Overcoming Franchise Challenges with a Board of Directors or a Franchisor Advisory Board

By Frank Zaid | Originally published on pages 40-41 of the Spring 2019 issue of The Franchise Voice, The Canadian Franchise Association.

Any franchisor that has attended a CFA National Convention, especially a new or emerging franchisor, walks away from the event amazed at how approachable and welcoming other franchisors are in the way that they share ideas, experiences, and mistakes. I do not believe there is another industry segment in which competitors are so open in assisting others. Incredible! What an opportunity for franchisors to learn from others, get great advice, avoid mistakes, and use the experience to advance their own franchise systems. But it is difficult to continue these opportunities once a franchisor has returned to the day-to-day operations of their business.

There are many books on the “how to’s” and “success stories” of franchising. But books do not reveal the whole picture. They are usually focused on a distinct industry segment or on a particular franchise system. Every franchise system is different and unique. The ideal goal would be to learn from the real-life lessons of seasoned franchising experts.

So then the question is:  How can franchisors achieve this goal when they are usually only experienced in their own business models and have little knowledge of alternate ways to operate their systems?

My answer is simple:  Form a board of directors or a franchisor advisory board with handpicked, trusted advisors who can draw on their own experience, knowledge, and judgment in franchising to drive the franchisor to plan growth strategies, solve challenges, and analyze performance. The board could include individuals with financial, legal, operational, technology or management experience, or those with diverse experience in different fields. Potential candidates can be located through other franchisor recommendations, present and historic CFA leaders, and on social media platforms for professionals like LinkedIn. But, they must understand the franchise model and be objective, flexible, and creative. The board may be a formal board of directors or a structured board of advisors.

There is no ideal time for a board to be formed. In my view, the earlier a board is formed the better. The more advice the franchisor receives, the more likely the franchisor will be successful in growing the system, solving challenges, and minimizing mistakes.

In 40 years of franchise law practice, I worked with over 400 franchise systems. In 10 years acting as a franchise mediator and arbitrator, I have seen many unnecessary mistakes. I have served and continue to serve as a director and advisor on franchisor boards and have learned much from brilliant owners and board members. This experience has led me to the view that a franchisor who does not consider forming a board of directors or an advisory board must have a valid reason for not doing so, or is otherwise misguided. At the recent 2019 CFA National Convention in Niagara Falls, my view was validated in presentations made by a number of CEOs and owners of diverse franchise companies.

Let me give some real-life examples of how franchisor boards on which I have served have influenced the decision-making process of successful franchisors.

In one situation, a successful franchisor had franchisee penetration in most urban markets, but was having difficulty attracting franchisees in more rural markets. We analyzed the open markets, looked at the successful operators in urban markets, and suggested that the franchisor modify the franchise offering to be more compact for rural markets. The franchisor determined that many franchisees wanted additional franchises to rationalize their expenses as multi-unit operators. The franchisor could eliminate the cost and time of training new franchisees, and the franchisees could open new units quickly. The multi-unit program was extremely successful and made it very difficult for competitors to expand into these markets.

In another franchise system, the board considered how the franchisor could deal with franchisees that were resisting the implementation of a new point-of-sale system and its related equipment. The franchisees were resistant due to their concern that the costs of the new system outweighed the benefits. The board suggested that the franchisor develop a co-operative approach and build consensus among the franchisees. The franchisor held information meetings between the franchisees and the supplier to explain the need for the new system and its benefits, which included customer tracking and advance online ordering. The franchisor arranged excellent equipment financing for franchisees that made early commitments to the system. As a result of these meetings, over 90 per cent of the franchisees immediately got on board with the new system. Ultimately, same-store sales increased and customer satisfaction was enhanced.

In a third situation, a franchisor discussed the recent negative press and social media coverage surrounding a particular franchise company that stemmed from an incident where contaminated food products had been sold in a franchisee’s location. When a board member asked the franchisor how he would handle the situation, the franchisor realized that he would have to involve many groups in his head office team and had no system in place.  The board member had experience with crisis management systems and suggested that the franchisor develop an interactive system. The board mapped out the fundamentals of a system and retained a knowledgeable consultant to finalize the program, create instruction manuals, and hold employee and franchisee training programs. Both the board and the franchisor realized how essential it was to have a fully integrated crisis management program.

In conclusion, franchisors who have established boards of directors or franchisor advisory boards have benefited significantly. There is no substitute for the experience, diversity, knowledge, and practicality that is gained from an active, objective, and independent board. I assure you that you will not be disappointed.

About the Author

Frank Zaid practised franchise law for 40 years at Osler, Hoskin & Harcourt LLP, where he chaired Canada’s leading franchise law practice group. Today he is a franchise mediator and arbitrator with ADR Chambers in Toronto. He has served as Special and General Counsel of the Canadian Franchise Association (CFA), Chair of the Supplier Forum of the International Franchise Association (IFA), and the initial Chair of the Franchise Law Section of the Ontario Bar Association.  He was the first recipient of the CFA’s prestigious Lifetime Achievement Award.  He also operates his own business, Frank Zaid FRANlegal Support Services, which focuses on franchise mediation and arbitration, franchise ombudsman services, franchise expert witness services, and non-legal strategic franchisor business operations consulting services.  For more information, contact him at (416) 837-5973 or via e-mail at fzaid@frankzaid.com or fzaid@adr.ca.

Disclaimer
The opinions or viewpoints expressed herein do not necessarily reflect those of the Canadian Franchise Association (CFA). Where materials and content were prepared by persons and/or entities other than the CFA, the said other persons and/or entities are solely responsible for their content. The information provided herein is intended only as general information that may or may not reflect the most current developments. The mention of particular companies or individuals does not represent an endorsement by the CFA. Information on legal matters should not be construed as legal advice. Although professionals may prepare these materials or be quoted in them, this information should not be used as a substitute for professional services. If legal or other professional advice is required, the services of a professional should be sought.