Inside Franchise Business - - Final Word - AN­DREW TERRY

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”.

Pro­fes­sor of Busi­ness Reg­u­la­tion, Univer­sity of Sydney Busi­ness School

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