Part 1: Matt Shay Discusses the IFA and Franchisees
WASHINGTON, D.C. (Blue MauMau) — Matthew Shay, Chief Executive Officer of the International Franchise Association, sits down for an exclusive interview with Blue MauMau to discuss issues impacting franchise owners.
Mr. Shay is an attorney by trade. During the International Franchise Association's last convention, he was promoted from president to chief executive officer of the Association. Mike Isakson, IFA chairman at the time, said that the CEO title “is in recognition of the impact Shay has had in leading the strategic activities of the organization and reflects the continuing leadership and vision he provides in IFA’s efforts to achieve its strategic plan and operational objectives.”
The IFA is an association and lobbying group that represents some 1,000 franchisors, 8,000 franchisees and 400 suppliers.
BMM: What is the IFA’s interest in franchise owners?
Shay: As the organization that represents franchising, franchise owners are integral to being able to provide a balanced and representative picture of the interests of the franchise community on issues that impact the franchise community: specifically, legislative and public policy matters.
Our board of directors voted in 1993 to include franchisees as members of the association. Since that time during the past 15 years, we have made great strides to fully incorporate the fran
chisee perspective into all facets of the association, including leadership and governance, programming and education, conferences and publications. In every possible way we have involved franchisees in decision making about the strategic priorities of the organization. The initiatives, priorities, programs and services that the IFA offers are meant to fulfill our mission to represent the franchise community.
BMM: How many owner members do you have and how active are they in the IFA?
Shay: We have about 8,000 franchisees who are part of our system-wide membership program, which is a program to activate their membership online and doesn’t require them to pay any additional fee for membership because they qualify for membership based on their franchisor’s participation in the IFA. And then we have 500 or 600 franchisees who go beyond that level of participation and actually pay membership dues to the IFA. They have sought membership on their own that is individual and separate from the membership of their franchisors.
BMM: What does the IFA do to encourage good franchising behavior towards franchise owners?
Shay: All business people, whether franchisors or franchisees or independent business people are engaged in their enterprise because they have a for-profit motive. I think all people are basically honest and good people trying to do the right thing.
If you look at UFOCs from a representative sample of franchisors, you would find that the overwhelming majority of franchisors have very little litigation or very little of conflict in their system. The way in which you help remind people, not that they necessarily need reminding, that they should engage in honest and straightforward relationships on both sides is to remind them that it is in their own self-interest to do that. They are engaged in a for-profit enterprise in which any conflict or distraction from the smooth and seamless operation of business will detract from that goal. Franchisors, and I think franchisees, do not need to be reminded that they should behave properly.
But, we offer a wide variety of programs to ensure that, for example, new and start-up companies understand, recognize and comply with their obligations under federal and state law to do proper franchise disclosure and to ensure that their sales force are properly trained and in compliance with the law. We offer a free online compliance training program to investors who are thinking how to become franchisees. We try to educate would-be franchisees so that they know what they should be doing on the way to buying a franchise.
We have an online compliance training program for franchisors so that they understand how to comply with federal and state laws that require them to make certain disclosures prior to the sale of a franchise. We have a compliance training program that we deliver to franchisors in person — a third-party outside professional trainer will go to the franchisor’s headquarters and train his or her staff. [They will] train 5, 10, 15, however many that are on the [franchisor's] staff who want to participate. We offer that program in addition to the onsite delivery at a franchisor’s headquarters to all of our new members within the first year of membership in the IFA at no charge to them and at least 4 regional programs throughout the country. That was an initiative that we developed with the FTC some four years ago.
When on the rare occasion there are disputes that cannot be resolved, we have an ombudsman program that we fully fund so that a franchisee and a franchisor can attempt to resolve their dispute by using this third-party to help them find a solution. We are not involved in this program other than we pay for it. We don’t have any engagement with that person to encourage one perspective or another. They have free reign to find the right answer and solution. That is a program that we have been funding since 2001.
The franchisee pays nothing. The franchisor pays nothing. The program is totally free.
