Canadian Franchise Association Expert Public Hearing Testimony

Mr Martin:…who you've actually kicked out of the association. I'm led to believe that, in fact, you've only revoked the membership of one and that was Pizza Pizza. Is that correct?
Mr Cunningham: I'm not at liberty to say, I believe. That would be privileged information of the association and I don't think it's appropriate to make any of that public here.
Mr Martin: You're not going to give me any numbers even?
Mr Cunningham: No.

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Legislative Assembly of Ontario
March 8, 2000

Public Hearing Testimony
Ottawa, Ontario, Canada
Mr. Richard Cunningham, Expert Witness, Canadian Franchise Association, FA

Standing Committee on Regulations and Private Bills
1st session, 37th Parliament

FRANCHISE DISCLOSURE ACT, 1999
Consideration of Bill 33, An Act to require fair dealing between parties to franchise agreements, to ensure that franchisees have the right to associate and to impose disclosure obligations on franchisors

CANADIAN FRANCHISE ASSOCIATION, CFA

The Vice-Chair: Ladies and gentlemen, we'll call the meeting back to order.

Richard Cunningham from the Canadian Franchise Association.

Mr Richard Cunningham: Good afternoon, everybody. As you heard, my name is Richard Cunningham-no Happy Days jokes, please. I'm the president and CEO of the Canadian Franchise Association. I have held this position for seven and a half years. I was also one of the four founding members of the World Franchise Council, and served as its first chairman. The WFC is an international body, currently with over 30 country associations working together to assist the franchise community and promote franchising on a global basis.

I have also been a member of the Franchise Sector Working Team since its inception. For the record, I have not been a franchisee or a franchisor, but I have owned and operated my own small business, which required investing my life savings. So I am familiar with many of the problems, stresses, daily issues and hurdles that a small business owner faces every day.

I also think I bring a unique view to this table. Unlike most presenters you have heard from, who represent one particular group or interest, my position and exposure to the public brings me calls and meetings with happy franchisees, franchisees who are upset and have locked themselves in their stores, excellent franchisors and those I have to call and tell that I have declined their membership. I am pleased to be here today to offer our association's and my personal views and experience on Bill 33 and to answer any questions you might have.

Let me begin by congratulating the government on the introduction of this legislation. As you have heard repeatedly, this is a huge step forward for franchising in this province. The effects it will have go beyond Ontario. Most franchise businesses operate interprovincially. I want to commend you and my fellow members of the Franchise Sector Working Team for the years of work that have been done to date and the efforts that have been made to address the concerns of franchisors, franchisees and, of course, those who are considering a franchise opportunity.

I'd like to begin by giving the committee a background of the CFA and the interesting role we play as a trade association. The CFA was founded in 1967 and is the national trade association for franchisors and the suppliers and professionals who are involved in this industry. We are the second-largest association of this kind in the world, and although our members consist of most of the larger systems in Canada, most importantly we count many new and emerging franchise companies in our numbers as well. We encourage these newer players to join so that they can learn, network and meet with other icons in the industry to achieve excellence in franchising.

The CFA's role is unlike that of most trade associations. Membership in the CFA is not automatic. We put all new members through a review process, similar to the process that we suggest a new franchisee perform. Memberships are scrutinized by lawyers, bankers, consultants and franchise peers for eligibility. We provide a 1-800 number service, accessible from anywhere in North America, to answer questions and provide information about franchising. We have a Web site, where those doing research can find the names of lawyers, bank contacts, seminars and CFA trade shows across Canada, as well as suggested questions for franchisees to use when they are checking out a new system. We own and offer two trade shows in Canada, and those shows are limited to franchisors only. No business opportunities, vendors, etc are allowed to participate, and we do not allow closing rooms on site, which means that we discourage franchisors from trying to take deposits or take franchisees any closer than an introductory meeting at our shows.

These shows also have seminars presented by the pros in the industry on how to buy a franchise, including presentations, most importantly, from franchisees who have gone through the process and can talk first-hand on what they did and how they did it before they made their decision. Almost all of our print material at the CFA has been developed to assist potential franchisees. We have information kits, directories which we produce nationally, and a list of businesses and stories, again written by professionals, all in the name of giving good advice.

Our television show, which airs nationally and has been on the air for seven months, has segments talking about the process of starting a small business and the steps people should take before they buy a franchise.

