Balancing Tensions

Franchisor and Franchisee Tensions, Striking a Balance

The swinging pendulum theory of interests management is as true for franchising as it is for all other categories of interests. Franchisors once lived in fear that regulatory schemes and soft hearted judges and juries stood ever ready to tear them apart financially, destroying the potential value of perfectly good business models. Accordingly, the franchisor legal representation community drafted more and more draconian contracts, to the point at which, as presently used, if the contract were enforced the death of a franchisee would constitute a breach of contract triggering enforcement of a liquidated damages provision against the franchisee’s widow and their estate. Those provisions are now seeking enforcement in many pending cases. While I am satisfied that my clients who are not really in serious breach of their contracts don’t have to worry about that provision, others are not so fortunate.

Draconian contracts are also being used by new franchisors who really have nothing to offer but fluff that has no inherent durability and that will not last for the life of the contract term. As their franchisees fail most frequently, these unworthy companies are more frequently attempting to enforce draconian agreement clauses against their victims. Any bozo lawyer can acquire a good UFOC and copy its worthwhile provisions, selling documents intended for an investment worthy business opportunity to every bozo opportunist who comes along.

It is no wonder, therefore, that there now exists such an extremity of disparate views of the franchise relationship that the relationship pendulum may really be said to be quite distant from any notion of center. In that mode, abusive conduct abounds, making my life rather rewarding. Of one thing I am certain. When I am doing well, it is because franchising isn’t. Using that as a measuring device, it is my less than humble opinion that franchise relationship management could use a bit of rethinking. There have to be better ways to manage it than simply using draconian contracts that are susceptible to great abuse and then adopting an attitude that, having paid for such a charter, you are now enthroned upon a dais from which your edicts must be followed regardless of merit and according to the ebb and flow of your whims.

As I can now prevent your abusive options from being exercised – no matter what your contract says – needing only a galvanized franchisee community that is tired of your worthless guff and a proper budget, a seeking of balanced volitional cooperation just might be a smarter approach to how to be a franchisor.

You only have to lose one case for your whole house of cards to tumble around you. Your contract won’t save you from the vicissitudes of the market place. It won’t make your profitless franchisees stand still any longer and just endure until they are standing at the bar of a bankruptcy court. Any franchisor ought to know that the more money losing their relationship is for their franchisees, the less guff they are now willing to take. If you doubt that statement, consider what is going on in the organizations of Quiznos, UPS Stores, Super Supper, and others whose franchisees finally have recognized that being cooperative does not yield relief from abuse or productive assistance to profitability, and that barricades have to be manned in the face of abusive requirements. If that is the model of relationship that you crave, read no further.

I’m not suggesting that you scrap your present contracts and opt for touchy-feely mush in lieu of enforceable terms. That would be as stupid in the opposite direction. Keep the contracts, no matter what they say. Draconian contract terms can best be defeated by not buying a franchise that is so low on demonstrable and enduring economic worthiness. That is only enabled by really competent deal as well as legal due diligence. Those who have lost everything are now bruiting that message on every franchise blog. More and more, people are engaging due diligence assistance that helps them say NO to the bad deal. As competent franchise purchase due diligence spreads out across the landscape, the problem of bad contracts accompanying bad deals will cure itself.

What I’m talking about is purging of the Dieu et Mon Droit approach to being a franchisor even with a good system and a business that has serious positive potential.

What I am suggesting for consideration here is an awareness that the contract is to serve the business relationship rather than the business relationship serving the contract.

Contract terms should be considered for reference only when there are serious problems that can’t be sorted out on their merits and there is no other choice. The more situations are approached from a merits focus, the less often it is necessary to refer to contract terms. Matters are sorted out with mutual respect, and in that mode the relationship is enhanced by the problem solving process rather than degraded.

Sloganeering needs to be eliminated from the mix of premises employed. It is rarely true that what you do in any situation is precedential as to other instances of difficulty. If I let him get away with this, everyone will be doing it is seldom a reliable and constructive approach. When it is appropriate on the actual merits, use it. But you don’t know whether that’s the right approach until you have vetted all other possible ways of dealing with the matter. Don’t start with the most confrontational option. Make that the last option.

In my opinion, everything should focus first upon how your franchisees are made profitable. Solutions that degrade prospects for profitability may profit the franchisor over a very short term, but if you do it that way, you are telegraphing a short sighted signal. Nowadays, with resolve and guts, shortsighted franchisors can be dealt with rather aggressively despite the contract language. An early on recognition that a franchisor will be opportunistic and damn the rest will today foment more and more rapid resistance, even more rapidly shortening the life expectancy of your franchise. Quiznos and the other companies mentioned above are examples of franchise systems that can now sell new franchises only by misrepresenting what the opportunity is. No one who has access to competent due diligence would ever buy a Quiznos franchise today. Those franchise offerings are at the top of my Fran Whack list. They only sell to fools who don’t have a clue how to avoid disaster. The same goes for many other franchise offerings that enliven the Internet franchise blogs every week. Those blogs are to the victims of abusive franchises what the Underground Railroad was to runaway slaves 150 years ago.

Your lawyer can no longer provide you the status of absolute ruler with divine right. There are other lawyers out here who will undermine that status given the necessary resources of franchisee resolve and a proper budget. If you assume that your extremely one sided contract language represents an impregnable fortress with a moat around a high wall, remember what General Patton said about the Maginot Line - Fixed fortifications are just monuments to stupidity.

There is a joke about a big 18 wheeler, fully loaded, stuck in a ditch. The driver hitched his dog up to the front bumper to pull it out. A motorist stopped to see what could be done to assist, asking how on earth the truck driver expected to get the truck out of the ditch using the dog to pull it. The driver responded “I have a whip.”