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This tutorial is hard
edge reality speak, not politically correct. I am being deliberately direct
because I see so much wishful thinking and see it very often. Franchisees in
problem circumstances seem not to appreciate that what one might do in polite
company under normal social conditions does not work when you are trying to get
your franchisor to reverse a decision that is costly to the franchisees and
potentially profitable to the franchisor. Importantly, what is usually done at
first and without competent evaluation puts the effort immediately on the path
to failure. It is more difficult to achieve a good result when the approach is
wrong headed from the very beginning. With no apologies for the tough language,
this tutorial attempts to describe what is done now that is wrong; why it is
wrong; and how it should be done if there is to be any hope at all for a
positive outcome.
Franchisors do many
things that franchisees believe they ought not to be doing. The perception that
franchisor action represents a profit lowering event for franchisees sets off
defensive reactions that are largely ineffective. Franchisees do not avail
themselves of effective assistance until what they do has made it less likely,
or at least much more difficult, to achieve relief. By then, of course, they
have significantly reduced the likelihood of material positive results; they
have become greatly disillusioned about the prospect of remediation ever being
accomplished; and the “leaders” of the “movement” have sacrificed themselves
without assuring that there is an army following them. It is a most pathetic
spectacle that exhausts available resources by making additional resources less
readily available. How does this come to be? What needs to be done instead of
what is now being done?
Here is what is done now
that should not be done and that makes life much more difficult. There is
intense acrimony, name calling and accusations of illegality. Sometimes
franchisees don’t even go back and read their franchise contracts to see whether
what they are ranting about is specifically permitted in the agreement.
Frequently what is being done is specifically consented to in the agreement. If
that is the case, there would have to be an independent reason to attack it.
There often is, but the franchisees in their anger and excitement, never find
it.
There is whining and
begging. Franchisees don’t call it whining and begging, but demanding that
someone stop what they believe they are entitled to do and that makes money for
them, without more – much more – is whining and begging. The customary response
to whining and begging is for the franchisor to decline the demands. No one
stops doing things that are apparently lawful and that are profitable without
being shown a rational basis for making that sacrifice. The analysis must be
done to show that, despite its facial propriety, it is otherwise unlawful, and
that there is a convincingly rational basis to challenge it. The franchisees are
almost always incapable of doing that without professional assistance. That
requires a budget.
The immediate thought is
that a franchisee association needs to be formed. A franchisee association is
just about always a good idea, but when what is before you is an immediate
problem, that needs to be addressed first. No action should be taken without
thought and preparation. The franchisor isn’t going to do anything without
thought and preparation. Since the franchisor usually puts thought and
preparation into what it does, and the franchisees usually don’t, nothing is
accomplished. The thought and preparation need to be guided by someone who knows
what needs to be done. As most of the franchisees’ notions about that are simply
wrong, finding someone who says they agree with what the franchisees want to do
next usually produces bozo level assistance.
Some of the things that
franchisees want to do that are simply off the wall wrong include – getting a
seat on the board of directors of the franchisor – establishing a not for profit
organization with an elected board of directors and officers – using the
franchisor’s name as the name of the organization when the franchise agreement
says that the only permitted use of that name is as the identifier of the
franchised business – sending out emails that call everyone to arms to do
something about the present situation without having a clue what to do or how to
do it – taking action upon the false assumption that everyone’s statement that
they are all for having an association to deal with the problems means that they
have just offered to write checks to support the action to be taken. All these
things are absolutely the wrong things to do and are calculated to accomplish
nothing.
Having a seat on
the franchisor’s board (if you have a franchisor stupid enough to permit that)
accomplishes nothing. One seat is one vote. One vote against the rest of the
board always loses. DUH! In many states franchisor board members have personal
liability exposure along with the officers if certain laws are violated. Most
noteworthy are fraudulent and deceptive practices in connection with selling
franchises. If you had a seat on the board you are just volunteering to be a
defendant in those lawsuits. If you are a director, you owe a fiduciary duty to
the franchisor to act in the franchisor’s interest, not to represent the views
of its franchisees which are usually opposed to franchisor agendas. You do not
want a seat on the board. What you read in the Wall Street Journal about big
investors getting seats on boards of directors has nothing to do with managing
franchise relations and disputes. You have no right to a seat on the board, so
no court is going to mandate that you get one.
