Leaders Turn Focus to ‘Responsible Franchising’ at Annual Summit | Franchise News

The drumbeat of responsible franchising continued this week at the Faegre Drinker Franchise Summit in Minneapolis and comes as the International Franchise Association and other leaders have sought to take a proactive approach to protecting the model amid increased regulatory scrutiny.

In May, the IFA released guidelines for responsible franchising, and Faegre Drinker made it the central theme for its summer conference. Speaking at the event July 31, Great Clips CEO Steve Hockett said responsible franchising comes down to meeting franchisees in three ways.

“Listen, encourage and trust,” Hockett said. “One of our beliefs is working with our franchisees, because we’re responsible to them, rather than them being responsible to us. So, franchisee engagement is very important to us. Up until now, responsible franchising hadn’t been the terminology we use, but the idea fits in very well with what we do.”

The Federal Trade Commission last month issued a policy statement warning that a franchisor using contract provisions, including non-disparagement clauses that prohibit an owner’s communication with government agencies, violates the law. The FTC’s action was in response to public comments received when the commission held a request for information.

Matt Haller, CEO of the IFA, said the association’s release of the responsible franchising guidelines is the latest in an effort to make it more encompassing of franchisee needs.

“Anytime we introduce someone to the IFA, whether it’s a lawmaker, member of the press or new member to the association, we say ‘we’re not the International Franchisor Association, we’re the International Franchise Association,’” Haller said. “Franchising works when franchisors and franchisees, as well as their supply partners, are all moving forward together.”

Haller continued by praising the efforts of former IFA Chair Aziz Hashim, who worked to build franchisee involvement. The association opened membership to franchisees in 1993, but they still remain a smaller portion of the membership base.

“In every conversation to help shape the IFA’s legal symposium, it was important that we always had a perspective from the franchisee community,” Haller said. “We haven’t always been as focused on that as we should be at the IFA, so I think there are a lot of people we have to thank in ensuring the franchisee perspective is being heard.”

In 2013, the IFA released a statement of guidance with 12 principles for a healthy franchisor-franchisee relationship, and article 11 in that statement focused on the importance of pre-sale disclosure.

That subject became a key part of the IFA’s responsible franchising guidelines, which state, in part: “Improved pre-investment disclosure will benefit both prospective franchisees and franchisors by enhancing the competition among franchisors for qualified franchisee candidates.

 “By clearly communicating the terms contained in a franchise offering, prospective franchisees will be better able to evaluate and make investment choices among the side range of franchise opportunities available to them and to choose from those that meet their goals, ambitions and other requirements.”

Earlier this year the IFA backed a senate bill in California that would create new franchise broker disclosure requirements. The North American Securities Administrators Association is considering its own Franchise Broker Act.

Citing research that found the length and complexity of franchise disclosure document language creates a barrier to some first-time business owners, the association issued the following core practices for responsible franchising:

• Setting clear goals and expectations during the pre-sale period, so franchisors and franchisees are aligned on the terms of their long-term relationship.
• Connecting prospective franchisees with the right opportunity through due diligence and validation of all parties in the franchise sales process.
• Ensuring that franchisors and franchisees commit to their respective operational obligations to protect both the brand and franchisee’s equity in their business.
• Focusing collectively on driving unit economics and profitability for all parties.
• Embracing collaboration among the franchisor and franchisees through open communication with franchisee advisory councils and independent franchisee associations when modifying standards to respond to changing market forces and consumer preferences.

Additionally, the IFA advised franchisors to present information in Items 7, 19, 20 and 21 of an FDD to better tell the story of the franchise system’s health. For franchisees, meanwhile, the IFA emphasized fully investigating an investment by comparing multiple brands, retaining franchise attorneys for assistance and speaking with existing owners.

In his commentary Thursday, Haller stressed the importance of factoring in the brokerage process.

“Oftentimes, brokers are involved with both emerging and mature franchisors,” Haller said. “A big part of responsible franchising is to use the franchisee consulting network. That’s something that a responsible franchise system is going to be talking a lot about. A franchisee network isn’t going to be making the decision every time, but their voice needs to be heard at the brand level.”