Can technology create a tyrant’s World of Pain?

May 27, 2009

ColinmunroeI think so.

The music industry used to be dominated by a few despots that forced their will on recording artists. The contracts were massive and one-sided. Their monopoly was on marketing, talent development and distribution.

They ruled as if they would always be on top of the heap.

And then along came file sharing software and their empires seem much less certain these days.

They defended their “intellectual property” using methods from the industrial revolution.

They sued. And they sued. And then they sued some more.

The result? They just looked like morons and millions of songs still get ripped every day. Sure things are in flux but at least there’s diversity and innovation rather than mindless control.

When Colin Munroe can make his own music and sell it directly, the world has changed for everyone in the music industry.

This is a cool video. Welcome to a tyrant’s World of Pain.

World of Pain, Colin Munroe

A man on a bridge
a thief that is I
a boy with a dream
who’s ready to die
one of those days
and one of those fades away

There’s a house on a hill
and a house in a hole
the pride of the girl
the pride of the boy
and all in a day
the pride can be taken away
and all the streets are the same
when all you have is your name
you’re nothing more than you seem
and less than you dreamed you’d be, yea

Cause there is a time for joy
and a time for rain
a time for loss
and a time for gain, oh my
welcome to a world of pain

A beautiful girl
with diamonds for eyes
she’s all that you want
she’s living your life
but try as you may
your beauty will fade away
and its a sign in the sky,
a mark in the sand
a rhyme that you hear
but you don’t understand
fortune controlled you used to be given away,
and in this life it’s all the same, and all you have is your name
you’re nothing more than you seem,
and less than you’d dreamed you’d be
yea

Cause there is a time for joy
and a time for rain
a time for loss
and a time for gain, oh my
welcome to a world of pain
cause there is a time for love
and a time for hate
a time for you
and a time for me
oh my
welcome to a world of pain

But living is half the dream
and when its your time to die
its not what it seems to be
so take your time
whoa oh oh

Welcome to a world
cause there is a time for joy
and a time for rain
a time for loss
and a time for gain
welcome to a world of pain

Cause there is a time for love
and a time for hate
a time for you
and a time for me, oh my
welcome to a world of pain
baby don’t you cry
it’s better if you smile
welcome to the world


Sue the Leafs/NHL cartel in eMcKangaroo Court

May 10, 2009

nhlTorontoMapleLeafsThe law creates just outcomes only in some cases.

In franchise law, the justice is delivered to those that control access to the Courts and the political process. Only franchisors and large franchisees have that clout.

The latest proof of this policy and law bias, is that the NHL and the Toronto Maple Leafs should be sued in an Ontario Superior Court for their unfair dealings, racketeering and extortion activities.

That won’t happen because franchising and especially sports franchising is a monopoly game played by insider credence good cheaters.

But: Why not try the bastards in a virtual Court room? I propose a McKangaroo Court to ease our pain. A mock trial for a phony form of competition (ie. sports franchises).

Hockey Maniacs: In southern Ontario, pro hockey is a God. The Toronto Maple Leafs have been able to sell out every game for over 40 years by providing, at best, a fitfully mediocre product (eg. a competitive sports team). Think of the Big Auto before Toyota and Honda showed up.

The Leafs owner’s are monopoly players in the world’s most lucrative hockey market. A normal fan can only dream of attending a game with their kids anymore.

Jim Balsillie has been trying to bring another professional hockey team to southern Ontario for some time now. His most recent attempt is to offer over $200 million to rescue the Chapter 11 Phoenix Coyotes and move them to southern Ontario, Canada.

But other 30 NHL owners (franchisees acting like franchisors, 25 which are U.S.-based cartel) have other ideas. And the encroachment  kickback to the Leafs and Buffalo Sabres is extortion: plain and simple.

The Globe and Mail reports on legal action, taken by the current owner of the Phoenix Coyotes in an article, NHL acting like ‘illegal cartel’, Coyotes charge:

“The NHL is excluding competition and restraining trade in [the United States and Canada] through the application of unreasonable restrictions in its constitution and bylaws, which are preventing the relocation of the Coyotes from Phoenix, Ariz., to Hamilton, Ont.,” said the lawsuit filed yesterday in Phoenix.