If you stupidly persist
in using the franchisor’s name as the name of your franchisee association, you
can count on wasting your entire budget defending a losing lawsuit. When you
lose that lawsuit and use up your meager budget being defeated, don’t count on
your fellow franchisees to have any faith in your judgment or to write checks to
support your further ineptitude. You will then be out there on your own with no
credibility amongst your fellow franchisees. You just shot yourself in the foot.
Establishing an
“official” franchisee association with all the formalities that are customarily
associated with associations generally does not contribute anything at all to
addressing the present problem that needs immediate attention. You can always
get membership if dues are cheap. That provides no budget to do anything that
isn’t window dressing. It becomes a whiners’ club. Being an officer of a
whiners’ club is hardly anything of distinction. But it does put your name in
the bull’s eye of the franchisor’s dart board. A franchisee organization that is
managed by professionals and that does not have officers and directors who are
franchisees can do pretty much what it wants, subject to budget considerations,
without making the organizers targets of the month – unless they have already
gone and made themselves the target of the month anyway. Ask yourself, why would
anyone want to do it in a manner calculated to subject the organizers to the
greatest risks of retaliation?
What needs to be done at
first needs to be done quietly, by an initial small group of very strong
franchisees who can do things cooperatively to get the action plan established
in a proper mode, and who only then go to the franchisee population at large,
through counsel, for the additional support needed for implementation. Then, if
the franchisees don’t come through with the required support, the initial group
quietly goes in another direction for their own benefit, extricating themselves
from the situation or working out something for themselves within the system.
There are franchisee
associations that are not professionally managed and that make constructive
contributions to the franchise relationships. Those are usually comprised of the
more successful franchisees. That is not usually the kind of franchisee
association that comes up as a desperate move when some dire threat first raises
its head.
Every “rally the troops”
email that you thoughtlessly send out will come back and bite you in the ass as
an exhibit proving that you have acted without proper planning and analysis.
Most of those emails are slanderous or worse. Those first groups of emails never
have any rational thought in them. They are never based upon any evaluation of
what are proper priorities for action. They are always incompetent because they
are utterly lacking in meaningful substance. Accordingly, they practically never
get any association formed, and they certainly never succeed in raising the
financial resources required to obtain competent guidance.
Don’t send out emails to
the franchisee population until you have something useful to tell them. What you
need to do is assemble a very small group of strong franchisees who you believe
will not go tell the franchisor everything that happens in your meetings and
discussions and who will provide initial funding to obtain the guidance that
enables you to make only competent statements to the franchisee population at
large. The notion that you will go find a lawyer who knows what needs to be done
to provide that initial work without charge in the hope that they might get
hired once the big money comes in from the entire franchisee population is in
almost every instance absurd. It doesn’t happen that way. If the initial core
group will not write checks to get that initial guidance work/feasibility work
done, nothing will be accomplished. If you can’t get ten people to write checks
for $ 2,500 each to get things started, that tells you that no one sees the
problems to be as serious as you do. Getting the seed money is the best test of
your credibility. If you don’t have the credibility to get the initial seed
money, you need to stop being a rabble rouser. You can’t do this out of your own
pocket, and even if you could do it out of your own pocket, you shouldn’t. If
you are the only one who will write a check in aid of the project, there is no
project. It’s as simple as that. If there are none that you trust amongst your
fellow franchisees, you need to stop being a rabble rouser. There are other ways
to resolve your personal problem, but they require that you do not start
throwing bombs. If you need to get yourself out of harm’s way and stop worrying
about what will happen to the other franchisees, get your own lawyer and get
that done and get on with your life. But do it quietly.
There are often several
things that might be done that have a chance of producing favorable results for
your group. Sometimes it is just a matter of litigation, but many times it is
not, and there are non litigating strategies worth considering. How can you tell
the other franchisees what you intend to do about the problem if you don’t know
what these options are and the ramifications of each? Get a lawyer who
understands this, and who also understands that an accountant or financial
advisor is also needed at this stage, and provide an adequate budget to cover
the work. There are numerous law firms out there who understand this. Interview
them. Ask them tough questions. Don’t write them off because they have ideas
other than your ideas or because they don’t think your ideas are all that great.
Maybe they know what they are talking about and you don’t. If you are not a
franchise lawyer who regularly addresses dispute resolution, you don’t know what
you are doing and need competent guidance. The right lawyer is not there to
agree with you. The right lawyer is there to tell you what reality is and how to
address it. Some of that may be unpleasant. This is not a tea party.
