Franchising Compliance and the Best Practice in Focus for the FCA

 

Franchising Compliance and the Best Practice in Focus for the FCA

The franchise sector plays a vital role in Australia’s economy, generating $146 billion in revenue, providing almost 80,000 small businesses with a stable operating framework, and providing employment  for nearly half a million people across the nation.

As CEO of The Franchise Council of Australia (FCA), I am privileged to represent the interests of everyone whose livelihood depends on a thriving franchise sector, including franchisors, franchisees and  the many, manythousands of people who are employed within head office teams and franchisees’ businesses.

Since commencing in this role in April, I have been fortunate to meet some of the entrepreneurial individuals who epitomise the passion, commitment and drive that make franchising such a vibrant and strong way of doing business and look forward to the opportunity to continue getting to know more of you in the coming months.

Attending the FCA’s Regional Excellence in Franchising Awards presentations over the past months, I have already heard firsthand just a few of the countless franchisee success stories that characterise  the sector.

At their heart, these stories demonstrate the very real value that is provided to franchisees and franchisors alike when the franchise relationship is supportive, constructive and where interactions between  the parties are conducted in the good faith that is required bythe Franchising Code of Conduct (the Code) that governs the sector.

The all-important, mutually supportive and beneficial franchisee-franchisor collaborative relationship is what good franchising is about and what is delivered and experienced by most franchisors and  franchisees across the nation. The substantial media scrutiny that the franchise sector has recently been the subject of simply does not accurately reflect the true experience of the majority of those who successfully operate within it.

There is no doubt, however, that right now there are transformational challenges and opportunities presenting to the sector, with the current parliamentary inquiry into the operation and effectiveness of the Code chief among them.

The FCA is actively engaging with the inquiry process. The FCA’s position is clear: the franchising inquiry should be focused on enforcing compliance with existing regulation, rather than adding new  regulation to what is already one of the most comprehensive and effective franchising regulatory systems in the world.

In its submission to the Parliamentary inquiry, the Franchise Council of Australia (FCA) said examples of poor franchising experiences would most certainly be reduced by greater compliance and  enforcement, supported by a stronger compliance culture across the sector. No one is keener to understand the causes of reported episodes of poor franchisingexperience than the FCA. A number of reported cases appear to suggest that the Code has been breached and where available dispute mechanisms have not been accessed.

In our experience the overwhelming majority of franchise businesses uphold the highest standards in their own businesses. While franchised businesses enjoy improved prospects of success and  profitability compared to independent, standalone businesses, they still compete in a dynamic and challenging marketplace.

Stronger compliance with the Code, active enforcement and highlighting best practice should be key areas of attention for the inquiry. The issue is not that the existing regulatory framework does not  prescribe protective measures. Rather, it is that in a number of reported cases the Code has simply not being adhered to and, when breached, not always enforced. Ensuring regulators such as the ACCC  are adequately resourced to collect data, provide guidance on best practice, investigate claims of wrongdoing and, where necessary, take enforcement action must be a key focus of this inquiry.

Recommendations made to the inquiry by the FCA for improving regulatory compliance and enforcement outcomes within the sector, included:

  • Making additional funding available to the ACCC and other allied agencies tosupport better enforcement of the Code and more efficiently respond to small business concerns about any alleged lack of compliance;
  • Encouraging the ACCC 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;
  • Ensuring more franchisees use and follow the existing 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 obligationsof a prospective franchise business investment, in a format that is easier for franchisees and their advisors to use – Translating the Code’s Information Statement  into multiple languages to cater for the fact that around 70 per cent of small business owners are migrants; and
  • 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

Over the coming months, I will remain focused on constructively engaging with the parliamentary inquiry. This includes ensuring the many positive outcomes that franchising delivers are heard, and that  the impact of any regulatory changes proposed are properly understood by those who propose them.