The suit also takes aim at Maple Leaf Sports and Entertainment [MLSE], which owns the Toronto Maple Leafs, alleging it has colluded with the league for years to preserve “market power” in the Greater Toronto Area. Prohibiting relocation deprives hockey fans of “increased competition, lower prices, higher quality and more variety,” the suit alleged. WikidFranchise.org citation

Remember: monopolies are “bad” because they creates market inefficiencies and distortions that are manifested in these very real and pernicious anti-competitive practices:

  1. Predatory pricing,
  2. Tied buying,
  3. Short- or forced-shipping,
  4. Encroachment,
  5. Economic conspiracy and
  6. Refusal to deal and exclusive dealing.

Alan Eagleson a disbarred agent/NHL power broker is THE poster boy for all credence good experts to this very long-suffering Leafs fan.  Wikipedia, WikiFranchise.org

Argument: The Arthur Wishart Act (Franchise Disclosure), 2000 governs all franchise commercial relations in Ontario, Canada.

  1. MLSE is acting as a “franchisor’s associate” under Section 1.1 (“franchisor’s associate, a. and b.).
  2. As a “franchisor’s associate”, Wishart treats MLSE is treated as if it were the franchisor (the same duties and responsibilities as the “normal” franchisor, in this case, the NHL).
  3. Section 3 creates an obligation by all parties:  “a duty of fair dealing in its performance and enforcement.”

I think the citizens of southern Ontario deserve to have their pro hockey fix met by the appropriate franchising corporations.

The Maple Leafs and the NHL  show their contempt for their real customers (ticket holders) by continuing to run their robber baron scam. For these offenses, they deserve to be sued.

And I bet there some CDN hockey nut franchise legal beagles that’d love to write up the arguments.

In this way, the problems that non-billionaire business format franchisees endure can be explained to the public while showing where the real weasels live.


forever Jung and Half-formed boy Predators

January 28, 2009

calvinhobbes1Why won’t these little worms just grow up?

Enough is enough, already.

Yes, we know you’re tough and smart. We know the gym class shower room was demeaning. And yes pulling the wings off flies does hold some amusement value.

  • But seriously: Get some help in the second half of your life.

There are some people (mostly male) that think the worst of people, are never satisfied with any accomplishment and would rather kill something rather than share a little bit (let alone collaborate).

  • They’re so emotionally shut down and compartmentalized that all that’s left is fear and anger.

It’s been my experience that modern franchising is practiced by fearful men who lack the confidence and maturity that should have been formed during their boyhood. They’ve never learned to trust themselves, mask their inadequacies with arrogance and accumulate wealth but are unable to enjoy the use of those resources.

They act-out as if they were european dragons or worms (from the old English): like Smaug of The Hobbit fame: only hoard and destroy, are master hynotists, believe themselves to be invulnerable (although they are not), have a dry but cruel sense of humour with an “overwhelming personality”; their Achilles’ Heel is always hubris: overweening arrogance, superbia.

They try to deny part of their nature but it keeps popping up, especially when their Divine Right to Decide is questioned by lesser mortals.

One Model: Within every individual, there are two forces, world views or archetypes at play: every male has within him a female side, and every female has male characteristics within her.

Carl Gustav Jung identified unconscious forces called anima and animus.

  • anima is the unconscious feminine component of men and
  • animus is the unconscious masculine component in women.

Jung believed that the anima and animus act as guides to the unconscious unified Self, and that forming an awareness and a connection with the anima or animus is one of the most difficult and rewarding steps in psychological growth.

Jung reported that he identified his anima as she spoke to him, as an inner voice, unexpectedly one day.

Often, when people ignore the anima or animus complexes, the anima or animus vies for attention by projecting itself on others. This explains, according to Jung, why we are sometimes immediately attracted to certain strangers: we see our anima or animus in them. Love at first sight is an example of anima and animus projection. Moreover, people who strongly identify with their gender role (e.g. a man who acts aggressively and never cries) have not actively recognized or engaged their anima or animus.

Jung attributed human rational thought to be the male nature, while the irrational aspect is considered to be natural female. Consequently, irrationality is the male anima shadow and rationality is the female animus shadow. (Analytical Psychology)

When a half-formed male is seriously confronted, he becomes unglued: screaming, cursing, the issue becomes a life-and-death struggle against the Questioner. I’ve seen this type of tantrum up close and you tend not to forget the experience. I think every franchisee has experienced this.

  • It can be a franchisor, a lawyer, a politician: it doesn’t matter (see Big Franchising).

