RE­BUILD­ING FRAN­CHISE CON­FI­DENCE

This is the FCA’s fi­nal sub­mis­sion to the Par­lia­men­tary Joint Com­mit­tee on Cor­po­ra­tions and Fi­nan­cial Ser­vices In­quiry into the op­er­a­tion and ef­fec­tive­ness of the Fran­chis­ing Code of Con­duct, Septem­ber 2018.

Inside Franchise Business - - Contents -

The FCA sub­mis­sion to the par­lia­men­tary in­quiry.

The Fran­chise Coun­cil of Aus­tralia has been fol­low­ing the sub­mis­sions and tes­ti­mony with in­ter­est, and ac­knowl­edges the con­struc­tive ef­forts in­vested through­out this process to im­prove the sec­tor.

It is es­sen­tial that the Aus­tralian com­mu­nity have con­fi­dence in the fran­chis­ing sec­tor. That con­fi­dence has been dam­aged in re­cent times and needs to be re­built through mean­ing­ful and trans­par­ent steps.

The FCA is not pre­pared to ex­cuse in­ci­dences of poor be­hav­iour or stan­dards. Al­le­ga­tions of wrong­do­ing should be prop­erly in­ves­ti­gated in a timely man­ner, and if proven, dealt with ac­cord­ingly.

The Fran­chise Coun­cil of Aus­tralia is not a reg­u­la­tory body or watch­dog. We have a set of mem­ber stan­dards that our mem­bers agree to abide by but we can­not ap­ply legal penal­ties for wrong­do­ing. That role rightly sits with the reg­u­la­tor.

We do seek to work with our mem­bers and the broader sec­tor to drive com­pli­ance, best prac­tice stan­dards and ed­u­ca­tion. We pro­vide our mem­bers with in­for­ma­tion about their com­pli­ance obli­ga­tions, emerg­ing reg­u­la­tory is­sues, and ac­cess to ed­u­ca­tion re­sources, as well as our broader pol­icy and ad­vo­cacy work. Some of the fran­chise busi­nesses that have ap­peared to be­fore this in­quiry to an­swer ques­tions are mem­bers of the FCA. A num­ber of oth­ers are not mem­bers. Nonethe­less, they are all fran­chise busi­nesses and any in­ci­dence of wrong­do­ing, proven or in­deed dis­proven, tar­nishes the en­tire sec­tor.

A num­ber of the sto­ries that have emerged through this in­quiry are sad and dis­ap­point­ing. Some of them high­light sim­ply in­ex­cus­able be­hav­iour.

This in­quiry is dif­fer­ent to other fran­chis­ing in­quiries for a num­ber of rea­sons:

• It has oc­curred quite close to a pre­vi­ous in­quiry from 2013, and in the con­text of a reg­u­la­tory frame­work that has been com­pre­hen­sively re­viewed.

• The reg­u­la­tory frame­work is con­sis­tent with oth­ers around the world, and seen by many as struc­turally world’s best prac­tice.

• De­spite these facts, it re­mains that there is clearly an un­ac­cept­able level of be­hav­iour in the sec­tor. This is prob­a­bly the biggest cri­sis in con­fi­dence in fran­chis­ing the sec­tor has ever seen.

The two most sig­nif­i­cant ques­tions that should be asked are what has gone wrong, and where do we go from here to re­pair these prob­lems?

To­day, we wish to give you our thoughts on those key ques­tions, along with our per­spec­tive on how to best do that.

We have lis­tened care­fully to the sto­ries and tes­ti­mony that have been pro­vided to this in­quiry. We have read the sub­mis­sions and fol­lowed closely the ques­tions asked and the an­swers given. There have been con­struc­tive and thought­ful ideas put for­ward, and through tabling a sup­ple­men­tary sub­mis­sion the FCA would like to pro­vide our re­sponse to these is­sues, pro­vided as late as last week’s hear­ing, for your con­sid­er­a­tion.

