The AAFD Strategy for Franchise Reform

I have read with great interest the debate about the effectiveness of the AAFD.  I have appreciated those comments that understand what we are trying to accomplish, and am frustrated by those detractors who are attacking an important initiative to promote fair and balanced franchise agreements that actually respect franchisee rights and interests. Some facts and observations about what the AAFD is trying to do, and what our resources dictate that we can and cannot do: 

Some reality: 

1. The AAFD is an approved tax exempt non-profit trade association.  We don’t have ‘investors’ and we are formed as a trust owned by our members (99% of whom are franchisees).  Our capitalization is largely founder and trustee loans.

2. The AAFD is not run by a staff of attorneys that is a marketing organization as has been suggested.  I am the lone attorney (founder).  Our President, Peter Hanson is a former partner at Arthur Young (and a former Huntington Learning Center franchisee), and our staff includes 10 hard working individuals, half of whom have franchisee backgrounds, and one who led a major franchising company for several years.  All are dedicated to collaborative franchising and our vision of Total Quality Franchising.

3. Long ago the AAFD determined that it did not have sufficient resources to do everything it would like to do—we certainly don’t have the ability to audit or investigate or even monitor the activities of companies whose contracts we approve as fair.  And that isn’t our charge.  Many seem to be demanding that the AAFD fix franchising.  Sadly, we don’t have that power.

4. The AAFD was founded on the belief that 10 % of some 700,000 franchise owners would support an organization dedicated to fair franchising.  We also expected that independent franchise associations would step to the plate to support a national umbrella association to provide a counterbalance to the International Franchise Association.  We are the largest franchisee organization in history, and about to survive 16 years, but it is frustrating that less than 1% of franchise owners are dues paying members of the AAFD, and franchisee associations represent the AAFD’s second smallest revenue source!

 An Important and Realistic Mission and Goal:  

1. Early on, we recognized that to be effective the AAFD would need to be focused on clearly defined and achievable objectives.  We would never succeed if we tried to do more than our resources would allow.

2. Although we began as a legislative advocacy organization (with Dean Sagar, I helped author the original LaFalce legislation introduced in Congress in 1991), we quickly came to believe that we couldn’t be successful legislatively (and that likely legislation was probably not an elixir to address the ills in franchising). 

3. Further, I believed then, as now, that the biggest problem in franchising was that the franchise marketplace was not delivering a quality franchise product, because buyers were not educated and demanding a quality product.  As long as franchisors could market unfair agreements, they would continue to do so.

4. Our first effort was to form and/or support independent franchisee associations.  Building strong FOA’s creates negotiating power and helps to achieve a growing trend toward negotiated agreements that are much fairer than were available 15 years ago.

5. The AAFD has helped to organize more than 100 franchisee associations, most of which organize in response to a crisis and then disappear.  It is one of our greatest successes, and also one of our greatest challenges.

6. Our next—and most important effort to date—was to define fair franchising practices.  We invited franchisors, franchisees and franchise attorneys to join us in debating and approving standards of practice that would make our community worthy.  The AAFD Fair Franchising Standards built upon thousands of man and woman hours are negotiated standards that respect the legitimate business interests of both franchisors and franchisees.  The Standards lay the foundation for fair agreements and the ability to accredit fair agreements.

7. Our purpose and goal is to place in the franchising marketplace franchise agreements that are fair to both franchisees and franchisors. Where a company is mature (and has at least 3 years of operating history), we depend on franchisee satisfaction surveys to confirm our review of the contract. As will be seen the AAFD endeavors first to assure a company ‘talks the talk’ and ultimately assure a company also ‘walks the walk.’

8. We now offer two levels of accreditation:

   • Accredited Contract status:  As a first step toward full accreditation (The Fair Franchising Seal), a start-up company, a troubled company, indeed any company can offer or amend a franchise agreement that is at least 95% conforming to our standards.  Accredited contract status is valid for up to three years, and then must earn full accreditation to keep AAFD qualification.  We know that mature companies are averse to offering fair agreements, and that our best chance is to catch companies out of the womb, or to work with companies that are trying to overcome adversity.  AAFD Accredited Contract status allows us to jump start accreditation.

   • The Fair Franchising Seal:  Full AAFD Accreditation is available to companies whose contracts meet our standards, and for whom 75% of whose franchisees express satisfaction with the company practices and vote for their company to earn the AAFD seal.  We have held our standards very high to earn approved contract status.  We have competitors whose total approval is based on the measurement of franchisee satisfaction at a point in time, regardless of how unfair the contract may be!

9. AAFD Accreditation has never represented that we have verified or approved a franchisor’s business model, although the Fair Franchising Seal is a good indication that the system franchisees like the business model.  Accredited Contract status (which can be earned by start-up companies and troubled companies looking to turn around) is a validation of the contract, and we disclose and forewarn that AAFD contracts are one important step in validating a franchise system.

10. We can and do intercede privately to resolve issues and disputes that arise affecting our members, both franchisees and franchisors.  We process complaints, negotiate and offer mediation services.  We work behind the scenes to promote solutions, and not in the glare of public scrutiny.  Our purpose is to get results, and not to make headlines.  And those who observe us should not assume that our silence equates to inactivity—to the contrary, our silence will usually signal progress and success—and if anyone is adept at reading between the lines, I hope my meaning has been clear.

I believe profoundly that the mantra for franchisee lawyers should be “It’s the contract stupid!” A franchisee’s rights (or lack of them) emanate from the terms of the deal.   

Would I like to see fairer treatment of franchisees, would I like to see fraud disappear, or the elimination of poor business judgment from franchisors and franchisees alike?  You bet!   

Does having a fair franchise agreement protect a franchisee?  Affirmative.   

Can we prevent or stop a financial crisis in the U.S.?  Or a company from failing?  Not a prayer! 

Getting Franchisors to embrace accreditation is our real challenge. Surmounting this obstacle and increasing the numbers of AAFD Accredited Franchisors promises to yield better franchising for all. Not one piece of franchise legislation has been taken up by Congress in the past 20 years, but the AAFD has enticed 20 franchise brands to voluntarily put franchisee rights into their franchise agreements, and backed by a franchisee right to claim a violation of contract rights.  To mind my, that is a significant achievement. 

All readers of the Bluemaumau community can make their own judgments about the virtues of the AAFD’s work.  We are building owners associations armed with professionalism and with the clout to demand negotiated relationships.  We are providing the franchising community with strong guideposts for fairness.  And finally, we are rewarding fair and balanced agreements for discerning franchisees.  And, like many of the franchisees and franchisors we work with, we are doing all of this on a limited budget. 

As some have suggested, the AAFD’s Annual Meeting is May 4-7 in Newport News, Virginia.  It is a cheap date, and registration is available at our website.  Our Standards Committee meets in open session, and the audience is invited to join our debates (only committee members can vote).  In order for a standard to pass, it must be approved by a majority of our franchisor members, a majority of franchisee members, and a majority of attorney members—then the entire committee must approve it by a 2/3’s vote.  It is both an interesting and tedious process, but if you care to read our standards I think you will be impressed by the conscientious work of our committee. 

I hope to see you there!