We are the only association in Canada that offers seminars in five cities in five different areas of the country on the process of investigating a process-again, three-hour seminars, three speakers, lawyers, bankers and again a franchisee. We make them very accessible and keep the cost down. They virtually run at a break-even for us or a small loss.

My office and I personally answer hundreds of calls a week with the aim of trying to assist the public. Although we can't tell them what to do, we can direct them to many resources that will help them make the right decision.

You have heard from previous presenters that many individuals are excited and make decisions from their hearts instead of their heads. I see this every day. For many, the word "franchise" has become a symbol of large, long-standing companies that seldom have failures. But the reality is that there is risk, there is failure and the buyer needs to be aware of that.

I have been asked over the last couple of days why we are primarily a franchisor organization and why, as such, we would spend so much time and effort working with potential franchisees. The answer is simple. As in industry, one bad player can harm the reputation of the entire industry. The more we can do to police this industry and assist buyers in making the right decision, the better it will prove to be for everybody. But we do have to understand that we are a trade association and, without any legislative authority, we only have moral suasion. Anybody who participates in our events is doing that strictly on a voluntary basis.

We have all heard the horror stories: the failures, the unfair practices and the losses suffered by some franchisees. But one thing I have learned in my seven years with this industry and in getting into the middle of a lot of these disputes is that there are two sides to every story.

I would also like to set the record straight about numbers thrown around this table and provided to media. No one, including myself, can substantiate any of the claims about franchising success or failure rates. Statements made by the CFA about success rates are based on information provided primarily by the banks. As you've heard, the banks are very involved in franchise business and their statements to me are that franchise loans to franchisees are better performing loans than to independent businesses. It might be prudent for the committee to consider asking a franchise specialist from one of the major banks to comment further on this area.

The study of franchises, by its nature, is difficult because of the cross-section of sectors. In fact, franchising crosses 42 sectors of the economy. The stats you heard earlier in the week from the US, under more careful examination and review by an economist, were taken on one industry sector and from the smallest franchisees in that sector. Obviously the success rate for a new system may not be as good as that of an older system, and that brings another twist to the complication.

Let's face it: If the franchisor-franchisee relationship is marred by excessive fees, inadequate services and poor support from franchisors, then it is extremely difficult to explain why, both in the US and Canada, franchising has continued to expand much more rapidly than the economy over the past 25 years.

During the 1980s, a proliferation of franchises were being sold and bought. A lot of people were downsized, had money in their hands and were out looking for something to do with it. Franchisees and franchisors had more locations available to them and were busy selling and buying without really checking each other out. The CFA did not have the presence in the public that it has now. We didn't have the trade shows, the television show and the Web site. Trade shows were run by privately run companies and had biz ops, vending machines and a number of other businesses involved at the same time as trade shows, but the quality wasn't being watched.

A lot of the problems with the franchisees that you have heard over the last couple of days, including the Pizza Pizzas of the world, are a product of that time frame. You've heard from Mr Javor and others that franchisees are far more careful today than they were back in those days, in the 1980s. They do their homework. Our checks and questions of franchisees have found that they take an average of six to nine months before they make a decision and actually sign on the bottom line. Also, because they don't have these packages and the money and aren't being downsized at the rate they were in the 1980s, they are giving up a job rather than having left a job, and that makes the whole process a very different one from their perspective.

Franchisors are also more careful. Franchisors are now using systems to evaluate if the profile of the potential franchisee meets with the successful franchisee and their system, and they're providing more information.

Following the introduction of this legislation, all CFA members were sent a copy of this bill, asked for their feedback and encouraged to take part in these public hearings. Our position on these issues has really not changed since August 1998, when the government introduced the draft legislation.

This submission combines the consensus of opinion from our members, the positions we have historically taken on key issues and the need, in our view, to provide consistency in Ontario with the existing legislation in Alberta.

Let me briefly state our position on Bill 33. First, disclosure legislation is the right thing for the public and the industry. Our association initiated disclosure rules four years ago on a voluntary basis and two years ago on a mandatory basis, and it has proven to help both franchisors and franchisees.

Second, no legislation is a substitute for "Buyer beware." Giving new franchisees information will only help them if they use the information provided to them by this bill. A level playing field that offers franchisees certain protections without driving up the price of entering the business through expensive and excessive over-regulation offers the best balance.

