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A Decade of Corruption

The recent review of the performance of 2010 changes to the Franchising Code of Conduct in Australia is proving to be simply another embarrassing episode in what has been an eventful decade of ignorant and corrupt government.

Franchising in Australia contains scores of investment worthy brands operating in the best interests of all stakeholders. At the other end of the scale are the endless numbers of brands that are not viable investments, fraud franchises, that simply exist to profit from the abuse of their immense contractual and financial power continually turn over franchisees.

While there have been federal inquiries mentioning serious problems in Australian franchising dating back to 1976 this last round of Inquiries into the performance of the Franchising Code of Conduct really began to build noticeable momentum in 2003.

Questionable bias toward franchisors by Australia’s federal government came to the fore in following the introduction of GST to Australia in 2000. Franchisees were calling on their franchisors for a fair and reasonable sharing of GST costs while the Franchisor Council of Australia lobbied the federal government. The GST Act was changed and franchisees became responsible for all costs. Australia’s franchisees at the time had no voice. Every contract was changed to conform and suddenly the business financial model was not the one any franchisee signed up for.

From 2003 to 2007 seemingly agreeable federal Small Business Ministers and Opposition Ministers met with franchisee lobbyists calling for a federal franchising inquiry. It was a time of optimism flushed as none of the ministers were genuine and nothing happened. The Franchise Council of Australia had been busy building relationships with politicians assuring that, contrary to undeniable evidence, there were no systemic problems in franchising.  

In mid 2004 the FCA advised the then Australian Franchisees Association that it had $5M in a fighting fund to thwart any attempt to have a federal inquiry into franchising and stop any reform of the Franchising Code of Conduct.

Keep in mind that this was also a time of regular media reports of well known brands such as Lenards Chicken, Midas and Bakers Delight, and others, being extremely busy burning very angry franchisees.

FCA arguments that there were no systemic problems in franchising were supported by paid-for academic reports while the independent academics who provided great detail on systemic problems were conveniently ignored.

Regularly replaced Small Business Ministers under Liberal Prime Minister John Howard ignored continual calls for a review of the mandatory Franchising Code of Conduct and that was followed by Labor Prime Minister Kevin Rudd’s Small Business Minister in 2007, Craig Emerson, absolutely rejecting the need for a federal inquiry. Emerson had been generously schooled by the FCA.

In the face of many hundreds of franchisees being churned by rogue franchisors the Australian federal government, the ACCC and a handful of academic ‘experts’ who relied on FCA funding maintained that there were no systemic problems in franchising. Franchising complaints to the ACCC were mostly shelved with all fault being levelled at ‘poor performing’ franchisees.

In 2008 the South Australian [Labor] and Western Australian [Liberal] state governments undertook their own franchising inquiries in disgust at the Emerson’s federal refusal. The two state Inquiries concluded that there existed serious and systemic problems in franchising. Both state inquiries came back with very similar and far reaching recommendations including to finally introduce franchise relationship law to Australia.

The next step was to be the introduction of state franchising legislation. The Franchise Council of Australia squealed long and loud and finally federal Labor Minister Emerson came forward agreeing to a federal inquiry. One he and the FCA clearly expected to a) fend off state legislation and b) water down any effective franchising reform.

The federal Inquiry chaired by Labor’s The Honourable Bernie Ripoll MP spent many months reviewing written submissions and travelling Australia attending verbal submission hearings. There Committee’s diligence was one of the very few honourable moments in Australian franchising.

That Inquiry produced exactly what Emerson and the FCA did not want. The ‘Opportunity Not Opportunism’ report (pdf, 3.3MB attached at bottom of Op-Ed] tabled by Bernie Ripoll in December 2008 had striking similarities to the findings and recommendations of both state inquiries.  The introduction of effective franchise relationship law to Australia appeared to be a certainty.

Of note; Bernie Ripoll also included a scathing special Appendix 3 that outlined the potential for criminal sanctions;

The Committee has considered this letter and directed me to write to you to warn that the letter may constitute a contempt of parliament and a criminal offence.    ....

Such action may also constitute a criminal offence under Section 12 of The Parliamentary Privileges Act 1987. Penalties may include fines or imprisonment not exceeding 6 months.

The letter was sent to Stephen Giles (pdf, see pg. 162) and referred to evidence received by the Committee in relation to Giles' representation of the Poolwerx franchisor, John O’Brien, a former FCA chairman. Stephen Giles, [of Deacons Law Firm at the time and of today’s Norton Rose Law Firm] was/is a regular chairman of the FCA. The Inquiry had uncovered clear evidence of intimidation against a franchisee who was known to be preparing a submission. 

As a means to satisfy his relationship with the Franchise Council of Australia and bypass the Ripoll recommendations Emerson then brought in an ‘Expert Panel’ to water down any adopted changes to the mandatory Franchising Code of Conduct. The writing was on the wall; effective relationship law would be ignored on the back of an ever grateful and generous FCA.

The Franchise Council of Australia’s again orchestrated opposing ‘template’ submissions which were recognized and those from pro-reform franchisees, academics and various associations and advocates were ignored.

