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More franchisees should be on corporate boards

Operators are major brand investors. Their views should be taken into account at the corporate level, says RB’s The Bottom Line.
Photograph: Shutterstock

The Bottom Line

Earlier this week, the National Jack in the Box Franchisee Association said it wants a seat on the company’s board of directors.

It’s not an unreasonable request.

In fact, every franchise brand should think about putting a franchisee on its board of directors. Doing so would help companies consider the potential impact of a corporation’s moves on the people responsible for running the restaurants. And it could go a long way toward improving franchisor-franchisee relations.

Unfortunately, very few brands do such a thing. Minneapolis-based Famous Dave’s has franchisee Anand Gala on its board, and Bojangles’ has Tommy Haddock on its board of directors. CKE Restaurants has long had franchisees on its board, even when it was a publicly traded company.

But for the most part, most companies don’t consider such a move.

To be sure, company boards have to think of the company, and that means they have other stakeholders than just the franchisees, like the employees and the customers and of course, the shareholders.

And the reality is that the brand often knows what’s best for its long-term health. I go back to one key moment in Domino’s history, when the company decided to get all of its franchisees on the same point-of-sale system.

Some franchisees balked at spending the money, and they wanted to shop around for their own POS systems. They sued. Domino’s won. The company is now on a single POS system, which is one reason for the company’s incredible success with technology.

Now, roughly every major franchise brand is pushing to follow suit because single systems are more efficient and can help companies more easily add things like loyalty programs and mobile ordering.

At the same time, however, it’s not uncommon for franchise brands to take steps that benefit the franchisor at the expense of the franchisee.

Some brands, for instance, have captive distribution deals that provide them profits while charging franchisees higher prices for food and paper.

And with traffic challenged, many franchise brands are pushing heavy discounts even as labor costs have skyrocketed.

As a result, franchisor-franchisee relationships appear to be at a post-recession low point even as many brands have sold off company stores to operators because store operations is less profitable than franchising.

Franchisees need to be profitable for systems to succeed. Operators are on the front lines of a brand’s interaction with the general public. A franchisee director would give a franchisor’s board of directors a key voice from an important constituency and could ensure that the company doesn’t make system-killing mistakes.

And it could go a long way toward improving franchise relations.

We’ve seen what can happen at brands where skepticism of the franchisor’s motives runs rampant. A franchisee on the board can mitigate that problem and prevent disputes from rising to the surface, where they can damage a brand’s reputation and even its sales.

To be sure, plenty of systems do quite well by their franchisees without having operators on their boards, because executives understand operators’ importance to the brand’s overall health.

And just putting a franchisee on the board is hardly a guarantee of success. But it should be more common than it is.

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