Third, we feel that statistics must be gathered in the bill before considering anything beyond what the Franchise Sector Working Team has proposed. As many of you know, this area is very important to us, and something we've been trying to work with ministry officials to implement. As an organization, we feel that we have the resources and expertise to perform this function and will continue to push for this important mechanism.

Fourth, the ministerial exemption process that is in place needs to be easy and simple, and must be available to mature franchisors prior to the bill taking effect.

Finally, we understand that it's necessary, in order to shorten the length of a bill, that a number of the elements dealing with the legislation be left to regulation. It's always difficult to assess the real value of a bill when important components will be defined later through regulation. But I'll touch on some key areas that we feel are very important and should definitely be included in the bill.

The broad disclosure requirements proposed by Bill 33, as well as the terms and conditions proposed to ensure timely transmission of the disclosure documents: We believe the format of disclosure documents should be harmonized across all Canadian jurisdictions that currently require or may introduce future requirements for pre-sale disclosure to potential franchisees. The proposed disclosure legislation is an appropriate and judicial regulatory response based on what we accurately know about today's franchise industry.

The review engagement letter and/or commercial credit reports, we feel, are the optimum tools to allow potential franchisees to accurately assess financial viability of a franchisor system. Audited financials can be confusing. Commercial credit reports actually provide more potential franchisee information in plain English.

Exemption from disclosure should only be given to franchisors who meet criteria which clearly demonstrate that they are financially and organizationally able to assure prospective franchisees that they are stable and that this is a viable investment. Of course, we strongly support the issue of fair dealing requirements in this bill and the right to associate.

The CFA looks forward to continuing our support and involvement in the drafting of those regulations. We believe that with our experience we have an important role to play in ensuring that the regulations benefit both franchisors and franchisees. We're pleased the minister has already assured us that we will be consulted, and look forward to working with ministry officials on this in the future.

Disclosure provides an enormous wealth of information to potential buyers. When introduced, our members said that the CFA disclosure document was the best selling tool they ever had, because it started the relationship in an open and friendly format.

Think about this one element alone in Bill 33: A list of all franchisees in the system and those who have left. I have personally called and spoken to franchisees in a system. We do this as part of our review process for new members. I can assure you that after a few calls to a franchisee asking some simple questions like: "How do you enjoy the system? Were there any hidden costs? Is the training accurate?" you get a very clear picture very quickly of what that system is, where its problems are and whether or not it's one you want to join. If I provided you with a list of Pizza Pizza franchisees, present and past, and you called David Michael, what would your decision be regarding that purchase, regardless of the information you got anywhere else, from anybody else?

This is a good bill. It takes franchising a long way in one big step. Franchising does account for $90 billion a year in sales across Canada, 60% of which are in Ontario. It would be irresponsible for this government, or anyone, to move away from what the Franchise Sector Working Team has unanimously agreed upon and proposed and is supported by virtually everybody you've heard in the last two and a half days.

On behalf of the members of the CFA, I would like to take this opportunity to congratulate you on opening up this process through these public hearings. You've given franchisors, franchisees and, more important, the general public the opportunity to study this bill and offer their comments.

The CFA looks forward to continuing their work with the government and the officials and the members of the opposition in ensuring that this legislation is workable and fair.

The franchise industry is an exciting one. It has offered profitable business opportunity to thousands of people. One million people work in franchises across Canada. We support this industry and the efforts of this government to make it better.

Thank you.

The Vice-Chair: Thank you very much. The first questions are from the NDP caucus.

Questions

Mr Martin: I appreciate the work that was done by the working group in getting to where we are today, and with myself and others encouraging the government to move forward and take this out to public hearings so that we might hear directly from some of the people who are caught up in the system-some doing well, some obviously struggling and others badly damaged. We've heard from a significant number, I think, over the last two or three days, and you've been with us and you've heard the stories too.

As a franchise association claiming membership across the country and claiming to have the best interests of the industry at heart, and in listening to the stories that are brought before us-and these aren't people who are looking at getting into a franchise; these are people who have already been in the franchising industry and have had certain experiences. Most who have come before us have had some very difficult experiences. Does that not cry out to you for something in this bill regulating the relationship after the contract is signed so that there is recourse for them to solve some issues before they end up bankrupt or not well from a health perspective? Does it concern you for them personally, and doesn't it concern you that this has a bad impact on the industry itself? If you listened to Professor Hadfield this morning, when the reputation of the industry isn't good, the efficiencies that could be had by more people investing are limited.