We have iden­ti­fied a num­ber of key themes dis­tilled from var­i­ous sub­mis­sions to the in­quiry, and com­mented upon them in our Sup­ple­men­tary Sub­mis­sion. In this open­ing state­ment we would like to pick just a few, which we see as be­ing the most crit­i­cal:

• The sub­mis­sions fea­ture an un­ac­cept­able num­ber of al­le­ga­tions of con­duct that are a breach of the cur­rent law. That is in­tol­er­a­ble, and those fran­chisors need to be held to ac­count. • The cur­rent com­pli­ance and en­force­ment regime is break­ing down – fran­chisees and the pub­lic are en­ti­tled to ex­pect that ex­ist­ing laws will be ef­fec­tively po­liced and con­se­quences will flow from any breaches. The ACCC needs to be more proac­tive and not solely re­liant on a com­plaint-ac­ti­vated process. There seem to be gaps be­tween the ex­pec­ta­tions of the pub­lic and fran­chisees, and the ac­tions of reg­u­la­tors and agen­cies such as the ACCC, SBFEO, OFMA, state Small Busi­ness Commissioners.

• Far too many fran­chisees are not ob­tain­ing legal and busi­ness ad­vice, un­der­min­ing the du­al­ity of obli­ga­tion that un­der­pins the Fran­chis­ing Code – re­spon­si­ble fran­chisor be­hav­iour, and fran­chisee due dili­gence. The FCA be­lieves it is time to make ob­tain­ing legal and busi­ness ad­vice manda­tory, sub­ject to very limited ex­cep­tions (low value deals, ex­ist­ing fran­chisees, so­phis­ti­cated in­vestor etc.).

• Although most com­plaints have been framed as fran­chis­ing com­plaints the real un­der­ly­ing is­sues are of­ten in­dus­try is­sues – mo­tor ve­hi­cle in­dus­try, retail food busi­nesses in ma­jor shop­ping cen­tres, con­ve­nience stores etc. Of those the biggest con­cern to the FCA is the con­duct of ma­jor shop­ping cen­tre pro­pri­etors – anti-com­pet­i­tive con­duct in their con­trolled mar­kets, and end of term lease ne­go­ti­a­tions be­ing the most crit­i­cal. We have some spe­cific rec­om­men­da­tions: • Manda­tory legal and busi­ness ad­vice. • The in­tro­duc­tion of a manda­tory reg­is­tra­tion re­quire­ment, ad­min­is­tered and funded largely by the fran­chise sec­tor but aug­mented by rel­a­tively sim­ple en­abling amend­ments to the Fran­chis­ing Code and dove­tailed into ex­ist­ing ACCC en­force­ment ac­tiv­i­ties.

• Re­fine­ment of the ACCC’s com­pli­ance check­ing pro­cesses and en­force­ment ac­tions to be more proac­tive and ef­fec­tive.

• Con­sid­er­a­tion of re­in­stat­ing a sim­pli­fied

form of fran­chisee to fran­chisee dis­clo­sure. • Sup­port of some (but not all) of the

amend­ments re­quested by the ACCC. • Im­prov­ing the ef­fec­tive­ness of the Code’s

dis­pute res­o­lu­tion mech­a­nisms. • Trans­la­tion of the In­for­ma­tion State­ment

into mul­ti­ple lan­guages.

• Re­view and en­hance­ment of pre-en­try ed­u­ca­tional con­tent, with a fo­cus on broader busi­ness skills and the needs of new en­trants to Aus­tralia.

• Com­pi­la­tion of an Aus­tralia-wide list of fran­chis­ing lawyers and ad­vi­sors to bet­ter fa­cil­i­tate legal and busi­ness ad­vice, to­gether with sup­port ma­te­ri­als to im­prove the qual­ity of ad­vice.

There have been se­ri­ous is­sues raised in this in­quiry, and they de­serve a se­ri­ous re­sponse. The FCA is com­mit­ted to im­prov­ing stan­dards and be­hav­iour in the sec­tor and driv­ing a fo­cus on ed­u­ca­tion and com­pli­ance. Fran­chis­ing is a ma­jor em­ployer and con­trib­u­tor to eco­nomic ac­tiv­ity in Aus­tralia. The sec­tor em­ploys over half a mil­lion peo­ple.

There has to be a fu­ture for fran­chis­ing in Aus­tralia, and that fu­ture must pro­vide a se­cure and con­fi­dent sec­tor to in­vest in, and be iden­ti­fied as an em­ployer of choice.

MARY AL­DREDCEO, Fran­chise Coun­cil of Aus­tralia

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