It should be mentioned that throughout the 2003 to 2010 period Australian franchising experienced the worst of the Graeme Samuel, chairman of the Australian Competition and Consumer Commission, outrageously pitiful and neglectful performance. His relationship with Stephen Giles and the Franchise Council of Australia was possibly the greatest abuse experienced by Australian franchisees. Rogue franchisors were cramming personal bank accounts while Graeme Samuel fiddled.

Also noteworthy of Graeme Samuel’s franchising non-achievements and relationship with the FCA was the ACCC’s sponsorship of the Griffith University’s Centre for Franchising Excellence online prospective franchisee course. It is a course clearly designed to lull unsophisticated investors into a false sense of confidence arming them with mostly useless tools that fail to distinguish between investment worthy franchises and absolute disasters. Obviously Griffith University places FCA funding ahead of ethics, accuracy and effectiveness.

Emerson’s final 2010 changes to the Code were to be little more than ‘window dressing’ and would effectively do nothing to deal with the systemic abuses that were badly tarnishing the reputation of Australian franchising. He had ignored the bulk of the recommendations and would later lie about it to a room of small business stakeholders during the 2010 federal election campaign.

The FCA had in reality done a disservice to franchisors by further escalating the damage to the reputation of Australian franchising at a time when franchisees were building anti-brand web sites and beginning to drive social media strategies. The numbers of inquiries from prospective Australian franchisees took a nose dive and those repercussions continue today.

Both Western Australia and South Australia reacted by moving to introduce state franchising law. The FCA’s effort to stop state laws was headed by Stephen Giles. While he had private meetings with state politicians Giles had the hide to set about personally attacking the motivation of key state politicians who pushed for state law. It was an offensive campaign from Giles and was met with bipartisan outrage and disgust. The Franchise Council of Australia had dropped its pretence of civility and crudely pursued two desperate state campaigns.

It should be noted that through the last decade, both in federal and state parliaments Australia saw many vocal and frustrated politicians from both sides of politics offering specific examples of abuses in speeches to Parliaments. It seems that good Australian politicians with ethics and morality are not even recognized by their own parties and are generally pushed to the backbenchers.

In South Australia with virtually unanimous bipartisan support Tony Piccolo MP took the proposed Bill to the then State Small Business Minister who set about aligning the abuses faced by franchisees with those faced by all small business in dealings with superior financial power. In an unexpected move Tom Koutsantonis pushed through wide ranging small business protection that included franchisees under the Small Business Commissioner Act

The FCA campaign had been particularly spiteful in South Australia and no amount of private meetings would deny the clear need for effective reform. To this day Stephen Giles continues to spit and dribble about his one major failure to caress law makers.

In Western Australia there was almost unanimous bipartisan support for state franchising law; however at the final stage it came down to a vote between seven Liberal government members. The FCA had been hard at work in private meetings and in a split the chair’s deciding vote was against installing state franchising law. WA Liberal Peter Abetz who had led the push for franchising law quietly fumed at the inner workings of his party.

One of the recommendations taken up by Emerson in 2010 was to review the performance of Code changes in 2013 and this brings us to our current review conducted by Alan Wein.

This review is bought into question on two levels. One was the sudden blocking of pro-reform submissions that were to later be unblocked with no reason, and definitely no acceptable reason give. While it was argued that two submissions presented the potential for the government to be sued over submission comments; there was no such potential for the many others.

Authors were clearly expected to check that their submissions were published and they were. And then they were blocked for no apparent reason until the franchisee grapevine alerted authors who then complained directly and in social media.

The second level of suspicion relates to the extremely narrow terms of reference for the Review set down presumably by Alan Wein. While the Terms were clearly designed to restrict discussion away from the broader failure by Emerson to introduce effective Code reform as tabled in the recommendations from Bernie Ripoll, as explained by Simon Young and Dr Elizabeth Spencer, the Terms of Reference were ignored by the vast majority of submitters.

It would seem that the federal government and the FCA are determined to make the ‘too dangerous at any brand’ a fact of life in Australian franchising. When the Australian franchisee community and advocates consider the recent history around franchising inquiries into extremely profitable franchising abuse is it any wonder the common cry is ‘corruption’.

Note: In my submission I called for an audit of the Franchise Council of Australia’s financial records so that Australian franchisees could all rest assured that there has been no exchange of monetary rewards for politicians or bureaucrats in the making of a decade of farcical federal franchising inquiries and reviews. Alan Wein continues to disallow public access to my submission.

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About Ray Borradale

Ray Borradale's picture

Public Profile

Over forty years experience in Small Business and more than twenty-five years in franchising operations as a franchisee and employed by three franchisors, mostly in operations.

I have dedicated more than ten years and over 15,000 hours in the pursuit of quality franchising and exposing franchisor abuse of franchisees while advocating for the introduction of franchise relationship Law and the levelling of the dispute processes between bigger business and small business.

Contact: rayborradale@yahoo.com.au

Area of Interest
Franchise Operations