Mr Cunningham: I'll answer the first question, which is, what are my feelings about people who are in the system now and how can legislation help them? As I understand it, first of all, legislation is difficult to enact retroactively. For you to put legislation in place now to go back and try to deal with situations that started 10 years ago or five years ago or whatever, we'll be wading into a situation that would be complex, difficult and probably, as we've heard before, a field day for lawyers.

No one wants to see franchisees in trouble with their franchise. As I said earlier, I own my own small business and, when you're into that and you're up to your armpit in alligators, you're always looking for someone to help you out of the that situation. In this case, as I would understand it, certainly fair dealing would come into play immediately, as would the fact that people can associate, have the right to associate. Those two elements in themselves, aside from the other issues, I think would be of great benefit to people already in systems. I think there needs to be more education so that people who are in systems know where to get help, not necessarily just from lawyers, but where they could seek more advice even from each other as franchisees which, as we've heard in some cases, they can't, especially in bad systems.

Mr Martin: How many franchisees belong to the Canadian Franchise Association?

Mr Cunningham: Directly, none.

Mr Martin: OK. You're quoted in an article in this tome that I've been carrying around, and for those who have it with them it's B55: "By the time [franchisees] have a problem, they're probably out money, if not out of the store, and they're too far down the road." These are small business people. These are the people who are the heart and soul of many communities. By the comment you just made a few minutes ago that we can't do anything about that, are you willing, as the spokesperson for the Canadian Franchise Association, to cast them into the wind?

Mr Cunningham: No, that's not my intention at all. What has to be defined here is, of those people, who as you say have lost their money or are about to lose their store, how many were a result of the franchisor's doing, the market's doing or the franchisee's doing? Those are the kinds of statistics we don't have. You don't have them and I don't have them. If it's a result of market force, the market played a force on my business too. In the case of franchisors who are mistreating their franchisees, one of the options we opened to people when I made that statement was a mediation service which the association has available across Canada for members, non-members, anybody who wants to use it.

Mr Martin: How many times has it been used?

Mr Cunningham: It has only been used a couple of times. To talk to that issue, we feel that the problem with that has been partly lawyers, because mediation is something which can be done quickly and for far less money than going to court.

Mr Martin: Could it possibly be that you don't want to take it on because the members of your association somehow bring pressure to bear? I've got a letter here from Bulk Barn franchisees that has been delivered I think two or three times to your office and has been refused, I'm told. Is Bulk Barn part of your organization?

Mr Cunningham: Yes, they are.

Mr Martin: I'm going to deliver it to you personally here today so that you will have it and hopefully respond to them, because they're looking for some resolution to a very difficult circumstance they find themselves in. I suggest that there are a lot more like Bulk Barn out there who are going to find themselves in the same circumstance, particularly if what we've heard these last two or three days continues and escalates.

It seems to me that what we need in this bill is some dispute resolution mechanism. I'm not convinced of what that vehicle could be or should be, but we need to be taking seriously the need for this. If there's one area that I would challenge you in, in terms of your presentation here today, it's in that area. We need something that people who are aggrieved at this particular point in time, and who will be aggrieved down the line, whether it's franchisor or franchisee, can go to without having to get into a very legalistic vortex with lawyers and the cost that represents. Perhaps we can resolve some of these things so that the franchise industry, which is very important in Canada and the US, stops developing the reputation that seems to be growing here now and creates those efficiencies that Professor Hadfield talked about this morning.

The Vice-Chair: The next speaker is Mr O'Toole.

Mr O'Toole: Thank you very much for your presentation. I have just a couple of quick ones, and maybe other members have a question as well.

I agree with your advice that getting a bank franchise loan officer to present to the commission would be helpful. Whether that will happen now or in the short term, they can always write in a report. If you know of any, it would be helpful.

We also heard of the shortage of franchisees. If you want to respond, you can, but I don't see that as a problem, technically. I just think it's something we heard from somebody.

