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WISE COUNSEL

by Win Robinson
 

Every franchisor tells you that the most important single factor in their company's success is the relationship they have with the franchisees. This relationship is like a partnership, or a marriage - the two parties are dependent on each other for support, encouragement and mutual achievement. Rewards are shared.

This acceptance of the interdependent nature of franchising is not obvious if you look at any franchise agreement, which is always slanted in favour of the franchisor in order to preserve the integrity of the franchise system from wayward franchisees. Nonetheless, experienced franchisors know that while the legal agreement sets the expectations of the parties and creates a framework for the relationship, it does not reflect the way in which the parties actually need to act towards each other in order to build successful businesses for both.

Good relationships are built up over time as mutual trust and respect grows between the parties, and this cannot be legislated for. Nonetheless, there is one formal structure which can be put in place which will not only help develop good relationships but will also make the whole system stronger and quicker to respond. This is the Franchise Advisory Council.

What To Consider
In general, there are two types of franchisee body. The first, a Franchise Advisory Council, is established by the franchisor as a means of increasing communication and consultation, and harnessing some of the energies and ideas of franchisees for the common good. The second type is what might be termed a 'franchisee association', and happens when franchisees feel they have to band together in order to protect their rights (or their perceived rights) against the franchisor. It goes without saying that the first is infinitely preferable for all parties.

A franchisor should plan to establish a Franchise Advisory Council very early in the system's growth. In some systems it doesn't take long before some franchisee decides that he should be leading a franchisee pressure group, so be prudent and allow for such human behaviour and make sure that you use it to your and the system's advantage. Make provision for the formation of a FAC in your Franchise Agreement and write up the constitution and rules in your Operations Manual. This way, all franchisees will know that the objects and working methods of the Council will have been conceived with the best intentions in mind.

In these rules the franchisor may wish to ensure that the majority vote of the FAC or its executive committee is to be considered as an affirmative approval of all the franchisees. This can become a simplified method of handling the vastly complicated procedure of bringing about changes to the system when they become necessary.

One of the greatest assets that a franchise system can have is the sharing of ideas. Franchises have a head start over other types of business simply from the dynamism created by each franchisee striving to better his or her outlet's performance. Ideas and ambition abound. Very often, franchisees can quickly come up with a solution to a problem that the franchisor has been struggling with for ages, or can quickly spot any problems with implementation of a new idea and offer ways of overcoming them. FAC members can also help greatly with the buy-in of the other franchisees in the system to new ideas or necessary but unpalatable changes.

It is also amazing how much goodwill and co-operation can be built by this type of sharing. Some franchisors have been so pleased with the performance of franchisee members of the FAC that they have created seats on their board of directors for nominees from their FAC's. Both sides tend to become very proud and protective of those seats. When people are on the inside and see the reasons for things, rarely do they disagree. In addition, they convey this feeling to other franchisees.

However, franchisors should not expect the establishment of an Franchise Advisory Council to be the answer to everything. Don't think that you can control your franchisees and make them think exactly as you do. That is not the purpose of a FAC. The object should be to assist in communications and to improve the efficient running of the franchise system with the object of maximising profits for all parties.

Creating A FAC
There are usually three ways that a FAC can be created. These are:

1. The franchisor sets everything up: appoints the representative members, fixes the meeting dates, creates the agenda and chairs the meetings.
2. The franchisees meet and organise everything for themselves. They may or may not invite the franchisor to attend some of the meetings some of the time.
3. The franchisor and franchisee jointly put things together, sharing the responsibilities.

Because when they first join the franchise most franchisees don't know the intricate operations of the system and are very much feeling their way, it is best that there is a broad set of guides for forming and operating a FAC.

The obvious person to organise at the beginning is the franchisor, usually in conjunction with an experienced consultant. This is yet another area where you can learn faster and make fewer mistakes by using the experience of others. However, in the long term a franchisor-dominated FAC is likely to be less effective, as franchisees will mistrust it. Similarly, a franchisee-run FAC may not address necessary issues with the same insight as can be achieved through franchisor and franchisee working together. This means that option 3 should be the ultimate goal for both parties.

