From happy to nasty: inside the battle for the heart of Jim's

And he has little time for Penman's claims he protects franchisees. "Look, he talks about standing up for the little man, but the only thing he's interested in is their money," Richards says.
January 25, 2010

From happy to nasty: inside the battle for the heart of Jim's
Chalpat Sonti


Jim's Group founder Jim Penman. Photo: James Davies

Chalpat Sonti investigates the spat that threatens to split one of the nation's most successful rags-to-riches businesses.

This is the story of Jim's Group, founded with $24 capital in 1982 and now turning over more than $300 million annually.

With about 3000 franchisees in 29 divisions, from the seemingly ubiquitous Jim's Mowing to computer services and finance professionals, the rise of the franchise second only to Australia Post in size has been one of the feel good yarns of modern times.

Despite some eccentricities - such as his ideas about manipulating the way people behave by placing a strip to release pheromones in their bedrooms, to experiments with rats to develop "happy" pills - the face of founder Jim Penman, complete with long-gone beard, is one of the most recognisable brands in Australia.

But that happy-go-lucky image has changed in recent months, as a discontent brewing quietly for many years has finally bubbled over into public view.

Leading the charge have been the very people with most to lose from adverse publicity - the layer of master franchisors under Penman who rely on recruiting and keeping franchisees to protect their own investments.

Those franchisors, who effectively run the divisions or are responsible for regions within those divisions, have paid Penman big money for those rights. But frustration by many at a lack of consultation over the way they run their businesses has them seething.

Penman has been publicly defiant, saying his first priority is the interests of the franchisees who mow lawns, fix fences, clean pools and a host of other, mainly service, jobs.

"They are, after all, a lot less well resourced than (divisional and regional) franchisors, many of whom are millionaires, as a result of their involvement with us," he says.

But he has been forced to back down, in the wake of public revelations that dissatisfaction with his leadership style, and claims of regular breaches of contract and steep fee hikes, had led to a "referendum" where divisional and regional franchisors tried to get him to stand down from the company.

That vote, conducted through a US-based online voting service, found 84 per cent of franchisors wanted him gone as chief executive, while 76 per cent agreed to fund a class action against him for what they say were breaches of their contracts through unilateral changes to the operational manuals that underpin the Jim's businesses.

The Group's constitution allows franchisees to "vote out" their franchisors, and Mr Penman is the national franchisor for the divisionals and regionals, who are his direct franchisees.

Penman - who after admitting that a majority of franchisors probably did want him gone, later claimed that just eight of more than 200 divisionals and regionals had voted against him - dismissed the validity of the referendum, and claimed he could not be voted out.

But the impact of the public revelations was immediate.

Penman canned the increased fees - which could have seen some franchisors renewing their contracts pay double what they had in the past - while his trusted lieutenant Phil Maunder, who ran the largest and best-known of the group's divisions, Jim's Mowing, quit within days.

While Maunder, in an email to franchisees, said he left on "excellent terms", and the decision was not due to the discontent within Jim's, it had "probably brought my decision forward a little".

Penman told franchisors in a separate email that "clearly the recent fuss has advanced the move" from the 20-year Jim's veteran.

At the same time, Penman reported the publicity led to a "surge" in interest from potential new franchisees, who possibly felt empowered by a system where they could vote out franchisors.

A few weeks later, at a meeting of the Jim's Group advisory committee - the body which is supposed to act as a bridge between head office and divisionals and regionals - Penman agreed to look at reworking the operations manual, while agreement was reached on a new fee structure.

Those fees, an internal newsletter states, were going back to what they were "to meet franchisor concerns and to avoid giving the media any ammunition".

But in heated debate at the advisory committee meeting, he flatly refused to stand down - detailing past disastrous experiences with hiring outside chief executives - or sell the company, telling attendees that he had rejected two offers of $20 million and that private equity buyers would be a disaster.

He claimed he was the only person who could run Jim's Group, but offered to hold a survey some time after Christmas, when he would get a "better result" that would avoid potentially damaging publicity.

The discontent is not new. Penman survived a similar vote in 2005, over similar issues. He told his franchisees then that he would sell the company if they wanted him to, as remaining as owner without control was not an option.

But that has not stopped franchisors and franchisees past and present stepping forward to tell their stories.

By and large their claims centre around Penman's personality, with words like "bully" and "dictator" common.

Asked about those words, Penman says while he will try to be more consultative in his approach, he would continue to press divisionals and regionals to "do their job" and look after their franchisees.

"At times, this will lead me into conflict with franchisors," he says.