There are a couple of other good pieces of advice I'd like you to comment on. The ILA, the independent legal advice, was referred to yesterday in Sault Ste Marie. If I were to sign off, saying that I had done that due diligence piece - you referred to it as a commercial credit report; I'd refer to it as an independent financial advice. If those two requirements were put in here in a sort of regulation and they sign off on those - I agree with one of the previous presenters here that most people are so eager to cook that first pizza, they don't read anything. I honestly feel they get the buyout from the company they're departing from, $200,000, and they rush right out and get that urge to be in business. I think there's some due diligence with that as opposed to me, the taxpayer, being somehow hooked into this, "Jeez, I got taken advantage of." You could say that happens every day at the casino or at the racetrack.

I want to refer to something that you did reply to Mr Martin on. I'm quite sympathetic to the supply issues that we heard about yesterday. On some of those there should be some strengthening.

The other thing is the dispute mechanism, and I'm not convinced. In your report, under "Alternative dispute resolution (ADR)" on the second-last page, it says: "It is noteworthy that the discussion paper does not include a proposal for alternative dispute resolution. Nevertheless, the CFA recognizes ADR is an important conflict resolution mechanism, and one which can provide benefits to all players in the franchise sector." Do you think it should be included? You've also got some stuff here with respect to your own code of ethics.

Mr Cunningham: There are two issues with this. First of all, it's in our code of ethics, so obviously we encourage our members to use any other method than litigation. As I understand it, now it's even built into the civil court system, so mediation is available there. We've looked at the idea of having a different type of system than we have now, but the problem with mediation historically, both in the US and Canada, has been that there's still a stop-gap for using it, both in the case of not understanding it and the legal community not willing to participate in it. As a method of resolving disputes in franchising it can work; not in all cases, but it can in some. Again it plays to the issue that both parties must be willing to participate.

Mr Gilchrist: I have a couple of points that I wonder if you could elaborate on. Given that the CFA believes the commercial credit reports are valuable-and we've heard similar comments from other groups about getting independent legal advice-as part of your code of ethics or a pro forma prospectus, would you support the express statement by a franchisor that they "recommend," "strongly suggest" - words to that effect - that before proceeding with the application the prospective franchisee get both independent legal advice and obtain a commercial credit report?

Mr Cunningham: It's currently in.

Mr Gilchrist: Both of those?

Mr Cunningham: It is in our code of ethics. We encourage them to encourage the prospective franchisee to get advice from professionals. In some cases, not all - and unfortunately not across the board - to protect themselves franchisors have put in this clause so that a franchisee would go and sign off that they've seen a lawyer, an accountant and so on.

Mr Gilchrist: Many isn't all. Forgive me; I was finishing up a phone call at the start of your presentation, trying to listen at the back of the room. Is the code of ethics applied scrupulously? Can you get close? Can you say, "I chose other wording," or do you have some kind of review that you would go through and check off a list, and in this case if they did not have that as part of their prospectus, what would the repercussions be?

Mr Cunningham: If we have a complaint from a franchisee saying that they were not abiding by any part of our code, we have a complaint procedure which we put into place and review it. The only decision we can make, the only option we have as a trade association, is to rescind their membership.

Mr Gilchrist: That doesn't sound like too onerous a penalty.

Mr Cunningham: In fact it does have quite a bit of effect to it because we own the trade shows, the directories and a lot of the marketing tools they have, and they can't be in those. If they are in the business of selling franchises and they do not belong to the association any longer, they can't participate in those vehicles.

Mr Gilchrist: Forgive me, I may be too picky in my interpretation of your language. You said "if they weren't following any of the terms." Does that mean "any one of," or the only time you would get mad is if they didn't follow-

Mr Cunningham: Any one of.

Mr Gilchrist: OK, that's different.

The second is the right to associate. We can say you have the right to associate. If there's nothing expressly provided for, I guess the franchisor could say, "Sure, they have the right to associate and I have the right to harass." What should we explicitly be stating are the consequences of saying that we allow a right of association? How far should we go down the road in the regulations to say, "There will be extraordinary repercussions if you do any of the following things," or should we be silent on that?

Mr Cunningham: It would be unfair for me to answer that at this point because it was never discussed at the Franchise Sector Working Team. For me to answer that on my own, and not having had time to consider it, I don't think I'd be giving justification to the answer.

