Franchise advisory councils: who needs one?
A breakdown on the pros and cons of forming a franchisee council from Goldstein Legal
Opinions on the merits – or otherwise – of franchise advisory councils are famously divided.
For some franchisors, their franchise advisory council is an integral part of their operational structure, easing decision making and maintaining co-operative relationships with their franchisees. But there are other franchisors who regret ever having set one up, seeing their franchise council as a militant agent of resistance in their network.
So how did franchisee councils come to be such a contentious subject? Roz Goldstein, founder and managing director of Goldstein Legal, a franchise specialist law rm, says: “The answer lies in how franchisors have used them. Franchise councils can be a superb means of engaging with your franchisee network. But if the council is not managed carefully, franchisors can end up feeling like the tail is wagging the dog.”
How do you go about setting up a franchise council?
There is no statutory structure for a franchisee council and they are not obligatory. Put simply, a franchise advisory council is a group of franchisees, established by the franchisor, that meets on a regular basis with members of the franchisor’s management to exchange information and ideas about the franchisor’s system and the network as a whole.
The franchisor needs to create a framework for the council and lay it out in a set of bylaws, or constitution. There is considerable exibility as to what the bylaws should contain, but the following are important issues to cover:
- The specific objectives and remit of the council
- Who is eligible to be a member of the council
- How members are elected by franchisees
- For what term are members elected, when do they retire and how can they be removed
- How officers (eg chair, deputy chair, secretary) are appointed
- How often meetings will take place and where
- Who funds the cost of the meetings
The bylaws (or constitution) do not need to take the form of a long, complex document. Two or three pages of plain language will suffice.
The International Franchise Association (IFA) published an excellent paper, ‘Advisory Councils: Effective Two-Way Communications for Franchise Systems’ (1995). It is easily available online. It sets out the things to think about when setting up a franchise council, and provides some useful template documents.
Benefits
Many franchisors, particularly those who have developed large franchisee networks, and that their franchisee council is invaluable when it comes to communicating and engaging with the network. As the members are elected by the franchisees as a whole, council meetings enable a franchisor to have a face-to-face dialogue, and an exchange of thoughts and ideas, with members who are trusted and respected by the franchisee network. As the council members will be franchisees with good standing and some length of experience of the system, they can provide insightful feedback on trading conditions, customer buying behaviour and market trends.
Franchisee councils can give franchisees a real sense of involvement with the system, because they feel that their voice is being heard. This is particularly important where franchisees are paying contributions to a marketing fund. Dialogue through a franchise council can help franchisees feel that they have input as to how “their” money is being spent.
The council members, having had direct interaction with franchisor management, can help to sell new ideas to the network and ease through changes to policies and procedures. Finally, effective communication with a franchisee council can actually help to avoid disputes arising between the franchisor and franchisees. Council members can be an effective go-between, intervening so that small grumbles do not develop into system-wide issues.
Downsides
It is quite true, however, that a badly managed franchise council can do more harm than good. If the council gets out of control, it can be hijacked by strong personalities, who sometimes then lock horns with franchisor management.
In some cases, the council members lose touch with the network that they are supposed to be representing and steer council meetings towards agendas of their own, which is highly unhelpful.
At its worst, the franchise council becomes more of a blocker than a facilitator, engendering ill feeling or militant opposition throughout the network.
Roz Goldstein, who has taken part in many franchise council meetings in her previous in-house legal roles with large franchisor organisations, says: “Franchise councils can become obstacles to good franchisee relations – but only where they haven’t been structured or managed well from the start.”
Here, Roz shares some valuable insights into managing your franchise advisory council and its members:
Top tips
- Take a look at the IFA’s guide to franchise councils. It has lots of useful materials, including various template forms of council bylaws.
- Have an open mind and be receptive to good suggestions from council members. They may have valuable experience that they can share.
- Make sure it is very clear in your bylaws that the role of the council is a purely advisory one. You will consider the views of the council, but you are not bound to implement them. The wording around this needs to be drafted carefully; your franchise lawyers can be of assistance to you here.
- Avoid making any reference to your franchise advisory council in your franchise agreement. You may want to reference it in your franchise recruitment materials or disclosure documents, but to avoid creating any legal obligations in relation to the council, make sure that you keep it out of the agreement.
- Create a limited tenure for each council member in your bylaws. Three years may be a suitable maximum.
- Your bylaws should specify that to be eligible to be a council member, a franchisee must be in compliance with a current franchise agreement. If you are in a legal dispute with a franchisee, they are required to stand down.
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Roz Goldstein is the founder and managing director of Goldstein Legal.
