Joel Libava
A video about the Responsible Franchising Initiative:
I mostly support the new “Responsible Franchising” initiative put forth by Matthew Haller, CEO of the IFA. Why?
Because it has a lot of good things in it that may help protect franchise buyers. However, there’s something I’m very much against.
In this post, I’ll discuss what that is, including my sparring match…er…conversation with Matthew.
Update: the FTC just did this.
The Core Practices of The Responsible Franchising Initiative
According to the IFA, responsible franchising includes:
- Setting clear goals and expectations during the pre-sale period so that franchisors and franchisees are aligned as to terms of their long-term relationship
- Connecting prospective franchisees with the right opportunity through due diligence and validation of all parties in the franchise sales process
- Ensuring that franchisors and franchisees commit to their respective operational obligations to protect both the brand and the franchisee’s equity in their business
- Focusing collectively on driving unit economics and profitability for all parties
- Embracing collaboration among the franchisor and franchisees through open communications with franchise advisory councils and independent franchisee associations when modifying standards to respond to changing market forces and consumer preferences.
In theory, this is good stuff. Franchisees would benefit a lot.
Let’s continue.
A Letter Was Written To The FTC
Did you know that 15 members of the U.S. Senate urged the FTC to strengthen and improve the Franchise Rule? And that the IFA fully supports what the Senators wrote?
Here’s a portion of their letter to the FTC:
“We are aware that the Franchise Rule is under review and that the Commission separately has sought public comment and information related to the franchise relationship. A number of submissions to the Commission’s Request for Information called for improved presale
disclosures, including greater transparency of franchise terms and conditions, modernized franchise disclosures, awareness of the FTC complaint process, and greater dialogue with the franchise community. These are common sense changes to the Franchise Rule we believe the
Commission should consider.” Here’s the entire letter.
I’m impressed.
Not so much with what the Senators wrote, but that Matthew Haller and the IFA approve of it.
Heck, they encourage the Franchise Rule updates listed above. That’s huge. Especially since the IFA tends to be more franchisor friendly than franchisee friendly. So there’s that.
But my biggest concern has to do with the total lack of enforcement of this initiative…by the IFA itself.
And this is where things get…got interesting, hence the more dramatic than it needs to be title of this blog post, “The Franchise King vs. The ‘Responsible Franchising’ Initiative.”
And why did things get interesting?
Because Matthew Haller spotted (and read) the post I wrote about the initiative. And I don’t think he liked it too much. Well, some of it. And how do I know?
Because he dropped me a note telling me as much. But not in a mean way. In a professional, “Let me tell you what you may not know” way.
About Matthew Haller And The Franchise King
Matthew Haller, the President and CEO of the International Franchise Association (IFA) and I have “known” each other for years.
As in, we’ve talked on the phone and have emailed each other more than once. And I’m not even a member of the IFA! Unfortunately, we haven’t met in person. Yet. And I want to. Why?
Because I like Matthew a lot. I respect him, and I feel he respects me.
And frankly, Matthew is way more open to having candid, professional discussions with fellow members of the franchising community then the guy who was in charge of the IFA before him.
Furthermore, Matthew knows how much I care about franchising. He also knows how strongly I feel about the importance of aspiring franchisees getting ALL the information they need.
Heck, teaching aspiring franchisees how to do franchise research the right way…how to get all the information they need to make a smart decision on a franchise to own, is the focus of my business.
And as an added bonus, Matthew knows I’m willing to call out bad actors in franchising-and that I’ll continue to do so. And?
Nothing.
I call out lousy franchisors, so I can help protect people from getting ripped off. Speaking of which.
Enforcement Of Responsible Franchising Principles Is Non-Existent
Again, this is my biggest beef with the Responsible Franchising initiative.
Bluntly, I don’t understand how one can put together a list of specific things all franchisors need to do when conducting business, and not have a mechanism in place to punish franchisors that don’t do them.