Mr Gilchrist: I appreciate your candour, but does that mean they embraced the concept but didn't talk about any of the consequences of putting that clause in there? It was my understanding that right to associate was part of the approval.

Mr Cunningham: That's right. It was part of the approval.

Mr Gilchrist: But no one discussed what that meant.

Mr Cunningham: The focus at the time in those meetings, for whatever reason, was what would happen if you did not, the consequences for not disclosing properly, or at all.

Mr Gilchrist: Again, I don't mean those questions to sound harsh. You and we have heard over the last couple of days that disclosure seems to be the key. I must admit that my bias is giving people as much information up front. I think part and parcel of that is saying, in a clause that says you have the right to associate, what that means.

I would encourage you, if in fact it hasn't been discussed. Recognizing that the next step for this committee will be at some point after April 3, we've got a bit of time. If it's possible to seek counsel from any of your colleagues on that subject, I'd be grateful and would welcome your input.

Mr Cunningham: Of course.

Mr Patten: Thank you for your presentation. I haven't heard all of the presentations in the different locales, but I'm intrigued by this and the role of your association. I asked a question this morning about the need for a better business bureau, perhaps the model that you have here in that it can have some clout in the sense that it is used as a cornerstone for people to say: "Has this franchise been a member? Are they a member? If they were a member, have they had any complaints against them?" If somebody phoned up and there were complaints against a particular franchise, would you be free to disclose, not necessarily the particular-first of all, would you say, "Yes, there were four complaints in the last two years with such and such a company"

Mr Cunningham: We wouldn't disclose the background on any of the complaints but we would probably say their membership was in review. The reason for that is there are sometimes cases where a franchisee will phone in or file a complaint which has no basis to it. To give out details of such a thing when we haven't been able to fully investigate it wouldn't be fair to either party.

Mr Patten: Have you taken action to revoke a membership?

Mr Cunningham: Yes, we have.

Mr Patten: So someone would be able to know that?

Mr Cunningham: Yes.

Mr Patten: Good.

Along the lines of Mr Gilchrist, but not necessarily on the disclosure issue, which seems to be almost unanimously agreed to, what I've heard is, "Well, it's very difficult to get into the relationship between the franchisor and the franchisee." However, as time goes on there seems to be significant representation that says the franchisee continues to get squeezed somewhat. What's your experience and observation? Is that a general pattern? Does it vary with poor business practice and from business to business, or is there a pattern there?

Mr Cunningham: This is where the problem with statistics is. When we talked about supply issues, what might be a supply problem for grocery stores couldn't possibly apply for hamburger stores. When you talk about, "Where are the problems, are they in certain sectors and not in others?" you might say that in the food business, for example, territories become more condensed and are becoming more of a problem for them than they are for people who are working in home-based businesses.

The problem with dealing with an industry, if you can call it that, in so many sectors of the economy, and dealing with everything from a $20,000 to a $10-million investment, without proper statistics is that it puts us all in a situation where we're groping for answers with nothing to base them on.

In answering your question as best I can, I don't see any one problem that goes across all the lines of franchising other than the lack of consistent information for a potential franchisee before they buy, and this answers that.

Mr Patten: My last question: You do periodic checks with franchisors and franchisees. If you uncover something, what do you do with that? Let's say no one has initiated a complaint to your association. However, in doing surveys of satisfaction you discover certain information. Do you take that back to your executive?

Mr Cunningham: It goes back to a membership review committee and they would make recommendations. In some cases we go back to the franchisor. I call the president of the company personally and say, "You've got these problems, fix them," or in some cases we would terminate their membership.

Mr Martin: I'm following up on the question that Richard asked a few minutes ago in terms of who you've actually kicked out of the association. I'm led to believe that, in fact, you've only revoked the membership of one and that was Pizza Pizza. Is that correct?

Mr Cunningham: I'm not at liberty to say, I believe. That would be privileged information of the association and I don't think it's appropriate to make any of that public here.

Mr Martin: You're not going to give me any numbers even?

Mr Cunningham: No.

Mr Martin: Then just to query as to the membership in your group and who you speak for, I'm led to believe that you have 220 out of about 1,300 franchise systems in the country. Is that correct?

Mr Cunningham: I don't what the date of that paper is, but our franchise member list is just over 300 right now because some of our member companies, like CARA, for example, would have eight brand names.