You need a prioritized
action list. You need to know the probable financial results of each option and
of several options considered as a group or package. You may expect that the
franchisor will propose something short term and temporary in exchange for a
release of claims and a ratification of the franchise agreement. What does that
mean? It means that you will have waived all your rights in exchange for a band
aid. When the band aid comes off, you are back where you started and without any
legal basis to oppose the action that you feared when it first began. Is that
stupid? Yes it is.
You need to know that one
of the worst things franchisees can do is to reassure the franchisor that they
do not intend to start a lawsuit and that they do not intend to leave the
franchise system. Anyone who thinks that giving away those options is a
constructive thing to do simply does not understand dispute resolution. You
never try to reassure your enemy. You always want all your confrontation options
to be open and readily apparent.
People believe it will be
easier to get a franchisee group established if they promise that confrontation
and litigation is not the agenda. That is nonsense. If people won’t recognize
that a necessary agenda may require a willingness to stand and fight, or to
leave the system, then you don’t have the support you think you have. Since the
franchisor will know everything that you tell the franchisee community, your
sending that message tells the franchisor that (1) you really don’t know what
you’re doing, and (2) when you get a negative response, it will be difficult in
the extreme for you then to start getting support for a fight that you promised
not to start. And if the franchisor really has any smarts, they will start
looking for ways to bust you, to make you a defendant in a termination lawsuit.
It is very well known that your fellow franchisees will refuse to write checks
to a litigating defendant’s cause. They will see it as you asking them to pay
your legal fees, and the answer will always be NO! If you have let yourself get
out in front and the army is not already behind you with financial support
already paid in, you are dead meat! If any lawyer suggests that you should take
any action that smells like, looks like and feels like crucifixion, you need
another lawyer.
Your brother in law, or
any other lawyer who does not regularly work with franchise dispute resolution
situations, is not a competent resource. Knowing how to do divorces and
automobile accident litigation does not prepare anyone for this kind of work.
Someone who does not litigate is not prepared for this kind of work either.
Someone who does not understand multivariate financial analysis is also not
prepared for this kind of work. You need all these disciplines. Your franchisor
has access to all these disciplines and uses them every step of the way. Why
would you choose to fight with one arm tied behind your back? Get the right
assistance from focused, competent people. They can tell you what will be done,
how it will be done, why it will be done, what it will prove or not prove, and
how much it will cost to get it done. Anyone who cannot tell you that up front
does not know how to do what you need. A competent lawyer will tell you that
positive results are not guaranteed, but will tell you these other things. A
lawyer who is afraid to tell you these things because he thinks that is
tantamount to giving a guaranty of positive results does not understand what you
need or how to do it. It may end up costing more than the original estimate, but
it will be a great deal more revealing and reliable than anything else you can
do in the beginning. For those reasons, it is indispensable.
The work you will do to
prepare a presentation to your franchisor to show reasons why your position
should be given serious consideration will be done after the first feasibility
work is done. The stage one work is to enable you to get a competent message out
to the franchisee community. If what you send them is high quality, you have a
better chance to get serious support that includes provision of a real budget
for the big work. If you get the support necessary to enable the next stage,
that work will not only provide the information to make your demands worthy of
consideration, but will also provide a good deal of what will be needed to
prepare for litigation should that become part of the ultimate picture. That
stage two work will not include a litigation budget in most instances. Lawyers
who do this usually do it in pieces, getting the budget provided before doing
the work in each stage. But you can only go to the well so many times before it
will run dry. Each stage has to be fully funded at the beginning of that stage.
The franchisor will know how much you have to work with and that will tell the
franchisor how easy or difficult it would be to simply pretend to negotiate and
use up time and resources, running you out of funds before you can accomplish
anything and making you look like all you really know is how to waste money. You
have to know how to spot this and how to prevent this. When your franchisor sees
that you have the wherewithal to get the work done and that you can’t be jerked
around like a high school kid, you may start to get somewhere. You will know
when to quit wasting your time if you are not getting somewhere. You will have a
better chance to get the financial backing for the hard part if you have handled
the first two stages of work in an obviously competent manner. If you do this
any other way than I have just described, you should expect a lower quality
result.
Copyright 1997 - 2008 || Richard A. Solomon
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