A Seat at the Table: The Case for Franchisee Advisory Councils
Franchising World march 2013
BY EDWARD (NED) LEVITT, CFE
IN THE WORLD OF franchising, change has always been a constant, but arguably we are living in a time of unprecedented rapidity of change. Many of these changes are profound, like the worsening world economies, the ubiquity of technology in our personal and business lives and the aging population. Franchisors have typically based their value proposition to their franchisees and prospective franchisees on past achievements that predict future successes. What we will be witnessing in the future is that franchisors will have to demonstrate their skills, or develop them, as effective change agents to maintain the success of their systems against this backdrop of rapid and deep change. This will involve an increasing need for franchisors to innovate and, more importantly, get their franchisees to implement the innovations. In this context, the case for franchisee advisory councils or FAC has never been clearer or more compelling. What is a Franchisee Advisory Council? A FAC is a body comprised of franchisor representatives and franchisees, who are charged with enhancing communication, working together to improve the system and helping resolve challenges that impact the franchise system as a whole. There are a number of choices in structuring a FAC that can have a dramatic impact on its effectiveness. For example: Will the franchisee representatives be elected by other franchisees or appointed by the franchisor? If appointed, are the franchisees respected leaders among the rest of the franchisees? Will the FAC set its own agenda or follow that of the franchisor? Will the decisions of the FAC be highly persuasive on the direction of the system or act as a rubber stamp for the decisions of the franchisor? The more the FAC is seen as credible to the rest of the franchisees, the more use it will have to the franchisor. Can a Franchisee Advisory Council And Franchise Association Co-Exist? Classically, a FAC and an independent franchisee association, or “Association,” are seen as polar opposites; the former as a tame pet of the franchisor and the latter as an obstacle, if not a threat, to the franchisor’s goals and ambitions. In reality, they start to look very similar and produce similar results depending upon how the FAC is structured or how the franchisor engages with the Association. Can the two co-exist in the same system? Yes, but where that is the case, there is often tension between them, duplication of effort and less effectiveness for both. While the franchisees have the legal right to organize themselves into Associations, the franchisor has no legal obligation to deal with an Association. However, once established, a franchisor ignores an Association at its peril. Sometimes the FAC is established simply because an Association suddenly appears, but then it may be an uphill battle to convince franchisees that the FAC is a better alternative to an Association. The ability for franchisees to communicate, organize themselves into Associations and operate as a group independent of the franchisor has never been greater. With that awesome capability comes the real danger that in some cases the wrong franchisees may end up leading the conversation to the detriment of all. Establishing a FAC early and making it credible to the franchisees, as a result, has become a “must do” rather than a “nice to do.” Why Have a Franchisee Advisory Council? In addition to the need for a FAC as a more constructive alternative to an Association, a FAC can serve many useful purposes for a franchisor. With the inherent tension between a franchisor, which typically benefits from the “top line,” and franchisees, who survive and prosper from the “bottom line,” an effective FAC aids in the development of a better, more trusting, franchise relationship. It can also provide crucial information from the trenches for the franchisor, help the franchisor avoid the consequences of ineffective or poor changes to the system from the franchisees’ perspective, achieve faster and better compliance from franchisees to changes in the system and provide a dispute resolution mechanism between franchisees and between the franchisor and a franchisee. All of these benefits have always been part of the argument for the establishment of a FAC, but against the backdrop of today’s pace of change, they are rapidly becoming necessities for the healthy growth of any franchise system. Prospective franchisees today have greater knowledge about franchising and how it works, and a much greater ability to research the background of a franchise system and competing franchise systems, than ever before. As a result, the existence of a well-structured and effective FAC can be a tremendous validation point in the marketing of franchises. Are Franchisee Advisory Councils Relevant in A World of Instant Communication? Some have argued that, in today’s world of instant communication, all of the benefits of FACs and, for that matter, the threats from Associations, evaporate. While incredibly beneficial in presenting information and shaping attitudes in a franchise system, at the same time, technology enhances the opportunities for disgruntled franchisees to mobilize and create new challenges for the franchisor. A recent example demonstrating this dark side of technology is a petition established by “John D. from Longmont” requesting that the United States government secure the necessary funding and resources to begin construction on a Death Star, a fictional Star Wars space weapon, by 2016. The petition met the website’s Terms of Participation and the White House is now required to respond in a timely fashion. While this is a light-hearted example, it demonstrates the ability for disruption (and wasted resources) that can result from new technology. This, in turn, re-emphasizes the benefit of a FAC, as it can, if credible to the franchisees, be a powerful voice of calm and reason, against the voices of franchisees who would harm the system. By giving franchisees a seat at the table, franchisors can ensure discussions among the parties are focused on mutual benefit and cooperation versus confrontation. Finally, the franchise relationship is fundamentally a personal relationship, which requires personal engagement in face-to-face meetings and gatherings. While communication through technology can aid personal engagement, it can never replace it in the franchise context. The fact is FACs are important to the healthy growth of a franchise system. They are a better alternative than an Association, but need to be created early in the life cycle of a franchise system and structured and operated for maximum credibility among franchisees. Technology is a wonderful tool, but can also be turned into a formidable weapon in the war for the hearts and minds of franchisees. In this rapidly changing world, the case for FACs is getting stronger every day. Edward (Ned) Levitt, CFE, is a senior partner of Aird & Berlis LLP, Toronto, Canada. He can be reached 416-865-4628 or email@example.com .