Irrationality is the shadow side of an unbalanced psyche and it gets played out in volcanic bursts of rage. Innocent questions are heard by the child as if you were trying to kill them. (And in a psychological sense, you are: you’re calling them to put aside their childish ways.)

  • In franchising, this acting-out these man-boys, empowered by iron-clad agreements that are the same across all systems,  have the 100% unilateral right to bankrupt you and drive you into a mental hell.

All of the rights are on one side: for mom and pops, franchising is Unsafe at any Brand.

After the honeymoon is over and you’ve signed on for multiple, self-reinforcing monopoly relationships, your economic gender assault can occur with very little warning or defence.

Calvin and Hobbes


The Fixer: Getting professional thieves out of Trouble

January 6, 2009

fixtweedProfessional criminals have always relied on  The Fixer.

He is someone of high political, economic and career influence who solves a professional thief’s problem for a fee.

Secrecy and deceit are required because of the extra-legal nature of some of the work.

A historical example of The Fixer would be  William M. (Boss Tweed) Tweed of Tammany Hall. [see above]. Tammany Hall, likened often to a machine, ruled the City of New York from 1790 to to the 1960s.

People wonder why franchisors, franchise bankers, sales agents, the franchise bar, etc. can get away with [almost] bloody murder. A study of history of professional thievery can provide some hints:

The professional thief generally has a record in the Bureau of Identification as long as your arm, but after most of the cases “dismissed” or “no disposition” is entered. This is due to the thief’s ability to fix cases.

In order to send a thief to the penitentiary, it is necessary to have the co-operation of the victim, witnesses, police, bailiffs, clerks, grand jury, jury, prosecutor, judge, and perhaps others. A weak link in this chain can practically always be found, and any of the links can be broken if you have pressure enough. there is no one who cannot be influenced if you go at it right and have sufficient backing, financially and politically.  p. 82

Professionals within franchising make more money by fixing problems (sabotaging valid claims) than they do by solving them (reducing opportunism). It’s that simple: Less money is deducted from the theft when you fix a case, even after paying The Fixer’s fee. It is very easy for a franchise legal expert to lie to complaining investor [Credence good cheaters]. The lawyer knows that he is not under any legal duty to tell the truth until a solicitor-client relationship is created. And the proof is in the pudding: In 10 years, I know of no franchisee-lead case that would be considered a success by the investors themselves.

The fixer acquires his position with professional thieves by service. He tries to maintain a batting average of one thousand. Not all of them can do this, but their record is so good that the thief feels secure if a regular fixer is on the case. [Blonger, the Denver fixer for confidence men, had the reputation of not having one man sent to prison in twenty years under his protection.] p. 88

Modern franchising runs on political and economic influence. Our Australian friends are simply the latest who have been wised to that reality. Again, from the past:

Fixing is a mixture of finance and politics. It is primarily a financial transaction, bought and paid for by everyone concerned. But it is made possible by politics and often involves political favors as well…For the thief, fixing is almost always a financial transaction…from the point of view of coppers, clerks, and bailiffs, fixing is primarily a financial transaction…The prosecutor and judge are probably handled with more finesse.  p. 98-9

I have already used a tree as an analogy for Big Franchising (vast weight of organism is below ground: iceberg). Modern franchising has a visible and invisible nature (Overworld :: Underworld):

From the point of view of the fixer, also, this is a financial transaction. One fixer said to a thief: “Everything I get is bought and paid for, just as you pay me. No one gets any political or other favors.” The fixer can operate only if he has the consent and good will of those who are politically powerful. he may get a start on the basis of old friendships, but he can keep his position as fixer only if he kicks in. He must turn over to the political barons the larger part of what he gets from the thief, and his standing is determined by his reliability in dealing with them. p. 100

Thieves of nominally independent corporations (ie. franchisors, lenders, sales agents, legal, supply, etc.) would NEVER act with such arrogance if it were not for The Fixer’s protection racket. The weakest link is always the franchisee who 99% of the time goes away thinking they had a one-off bad luck with a cartoon-character type of franchisor thief. They are satisfied to receive 10% of their own money back and remain in silence via shame and contract. Professional franchising practitioners are, however, experienced and shrewd students of human nature.