But that approach does not wash with Chris Munday, who is the divisional franchisor of Jim's Painting. He is among the few present franchisors still in Jim's Group prepared to be named, with many fearing they could be in breach of contract if they do so.

Sunshine Coast-based Munday ran a successful painting co-operative, which had close to 100 stores nationally, before buying the divisional rights for Jim's Painting.

He says Penman had "no respect or regard" for the huge investments franchisees at all levels had put into the business.

"What's so bizarre is that he runs the whole business as though he owns every part of it," Munday says.

Munday, who has sunk close to $1 million into the business, says it was in no-one's interest's not to look after franchisees.

"We sold them the franchises, Jim didn't," he says.

"All we hear is Jim talking about (how) he has to be there to stand up for the rights of franchisees. That's poppycock. We (divisionals and regionals) are his franchisees too, and he forgets that."

It was insulting to divisionals and regionals that Penman tried to push through changes that could have wiped out large parts of the value of their businesses without consultation, Munday says.

"Look, he sets things by the mowing business. A mowing franchise is about buying a job, but when you take painting, we've got a number of franchisees that turn over $1 million a year by themselves, and painters can employ a dozen people.

"Jim doesn't understand that this is a lot different to mowing, and he's basically treating everyone like a subservient employee. It's 'follow me blindly like I'm the messiah'."

Keith Powell has twice been on the receiving end. The first was by vote out as the divisional for building maintenance and pergolas, and just recently for "abandoning" his eastern Victoria building maintenance region.

After the first vote-out, which Powell says was orchestrated, he and his business partner were required to sell up.

In an email to Powell, Penman takes the unusual step of copying in the would-be buyers for the division, and tells him the sale has to be settled within three days.

"There are three potential buyers … make a deal with one of them. Jim's Group will not be helping with terms," Penman wrote.

The result was that a $400,000 investment yielded a loss of $130,000 after 18 months work.

"If you're forced to sell you don't want a potential purchaser told that," Powell says.

Penman admits "I did put pressure on him to accept a reasonable price" but he had given him more leeway than required under his contract.

Franchisees asked for a referendum, which he ran, and Mr Powell was forced to sell as a result.

Michael Bonnici bought two regional pergola franchises in Melbourne around the same time.

Bonnici, a builder, said he soon had concerns over what he believed were unlicensed franchisees illegally carrying out certain building jobs.

Penman is adamant that he never ignored licensing issues.

"The (building maintenance and pergolas) division continues to make every effort to ensure franchisees are licensed, and I keep myself informed of their efforts," he says.

In an email exchange with Bonnici, Penman wrote: "I understand you've been approaching the authorities (regarding) licensing issues, with the apparent aim of having the division shut down. I have to congratulate you on your extraordinary idealism, since this would wipe out your own business investment. We will have a new divisional appointed shortly whose first goal is to make sure that no-one works illegally."

The spat went to mediation, the end result of which Bonnici was allowed to keep his two regions and did not have to pay any fees until they are sold.

"They're not worth the paper they are written on but I don't have the money to sue Jim and he knows he can keep you tied up if you try," says Bonnici, who now runs another business.

That's a claim shared by Richard Sedawie, once described by Penman as an "outstanding operator" who ran Jim's Mowing in NSW for much of the 1990s.

He shifted from Melbourne to take charge of a then-struggling region, helped by venture financing from Jim's Group. The business quickly grew, but things started to turn sour with what Sedawie claims was an orchestrated campaign to get him out of the plum region.

Sedawie says he started getting word that franchisees in NSW had "complained" about him.

Then, a bombshell. Sedawie says head office went through his computer and told him he owed $100,000 in fees.

Unable to afford a protracted legal battle - "I was at the point of either suing him or selling but I didn't have the funds to keep fighting in court" - Sedawie settled. The region was then sold for $500,000 and Mr Penman took $200,000 as payment for the overdue fees and an exit fee.

Sedawie says a $50,000 cut would have been fairer.

"Look, I made good money out of the whole thing but pretty much once a week for the past 12 years I've had bitter thoughts about the whole experience," he says.

"But Jim has got no conscience when it comes to these things. He'll do what it takes to suit his own needs."

Penman says Sedawie was 18 months behind on his fees and he could have legally terminated his contract and taken the business back.

"Instead, I let him hang on until we found a buyer at a good price, so he got paid out minus the money owed," Penman says.

"I don't remember about keeping money back, but presumably he underpaid fees."

Queensland-based Michael Sheridan is also critical of Penman's oversight after ending up in a failed division that sought to retail swimming pools.

