The Importance of the Franchise Paper Trail
Unfortunately there is an ever increasing role for lawyers in franchising,
but we all need some practical assistance to manage these legal risks.
One aspect of this is the paper trail which franchisors must maintain at
their head office level.
Let us all consider the following exchange between the franchisor and his solicitor:-
| Solicitor: |
Hi, how are you going? |
| Franchisor |
Not so good! I've got some problems with one of my franchisees,
it looks like they are going to sue us. |
| Solicitor |
We better get together to talk about it this afternoon, can you
bring in your complete dossier on your franchisee? |
| Franchisor |
What do you mean by "Dossier"? |
| Solicitor |
All the details of the induction, weekly store visits,
training, breaches etc |
| Franchisor |
It will take some time for me to dig all that up and put it
together, I don't have the information available. |
| Solicitor |
You have been collecting that information? |
| Franchisor |
Well... |
| Solicitor |
How do you expect me to defend you without materials? |
| Franchisor |
I'll put together what I can and see you the day after tomorrow. |
For the next two days the Franchisor frantically tries to collect information
on what has gone on over the last five years.
In franchising the franchisor needs to constantly be gathering information for two significant reasons:-
Information gives the power to manage the franchisees more effectively. Information gives the franchisor the power to successfully defend legal proceedings.
Through managing your franchisees more effectively, you will assist franchisees in
achieving their goals. Franchisees are at their happiest when making money. This also has
its benefits to the franchisor because a system's success is often measured by the success
of its franchisees. If your franchisees are seen to be making money then this makes the
growth of your system easier and ultimately has a significant impact on the value of your business.
Franchisors should be able to look at a franchisee's business and tell the franchisee
what is going wrong. If the franchisee concentrates on a short list of issues in the
business then this will have a positive benefit in the business. If you could do that
on a franchise by franchise basis periodically, then you would actually be delivering
on the concept in franchising, that the franchisor will be there to assist you in the
development of your business and provide you with guidance. We have already identified
that this process has its own rewards for the franchisor, so it is a win-win solution
for all parties.
What do we need to facilitate this solution?
Information!!
Information which is collected across all levels of management in the franchisor organisation.
Franchisees have long survived on the concept of divide and conquer. This is what they want
to do to various staff at head office:
Invariably they treat accounts poorly, because they are always chasing them for money The good guy bad guy routine is used in their franchise managers The directors are always kept on good terms because they ultimately make the decisions
The idea is to get all levels to record their day to day dealings with franchisees. If
this information is collated then each person in head knows exactly what dealings have
been going on with each franchisee, and can deal with the franchisee accordingly. Lawyers
have developed the discipline of recording all dealings on a particular matter. They do
this because it helps them manage the matter more efficiently, and they do not know
which piece of information will ultimately become critical later. Also they do it to
prepare themselves should they get sued by their client. In this regard there is no
difference between the solicitor client scenario and the franchisor franchisee scenario.
There is a three stage process in the implementation of this discipline:-
Educate your people as to why they need to record information on their contact with
franchisees. They will never collect the information if the do not understand its significance. There needs to be a place where this information is stored. This can be as simple
or as elaborate as your resources allow. One suggestion is operating a card system.
The most effective way to manipulate this information is to enter it in a database
which sits on your organisation's network. This allows everyone simultaneous access
to the same information. Monitor your organisation's use of the system to make sure it is happening. A franchise without systems is not really a franchise at all. Your head office needs
systems. It is difficult to be crucial of the lack of discipline displayed by your
franchisees, if your franchisor staff does not exercise discipline with your head office systems.
Staff at your head office level have a tendency to buy franchises, or go to work somewhere
else. You can simply not allow these people to leave your organisation with all of their
franchisee contact information in their head. In years to come it may be impossible to
find these people or your relationship may be strained, and critical information will not be available.
If your system has master franchisees, then there is every likelihood that the franchisor
will be joined in any legal proceedings instituted against your master. Therefore it is
imperative that good systems be introduced at this level. Such a system may also facilitate
better reporting between the franchisor and its master.
One day you will want to sell the rights to your franchisor entity. Your exit value will be
enhanced considerably if you have good franchisee relations, successful franchises and a
litigation free record. When investigating a group during a due diligence period, the report
is more likely to be favourable where complete records are available to the parties undertaking
the work. It also reflects well on your organisation if the systems are in place and you can
demonstrate the information gathering capabilities of the system implemented.
To recap on the Paper Trail …
The information you need to ensure your system is successful,
is the information you need to manage your franchisees more effectively. Having successful
franchisees is the best way to manage your litigation risk. If however you do become embroiled
in mediation or litigation then the information gathered is also the information you need to
defend yourself in those proceedings. Without a tool to collect the information as it happens,
a great deal of critical information will be lost over time and it is impossible to recreate
this information when it is needed.
It only took three out of one hundred and thirty-five franchisees to successfully bring
down Cut Price Deli. The litigation had its financial impact, but the time spent by the
directors in defending the company in the courts had a huge impact on their business.
The message here is simple, you must implement a system to collect information and
then use the information to manage your group effectively. If you choose to ignore
the problem then critical information will inevitably be lost, and you increase the
risk of losing litigation as a result.
|
