Undue Influence: The Case of the AUS Professor

Publicly funded institutions can become co-opted or captured by special interests.

Some university faculties have a better or worse reputation for pandering to special interests when compared to other disciplines. Business schools are not well respected by other faculties for their independence of thought.

I’ve seen it at my old school and confirmed it in other universities as well.

The Greeks defined 3 modes of persuasion:

  • logos (reliance on facts and figures: can be true or false),
  • ethos (authority, honesty of speaker, morality), and
  • pathos (appeal to emotions, sense of injustice, outrage).

Franchisees appear in front of public hearings and rely almost entirely on the rhetorical device of an appeal to justice: “It’s not fair that they did this and that.” Policy makers listen and judge its “truthiness“.

  • Generally, their narratives are concrete, visceral and credible.

Big Franchising responds if they have any remaining credibility, directly with at times shaky logos and ethos.

1. Consider the following article in Australia’s SmartCompany: Survey reveals drop in franchising disputes as franchising inquiry continues.

It says:

A new survey of Australia’s $130 billion franchise sector has shown disputes between franchisees and franchisors have declined, with just 2% of Australia’s franchisees classified as being in dispute.

Let’s stop there and list the persuasive assumptions that this single sentence relies upon:

  • survey: a scientific, logical, rational, independently verifiable academic study that is reviewed by other academics [did it appear in a refereed academic journal? no],
  • $130 billion sector: size matters: infers that big = successful, growth is good [uses social proof, is a huge credit crisis and run-away cancer growth good?],
  • declining number of disputes: situation is getting better [what is a dispute? how many have abandoned? is the mean dispute big or small?],
  • just 2% of franchisees in disputes: tiny problems, inconsequential, minuscule [can use anchoring to deceive].

This opening sentence is strictly a blatant misrepresentation, lacking in any connection to formal logic or any verifiable measure. The “just 2%” is a hallmark give away as to lack of any journalistic standards or any pretense of editorial oversight. Shame on SmartCompany but why is a university named?

If the 2008 Report is similar in method to the 2006 Report, it may be junk science: bought and paid for by its funders, the Franchise Council of Australia. Franchisor-controlled associations are well-known for blocking any changes to a statute, regulations and public regulatory body mandate.

You decide.

2. Next, let’s take a look at more detail into the role of the Griffith University. See the FCA’s media release: THE POWER OF ONE STRONG SECTOR REVEALED IN POSITIVE RESEARCH FINDINGS

Authority is clearly defined as another Weapon of Influence by social psychologist Robert Cialdini that can be applied to universities. They can be used to give the impression of academically rigorous research when really the work is simply a consultant’s report.

  • I don’t begrudge business admin profs or their peers earning the vast majority of their income from consulting to one or the other industry.
  • What I wonder is whether it is appropriate for an academic to overstates their conclusions (either intentionally or unintentionally) during a time of national lawmaking?

    You decide if Professor Powell has exercised undue influence or abused his duty:

    “The continued growth and maturation of Australian franchising is impressive, particularly considering the current economic outlook, a recent change of government, and a franchising sector that has faced close government scrutiny” said Professor Michael Powell. Pro-Vice Chancellor (Business), Griffith Business School.

    Did Professor Powell interfere with the Parliamentary Joint Committee on Corporations and Financial Services’s Inquiry into the Franchising Code of Conduct? I checked the 140 written submissions and didn’t see his name.

  • The test could be: Did he know or would he be reasonably been expected to know that his publicly funded authority could be used used to influence [inappropriately interfere?] with the operation of a  parliamentary committee?
    1. True scholastic work is published in refereed professionally-recognized journals to ensure high quality (an editor and reviewing peers, correct methodology, usually a very, very narrow scope, transparent auditing, meets ethical and conflict of interests standards, vetted before publishing, etc.). There is a whole series of checks and balances to weed out biases [innocent and not so innocent].
    2. Consulting work, no matter how many PhDs are piled up, has none of these centuries-old safeguards in place.
    • Blurring these lines is not fair, especially during a time of a fairly controversial public lawmaking process.

    Academic research is a credence good and as we have seen, is susceptible to cheating because “Joe Public” cannot determine if it is the appropriate quality or quantity.

    I have read enough articles and progressed far enough in a good school to seriously question the validity and reliability of this work. I imagine any academic that values their reputation would not rely or quote this report in their submission to the Joint Committee.

    Unfortunately, some scholars are more closely attuned to serving dominant commercial objectives rather than the pursuit of reality-based truth (as opposed to power-based truth) as is their duty as a tenured academic.

    My qualifications only go so far to speak on behalf of academic rigour and the arguments not made [eg. sunk costs as the primary and unique source of franchisor opportunism] in the current Australian public hearing.

    If a second opinion were to be sought, I believe Gillian K. Hadfield might be an appropriate candidate. pdf CV

    3 Responses to Undue Influence: The Case of the AUS Professor

    1. Carol Cross says:

      In the “franchise industrial complex” where the capture of the franchisee’s cheap labor and cheap “venture” capital fuels the growth of franchise systems, it is no wonder that the status quo, i.e., the franchisors, the banks and lenders, the Landlords, the government, and the academics, etc.. join together to protect their interests.

