15 June 2014

Interview with Ross Greenwood, Sunday Business

Note
SUBJECTS: Franchising code

This is a transcript of Minister Billson's interview with Ross Greenwood on Sunday Business. The topics discussed included the franchising code.

ROSS GREENWOOD:

Firstly, let’s go to something that I think is absolutely vital if you are running a business or considering running a business into the future. As you may be aware, for many years we have campaigned and spoken to affected and aggrieved parties if you like, in the franchise industry. I have always felt that the balance of power was tipped too far one way in favour of the franchisor.

Now there are many great franchisors out there as we have said in the past where people go out and really do the right thing by the franchisees because it mutually builds each other’s business. But the problem is in some cases, there have been examples where the franchisor has exploited the franchisee and there has been very little in the way of redress. The answer has always been you can go to court. The problem there is that the balance of power is tipped very much in favour of the larger franchisor who has deep pockets, or who might be part of a multinational business chain. The truth is then the franchisee, who may have put their own hard sweat and dollars into that particular business or maybe their retirement savings, is literally up a creek without a paddle. They can’t fight on a legal front, they can’t fight from a commercial point of view and many people in that industry have fought for a long time. We have been alongside them saying that something needs to change.

Well there is good news on this front because as you may be aware, inside our Federal Cabinet right now there is a Small Business Minister, that’s Bruce Billson. We talk to him from time to time and one of the things that he’s announced this week is an official Franchise Registry. This is actually going one step along the way to trying to improve the credibility of that franchise sector and believe me, I reckon it needs it.

He’s on the line right now. Many thanks for your time Bruce.

MINISTER BILLSON:

G’day to you Ross and your listeners, particularly those working in a franchise on a Sunday.

ROSS GREENWOOD:

And there are plenty of people doing that right now. Now the truth is that it was always seen that a franchise was an easy way to get into a business because you have got a business already set up for you. For franchisor’s it was a way to expand their business as well and to have people pay to expand their business interests but that balance between the franchisor and the franchisee has always been a very difficult one to get right, hasn’t it?

MINISTER BILLSON:

Yeah it’s been a tricky one because when the franchise relationship begins its very adult to adult, you can almost imagine it being a marriage of shared interests, shared purpose and mutual adjustment. But as you rightly characterised that if things go slightly awry, the franchisor can become the parent very quickly and the franchisee the child, and then feel they have very little capacity to influence decisions affecting their investment.

I’ve long argued for a need to strengthen the regulatory environment for which franchises operate because Australia is the land of franchise. We have more franchising per head of population than any other country in the world. There are 1,100 systems, $141 billion worth of turnover each year and 70,000 people working in franchise businesses, but that relationship can be a precarious one where if things aren’t going well and the franchisor has a very dominant hand. Too often we’ve heard stories about franchisees being disadvantaged by that power imbalance and seeing a lot of their life savings and enterprise ambitions go down the drain. That’s what we have been seeking to address.

ROSS GREENWOOD:

So the first step in all of this was the franchising code. So therefore, large and reputable franchisors or the large companies would adhere to this code and as a result, their conduct could be monitored and there could be action taken against them if they were to breach the code. So that’s step one.

MINISTER BILLSON:

That is right Ross, if I could just jump in. One of the worries we had, that I campaigned for in Opposition and now are taking very positive action on, was we had a code but some argued, as I did, it lacked the tools and the teeth to actually be a good framework within which to sustain mutually beneficial and supportive relationships.

So we’ve announced changes where the franchisees and franchisors have to act in good faith in their dealings with each other.

ROSS GREENWOOD:

Just stop there because that is important. Those words ‘act in good faith’ are actually a very important thing, especially for some international companies coming in here and working one way at home and then suddenly arriving in Australia and having a completely different set of expectations and undertakings to comply with.

MINISTER BILLSON:

That’s right and so there is a common law concept that is evolving as business practice evolves and what we are making absolutely clear is good faith applies to franchising relationships and the parties. Also, for the first time I am introducing penalties for breaching the Code. The Code previously had almost a best endeavours ethos to it Ross, where you hope people would do the right thing guided by the Code. But in too many cases they deviated from the behaviour and conduct that the code had set out which had little consequences and proved to be ineffective.

That’s why we have also added audit powers to the ACCC so where people are paying good marketing funds they know where that money is going. This hopes to deliver improved transparency to improve and maintain that franchising relationship.

So that is what Government is doing but what I was pleased to announce during the week was this registry which was very much an industry led initiative, where the franchise industry itself recognises to build credibility and confidence in its industry, there needs to be an easy way for prospective franchisees to check out who is fair dinkum? Who is a legitimate adherent to the provisions of the code? Are they making their disclosure documents available, which is a simple way of checking whether the franchise system that you are contemplating investing in is fair dinkum? Is it playing by the rules or operating outside them in a shonky way? Sadly a number of them do, and that can see peoples lifesavings just drain away before their eyes.

ROSS GREENWOOD:

But the truth is that those that are transparent, those who comply with not only the registry, which is obviously self-regulated, but also then clearly have to comply with that franchising code that the Government is getting them to undertake. If they are adhering to all of these things and signing up to these things and being thoroughly transparent, then it gives them an even stronger case when they go to a franchisee to say look we do comply with these things, we do open up our books to you and you can see what you’re buying.

MINISTER BILLSON:

That’s right and it’s not only about building confidence in that system and building the competence of the franchisors by making sure they are meeting these regulatory requirements and disclosure requirements and saying yes we are complying with those. But also for banks and other lenders that are thinking about backing a small business in the purchase of a franchise. They want to know who is fair dinkum and who is not because if there is something uncertain or dodgy or someone is operating outside or skirting around the law and the code requirements, that makes them a much bigger risk proposition and therefore harder to access finance.

So there are many wins in this, supported by the government’s very direct measures to strengthen the Code and to give it tools and teeth and also something that we have talked about before, extending those unfair contract term provisions that are currently available for consumers to small businesses. They recognise that a small business dealing with a big business, a big party, a big supplier, a big service provider might get fitted up with a take it or leave it contract that leaves them terribly exposed and carrying all the risk with little opportunity to pursue their own economic self-interest because the big guys can push them around unfairly.

ROSS GREENWOOD:

Well I’ve got to say this has been long overdue; this change to the franchise industry I think is almost like a broom going through it. It is highly welcome because not only, as Bruce Billson says, builds confidence, and confidence needs to be built here, but also in the long term should hopefully encourage new businesses and that is exactly what the franchising industry should be trying to do. The Small Business Minister, he’s the one who officially launched the Franchising Registry this week. Bruce Billson has been our guest on Sunday Business and Bruce we appreciate your time.

MINISTER BILLSON:

Great to be with you Ross and let’s energise enterprise.