Paper to Industry Canada
1. Modern franchising creates opportunism by separating ownership from control.
2. Economic theory indicates fraud is likely to occur with credence goods or services. Franchise industry system owners, lenders, consultants and lawyers provide credence services.
3. Franchisors sell franchises not only to the public but to their industry peers. A sophisticated fraud model has been developed. Franchisors licence their franchisees’ opportunism to financial institutions and consultants.
4. Fraud requires a tolerant environment.
5. Malfeasance is minimized with a free flow of information regarding material investment risks. The Canadian franchise industry is characterized by high levels of information flow on the all levels with the dramatic exception of the small business investor.
6. The most accurate, independent reputation data is held by those with the greatest barriers of communication.
7. There is sufficient internal and external evidence to warrant halting franchised loan claims and to notify the appropriate federal and provincial agencies for evaluation.
8. Further research is warranted.