FCA: Franchising a boom industry

According to Franchise Council of Australia chairman, Stephen Giles, franchising is booming. The Australian economy is performing very strongly with retail sales, consumer spending and confidence at record highs. Inflation is low, unemployment is low and there are few economic clouds on the horizon. There is also a very positive vibe through the marketplace, and the reputation of franchising as a business technique is at an all-time high. This is no accident.

Australian franchise systems are now world’s best practice in terms of their management and behaviour. We have a strong and effective regulatory environment, with the Franchising Code of Conduct and Trade Practices Act providing a balanced legal environment and encouraging a good working relationship between franchisor and franchisee.

”I strongly believe that we have the franchise relationship right. At just over one percent, our disputation level is substantially below that in the United States, which is the home of franchising. In the US there is much more of an adversarial relationship between franchisee and franchisor. I believe this adversarial culture, while good for lawyers, is not good for franchising. We have sensibly avoided embracing this culture in Australia. Although our Franchising Code of Conduct is similar to the US disclosure regime, most US states do not have anywhere near the regulatory protections contained in the Trade Practices Act. In addition, the US regulatory body, the Federal Trade Commission, is far less interventionist than our own Australian Competition and Consumer Commission (ACCC). Furthermore, a comparison of US and Australian franchise agreements will show that Australian franchise agreements are typically more even-handed, and easier to read. We have the balance right.

”The last thing we need in Australian franchising is the artificial creation of an adversarial relationship between franchisor and franchisee. The best sporting teams do not have an adversarial relationship between coach and player, but rather a relationship based on mutual respect and a clear understanding as to each party’s roles and responsibilities. Franchising in Australia is founded on the principles of teamwork. Accordingly, Australian franchising is world’s best practice. Any move to create a more adversarial relationship should be strongly resisted. It is for this reason that the FCA has been a strident critic of recent efforts that purport to establish the Australian Franchisees Association.

”In my 20 years in franchising I have seen numerous franchisee bodies established, supposedly to represent the interests of franchisees. Most are established with strong – but not necessarily transparent – links to lawyers, who of course have a vested interest in whipping up potential legal claims.

”At the same time the Franchise Council of Australia is extremely cognisant of the need to provide representation for and remain relevant to franchisees. This is a role we take very seriously. However we focus on providing mechanisms for complaints to be handled constructively. Rather than attempting to represent franchisees in disputes with franchisors, we have sought to focus on establishing dispute resolution processes such as those revolving around mediation contained in the Franchising Code of Conduct.

”The ACCC is doing an excellent job as regulator of the sector, so there is no need for us to duplicate its function. However, it is appropriate that we move to raise the standards for membership of the Franchise Council of Australia. The success of franchising attracts franchising opportunists seeking to quote their business operations as franchises. Reputable franchise systems have the right to insist that new entrants to the sector behave in a way that is consistent with accepted industry practice, not just comply with the minimum standards set by the Franchising Code of Conduct and the Trade Practices Act. Similarly, advisers are expected to show the levels of professionalism that add value to the sector and/or the reputation of franchising.

”In the next few months you will see a number of initiatives by the FCA aimed at raising the standards of Australian franchising. While we do not intend to adopt a policing role, we do intend to protect the value of the FCA brand and promote the best interests of franchising. We are workshopping enhanced Member Best Practice Guidelines to provide best practice guidance for franchise systems. Prior contractual disclosure is important, but there are more micro issues in franchising that deserve attention. Over time, and with input from our franchisee and franchisor members, we hope to develop a whole range of systems, processes and guidelines to assist Australian franchising to grow and prosper. In due course these will be linked into membership eligibility and a formal member complaints process.

”This will mean we will have our own complaints processes to ensure that we are fully aware of any issues that affect franchising, as we are often better able to deal with these on a more pragmatic basis than even the ACCC. We will also investigate the establishment of other mechanisms to assist in dispute resolution, education, training and so forth. One such initiative which has proven popular in the US is an arrangement that would involve close cooperation between the ACCC and the FCA and give the ACCC the power to require franchise systems that it considered were not meeting its requirements to undergo a period of training and compulsory monitoring by the FCA. We have also suggested initiatives such as peer counselling to provide assistance to franchise systems on a less formal basis than processes which involve lawyers or other advisers.

”As we focus on franchisees in 2005 we will be looking for the support of our members. The Franchise Council of Australia is unique in world franchising in that it has been established to be a true representative of the sector, rather than representative of franchisors or franchisees or service providers. On the FCA board and in the executive team we have five people who are existing or former franchisees. There has never been a better time to be involved in Australian franchising. However it is in everyone’s interests that the positive vibe remains, and we continue to enjoy the excellent business environment that has enabled franchising to grow, prosper and gain the respect of the community, regulators, politicians and customers,” he said.

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