"Jim admitted they had no experience to do anything in retail, but the idea seems to be that they'll give it a go and (divisionals, regionals and franchisees) will lose the money," he says.

Sheridan says Penman reneged on a deal to let him take the shop independent. Instead, three months ago he was offered a deal with two options: either close the doors or go to court, or stay but accept an offer of $10,000 for his maintenance franchisor rights but only when they were sold on.

However, he sold the business just as he received the offer.

It was a double blow for Sheridan, who was voted out as a regional franchisor in the pool maintenance division, in another referendum he claims was "instigated" by Penman.

"Really you're at the mercy of Jim and the franchisees. It only needs three of them and you're gone. In a newish division (with fewer franchisees) it doesn't take much at all."

Penman says franchisees complained about poor service by Sheridan, "as a result of which several lost their businesses".

And after receiving "several complaints" from franchisees about Sheridan's running of the retail outlet "I put pressure on him to sell it".

While it was true the pools retail division had failed, Jim's Group has "learned a lot" in recent years about picking the best prospects, Penman says.

Sheridan, who turns 50 next year, says he is trying to start again, after losing $200,000 in his involvement with the group.

James and Heather Ivers are also trying to rebuild their lives after being kicked out of the test and tag division they founded.

The couple decided to take their electrical testing business on the NSW-Victoria border down the franchise route, and believed the Jim's name would serve them well. But they too, were terminated after three years.

Penman says there was dissatisfaction among some of the 33 franchisees at the time with the Ivers, and he terminated them for "poor performance" after several warnings.

But several franchisees at the time say they knew nothing of any discontent with the Ivers until being called by James Ivers to tell them he was no longer in charge.

Trevor Richards, a test and tag franchisee based in Bombola, on the NSW South Coast, says franchisees should have been asked to vote if there were any problems.

And he has little time for Penman's claims he protects franchisees.

"Look, he talks about standing up for the little man, but the only thing he's interested in is their money," Richards says.

Former test and tag franchisee Michael Gray, who was based in Canberra, agrees.

"May of us tried to ring or email Jim over the next few days and he just wouldn't respond," Gray says.

Again, Penman stands by his decision.

While the Ivers' "rented" divisional rights, they rejected an option to buy the business, and as renters no referendum was required before they were terminated. He says they made at least $1 million in fees from their time in Jim's.

Just how much money was made by whom in the deal is disputed by both sides. Penman says the Australian rights were sold for $88,000, the international rights "for more".

However, he has previously said on internet forums the division was sold for $360,000. Ivers says their region was sold for $100,000, of which Penman took his standard 20 per cent cut.

He says he wanted to take Penman to court, but "our legal people said to me he's got money and a high profile, who's going to believe us?"

But it's the man whose dispute with Penman started the present storm who promises he will go the distance with litigation. Penman says he has only been taken to court once in the business's history, but there are at least two other claims outstanding.

Paul Carr, the former master franchisor in the UK, was terminated by Penman earlier this year.

Penman has admitted he tried to find a way to get rid of the "completely useless" Carr after he says franchisees complained about a lack of service. After being terminated for non-payment of fees, Carr then paid the $3400 due and had to be reinstated.

Penman then breached Carr for not providing his franchisees with any support. Carr, who says he has done no wrong, is seeking more than $1 million in damages, but has yet to serve papers on Penman.

In a dispute marked by the protagonists' loathing of each other, despite only having met face-to-face briefly once, Carr says the litigation will be on behalf of a company he has set up, the provocatively-named Felicity Management, which takes its title from Penman's first wife.

Penman - who blames Carr for organising the vote and websites heavily critical of him - says he is preparing a defamation case against Carr, and is supporting two UK franchisees in court actions against him.

In the meantime, the UK division has been run from Australia.

While Penman hopes the storms will blow over the company, others, such as Chris Munday, are not so sure.

"Look, at the moment it's the Jim show. That's the whole issue," he says.

"But it shouldn't be about him. It's about the thousands of mum and dad businesses that are on the line here. With everything he decides to change on his own, we're in a situation where we started playing Aussie Rules and now we're playing soccer. It's ludicrous."


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Risks: Breach of contract, Bullying, Dissent, Divide and conquer, Franchisee advisory group (lap-dog), Hates publicity, Indentured servants, Lawsuit, class action, Opportunism: contract creates powers which are used to strip investor value during relationship, Opportunism: self-interest with deceit, Sincerity, Slander, Unilateral fines, Without conscience, Australia, 20100125 From happy

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