No thief ever expects to have the bad luck to run into a case that cannot be fixed in some manner. This conclusion is not formed because of he thief’s conceit but because of his knowledge of the weaknesses and limitations of the average citizen and public official. p. 106

National franchisor associations act as a forum for coordinating Overground and Underground activities. The Fixer usually enjoys a very influential role such as Chief Counsel or Chairman of the franchisor controlled association. The Fixer is a lawyer because solicitor-client privilege harbours his clients’ extralegal activities. Politicians who are very often lawyers, know their political career is short and are not foolish enough to destroy their future legal earnings by crossing a mandarin partner of the some of the most influential and aggressive internationally-based, multi-line law firms.

It is sometimes believed that he fixer is the general boss of the thieves. This is an error. The function of the fixer is to get thieves out of trouble, not to control them. He often gives some advice to out-of-town professionals, after agreeing to take care of them. p. 107

The Fixer runs a monopoly on the most lucrative and industry-challenging cases [national, well-funded franchisees group or class-actions) while allowing the tactical fixing to happen to Tier 2 law firms who are seen as franchise experts within the franchise bar. The Fixer operates a protection racket that has the appearance of a law practice.

There is in every large city a regular fixer for professional thieves. He has no agents and does not solicit and seldom takes any case except that of a professional thief, just as they seldom go to anyone except him. The centralized and monopolistic system of fixing for professional thieves is found in practically all the large cities and many of the small ones. p. 87

Source: — The Professional Thief, Chapter 4: The Fix, The University of Chicago, 1937 [my emphasis]

I am at a serious disadvantage when discussing the subterranean nature of franchising. I am not a member of that brotherhood and have only caught glimpses of behavior that has piqued my interests over the years.

  • Professional thieves and modern franchise executives function in a similar way, in so much as they are primarily profit-making activities that need to manage risks and returns, under stealth.

They are highly energetic, charming, some exceptionally well-educated people who hold 2 conflicting ideas in their heads: They know they prey upon society but also want not to be an enemy of the state (which as profiting from crime, they surely are).

  • This internal, unresolved conflict (cognitive dissonance) accounts for their bullying, arrogant, irritable, defensive and plain mean behavior. They can’t ever quite buy their acceptance into respectable society.

They:

  1. possess highly migratory and portable special skills (especially persuasion, and communication),
  2. rely primarily on on-the-job training (often passed down from father to son, mentorship, tutelage),
  3. are highly congenial and supportive of other professional thieves (including competing trademarks, are compelled to warn and bail out even those they personally dislike),
  4. steal in a full time, planned and methodical manner,
  5. converse privately in a highly-specialized language (argot: legalese, mumbo-jumbo)
  6. achieve recognition for competence from other peers (who you know is important),
  7. operate in a very rigidly adhered to code of behavior, and [above all else]

8. particularly loathe anyone that (a) would inform “squeal,” or “squawk” and/or (b) has yet to lose their integrity.

They inhabit a modern version of The Waste Land or purgatory. Their only defense is confusion and attempting to degrade those impertinent enough to hold up a mirror to their face.


McMafia: Russian mob versus U.S. Cosa Nostra

December 30, 2008

russiantattooMisha Glenny, a  BBC reporter and author of  McMafia: A Journey throught he Global Criminal Underworld, says that the Russian protection rackets of the 1990s differed in three ways from the classic mob families of southern Italy or New York and Chicago.

1. The Russian mob was indispensable in the transition from socialism to capitalism.

By the mid-1990s the Russian government estimated that between 40 and 50 percent of its economy was in the gray or black market…the phenomenon of organized crime emerged from chaos and was very brutal. But was a rational response to a highly unusual economic and social environment.

2. Unlike the traditional American and Italian mafias, members of the gangs were not strictly bound by family loyalties.

The codes of the thieves’ world (which conferred honor and recognition on the vory [leader]) only survived a matter of months in Russia’s primitive capitalism….”The Chechen mafia…became a brand name, a franchise – McMafia if you like…”

3. In contrast to the five families of America’s Cosa Nostra, there were thousands of these organizations in Russia.

By 1999, there were more than 11,500 registered “private security firms” employing more than 80,000 people. Of these almost 200,000 had licenses to carry arms

…this brotherhood evolved at an early stage fro the first phase of organized crime, the protection racket, into the second phase, monopoly controller of goods and services. This was the shift from privatized law enforcement agency to a full-fledged organized crime syndicate.

Summary

Traditional organized crime activity is analyzed using its two activities (key success factors):

  1. offering products within a monopoly (cigarettes, narcotics, women) and
  2. involuntary protection services (safety from competitors, from bankruptcy).

If viewed in this light, it enables us to understand the structural similarities and differences between franchising and “the mafia”.