With that in mind, this is from the post I wrote about Responsible Franchising that got Matthew Haller’s attention:
“While it’s great to promote Responsible Franchising, there needs to be consequences for those in the franchise community who are irresponsible.”
I continued…
“Plainly speaking, if the Responsible Franchising initiative doesn’t have teeth, it’s meaningless.”
Am I right?
The Franchise King® vs. Responsible Franchising Initiative: Matthew Was ‘Taken Aback’
Taken aback?
Yep.
I want you to take a look at what Matt told me (via email) after he read my post.
Note: Matt (above) gave me permission to show you what he wrote.
Matt: “Joel, I must say I was a bit taken aback at your recent op-ed on the responsible franchising initiative, as it seems as though you glossed over the substance of what we put out – the detailed improvements we are suggesting to the FTC to re-write the entire FDD, and pivot from the current format to a much more Q&A style format. We are not proposing (at least not yet) any additional disclosures, but rather trying to move to a format that franchisees will actually read and understand, vs. the legalese and cumbersome format that exists today.”
Matt’s right. I didn’t read all the details of the initiative the IFA is proposing. You can see it here. Matt continues:
“Beyond that, we’ve been championing additional disclosure in California for brokers (aka 3rd party franchise sellers, including FSOs), and have pushed NASAA to release their own model broker regulation that will ultimately be adopted by the states.”
Note: I’ll post on the topic of franchise business broker regulations soon.
Again, the IFA stepped up with some sorely needed ideas for franchise broker regulations and disclosures. So kudos to them. Anyway…
I emailed Matt back:
“I like what you want to do with regards to the FDD. Great ideas. I should have said more on that in my post. I apologize. And I think you know me well enough to know that I don’t let my ego get in the way when it comes to taking suggestions from others and/or admitting when I’m wrong. As to better broker disclosures…I’m all for it.”
With that being said, here’s the other back and forth Matt and I had.
Matt: “I know there is always a desire by those who want IFA to somehow be the ‘franchise police’ and regulate our members. The reality is that the regulators need to step up their game, both federal and state, and hold those bad actors accountable. We can do our part thru education of the industry and prospective franchisees, and people like you with a platform should do your part by calling out bad behavior and questionable brands.
My response:
“But Matt, common sense dictates that if you’re going to make Responsible Franchising a thing, it does need to have more teeth. Michael also shared that associations generally don’t police their members.“
I ended that email conversation in the following way:
“Finally (again), I care about franchising a lot. I especially care that aspiring franchisees don’t get screwed. And for me, that’s what it’s all about. Because franchising does rock!”
On Associations
Admittedly, my knowledge of the inner workings of associations like the International Franchise Association are limited. Wait. Scratch that. I have no idea how associations work. But maybe the way they work needs to change?
Because as I said, as much as I like the “idea” of the Responsible Franchising initiative, there needs to be a way for the IFA to hold irresponsible member franchisors accountable for their actions. And I have one simple idea on how to do just that.
But first, you should know that after I posted my article on Responsible Franchising on LinkedIn, there was quite the discussion in the comment section. Some real sparring happened. In a respectful, professional way.
With that in mind, I want you to read what Michael Seid, an influential and highly-involved member of the IFA wrote when he and I went back and forth on what the IFA (as an association) can and cannot do:
“Joel, this issue of any trade association becoming a regulatory body – especially given that membership is voluntary – to me is a red herring. Trade associations proclaim standards – and I am not certain what more any association can do.”
Michael continued…
“Let’s remember, being a member of any association in any industry is generally voluntary. Even in regulated industries like accounting and the law, joining the AICPA or the ABA is not a requirement to practice.”
Michael then summed his comment up in this way:
“When you come up with an answer, let me know. Thanks for the discussion.”
Okay. Here’s an answer:
The IFA should kick out franchisors who have proven to be irresponsible.
And the public needs to report franchisors who are engaging in nefarious/fraudulent activity to the Federal Trade Commission.
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