Mr Martin: And 80 of your members are lawyers, accountants or consultants?

Mr Cunningham: Correct.

Mr Martin: Also there are some big systems-and we heard from one of them today-that don't belong to your association. Do you have any auto dealers?

Mr Cunningham: No.

Mr Martin: Do you have any food stores?

Mr Cunningham: Yes.

Mr Martin: How many?

Mr Cunningham: One chain.

Mr Martin: Petroleum stations?

Mr Cunningham: Yes, Petrocan.

Mr Martin: What about hotels and motels?

Mr Cunningham: Yes, a number of them.

Mr Martin: You made a statement earlier about the information I shared with the committee that the perception out there is that there's lower risk by going into a franchise than the independent small business route. I have a study that suggests that's not the case that the incidence of failure in franchising is greater than in going the independent route.

Mr Cunningham: I don't know your study so I can't comment on it.

Mr Martin: It's a study called Survival Patterns among Franchisee and Nonfranchise Firms Started in 1986 and 1987. I can give you a copy of the report. It was reviewed by Ms Susan Swift from our legislative research branch, and it's actually quite interesting. It has a number of findings that I think maybe your association might find worth looking at because it challenges very seriously the contention-and I suggest it's something that needs to be perhaps looked into further. If we're offering franchising in the country as a more secure way to get into business, particularly in an environment where there are a lot of people who are being restructured and walking around with severance packages looking for someplace to invest them and they are thinking that franchising is a bit more risk-free than actually setting up an independent business, then we may be sending them down a road that will result in stories such as the ones we've heard over the last two or three days here.

Mr Cunningham: Can I respond to that?

The Vice-Chair: Go ahead, sir. We're just about out of time here now.

Mr Cunningham: Even if these statistics are out there, and as people are being told that franchises are more successful than non-franchises, the disclosure is going to give them the information and the ability to contact people in the system. If they call up XYZ system and talk to 10 of the franchisees and they say, "I'm not allowed to associate," "I'm not making any money," "I've been in this business five years and I've lost money," or "I'm not in the system any more because I lost my life savings," I think that in itself is going to tell those people, regardless of what any statistics are, not to buy.

Mr Martin: The problem is, though, that a lot of the people that they should actually talk to have signed confidentiality agreements and they can't talk.

Mr Cunningham: They wouldn't be able to do that, though, with this disclosure legislation.

The Vice-Chair: Richard, thank you so much for your time today and for the presentation you left with us.

This document is a verbatim copy of this witness’ oral testimony. To review the original transcript: http://www.ontla.on.ca/web/committee-proceedings/committee_transcripts_details.do?locale=en&Date=2000-03-08&ParlCommID=1&BillID=&Business=Bill+33%2C+Franchise+Disclosure+Act%2C+1999&DocumentID=19724#P317_123233

Copyright (c) 2000
Office of the Legislative Assembly of Ontario
Toronto, Ontario, Canada


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Risks: Trade shows a major source of revenue for franchisor associations, Trade show are where the greatest lies are told, Banks as a statistical source, Ontario Public Hearings, Canada, 2000, Gag order (confidentiality agreement), Must buy only through franchisor (tied buying), Canadian Franchise Association, CFA, Franchise Sector Working Team, Franchise show, Banks, Necessary illusions, Siren song, Survivability (franchisee and franchisor), Justice only for the rich, Need more statistics, Undue influence, Money swears, Professor Gillian K. Hadfield, Professor Timothy M. Bates, Attempts to rehabilitate image, Banker says franchised is less risky than independent business, Franchise banker, Most lucrative form of commercial lending, franchising, Sold during time of psychological vulnerability, especially unemployment, Caveat emptor - let the buyer beware, Refused to answer politician’s question, Disclosure document: best franchisor selling tool, Refuses to accept complaint, Code of ethics, almost never enforced, Code of ethics, a joke, Right to associate and right to harass, Sincerity, Blocking for the industry, Blame the franchisee, Psychological testing, Industry “Better Business Bureau”, Endorsed mediation program, in 5 years used zero times, Qualify as franchisee if you fog a mirror & the check clears, Tony Martin, Universities provide unbiased expert knowledge and pursue objective truth, Sincerity, Canada, 20000308 CFA

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