There are, not surprisingly, several different forms of FAC. For example, McDonald's have such faith in the selection and training of like-minded franchisees that they allow them to control the administration and selection of the type of advertising that the chain does. Their approach can be summed up as, 'If we can't convince some of our most experienced franchisees that something is a good idea, it's probably a bad idea.'

Bear in mind, however, that McDonald's has a lot of experience: it has worked through many problems, refined many systems and is very advanced in its running of the business. It takes a long time to develop such a franchise system.

On the other hand, some franchisors expect their FAC's to act only as a sounding board - providing feedback on initiatives and advising the franchisor of situations affecting franchisees. This can be valuable, but can also lead to conflict.

It is not uncommon for franchisees to believe that the FAC has the power to make decisions and strategy, whereas the franchisor regards it as purely advisory - a recipe for disaster. A consultative approach is often the most appropriate, but the most important thing here is that whatever the role of the FAC is to be, it must be clearly set out in advance and understood by all involved.

Rules
Whatever the defined role of the FAC, it will need a set of rules. These rules will usually include the following:

  • Who can belong, and for how long?
  • How are members selected or appointed?
  • What are the objectives of the group?
  • Who can be an officer, and what do those officers do?
  • How often are meetings held?
  • Where are meetings held?
  • Who will conduct the meetings?
  • What number constitutes a quorum?
  • Who will act as secretary, do the paperwork and organise the logistics and communication?
  • Who pays for what?

Who Has What Responsibilities?
As the structure is dynamic and continues to evolve, the rules of the FAC should change as required. They must also be based on good franchising principles and not be cumbersome or restrictive.

If the rules allow for the franchisor to appoint members, care must be taken to appoint a good representative group. Although this may be appropriate in the early days of a system or FAC, it is usually better to let the franchisees themselves elect members. This is not only democratic, but also avoids any possible taint attaching to the FAC as a body of 'tame' franchisees. Such a suggestion not only makes a FAC less effective but can also be divisive.

Objectives
The objectives of the FAC must also be clearly set out in advance so that the necessary issues can be addressed in an effective and positive manner. If the objectives are not clear, FAC meetings run the risk of becoming 'gripe sessions' which will serve only to demotivate all concerned.

One New Zealand system has the following set of objectives for its FAC:

  • Act to ensure the maintenance of high standards of appearance and business practice throughout the franchise network.
  • Facilitate communication between the franchisor and franchisees.
  • Provide a high level forum at which matters of mutual interest can be discussed with the objective of improving customer satisfaction and outcomes for franchisee and franchisor alike.
  • Provide a member to serve on the franchisee selection team.
  • Actively promote and encourage franchisee involvement in the development of the franchise systems and communicate information to assist franchisees with implementation of policies and procedures.
  • Provide an avenue for the generation of promotional ideas.

Having a written agenda for each FAC meeting also helps to keep members focused upon these objectives.

Leadership
Formal leadership is essential for effective functioning. There should be rules prescribing:

  • The number of officers.
  • How long a term they serve.
  • What the duties of each office are.
  • How the officers are elected.

Officers may be elected by their peers, or the FAC may appoint officers from the elected members. In some situations they may be appointed by the franchisor (although the concerns expressed above about 'tame' franchisees still apply).

There are four main areas in which the FAC usually becomes involved:

  • Operations
  • Marketing
  • Finance
  • Services

A useful thought is that where there are specific (and often time-consuming) issues to be handled, past chairmen can be asked to form separate advisory committees whose main function is to provide level-headed thinking based on past experiences.

With regard to franchisor representation, it is my opinion that franchisors should participate fully in the FAC's and at a very senior level. In other words, the managing director should certainly be a member and, if there are two franchisor representatives, then the next most senior person should be the other member. Franchisor executives need to be careful to acknowledge that the FAC is the franchisees' council, and avoid the trap of dominating the meetings.

Costs
Franchise Advisory Councils always involve costs - paperwork, minutes, posting, meeting facilities and so on. Some franchisees will have to travel from out of town (national representation is very important) and have transport and hotel costs. The big question is - who should pay?