      Franchisees throughout the World have no voice. In the United States, where mandated arbitration of disputes is present in most all franchise agreements, franchisees are silenced in arbitrations that are not PUBLIC records or open to public view, or public opinion. In my opinion, the majority of franchise disputes take place because of the failure of the franchisee to thrive and the anger of the franchisees when they understand that the risk, as known to the franchisor, was not disclosed to them under the law, and that their adhesory contract is a malicious legal trap.

      The supremacy of The Federal Arbitration Act (FAA) in the USA and the mission of the Federal Trade Commission (FTC) is used to prevent franchise disputes between the strong party, the franchisor, and the weaker party, the franchisee ( who has signed an unbargained unilateral contract) from too often reaching the Courts and the view of the public and juries of the franchisees’ peers.

      Arbitrators have more power than judges but there is just enough case law on franchising developed by the courts to guide the Arbitrators in their decisions, that most often are in favor of the franchisors whose contracts often become commercial paper in the financial markets that must be protected for the sake of the investors in this commercial paper.

      While Constitutional Scholars in the USA might argue that the Seventh Amendment Rights of Americans have been coopted by big and small business in franchising, and that the FAA was orgiginally meant to be used to allow parties of almost EQUAL power to arbitrate instead of litigate, the current status quo of the law surrounding franchising is a GIFT by government to the special interests who are served by franchising. New practices like “securitization” of franchise royalties, etc.. must be protected by government. The contracts of the franchisors underlie these securitizations and are upheld by the courts.

      It is no wonder that the academics stay safely within the status quo that serves their interests, and frame their statements to support the status quo. It is no wonder that public hearings so often do not frame the questions that should be asked because, of course, government wants to avoid the answers that might disturb the status quo that protects the special interests of big business that are considered to serve the “greatest good” by governments.

      In my opinion, the original SIN of selling franchises without the seller, the franchisor, being required to disclose the KNOWN risk factor of UNIT performance statistics to new buyers of the franchise or to new investors in the franchise has set the stage upon which the same old play gets “rave” reviews year after year from those who profit from the ugly status quo.

      It is one thing for franchisees to understand that they could fail and to sign boilerplate contracts that release the franchisor if they do fail, and quite another thing for the “failure rate” and performance statistics of first- owner builders of franchises in the system to be obscured from the view of the new buyers who then can’t truly assess the risk and rewards of the purchase of the franchise.

      The academics continue to perform their “parts” and no doubt protect their innocence with the thought that they serve the “greater good.”

      At least! in Australia, there has been some effort to bring the “Play” to local communities and it receives mixed reviews by the Australian Media.

      Maybe Australia, with the independent spirit of its people, and its media, will bring changes to franchising that will restrain the explolitation and opportunism made possible because of the business model of franchising and the conspiracy within the status quo to hide the actual very high risk of failure of franchised small businesses from new buyers of franchises.


    2. Ray Borradale says:

      In the midst of an Australian Inquiry into franchising the FCA begins to refer to a new franchising survey that they have not released for public consumption.

      I have no doubt that scrutiny of this survey will once again raise the questions of who and what. I saw the original questionairre for this survey some months ago. The questions were designed to produce the required survey results from selected franchisors. But they haven’t released the full survey or the executive summary? That is because it will not withstand a proper scrutiny.


    3. Carol Cross says:

      It is interesting that in a public hearing concerning franchising in the United Kingdom, last year, I believe, the Minister of Industry indicated that she didn’t think it would be a good idea to “especially” regulate franchising because such regulation would give buyers of franchises in the UK a false sense of security because of the appearance of government oversight. The Minister commented that American regulation of franchising produced no more protection for Americans than the current and existing regulation of commercial activities in the UK produced for buyers of franchises in the UK.

      The Minister of Information also expressed concern in this hearing that those in the military service would be returning from the wars looking for self-employent opportunities. I assume that she wanted to be especially careful about lulling this special group of prospective franchisees into a false sense of security because of any special regulation of the franchise industry by the government.

      The Minister went on to indicate that she hoped that the banks who financed franchise loans and the buyers of franchises would do their due diligence on the franchise industry and this would make any special regulation of franchising by government of the UK unnecessary.

      Franchisors can often churn out of view of the banks and regulators when new buyers of franchises use their cash reserves and/or post their homes as collateral for loans to buy franchises that turn out to be unprofitable for the first generation franchisees. Often! some of these franchisees continue to pay for many years on the franchise startup debt after they have failed and closed down in order to avoid bankruptcy and the loss of their home that was posted as collateral.

      This invisible subsidy of the franchise industry should also be addressed by “proper scrutiny.” Griffith University indicated that they were going to study “why franchises fail” but how can they do this unless they know how many first-owners of franchisees fail within the franchise system, and to what degree “churning” out of view of the banks and the regulators contributes to the growth and visibility of the franchise system And, if churning is always a reality in franchising, what is a reasonable failure rate of first-owner franchisees within any particular system? And, should this reasonable failure rate be disclosed to new buyers of franchises and to investors in the securities of the branded franchisors that are sold in the financial markets?


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