Part 2: IFA's Matt Shay Speaks on Legislation Impacting Franchisees

WASHINGTON, D.C. (Blue MauMau) — Here is the second and final part of an exclusive interview in which Matthew Shay, chief executive officer of the International Franchise Association, sits down with Blue MauMau to discuss issues impacting franchise owners. The IFA is an association and lobbying group that represents some 1,000 franchisor members, 8,000 franchisee members and 400 franchise supplier members.

BMM: What is on the horizon for state and federal legislation that franchise owners should be on the lookout for?

Shay: Because the country is in the middle of a national election, we at the International Franchise Association think we are uniquely positioned to provide representation on legislation issues.

You need a national organization that has the resources to engage. You [franchisees and franchisors] cannot do this regionally or locally on some issues like the economic impact study or some of the programs I’ve talked about. You need a national organization to do that.

Because it is an election year, a number of issues are on indefinite hold. Congress is not likely to act on these matters until after the election of a new President and the reelection of a new Congress. There are a number of issues that franchisees should care about because they go right to the bottom line of their businesses and their ability to operate those businesses.

Probably the most frightening issue on the horizon is the probability of an expanded agenda with the labor unions. The number-one issue is the enactment of card-check legislation, which would do away with the secret ballot for union organizing in the workplace. It would permit unions to organize in any workplace in which they could get 50% plus one of the voting workers to agree to unionize. If you are a franchisee and you have five employees and a local union comes along and gets three out of your five employees to sign a card to be part of a union, then you have a unionized franchised business.

Franchisors and franchisees are particularly at risk because of the national brand and the broad representation of franchised businesses in the marketplace.

BMM: Is the ease of unionizing through card-check voting a bigger issue than immigration?

Shay: Immigration is the next thing on my list. The failure to address the nation’s immigration will continue to impact franchise business at the unit because of workforce issues. Over a generation it will make us less competitive. Expenses will increase. But it won’t put you out of business tomorrow. Union card-check will put you out of business tomorrow.

I would put immigration as second on the list. Franchise businesses have high labor costs and the inability to attract and retain the appropriate number of workers to operate the business is one part of the concern.

The way in which Congress wants to fix the problem is another concern. If Congress pursues some of the policies that have been proposed in the past, which is to make employers liable and responsible for enforcing immigration laws, then this might put some employers out of business as well. What Congress is saying is that individual businesses are responsible for policing the work force. Forget about the INS and the federal government’s responsibility. It is up to you to determine if these are documented or undocumented workers who are legally or illegally in this country. If we find out that those workers are illegally in this country, and we find out that you hired them, then we are going to fine you $10,000 per day per occurrence for every illegal employee you have. That would put some people out of business tomorrow and have a chilling effect on hiring practices.

That’s why immigration reform will be high on our list of issues to address.

The third is the issue of health care. If you are operating a Long John Silver’s seafood restaurant as a franchisee, you have many benefits of the Red Lobster because you look like a national chain. But the disadvantage you have is that you are a small business. You own it. You hire and fire people. You pay for the benefits out of your own gross profits. Red Lobster is part of a corporate chain. In regards to health care benefits, franchisees do not have the same economies of scale, the same ability to minimize your costs across a broad pool of participants. We think franchise businesses are particularly disadvantaged in a competitive way by health care issues.

Union-card check, immigration and health care benefits are the three things at the top of our list.

BMM: How active is the IFA and what sort of resources does it have available to lobby?

Shay: We have almost 1,400 franchise company members and 8,000 franchisees. That’s our first line of defense. We want to engage them in the political process. It is the best and most effective way to have impact on public policy at the state and federal level.

Think about when you were a kid when you pointed the sunshine through a magnifying glass on a piece of paper and started a fire. The sunshine is our membership base and we are the magnifying glass. Our job is to focus the energy of our members in a very targeted way in order to have impact. Maybe to light a fire under the members of congress to get some things done that will be beneficial to franchisees and franchisors at the unit level.

We have a staff of 35 people here in Washington.

Our number one mission of the IFA is to serve as an advocacy organization. On a daily basis everyone is contributing to delivering the message to federal and state legislators on issues that impact the franchise community. That is something we all believe in and take seriously.

BMM: There has been a softening in the economy and possibly the franchise market. Is there a shift in the patterns of franchise buyers and if so, how is that changing the IFA?

Shay: Franchising has outperformed the economy, particularly when the economy is uncertain. During the most recent economic downturn in 2000 and 2001, when we had the burst of the tech bubble and large cap stocks started to perform poorly, immediately after 9/11 there were issues related to travel and tourism. Franchising performed extremely well in that marketplace and the IFA in particular performed very well. In the past four years, the revenue of this association has doubled.

I don’t take all the credit for that because we have a great team of members and staff. I just happened to been in the right place at the right time. If the market is as you suggest over the last several years, I don’t think there is any way the IFA could have doubled its revenue and grown our convention from 1500 people in 2005 to 3000 in ’08.

With our partners MFV Expositions, who conduct the franchise trade shows for us, we have created two new trade shows in the last four years. We added the LA show in 2004 and the Miami show in 2007. If this were a declining market, I don’t think we would have seen the IFA revenue double, seen our convention double and added two new trade shows in the past four years. Our convention this year was the most profitable one we’ve ever had. We haven’t seen it [a soft franchise market].

We are very bullish on what we think is going to happen based on historical experiences. Franchising, like the rest of the economy, might be temporarily a little flat. But every time there has been an economic downturn in the past 20 years, franchising has outperformed in that market and been at the leading edge of the recovery. We expect that will be the case this year as well.

Read Part 1: Matt Shay Discusses the IFA and Franchisees