This can be handled in a variety of ways. Some FAC's set fixed fees to be levied on all franchisees, some are supported by the franchisor, and some are a combination of both. A common approach is for each individual to look after his or her own expenses while the franchisor provides a meeting facility and the use of their secretarial team for the administrative work. In a small percentage of cases, costs are met from the marketing fund.

Get Results
No matter how the FAC is funded, it is important that the franchisor is not seen to be holding the upper hand. The FAC should be seen as a forum in which the main parties in the enterprise can meet at regular intervals to discuss ways of advancing the franchise system and therefore the cause of its members.

It is important for all members of the FAC to pull their weight, but it is especially important that the franchisor always remembers to follow up and report progress. If the franchisor undertakes to do something, it must be done. The franchisor has to show that he regards the FAC as a very important institution and takes its business seriously. This is one of the best ways that the franchisor can prove himself, and should result in franchisees improving their faith in the franchisor.

It is also important that all franchisees receive a report from each FAC meeting, and that everyone is kept informed. Obviously there will be some confidential matters, perhaps relating to individual franchisees, but as decisions are seen to be being made and followed through, the credibility of the FAC and the whole system will benefit.

When drafting the rules of the Franchise Advisory Council consideration should be given to all the possible ramifications, especially to legal issues. For instance, it must not be seen as a price fixing organisation, or as a club which can exclude anyone from the council without just cause. It is best to run your rules past a competent franchise lawyer.

The International Franchise Association (IFA) based in the USA ran a survey among its members and came up with some do's and don't's for Franchise Advisory Councils as show below:

Do's and Don't's
- Do have a written set of bye-laws or a constitution that spells out the ground rules of your council.
- Don't consider the bye-laws unchangeable. Times change, so include a bye-laws provision for making amendments.
- Do set down some broad goals and objectives for forming your council. They'll serve to delineate the direction of your organisation.
- Don't limit attendance at council meetings strictly to franchisees, owners, or top executives. Be sure to invite key people to discussions concerning their particular area.
- Do have someone responsible for taking minutes at each meeting and for distributing them to council members.
- Don't let your national FAC get bogged down in a flood of tasks that can more appropriately be handled by a standing committee or a regional council.
- Do set an agenda for every meeting and stick to it. It's the only way to avoid gripe sessions.
- Don't waste the experience of your council's past presidents. Ask them to serve on a special advisory board, and draw on their knowledge at appropriate times.
- Do have the franchisor's top management personnel at the meetings if the franchisor is involved in the council. The presence of lower echelon people signals to franchisees that their opinions and problems are not taken seriously.
- Don't invite hassles regarding who pays for what meeting expenses. Determine in advance which expenses the franchisor will pay and which the franchisees will pay.
- Do have a follow-up mechanism that keeps council members and non-members informed of activities. It builds the council's reputation as an effective organisation.
- Don't create legal problems. Be aware of the legal implication of forming a council and of running meetings.

Unleash The Power
Franchise Advisory Councils make a vital contribution to many of the world's most successful franchise systems. Research suggests that about 50% of all systems have an FAC, and the more mature the system, the more likely it is to use such a consultative group.

If, as a franchisor, you decide to establish a FAC, do not expect it to be an instant answer for all your problems. Franchisees may initially be uninterested, shy or downright suspicious until you show that you value the input of your FAC and take its feedback seriously. Be patient and accept that it may take a whole year before the benefits start coming through. Franchisees and staff will need encouragement during this time to begin thinking of the FAC as an asset rather than a talkfest. Once everyone gets the picture, the true power of your franchise system will be unleashed.

 
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Win Robinson is Managing Director of Franchize Consultants (NZ) Ltd, and has assisted many companies in establishing and developing their franchise systems.

Based in Auckland, Franchize Consultants (NZ) Ltd is New Zealand's leading franchising and licensing consultancy.

Contact:
Win Robinson
Email: win@fcnzl.co.nz
Web: Franchize Consultants (NZ) Ltd

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