What every Franchisor should know about Franchisee Advisory Councils and Franchisee Associations – Part 2

In the last issue, we looked at the key differences between advisory councils and franchisee associations, along with the reasons why those organizations are formed. In this issue, we will look at what proactive steps a franchisor can take when it comes to dealing with Advisory Councils and Franchisee Associations.

A. Franchisor reaction, recognition and involvement

Reaction and recognition

While four provinces have laws that protect franchisees’ right of association, there is no requirement that a franchisor negotiate or otherwise recognise an organized association. The obligations on a franchisor to “recognise” or deal with an association are not yet decided.

In deciding whether to acknowledge or negotiate with a Franchisee Association, the franchisor should consider whether the entity is truly representative of its franchisees. A franchisor may insist that a franchisee entity certify that a minimum number of franchisees, or units, are dues-paying members, or that the entity includes representatives from all geographical territories where franchised stores are located. A franchisor must also understand the reasons that an association has formed, whether this be due to an ineffective or non-representative advisory council, or because of a vocal minority promoting a specific agenda. The franchisor must use its best judgment to determine whether recognition of an independent franchisee association will help or hinder the chain wide franchise relationship.

Depending upon its size, a Franchisee Association, for better or worse, becomes part of a system’s dynamics and should be ignored at a franchisor’s peril. Franchisors who are not active in establishing lines of communications with a newly formed franchise association will likely have such communication thrust upon them. The best practice for a franchisor facing this situation is to be transparent in its business dealings with franchisees.

Both Franchisee Associations and Advisory Councils serve as important channels of communication and dispute resolution between franchisees and between a franchisor and its franchisees. Through these bodies, a franchisor can effectively communicate the need to implement changes and adjust to competitive circumstances in the market place.

A franchisor that recognizes the potential utility of a Franchisee Association may assist in the establishment of an association early in the development of the franchise. Franchisors who play a founding role potentially bypasses the formation of a more militant association down the road. A franchisor may be able to obtain the association’s endorsement of its plans for the system, legitimizing these decisions and encouraging easier system-wide implementation. Reluctant franchises may be more willing to embrace changes supported by their peers, over changes introduced by the heavy hand of a frustrated franchisor, whose first reaction may be to attempt to enforce contractual rights through a litigious recourse.

Increasingly, prospective franchisees are investigating franchise systems before investing in them. Fostering harmonious franchise relations enhances a franchisor’s ability to expand. Contented franchisees are, after all, a franchisor’s most effective franchise sales persons.

Involvement

A franchisor will initially determine the fundamentals of an Advisory Council: its purpose, its membership, the frequency of its meetings, and its funding. A preliminary consideration will be whether the franchisor’s representatives should be recognized as part of an advisory council. Depending on the dynamics of the system, this consideration can prevent an “us versus them” attitude from inhibiting the proper functioning of the council. Whatever course is taken, it is essential that franchisor executives with decision making authority meet with the council. Without this commitment, franchisees will perceive that they are unable to get the attention of those making critical decisions.

When significant decisions are made, the franchisor should consider the interests of its franchisees over and above short-term franchisor profitability. Factors affecting franchisor decision making should include, whether: (i) the decision is contrary to the interests of the franchisees? (ii) the decision is contrary to the interests of franchise customers? (iii) the decision will damage the franchisor’s relationships with its franchisees? (iv) the decision will damage the franchise brand?

B. What roles do Advisory Councils and Franchisee Associations fulfill?

Both Advisory Councils and Franchisee Association share a common goal: fostering constructive two-way communications between a franchisor and the franchisees of its system by having a select group of franchisees discuss on a regular basis matters of mutual interest with the franchisor. The benefits of these councils and associations are numerous and include:

1. Acting as a vehicle for collective bargaining and effective use of leverage.

2. Encouraging the protection of franchisee rights under franchise agreements.

3. Serving as a forum to advocate common issues and provide independent research and analysis. Independent scrutiny makes for better decision making, as franchisor’s proposals are proofed and/or endorsed by the council or association. This can be particularly helpful in considering changes to standard form franchise agreements.

4. Improving communication with franchisees on a variety of issues. For example, franchisees need to receive timely information about new developments relating to the brand, the franchise system, and the franchisor’s policies and procedures.

5. Developing institutional memory within a system. Associations can be repositories of knowledge which can promote the evolution of the brand, marketing and merchandising techniques, and best practices.
6. More often in the case of Franchisee Associations, providing financial support for individual franchisees engaged in litigation with the franchisor or for franchisees acting in a representative capacity on behalf of the system’s franchisees.

7. Resolving franchisee dissatisfaction to avoid the inevitable costs of litigation.

8. Maintaining morale and promoting franchise group identity.

Conclusions

Franchisors who wait until their franchisees initiate such steps to form representative franchisee entities risk an unpleasant wakeup call when confronted for the first time by dissatisfied franchisee representatives. In the right environment, franchise associations and advisory councils can be an effective means of advancing the shared interests of both franchisor and franchisee. Such organizations can enhance the leadership role of the franchisor and promote the overall vitality of a franchise system.