  • How we perceive something or our judgments tend to be very sticky.

How we frame or define the actors and activity has a tremendous influence on the limits of our enquiry. There is also a tremendous tendancy to attribute success or failure to the individual rather than to the group or social situation (fundamental attribution error).

This near Cult of the Individual has been used by many totalitarian regimes and is useful in covering systemic opportunism in franchising. It holds out the promise of personal freedom if you submit and mark yourself with the sign of the mob.

  • Both of You (1) fictitious person (corp) and (2) your personality are branded by franchising.

Solicitor-client relationship: When does it start?

December 23, 2008

looselips1Congratulations.

You’re just finished your initial meeting with a franchise lawyer. You chose the baddest ass, most franchisee-friendly sob you could find. He was “kind” enough to give you 30 minutes of his time and you told him your whole story. The great man asked a few questions (actually a fair number about your net worth) but alas…unless you can rally another 9 other losers: Too bad, so sad; you’re shit out of luck.

Great bed side manner…regret to inform how weak the law is…best to put this all behind you (my most favouritest thought-terminating cliche).

You’ve just shot your mouth off to an industry insider that may very well use that information against your best interests. What?

I’ll explain with a real-life example.

1. Seven distributors walk into the most “pre-eminent” CDN franchisee lawyer’s office and tell him their story. His response: No case here go bankrupt. No if ands or buts: Do not pass Go…

2. The Group of Seven wants a second opinion. They call to me, I meet the group at their home and talk to a then-independent 2nd lawyer (just new into franchisiing but quite keen). We conclude: Excellent case. U.S. franchisor was too lazy to give disclosure documents after the Arthur Wishart Act (Franchise Disclosure) was passed in 2000. These are franchisees not distributors and therefore they can rescind their contract, dissolve their relationship and get their money back. Easy peasy.

  1. One set of case facts PLUS
  2. one Ontario law EQUALS
  3. 2 irreconcilably, diametrically opposed legal opinions?

How is this possible? Simple it has to do with duty and the timing of when a solicitor/client relationship is formed.

Fiduciary Duty: I am not a lawyer and the Upper Canada Law Society website wasn’t much help so here is a definition from the Canadian Encyclopedia.

The legal system recognizes a multitude of special relationships in which one party is required to look after the best interests of the other in an exemplary manner. These relationships, which include solicitor/client, physician/patient, priest/parishioner, parent/child, partner/partner, director/corporation and principle/agent, are called fiduciary relationships.

Fiduciary relationships entail trust and confidence and require that fiduciaries act honestly, in good faith, and strictly in the best interests of the beneficiaries of such relationships.

Solicitor/client Relationship: This relationship ONLY starts when you formally enter into a contract for legal services. The signs are when you cut the cheque for a retainer, sign an agreement, etc.

Anything that you say to a lawyer before you are his client (when you or the relationship is consummated) does not have this legal protection (ie. the information you provide can, and in franchising is, be used against your interests).

This is how an internationally known franchise lawyer can give you knowingly false advice at the first meeting:

There is no legal duty for him to do so because the solicitor/client relationship has NOT been created yet (before contract for legal services started).

But why turn away work? The franchisees were steered away from defending themselves because there were (and still are) literally hundreds of franchise systems in Ontario that are ignoring the Wishart Act. These are called accidental or unintentional franchises (true franchisors who don’t want to bother with some stupid provincial law) .

The first lawyer knew that by exposing the Group of Seven’s franchisor  in public (ie. in Superior Court) he would be very unpopular at the next franchisor-only national trade association golf tournament. (Please don’t tell anyone but this is why this organization [ie.] has an Ombudsman program [ie.]: To have you come in and be convinced you have no case. Skim off the biggest floaters. That’s why the banks are the biggest sponsors based on the theory that they have the most damaging facts to conceal, like, Predatory franchise lending.)

  • It would be bad form for the franchise law expert to showing the other 32,000 Ontario lawyers (the unwashed masses: 99.9% of the province’s lawyers who are not in the cabal) where the juicy billable hours are.
  • Let alone the risk of dozens of copy cat lawsuits against franchisors, banks, sales agents, lawyers, etc.
  • And the inconvenient lawsuit against the franchisor’s lawyer for contempt of a provincial law that he is, as an Officer of the Cour, duty-bound to respect (should have dropped his masquerading client if they refused to self-identify accurately).
  • This would not do when the franchise bar pays so lucratively when run as a credence good monopoly (see Winand Emons, Credence Goods: The Monopoly Case).

hermanngoeringWhen you hear these words together: You should use an expert franchise lawyer

…you should “reach for your gun

(Hermann Goering’s advice when you hear the word culture).

