June 26, 2011

What are Franchisee Advisory Councils and Franchisee Associations?

This article originally appeared in the July | August 2011 issue of FranchiseCanada.

Franchisee associations and franchisee advisory councils can serve as a useful interface in the franchise relationship. Generally, both types of organisation can play a useful role as communication vehicles and sounding boards if properly structured and utilised. Conversely, poorly organised and led franchisee associations and franchisee advisory councils can lead to conflict or futility.

Franchisee Associations

Franchise legislation in Ontario, Alberta, British Columbia, New Brunswick, Manitoba, and Prince Edward Island grants franchisees the right to associate with each other without interference or penalty from a franchisor. Franchisee associations are mostly created by franchisees and exist independent of the franchisor. Membership is voluntarily and rarely represents all franchisees in a system. Their purposes include improving communication with the franchisor, collecting information of interest to all members, and negotiating with the franchisor.

Franchisee associations are funded by franchisees. These associations formulate their own governing rules and retain independent legal and financial expertise. Associations have no authority to make decisions binding on a franchisor, though the collective will of an effective association may be difficult for a franchisor to ignore. The franchisor typically has no official role within the franchisee association and is not present for association meetings.

There are many different catalysts for the formation of an independent franchisee association. They often form as a crystallization of prolonged frustration that a franchisor has not been listening to franchisee concerns or is unwilling to address specific issues. The formation of an association can be triggered by a perceived threat to franchisees arising as a result of a franchisor that is viewed as incompetent or self-serving in its intentions and actions. Associations are sometimes formed as a result of agitation or political forces, for example, franchisees having a personal grievance against a franchisor and taking it upon themselves to “fight” the system.

Franchisee 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 support. The franchisor retains a significant amount of control over the activities of the council and its decision making authority. 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 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. 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.

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 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 of the 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.

Concluding Remarks

Both advisory councils and franchisee association 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 associations and advisory councils can be an effective means of advancing the shared interests of both franchisor and franchisee. Prior to deciding which form of organization to use, it is wise that franchisees consult with their professional advisors.