August 23 2019

Retaining trust when problems arise

Regain trust

 By Stephen Giles

For the first time in my 30+ years in franchising, we have a fairly widespread feeling of distrust of the franchise model. Although there is no doubt this feeling of distrust has been fanned by negative media articles it would be naïve to assume the problem is not more substantive. It is true that the media, politicians, some regulators and the general public do not have a strong understanding of franchising, and the features of franchising that give it a competitive advantage. And they have been slow to verify facts, yet quick to assert widespread wrongdoing.

However, I believe the franchise sector has not understood how far it has moved away from community expectations. To some degree, franchising is a victim of its own success, in that many franchise systems now feature valuable brands that resonate with consumers. What the franchise sector has been slow to realise is that valuable brands create additional expectations. Not only does the general public expect major brands to have great products and provide excellent service, but they expect members of their networks to comply with workplace laws and act fairly to their franchisees. Although these may not be legal obligations, they carry as much public weight (and risk in terms of adverse publicity) as any breach of the law.

Similarly, the franchise sector has failed to date to respond in a fully comprehensive manner to the obvious problems that have beset the sector. So there has been a loss of trust, hopefully temporarily.

The franchise sector needs to regain trust, and it can only do so through substantive action, not public relations. The rhetoric about the economic contribution of franchising and the wonders of the franchise model which created a lot of hype around franchising in the ’80s, ’90s and early ’00s when franchising in Australia enjoyed exponential growth no longer cut it as justifications for inappropriate conduct. Franchising has grown up, but it now needs to be accountable as an adult, not a precociously talented teenager.

I have seen this expressed in various ways, but there seem to be 4 core elements to effectively addressing a problem and retaining trust:

  1. Empathise where there are serious consequences they should be acknowledged. Empathy is too often incorrectly seen as an admission of responsibility. In fact, empathy is critical to ensuring that the aggrieved party sees you as part of the solution, whether or not you are the cause of the problem. Indeed, far from protecting you from a claim, showing a lack of empathy can in fact be seen as an admission of responsibility;
  1. Understand before actually doing anything it is important to properly understand the problem and to work to ensure others (including your critics) fully understand the Often a problem is painted very simplistically, particularly in the media. Deepening an understanding of the problem helps prevent knee-jerk or inappropriate “solutions”
  1. Own in the context of a franchise network, or the franchise sector more broadly, the temptation is to deflect. That deflection is valid in the context of understanding – for example, criticism of a franchisor by a failed franchisee where failure was in fact caused by inappropriate conduct by a shopping centre landlord is very valid and frequently accurate. But it is still important to “own” the problem.
  1. Address one important advantage of being seen to empathise with affected parties and fully understand and own a problem is that you can then be part of the solution. Ultimately people who cause or contribute to a problem will be judged by what they do to address the problem. Talk is cheap, actions count. So from a sectoral perspective, we need not only to “own” our problems, but we need to develop solutions to address them.

The recent enactment of the Fair Work Amendment (Protection of Vulnerable Workers) Act 2017 is the first legislation in the world to allocate direct liability to franchisors for the workplace law breaches of their franchisees. The rapid enactment of this legislation and the political and media dynamics that caused this to occur have been a cause of some consternation for the Australian franchise sector, particularly as franchising has been singled out for attention notwithstanding that the underlying problem issues are clearly not confined to the franchise model. However, whilst the franchise sector has legitimate cause for complaint in relation to the poor drafting of the legislation, caused to a large degree by the lack of understanding of the franchise model in Government and throughout the bureaucracy, the important lesson is that the Australian public, the media and politicians have higher expectations of brands than they do of independent businesses.

Australia has now crossed the proverbial Rubicon in terms of allocation of legal responsibility in workplace matters to third parties that could easily extend to areas such as income tax, group tax, payroll tax, workers compensation, superannuation and occupational health and safety. Other regulators may be emboldened by rhetoric from the Fair Work Ombudsman’s office that brand owners have additional compliance obligations, particularly as there are obvious enforcement efficiencies for regulators.

Never has it been more important for the franchise sector to proactively own all of its problems, and to start addressing them. The debates concerning the Franchising Code of Conduct were in retrospect much easier, as legislators had

international examples to guide their regulatory approach, and the sector was very effective in further moulding the Code to be more fit for the Australian purpose. However, the amendments to prohibit unfair contract terms in standard form small business contracts, and the recent changes to the Fair Work Act that unfairly and clumsily single out franchising, show that Government is more likely to be very poor at addressing future problems in our sector.

If we are on our game we should not need the media to expose issues that are relevant to our sector. We should be actively meeting now to discuss the future, as only in that way can the franchise sector be returned to its rightful place as the bastion of best practice in small business.