Transcript – 2GB Interview with Kel Richards – Franchising Code of Conduct
Thursday, 1 January 2015
Subjects: Franchising Code of Conduct, Senate
Our guest on the line right now is Bruce Billson, who is the Federal Minister for Small Business.
Bruce, good evening, welcome to the program.
Great to speak with you Kel and your listeners this evening, and Happy New Year.
Happy New Year to you. What are the planned changes to the law governing franchises?
They are pretty significant. It is a new era of franchising, as you describe in your introduction. It is an opportunity to be in your own business but not on your own so it has a unique, almost commercial, marriage type relationship.
When it is going well it can be spectacularly successful and very beneficial but where it gets into difficulty sometimes the franchisor can muscle up and push around the franchisee or the franchisee might not do the right thing.
So if I’ve taken a small shop somewhere and I’m running a franchise for whoever it is and they’re saying part of the deal is you pay us x amount of money and that pays for promotion and advertising, how can I be certain they are actually spending the bit of money I’m giving them on promotion and advertising?
That is a key and specific area we have changed. As of the 1 January those franchise systems will need a separate bank account.
It will mean improved transparency and clarity about who is paying and what the money is being spent on. And if the franchise system has a company running some outlets itself it needs to contribute just as if it is a franchisee and then it needs to account for that spending.
So that is one of the changes and another key area is this statutory obligation on franchisors and franchisees to act in good faith in their dealings with each other. Nothing malicious, nothing underhanded. We want open engaging, shared purpose relationships.
There are new fines as well. We have had this code around since about 1998, there were a few changes made to it in 2010 that did not go far enough, but one of the changes we have introduced is new penalties for people who are not complying with the code.
Like a speeding fine, infringement notice if you will, up to about $8,500 for a company, $1,700 for individuals – but if it is a more substantial breach of the code with greater harm, those penalties can be court ordered and be in excess of $50,000.
Is one of the problems that in a franchise arrangement you’ve got a big guy and a little guy, and the little guy may be someone without a lot of business experience who has just had that dream, that Australian dream of I’m going to own my own business and run my own business – they’re the little guy.
The person from whom they have bought the franchise is the big guy with the corporate muscle whose lawyers are going to be bigger and tougher than the little guys.
Are you trying to balance that?
That is exactly what we are trying to do; you have hit the nail right on the head. The franchise system is usually a much larger business with much more business expertise, good lawyers, some experience; they know what risks they need to guard against and what interests they need to manage.
For a franchisee it might be the first time they have decided to go into a business on their own. What we want is full disclosure about the kind of business that they are entering into, even right down to who will get the proceeds from internet sales – this is something that is quite new and has not been addressed before.
A little bit of a reality check document, so if you and I were going into a franchise, before we started talking the nitty gritty of a commercial negotiation, we would get a disclosure document saying: ‘Bruce, Kel, this is still a business, there are risks involved, there are potentials for rewards, but this is not a sure thing’.
It’s a great business model. We are the franchise capital of the world – 460,000 Australians have a job in a franchise system.
There are 1,160 franchise systems – 80,000 separate business units and together they turn over $144 billion a year- so franchising is enormous business in our country.
They are really important for our economy and jobs and economic opportunity, and that is why we have introduced this new code that sets up the franchise sector for a new era.
I was really surprised to hear you say that we are the franchise headquarters of the world. Is there a reason for that? Is it just that this is an easy way for Aussies to get into their own business?
Does it suit the way we think and the way Australians operate? Why is it so big here?
I think it comes together in a number of ways. We are the country of having a go. But we also want to know we are going to have a go with some confidence and knowledge – and we are frankly a little bit less risk averse than say the Americans.
If you go into business in America and the business fails and you have another go and it fails again, that is all viewed as a bit of a learning experience under the entrepreneurial culture in the United States.
Here for a business person, a business failure can be an enormous setback but people are looking for an enterprise that they can have confidence in.
Franchise systems are a spectacular way of getting into your own business but not being on your own- because you can benefit from the business knowledge, experience, expertise, clarity about setup costs, leasing arrangements, how to get your suppliers organised – all of that talent, knowledge, skill and input is part of what the franchise system brings, and the franchisee brings an investment, their entrepreneurship and a preparedness to work together.
But it needs to be a very adult to adult relationship. That is when it works best.
You’ve talked about it as being like a business marriage. It seems to me you want people to have a pre-nup when they go to the business marriage.
That is essentially what it is. It basically says what is the business you are entering into, what are the risks, what are the costs, what is expected of each other. It is a bit like a marriage – the music is there, it is a beautiful moment when you sign on and there is a sense of shared purpose and mutual interest, it is very exciting but we have seen examples where if a dispute arises that adult to adult relationship can become very parent-child and that can really run against the grain.
Bruce, when does it come in? Today is the first day of the New Year, does it start today?
It starts today and it should set us up for many years to come. It is actually deregulatory as well, it is actually better targeted, more efficient and more helpful and it saves about $8.6 million a year in compliance costs.
Really exciting times for franchising and I’m proud to be the Minister to have brought in these changes.
That’s good news, thank you for telling us about that. Bruce just before you go, it is the start of a New Year, 2015, you are part of the Abbott Government… 2014 was not the best possible year that the Abbott Government could have had.
Is this going to be a better year for the Abbott Government?
It will be a better year, you are right in your analysis; it is fair to say that we did not peak early in 2014.
Haha, that is a lovely way to put it – we didn’t peak early!
I’m being light-hearted about a very serious matter. We have some very big challenges as a Government to make sure this country can be all that it can be. It is about jobs, it is about families, and it is about reducing the cost of living.
It is about the great promise that the next generation will have it better than we have it and to achieve that we have to implement some reforms, live within our means, pay off some debts, get our budget under control.
And negotiate with a Senate that is really is quite odd.
Well they are an eclectic bunch with a whole range of objectives and goals but we have to work with the Parliament the voters have given us – and that means working collaboratively and respectfully with the Senators and hopefully showing them that the agenda we have is about growth and prosperity and a stronger and more secure economy – and that is in all of our interests and also tackling the challenges that we face at this time of change.
We need to bring our best game and that is what our efforts and particularly mine will be for the small business community in the coming year.
Bruce Billson, many thanks.