May 31, 2016

Should franchisors create a franchisee advisory council?

Franchisee advisory councils can serve as a useful interface in the franchise relationship. Not only will this type of organization play a useful role as a communication vehicle, it can be a resourceful sounding board if properly structured and utilized. Conversely, poorly organized and led franchisee councils can lead to conflict or futility.

The laws in those provinces with franchise legislation grant franchisees the right to associate with each other without interference or penalty from a franchisor. Associations may be created by franchisees and exist independently of the franchisor (often called “franchisee associations”) or they can be established, funded, and supported by the franchisor (commonly referred to as “advisory councils”).

A common feature of an advisory council is that it is created by the franchisor and exists only with the franchisor’s continuing financial support and guidance. The franchisor retains oversight over the activities of the council and its decision making authority. At the outset, the franchisor will usually prepare the council’s governing documents, establish a method for member selection (e.g. appointment, election according to regions), and require certain conditions for membership (e.g. that a franchisee not be in default under its franchise agreement). Nearly all advisory councils constitute their membership through election, rather than appointment by the franchisor.

Advisory councils have been used by franchisors as a means of communicating to franchisees important developments, such as the introduction of system-wide changes, and facilitating research and development on new products and services that may be offered by its franchisees. The council typically meets with the franchisor quarterly or semi-annually. Rarely would the council have veto rights over franchisor decisions, but it is equally rare that a franchisor would ignore its council’s recommendations. The topics discussed by the advisory council vary considerably and may include discussion of the manner in which goods and services are provided within the system, equipment selection and financing, and approaches to advertising, promotion, and marketing.

Successful advisory councils share many characteristics. First, they are chaired by someone who keeps discussions focused on relevant issues and is able to encourage an open constructive dialogue between other council members. Second, the franchisor’s senior management must be involved with the council and be prepared to listen and take action on legitimate concerns. The council should not be used as a forum for “divide and conquer” by the franchisor or to subvert the resolution of challenging issues. Third, there should be involvement of mature, commercially minded franchisees that respect the rights and responsibilities of the franchisor and are genuinely motivated to enhance the value and goodwill of the entire franchise system. Those driven by personal agendas do not contribute to the smooth operation of an advisory council. Finally, discussion topics should be of interest to both parties, who should adopt an interest-based attitude to problem solving, rather than the more adversarial, “winner takes all” approach of positional bargaining.

All good advisory councils share a common goal: fostering constructive two-way communications between a franchisor and its franchisees by having a select group of franchisees discuss on a regular basis matters of mutual interest with the franchisor. In the right environment, franchisee advisory councils can be an effective means of advancing the shared interests of both franchisor and franchisee. Prior to implementing a franchisee advisory council, wise franchisors should consult with their professional advisors.