisors wouldn’t exist, people with no experience would be fully supported running their franchise, and it would be a mutually beneficial partnership. But if anything, the last few years have shown the franchise sector is far from perfect. And worse still, there are sector players that are denying the current franchise climate and instead labelling it as unbalanced media coverage or a blow-up (we call them climate deniers).

Climate deniers are franchise industry apologists. Without conducting any in-depth investigations of their own, they unequivocally decide that the franchise sector is ‘mostly’ healthy based on news reports only exposing ‘a few’ for misconduct, but also that this exposure has been unbalanced or a beat-up.

To unpack that; they decide that although a journalist has gone to print with an investigation that the sector professional wasn’t aware of - into something like systemic wage theft or large amounts of disgruntled franchisees - they single-handedly decide that this must be a beat-up even though they can’t point us to any of their own research suggesting otherwise. Then, as an additional thought, they say even if it was accurate, it’s only one franchise system anyway so it’s not a big deal.

The one question that we can’t seem to get an answer to is: What number of franchise systems would need to be exposed for misconduct for them to agree that there is something wrong?

How many more need to be exposed?

In 2015: “I didn’t know about 7-Eleven, but I do know they’re the only ones.”
In 2017: “I didn’t know about 7-Eleven and Domino’s, but I do know they’re the only ones.”
In 2018: “I didn’t know about 7-Eleven, Domino’s, Caltex, and Retail Food Group but I do know they’re the only ones.”

ETC… until Mortgage Choice, Ultra Tune, and now Jump! Swim Schools - and all the others in between. What’s the magic number to conclude that the system needs upheaval?

Due diligence is extremely important. However, franchise associations have themselves let down the sector by awarding franchise systems coveted awards that are later exposed for misconduct. It would be interesting to us to see how these systems are selected for these awards.

It is interesting that some sector players believe that franchisees - who often have never run a business and/or are not from Australia - should be able to spot a franchisor’s hidden agenda or misrepresentations that these sector professionals themselves have not. Despite being connected with franchise executives and being well versed in the sector, representatives expect new franchisees to be able to identify systemic issues that they themselves are not aware of.

If franchisees are given wrong financials, are misled about their store, or the franchise model changes after they sign on, their due diligence would mean very little. If we don’t expect experienced representatives to be aware of and clued into this, then how can we expect this of new franchisees?

While due diligence is incredibly important, franchisees often get swept up in a dream. Which is why it is now more important than ever that industry players band together to tell the franchise sector that misconduct is not okay. By claiming the franchise sector is largely healthy - without doing any further investigations into individual systems - is not protecting the sector. In fact, it damages it: it could give a false representation that puts more people into hardship, which leads to more negative exposure, and further denigrates the sector’s reputation.

Imagine how much change could be created if sector players decided right now that they would no longer be apologists for the sector, would no longer shoot the messenger (the media) and instead play an important and crucial role in stamping out bad behaviour.

Our belief is that it’s impossible to know how ingrained franchise misconduct is and believe it irresponsible to conclude that it is not widespread without intensive research. We have received countless communications regarding franchise systems in Australia. We cannot investigate them all.

We have also assisted in franchisor matters around their network. As when franchisees contact us, we always treat this with the utmost of confidence. We have always stressed that we are not “Franchisee Redress” or “Franchisor Redress”. We are here to provide assistance where possible to those in the franchise sector who request it. At the moment, that is mostly franchisees.

Above all, we think the inquiry report will provide an opportunity for prominent sector players to conclusively say that they will not consult with or promote franchise systems where it is believed they are engaging in unethical or immoral practices, or corporate misconduct, and have no desire to seriously change.

To the franchise sector players that want to say that it’s only a few bad eggs; ask yourself, ‘how do I know?’, because we know that you don’t.

Published: 12 March 2019