Australian Franchise Inquiry, Don't Tell Anyone

With only 3 weeks to close of submissions to the Australian inquiry into franchising the regulator has finally published the existence of the inquiry on the government website.

The Franchise Council of Australia has not published it at all.

While the FCA want to keep franchisees out of the inquiry mix their sponsor, Deacons Lawyers, have published the following on their site and it was then distributed to the FCA franchisor membership.

Yet another franchising inquiry

The Federal government has announced yet another inquiry into franchising, this time to be conducted by the Federal Government's Parliamentary Joint Committee on Corporations and Financial Services.  The announcement comes on the heels of the Federal Mathews Committee inquiry in 2006 and separate franchising inquiries by the South Australian and Western Australian Governments in early 2008.  One wonders, how many franchise inquiries are enough?  

The franchise sector is experiencing a dearth of quality franchisees, caused largely by the strong Australian economy and skill shortages that are driving up wage levels in an economy close to full employment. This in turn puts pressure on franchised businesses to deliver a superior return on investment given job insecurity ceases to be a significant factor in motivating people to acquire a franchised business.  However, the negative perception that is likely to be created by such a plethora of inquiries into franchising is not helpful. 

Deacons partner Stephen Giles has completed for the Franchise Council of Australia a detailed response to the WA and SA inquiries.  The WA inquiry essentially provided a positive endorsement of franchising, recommending an emphasis on pre-entry education as critical to address any concerns.  Although the SA inquiry considered essentially the same information, it handed down a report that was more critical, with many recommendations failing to receive endorsement from the peak industry body.

When does regulation become red tape?

The Franchising Code of Conduct has been widely recognised as being one of the pillars upon which the recent success of the Australian franchise sector has been built. However, with the changes to the Code that took effect March 1 2008, the Code has moved substantially closer to being a compliance burden that is failing to address the original purposes of the legislation. If some of the radical changes recommended by the recent SA inquiry into franchising were to be implemented the Code could well tilt from being on balance useful to being excessive red tape.

The Franchise Council of Australia Legal Committee, chaired by Deacons partner Stephen Giles, and the Australian Competition and Consumer Commission have been working collaboratively to identify opportunities to clarify the Code and reduce compliance costs.  The FCA Legal Committee has yet to provide its report to the ACCC, due in part to the very significant number of issues requiring clarification. Last count there were over 30 significant issues that the FCA considered required clarification.  Some of these matters may require legislative amendment, as the ACCC has already flagged that its role is not to make rulings on the interpretation of the Code.

When the franchise agreement, collateral documents and a copy of the Code are included, the average disclosure document is probably now in excess of 100 pages.  If further Code changes are made as recommended by the SA franchising inquiry, this is only likely to increase the size of the document, with minimal increase in utility.  Franchisees, already reluctant to seek legal and business advice, will face even higher costs from advisors, who by necessity need to charge for the time taken to read the documents. As a consequence the intent of the Code, being to provide information useful to prospective franchisees and of assistance to advisors, is at risk of being frustrated.

Given the breadth of our client base Deacons will be one of the major providers of input into issues requiring clarification.  We have already provided substantial input. However, in case we have missed anything or if you have any matters you consider need clarification please send them through to Stephen Giles, Tamra Seaton or to Greg Hipwell.”

Deacons represent the worst of the worst in Australian franchising and approximatley 25% of all Oz franchisors.  Big money comes from franchisors and little to nothing from franchisees and Deacons know the cream comes from conflict.  FCA is merely the franchising marketing arm for Deacons.  Through FCA they are not just delivered franchisors; they also get handed the opportunity to suck at every franchisor provider.   

While FCA and Deacons credibility has successfully been challenged in both recent state inquiries; they will again attempt to baffle this inquiry with more BS.

Franchisee feedback from involved politicians suggests that we can expect some serious reform.  But can we really believe it?