The franchise community has been up in arms in recent weeks over the National Labor Relations Board’s recent decision effectively classifying franchises as joint employers of their franchisees’ workers. It’s certainly understandable, given the potential impact such a decision would have on the franchising business, in which franchisors leave the business of hiring, firing and promoting workers up to franchisees.
But you couldn’t necessarily tell from listening to the two chains that arguably have most to lose in such a scenario as they met with analysts last week.
“We’ve been navigating regulatory environments in 160 countries around the world, and they’re always constantly changing,” Yum Brands CEO David Gibbs told investors. “And certainly, the NLRB’s recent ruling, and whether or not that goes into effect, it will have an impact on us. But it’s nothing that I think we’ll have trouble navigating over the long term.”
McDonald’s CEO Chris Kempczinski took a bit of a harder line. “We strongly object to last week’s NLRB ruling,” he told analysts on Monday. “We think it’s going to undermine small business ownership in the U.S.”
He called the franchise business model “a great American innovation” that has “created wealth for thousands, particularly underrepresented minorities and women.”
“We think this is yet another example of agency overreach coming out of D.C.,” he added.
But then he said this: “This is something that is going to affect everybody. [But] as we’ve shown throughout time, so long as there is a level playing field and McDonald’s is on the same level as everybody else, we tend to win. So even if this NLRB ruling were to pass, it’s going to affect the industry writ large, and we think we’re better positioned than anybody else to withstand it.”
The viewpoint is understandable in the context of the dueling audiences. Executives decry regulations to the public and particularly to decision-makers because they dislike regulations, which are expensive and not always necessary.
But they must also present the best face possible to the investor community because they do not want those investors to freak out and start selling stock.
Thus far, Wall Street has largely blown off any NLRB decisions, which it has done dating back years. Such rulings, much like the minimum wage, keep a level playing field. And that, to Kempczinski’s point, tends to benefit the large companies that dominate the public markets.
McDonald’s and Yum Brands together operate four of the largest franchises in the world and in the U.S. specifically.
The burger giant has a lot more to lose in this, because it has been the primary target of the joint employer push dating back nearly a decade. That issue also reared its head in ongoing tension with a group of the chain’s franchisees who said that if the company didn’t want to be labeled a joint employer than it should “stop acting like one.”
Kempczinski himself has been more out front in combatting the regulatory environment, far more than most of his predecessors, which explains his dual stance.
But the company has also proven itself able to adapt to such regulations and even in California, where fast-food chains could end up paying higher wages than other businesses, Kempczinski said his company could grow there because of that adaptability.
Yum, however, tends to have larger-scale franchisees that are more independent than many other businesses. “It’s really less of an issue for Yum,” Gibbs said. “Our franchisees tend to be much larger. We tend to run more of a decentralized model globally and even in the U.S. because our franchisees have a lot more capability.”
The comments from both executives are indicative of their positions. Big companies can better withstand regulations than can smaller companies. In the franchise world, McDonald’s and Yum are two of the biggest.