We are founding members of the national franchise mediation program that has been around since 1992 that provides more formalized mediation services to assist in the resolution of disputes between franchisors and franchisees. In addition to all those things, our franchise relations committee which is composed of franchisors, franchisees and suppliers such as law firms, they have developed a library of materials that would assist franchisors and franchisees in a variety of ways in maintaining positive relationships such as the formation of a franchisee advisory council, the use and relationship between a franchisor and a franchisee association or advisory council. Ways in which to avoid network, expansion, conflict, encroachment issues. There is a whole variety of publications that has been developed by the franchise relations committee that are of an education nature that are available for free on our website or can be purchased in a hardback copy.
And then of course all of these kinds of materials and approaches are being delivered on a regular basis at our educational programs, conventions, franchise development seminars, legal symposium. National and regional programs, our franchise business network meetings that take place quarterly at about 30 cities around the country that usually focus once or twice a year on topics related to the franchise relationship.
So we are pushing this information out there constantly. It is a key component of everything that we do in the communications, education and conference area.
And to end where I started, we have franchisees engaged in every aspect of our leadership. We have franchisees on our executive committee, on our board of directors, on all of our committees. They make sure that the content of our programs and the positions and initiatives reinforce our commitment to a strong, healthy, positive, honest, straight-forward relationship between franchisees and franchisors.
BMM: Do you feature systems with best franchise practices? What are some of the systems that have the most satisfied franchisees?
Shay: No. It would be too numerous to go into a list of franchisors with positive relationships because that would be 99% or 95% or some incredibly high percentage of franchisors and franchisees.
But in each of our programs that are presented we have a franchisor and a franchisee present. Presumably, those people are highlighting the experiences in their own system.
Witness the incredible growth of franchising in the past five years. If that were not the case we wouldn’t see this kind of economic expansion, all due to the franchise business model. You don’t create 900,000 franchise units across the United States and employ one in every seven employees in the workforce and generate $2.3 trillion in economic output and grow 40% from 2001 to 2005 if you don’t have healthy relationships in the vast majority of businesses that exist. It wouldn’t happen.
BMM: The Census Bureau has just started to ask small business owners if they are franchised or not. Did the IFA push for this to happen? Why?
Yes. The IFA, myself, my predecessor, colleagues and board of directors were all very supportive of an initiative to encourage the Bureau of the Census to begin collecting data on franchise businesses. We funded out of the IFA’s own equity the dues paid by franchisors and franchisees and revenue generated by attendance in our programs and conferences, we funded the first study of the economic impact of franchise businesses in 2003 and released those results in 2004.
When you look at the other kinds of information that the Bureau of Census collects about the contribution of other segments of our economy, such as manufacturing, agriculture, information services, technology, real estate, travel and tourism, it became apparent to us that it was very appropriate to begin collecting similar data on the contributions of our franchised businesses to our economy. So it would seem logical that we would encourage the Bureau of Census to collect that data so that when these policy discussions take place in Washington and other places about issues that impact the business and local communities, that franchising would be appropriately recognized on the contributions it makes to our economy.
We were delighted that the Bureau of Census agreed to include that information and that we were able to get these additional questions incorporated into the Bureau of Census so that the next time they collect data they will also tag information related to franchise businesses.
BMM: So what does the IFA plan to do with the new census information once it comes out in 2010 or so?
Shay: [We will continue to do] what we’ve done with the information with the two publications that we funded ourselves. When the Bureau of Census collects the data, it is still raw data. We will still have to create our own report. That does not get us all the way to the finish line.
At our annual event in Washington D.C. we had more than 500 people go up to Capitol Hill last fall. One of our featured speakers was Al Hubbard, who is the Chairman of the President’s Council of Economic Advisors. Al Hubbard was on the stage and on the program.
Our chairman of the board had a button on his lapel. It said, “1 in 7.” Al Hubbard stood up on the stage in front of 500 people and after the nice introduction from our chairman looked at the chairman and said, “That’s an interesting button you are wearing. What does 1 in 7 mean?” Our chairman proceeded to say that franchise businesses employ more than 1 in 7 members of the private sector workforce in the United States.
And the President’s chairman of the council of economic advisors looked at our chairman and said, “Wow, I had no idea!” That’s the kind of reaction that we get from members of Congress and their staff, from people in and out of government and the media when we tell them about the impact of franchising on the economy. It is those kinds of experiences that we intend to create more of as we continue to gather and distribute this information on the impact of franchising on our economy.
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