Posted: 21 Jun. 2019 05 min. read

What's next for franchising?

Future of Franchising

Despite the confronting stories over the past two years about ‘unscrupulous’ franchisors getting rich on the back of their hard-working, exploited franchisees, and in many cases sending them crashing to the wall of financial and mental ruin - this is only half the truth. 

On the one side, there is the disappointing and tragic tale of business operators struggling in the pressure cooker of Australian small business; which like any business struggle, franchising or otherwise, impacts personal and family life. And on the other hand, many of these published stories only reveal half the truth and, in some cases, do so with alleged misinformation. 

It is true that sometimes, but not always, the 'franchising' element of small business is one of the causes of these challenges. But small businesses struggle for many reasons. Mostly because they are small businesses in a competitive world, run by hard working people having a go. They require enormous amounts of time, money, skill and luck.

In March 2019 the Parliamentary Joint Committee handed down its report into The Operation and Effectiveness of the Franchising Code of Conduct, and its behind the scenes look at the franchising sector - Fairness in Franchising report. 

While small business in Australia is full of challenges, and many small business owners do it tough, if the report highlights anything, it certainly confirms that life as a franchisee can be even more difficult if the relationship between franchisee and franchisor is an uneven playing field. Or more specifically, if not an even playing field, given the usual and expected disparity in size, business experience and financial means, then at least a fair playing field.

Since the release of the report, the franchising community has been waiting for the Government to respond with meaningful and helpful action to support the sector continue to improve. Now that Australia has settled on another term for the Morrison government, it is important to get on with championing the changes in the franchising sector that are needed.

What's wrong with franchising anyway?

The main theme of the Joint Committee in the Fairness in Franchising report, is the material power imbalance in most franchising relationships. And that this imbalance has been abused by many franchisors at the expense of their franchisees. 

In theory there is nothing wrong with this power imbalance. In fact, by definition one of the key benefits to a small business operator of joining a franchise system is the larger, better funded, more sophisticated business supports and processes offered to a small business owner by a franchisor. 

Importantly, the report points out that many complaints presented to the Joint Committee during the Inquiry were not a result of illegal or non-compliant behaviour by franchisors, but they were behaviours that fell well short of the expectations of franchisees, staff, customers and communities. 

While the Joint Committee called for a raft of changes and improvements to the Code of Conduct and regulatory environment, it is very difficult to objectively define and legislate ‘fairness’ in business dealings as the title of the Report had hoped. 

Disappointingly, one would have hoped that ‘fairness’ was not a negotiable term of business.

Because you can, doesn't mean you should!

As Commissioner Hayne pointed out in the Royal Commission into misconduct in banking, superannuation and financial services as he articulated his six basic principles of fairness - it’s ‘not what you could do, but what you should do’.

This lightening rod for big businesses needs to permeate throughout all business. Perhaps the question should rather be: 'What's wrong with business more generally'? Or even, 'what's wrong with those responsible for leading businesses?' 

So many pockets of Australian business seem to have forgotten about the core principle of 'doing what is right and fair' that fosters optimal outcomes for all stakeholders, in favour of financial and personal gain. In fact, if we followed it more diligently, this principle would also produce the best people, communities and economies, and maybe even world?

The Fairness in Franchising report specifies that disclosure alone - of relevant information - is ‘an insufficient regulatory response to power imbalances and exploitative behaviour by powerful corporations’. 

That is, the franchising sector, and I daresay all corners of the business community, large and small, needs fairer conduct by its participants. Excellence in conduct refers to the way we behave in business, the way we treat our stakeholders, our franchisees, customers, suppliers, staff and communities. And importantly, the impact on others that results from this behaviour. 

While there is nothing new about concepts in business like integrity, transparency, and compliance, I think there is a growing movement of expectation for an increase in compassion, understanding, partnership and fairness in business, including franchising. Perhaps these behaviours are less about business models and corporate structures, and more about the hearts of those involved.

If we merely aim to comply with a set of minimum standards, we may be 'compliant', but that often does not correlate with meeting and exceeding the expectations of those who matter. We need to take a different approach to our actions, commit to meeting a higher, sometimes unwritten, standard. Our actions and impact on others will be the final judge, not our compliance certificates on display at reception.

Meet our author

Andrew Hilson

Andrew Hilson

Director, Audit and Assurance

Andrew is leading the development of Deloitte’s focus on conduct and advisory services to the franchising sector. Prior to joining Deloitte, Andrew was the CEO of Back In Motion, a national franchise group of physiotherapy and allied health practices. Andrew has also spent a decade in various senior roles in the not-for-profit sector, and 12 years in Corporate Finance advisory. Andrew is a non-executive Director of IJM Australia, part of a global team fighting against child trafficking and modern day slavery and bringing systemic change to justice systems in developing communities. He is also a member of the Institute of Chartered Accountants in Australia & New Zealand.