IT'S A REGULAR THING...
Regulation is just part of doing business, and Australia’s franchise sector shows how it can be handled elegantly and simply rather than tying
everyone up in red tape.
Regulation is an inevitable characteristic of contemporary life. Our economic and social growth depends on a highly complex economy, which in turn needs sophisticated rules and enforcement procedures across a wide range of activities.
Efficient regulation enhances growth and competitiveness, provides consumer confidence and stimulates investment. Sadly, however, not all regulation is good and efficient.
The 2006 Rethinking Regulation report came to the conclusion that over-regulation or inappropriate regulation impedes economic growth, limits the scope for innovation, undermines entrepreneurial drive and reduces productivity and competition. The report acknowledged that there are too many examples of inefficient regulation in Australia.
Regulation, of course, involves a cost to business. The Rethinking Regulation report estimated that compliance matters can consume up to 25 per cent of the time of senior management, but the impact is even greater for small businesses which generally do not have the in-house capacity to deal with and keep abreast of the “regulatory morass”.
While all regulation has a cost to business - as well as to governments in administration and enforcement - it is red tape that poses the greatest problems. The term “red tape” is commonly used to describe regulatory requirements that are excessive, unnecessary, redundant, overly rigid, inefficient or bureaucratic. Though the red-tape issue is universally acknowledged and parties of every political persuasion commit to its destruction, it proves to be a resilient pest whose extinction is not imminent.
The regulatory challenge in Australia is, of course, complicated by our federal system that necessitates power sharing among the constituent parts. Although we are getting better, the reality is that Australia’s nine regulatory clocks - federal, state and territory – do not always chime in unison, and there is frequently overlap and duplication.
However, this reality does not explain the sheer bulk of our regulatory repertoire. Our income laws, which started life in 1936 with 88 pages, grew to more than 11,000 pages by 2006 before 4000 pages were culled.
Our laws regulating competition, corporations, fair trading and other areas of business, while not quite as voluminous are still massively daunting.
How has regulation impacted the Australian franchising sector? We are undoubtedly one of the world’s most comprehensively regulated franchise sectors with the comprehensive underlying laws of general application - especially the prohibitions of misleading and unconscionable conduct - supplemented since 1998 by specific-sector regulation imposed by the Franchising Code of Conduct.
Australia is among the minority of countries that specifically regulate their franchising sectors. The sector has been well served by the code, which has wide support and is entitled to much of the credit for Australia’s enviable standing internationally. The code has improved industry standards, discouraged unethical franchisors, given comfort to vulnerable franchisees and led to better relationships.
The Australian sector has been fortunate that the constitutional complexities of a federal system, which has in so many cases frustrated business by a mishmash of federal, state and territory legislation, has not bedevilled and complicated the franchise sector. We have one regulatory instrument, the Franchising Code of Conduct, and it is fortunate that proposed initiatives from South Australia and Western Australia for state legislation imposing a further layer of regulation did not eventuate.
The franchise sector indeed offers an instructive precedent for the regulation of other industry sectors. The code pioneered a new form of regulation - an industry code under the Competition and Consumer Act which, in essence, gave legislative recognition and authority to an unenforceable industry code of practice through “substantial opportunity for industry involvement to ensure appropriately targeted regulatory solutions”.