COMPLIANCE IS KEY
FCA CEO Mary Aldred stresses the importance of compliance.
Examples of poor franchising experiences would most certainly be reduced by greater compliance and enforcement across the sector, the Franchise Council of Australia (FCA) believes.
With franchising having received substantial media scrutiny, it is now the subject of a federal parliamentary inquiry tasked with reviewing the effectiveness of the Franchising Code of Conduct, which governs the sector.Franchising directly employs nearly half a million Australians, with almost 80,000 franchise units trading across the nation. There are simply too many livelihoods at stake for the inquiry to deliver findings that would adversely impact this unparalleled model of entrepreneurship.
That is why, in its submission to the inquiry, the FCA
The Franchise Council of Australia does not see the need for extra regulations, just the ability to enforce what is already in place.
advocated enforcing compliance with the existing structure rather than adding extra regulations. It believes there should be a stronger culture of compliance across the sector, and that this should be the focus of the inquiry.
No-one is more keen than the FCA to understand the underlying causes of poor franchising experiences being reported. Conversely, the FCA is also privileged to hear about the many, many positive experiences franchising provides.
There are stories of families who have built intergenerational franchise businesses, of migrants who have taken the systems and processes offered through franchising and grown successful multi-unit businesses, small-business people who have bought a struggling franchise business and through hard work and dedication turned it into one of the network’s best performers.
It is women who have found the flexibility to balance families and business ownership, employees of a franchise business who have gone on to become profitable franchisees in their own right and individuals who have carved out successful careers as franchisees within more than one franchise brand.
These stories and so many more exemplify the power of franchising to positively transform lives and livelihoods.
It is important these stories be told, and that any recommendations made as a result of this franchising inquiry do not create a regulatory landscape that impedes the ability of future franchisees to realise their business goals.
Australia’s substantial and successful franchised economy is already supported by one of the most comprehensive and effective franchising regulatory systems in the world. In our experience, most franchise businesses by far uphold the highest standards. And while franchised businesses enjoy improved prospects of success and profitability compared to independent, standalone businesses, they still compete in a dynamic and challenging marketplace.
The FCA acknowledges there are examples of poor commercial outcomes within franchising that appear to have risen not only from market pressures, but also from incidences of poor practice and standards, as well as apparent breaches of the Code of Conduct.
The issue is not that the regulatory framework fails to prescribe protective measures. Rather, it is that in certain reported cases the code has simply not been adhered to, nor has it always been enforced. This means that regulators such as the Australian Competition and Consumer Commission (ACCC), which administers the Franchising Code of Conduct, need to be adequately resourced to collect data, provide guidance on best practice, investigate claims of wrongdoing and, where necessary, take enforcement action. That needs to be a key focus of this inquiry.
That is why the FCA’s submission recommends making more funding available to the ACCC and allied agencies to better support enforcement of the code and more efficiently respond to small-business concerns about any alleged lack of compliance. The ACCC needs to be able to use its powers to issue fines and infringement notices, conduct random audits and take court actions more frequently where there is systemic evidence of non-compliance.
A franchisor’s first customer is its franchisees. Publicised examples show what can happen if other imperatives or priorities creep into the franchise relationship. Providing each and every prospective franchisee with the best chance of running a successful business, while acknowledging the impact of external market forces, should be the goal of every franchisor.
However, more can be done to ensure franchisees have all the pertinent information they need before signing a franchise agreement. The FCA’s inquiry submission makes recommendations for ensuring more franchisees use and follow the code process by:
• Allocating funding to educational initiatives that ensure prospective franchisees are aware of the protections available to them, the benefits of obtaining advice, their due-diligence obligations and available guidance resources;
• Streamlining the code’s disclosure documentation, providing more focused information about the risks and opportunities, rewards and obligations of a prospective franchise business investment in a format that is easier for franchisees and their advisors to use; and
• Translating the code’s Information Statement into multiple languages because about 70 per cent of small-business owners are migrants. Mandating the requirement for some prospective franchisees to obtain competent legal and business advice before making the significant personal and commercial decision to invest in a franchise business opportunity is another of the FCA’s core recommendations.
RESPECT AND PROTECT
A strong compliance and enforcement setting is incredibly important to respect and protect this business model and the thousands of hard-working people who depend on it.
However, it is equally important that any regulatory changes strike the right balance between a “rules-based system” and the rights of individual businesses to work freely in a market that creates jobs, consumer choice and shareholder wealth through competition, innovation and entrepreneurship.
A failure to do this, or overly heavyhanded and unnecessary regulation, will jeopardise jobs, risk thousands of small businesses and also hurt consumers.
As the peak body for franchising in Australia, the FCA will continue to work with the government, regulators, franchisees and franchisors, suppliers and employees to ensure high standards are observed and the sector is seen as an employer of choice.
Franchising is truly the engine room of the Australian economy, with the $146 billion sector being responsible for nearly half a million jobs across the nation.