Advice & TipsAsk an ExpertMay/June 2024Previous Issues

What’s the importance of franchise advisory councils?

In a 2018 booklet titled “Building a Franchise Advisory Council That Gets Results,” published by Franchise Business Review, the authors state: “Franchise advisory councils (FACs) are a critical franchise business and relationship-building tool: they can build franchisee loyalty and trust, increase support and buy-in to corporate initiatives, create better programs, and minimize resistance to change, among other benefits.”

Although those benefits are geared towards franchisors, they cannot be realized without franchisee support and participation. In fact, the benefits of a well-operated franchise advisory council accrue to all members of the franchise system, including the franchisor and the franchisees.

In franchising today, a common topic of conversation among franchisors and franchisees is whether and when an FAC should be established. The next topic is what the involvement of franchisees will be.

The answer to the first topic is that most franchise systems should have some form of FAC, but only when the time is right. While it is difficult to generalize, key factors are the maturity of the system in terms of years and number of franchises. The answer to the second topic is that a properly established FAC should have a fair balance of franchisor and franchisee involvement. Franchisors should not dominate the operation of an FAC.

Let’s look at these issues in more detail.

Franchise system policies are contained in manuals which, while confidential, are usually accessible by franchisees on electronic platforms maintained by the franchisor. Many franchisor policy manuals contain a section dealing with FACs. An FAC will be established by the franchisor, operate according to a defined set of rules and procedures, and can deal with a variety of issues. The constitution of the FAC will usually be determined by the franchisor. Meetings should be held regularly, and for larger systems, regional FACs might be necessary. Minutes of meetings should be made available with transparency and in good time after meetings. FACs do not make policy decisions but do make strong suggestions for the franchisor to consider.

Franchise agreements may have some mention of FACs, but the agreement will often be silent on this subject. Franchisees are required to conform to the agreement and the franchisor’s policies, which will likely change and be modified from time to time. However, though not included in the agreement itself, policies have the same force and effect as if contained in the agreement. As stated above, the fundamental principle for FACs to contribute to the growth and success of the franchise system is that they must be supported by both the franchisor and the franchisee body to have credibility. Franchisees should participate in FACs whenever possible.

The initial operational elements of an FAC will usually be taken care of by the franchisor: costs, budgets, type of entity, name, charter, mission, scheduling of meetings, bylaws, and rules and regulations. While there is no specific rule as to when an FAC should be formed, in my experience, any franchise system with at least 10 units should have established some sort of FAC, or be seriously considering the formation of an FAC. It is never too late for franchisees to suggest to a franchisor that they would like to have a working FAC established and to assist the franchisor by giving suggestions as to the membership and structure of the council.

In the past, some franchisors have established FACs but used them as a means of operational control with little meaningful involvement by franchisees. These FACs inevitably fail and result in a lack of trust between the franchisor and its franchisees. A failed FAC may result in the formation of a dissident franchisee association which may consider or initiate litigation, particularly class actions, over issues that have been ignored by the franchisor.

For an FAC to succeed, it must have the support of the franchisor’s key management and the franchisee body. Membership is not necessarily equal in numbers. There should be a dedicated member of management who has the responsibility of ensuring the operational aspects and reporting to the CEO. Management representatives should be available to address issues on the agenda of meetings, but they don’t need to be sitting board members of the FAC. The majority of members on the board should be franchisees.

Initially, the franchisor may select franchisee members, or propose a mechanism whereby members can be selected by the franchisee body. For example, a national franchisor may determine geographical areas in which franchisees elect members to the board. The terms of board members should be fixed, and there should ideally be a rotation of members.

Franchisees should be aggressive in suggesting topics for consideration at meetings and be positive in their participation. Meetings are not for personal matters and should be conducted in the best interests of the franchise system. Franchisee costs of travel and out-of-pocket expenses should be covered by the franchisor, and the franchisor should also budget for the operating costs of the FAC.

Franchisees should realize that a well-operated FAC will benefit the franchisee body if the FAC is operated with respect for each party and in consideration of the ideas and views of the franchisees.

FACs can be very beneficial to a franchise system in times of stress, economic downturn, and unexpected emergencies. For example, many franchise systems turned to their FACs during the pandemic for guidance and goal setting, as well as information sharing, to assist struggling franchisees and to lobby governmental bodies for assistance.

In several leading court cases involving well-known franchise systems, the courts have reviewed the involvement of FACs in dealing with good faith and fair dealing issues in franchise system disputes. The courts have favoured franchisors that have operated their FACs in a fair and balanced manner and disapproved of franchisors that have operated their FACs unfairly or with little regard for the interests of their franchisees.

Prospective franchisees should ask franchisors if they have an FAC and obtain details of the operation and goals of the FAC. Franchisees should encourage the formation and operation of an FAC and, for those who are prepared to spend the time, become a member of the FAC to benefit their fellow franchisees and the franchise system at large. As stated above, an FAC is a critical franchise relationship and business-building tool.

Frank Zaid, Mediator, Arbitrator, and Business Operations Consultant

Frank Zaid FRANlegal Support Services