Books and articles

April 10, 2008

I have been very lucky to work through the extremes of franchising: hope, struggle, dispute, legal fight, bankruptcy and recovery. Many individuals have been important but I have gained a new appreciation for the use of trying to study your way out of corner.

Please click here for a free .pdf of my current list of the books and academic papers that have been useful to me. Initially, some of the 13 pages or so might seem a little bit off-topic but they are important in some way. To me at least.

If you have any suggestions, speak up! I’d love to hear from you.

There are some not listed that I have read and promptly burned.

BTW: The photograph is Barrie Public Library and it was built in 1915 with a promise of $15,000 from Andrew Carnegie. It was my first library and it has since been converted to a public art gallery.

Libraries have always been an important part of my life.

Regulatory Capture in Banking, Hardy

April 3, 2008

IMF Working PapersThis is an important paper in understanding the role of financial institutions in a modern economy. It introduces several key concepts.

Regulatory capture: the regulated controls the regulator.

Banks will want to influence the bank regulator to favor their interests, and they typically have the means to do so.

Further, financial service providers pose a natural hazard to their customers and the public:

Finance and in particular banking is necessarily characterized by asymmetric information between banks and their clients, and by systemic effects. Moreover, risk is an inherent feature of the industry. Confidence effects among banks and between banks and their creditors create various form of externality.

In the extreme, banks can reap the benefits of predatory lending while pushing off the costs associated with this type of behavior on other customers or the public.

Regulatory capture, externalities, asymmetrical information., fraudulent expert credence good providers..these all be introduced as I try to explain the mechanisms of that drives modern franchising and the financial sector that enables its actions.

Hardy, Daniel C., “Regulatory Capture in Banking” (January 2006). IMF Working Paper No. 06/34, 26 pages, Free download from

Suing a Bank (2)

April 1, 2008

In 2006, a client brought legal action against a very large Canadian chartered bank, franchisor, sales agents and bank employee.

Click here to download a copy of the Statement of Claim.

In 2005, I wrote a paper called Franchising Opportunism for Industry Canada the administrator of a small business loan program called the Canada Small Business Financing Program.

In this paper, I defined a term called Predatory Franchise Lending as well as explaining the basic mechanism of modern franchising.

Click here to download a free copy of Franchising Opportunism.

Suing a Bank (1)

April 1, 2008

In Nov 2006, Justice D. Brown, an Ontario (Canada) Superior Court of Justice ruled on a pre-trial motion brought by a Canadian chartered bank defendant which is involved in a lawsuit.

The nature of the allegations are:

[1] This action involves claims arising from the failure of a Country Style franchise. Andralex Food Services Inc. (“Andralex”), the franchisee, sues the franchisor, [franchisor], and related companies, a consultant, [salesperson], and the lender of funds to the franchisee, the [bank]. Claims are also asserted against [loan officer], a Senior Small Business Banking Officer with the [bank].


[2] In its Statement of Claim Andralex advances several types of allegations against the [bank] and [loan officer]

  1. negligence and breach of a duty of care allegedly owed to the plaintiff;
  2. breach of a fiduciary duty allegedly owed to the plaintiff;
  3. negligent misrepresentation, including breaches of the Competition Act; and,
  4. conspiracy with all the other defendants “to use unlawful means directed against the Plaintiff, knowing in the circumstances that the Plaintiff would suffer irreparable harm”…

From what I can understand as a non-lawyer, the bank wanted two things struck from the lawsuit:

  1. the claims against its former employee in her personal capacity; and
  2. the claims of conspiracy against the bank and its employee.

The Justice said yes to #1 but no to #2. The lawsuit continues, I understand.

To download a copy of the Endorsement, click here.

How to Complain – Effectively

March 6, 2008

Like most things in life, you can do anything very well or very poorly. It is my experience that franchisees with a grievance are not very good at expressing their experiences in an impactful manner.

If you do not document your experiences (good and bad) they have not existed as far as industry officials are concerned. Simple as that.

Knowing that, 100% of disgruntled franchisees should record their stories. One way is via a Narrative. Another is through a complaint letter referencing the franchise industry’s much-promoted but never-enforced Codes of Ethics.

Find here a sample complaint letter directed to the Canadian franchisor association in 2004. Please note the offices that get copied. Here is the 1st follow-up email, here is the 2nd.

Most people think that writing a letter does nothing. They’re wrong: All liability (public administration and legal) relies on documentation.

Nobody knows what-causes-what when you start turning over rocks.

The Oudovikine franchise banking investigation was notable not only for its hit-and-run incident.

Investigating the bank (1)

February 23, 2008

IndustryI started working with two clients in 2005, Alex and Andrei Oudovikine. It was suggested to me that I take a look at what the Canadian franchise bankers were up to.

Bankers love it when governments guarantee small business loans but not for the reasons most people think but that is getting ahead of the story. Anyway…

I called Industry Canada about it and they suggested I write down my concerns because the Canada Small Business Financing Act was being reviewed. I did that and Predatory Lending, IC Feb 2005.

I waited and I waited.

After one full year (365 days), I called back to see if there were any questions. Within 3 days, I was in a meeting. He suggested I write a consulting Service Proposal. I did that and here it is.

I waited and I waited.

I called Industry Canada back. They wasn’t interested but, hey, he encouraged me to check back in 2011 when the next statutory law review would take place.

So it goes in franchising.

Information Sharing Project, ISP

February 20, 2008

The ISP will revolutionize the franchise industry.

I started in 1998 by collecting franchise-related documents from around the world. They were drawn from public hearing transcripts, media articles and correspondence. I now have 1,500 of them from over 35 countries.

I began to notice patterns in behaviors.

What I didn’t have was a language to describe what I was seeing. I started to create keywords and keyword phrases to describe these behaviors. I now have over 1,000 of these industry descriptors.

Some examples are:

  • 95 per cent of legal fees are paid by franchisors,
  • Advertising fund use disagreements,
  • Churning (serial reselling),
  • Franchisee revolt,
  • Lender’s due diligence not done properly,
  • Never owe your lawyer money,
  • Regulatory capture breeds its own incompetence

The ISP does a whole lot more than translate franchise gobbledygook into plain English.

If you would like to learn more, Why not download a free copy of my 2003 Ontario government proposal? Just click here: Information Sharing Project.

Franchising Opportunism

February 18, 2008

I wrote a paper to the Industry Canada in 2005.

It shows how the Canadian franchise industry works and uses our small business loan guarantee program (Canada Small Business Loan) for unsustainable purposes.

Feel free to download Franchising Opportunism and compare it to your experience in your country.

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