Yes you should trust your lawyer. But you should qualify him or her first. Trust but verify is a very good idea.

Since being a lawyer means having to survive in business to practice another day, you should determine where the vast bulk of his future earnings are coming from (franchisee, franchisor or non-franchised commercial law).

  • Based strictly on economics (95% of legal services paid for by franchisors and friends and credence good cheaters who are run as a monopoly), a franchise expert lawyer should be the last person a franchisee talks to.

I always say talk to a 60-year old regional commercial lawyer with his name on the building. Anyone else is more than likely to torpedo your perfectly watertight case.


Silencing dissent via Humiliation

December 1, 2008

hismastersvoice1

When you are a franchisee, you quickly learn what is and is not allowed to be said in public.

It goes like this, you can talk publicly:

  • 1,000 hours about increasing your sales but
  • 0 hours about how to increase your profits.

Those are the basic rules (norms, standards) of every trademark system that I have known.

These cultrual values are expressed during the regional and national meetings. This is what the meetings are principally for: the reinforcement cultural values within a group via a type of public demonstration or play.

Franchisors are very attuned to attitudes of dissent. They separate franchisor-friendly behavior which is rewarded and detect of franchisor-unfriendly attitudes and behavior which is punished.

  • They teach the new franchisees what is and is not to be said and done.
  • They encourage mentorship of new franchisees from someone who is “on the team”

One of the ways of showing the master’s pleasure is through the always-present Awards Ceremony. Such juvenile awards such as “Top Franchisee” or “Best Team Player, 2008” are handed out with the obligatory publication of the “grip and grin” photos. No speeches are allowed, however, unless the franchisee is one of the “anointed few: the royal priesthood, a franchisee set apart” (ie. a franchisee who is so deeply co-operative as to be a virtual extension of the current franchisor). These are baubles bestowed upon franchisees who are “on the team” (ie. acting as a franchisor collaborator).

It was no mistake that McDonald’s Canada rewarded the southwestern Ontario franchisee who was the token franchisee on the government-lead Franchise Sector Working Team. Within a month of the law being passed (the law was pushed by franchisors, not franchisees), this four-store operator won a major award: an important symbol to the hundreds of Canadian McD operators of how to properly lick the hand.

  • This franchisee’s policy competence was such that he went out into the hall to call his master whenever a thorny issue like “good faith” was brought up: he needed to hear his masters voice so he could parrot it in the meeting. This behavior was well-known.

It is very frequent that a hopelessly-compromised, compliant franchisee is forwarded as a spokesperson when a law is being proposed. this is where the term “House Slave” comes from: a, by comparison, a well-treated slave that protects his master’s interest, especially against the lower status slaves: the field slaves.

Humiliation is the usual punishment breaching the culture of franchising. The franchisee is felt to be alone (“Funny: You’re the only one who has mentioned this problem.”), the cause of the problem, lazy, overly critical and stupid.

  • To mortify someone is to make them feel deep shame for their beliefs or actions. New franchisees go through a type of “boot camp” (initial training) where their hours of work, dress, key personal relationships, etc. are all changed to fit the new, subservient identity called: a franchisee.

Shame corrodes everyone’s self-view as an autonomous adult. It decreases the person’s ability to resist authority.

The Courts: Guilt by Association This is the role of the Courts play in franchising since the Courts hold a monopoly on the coercive enforcement of the law in our society. Franchisees, lacking the conceptual and educational prerequisites to defend themselves, recoil reflexively at the thought of a lawsuit because they believe that only the guilty are ever sued.

  • The Court’s important and rightful cultural equity (respect for the law) is effectively high-jacked for the purely for the franchisor’s commercial self-interest. Since 95% of legal fees are paid by franchisors, their viewpoint is grossly overly represented (reinforcing the belief that “the Courts” are unfriendly to franchisees).
  • Based on a simple % of lawyers, a franchisee will always NEVER have a case to pursue.
  • The cost of litigation means even the most severe abuses are routinely never litigated.

No wonder I keep getting encouragement to keep writing via minor Ontario court officials: Justices do not like the law being used as a commercial intimidation tool.

  • Modern franchising mocks the law (only the rich can even hope to win) and in that way, is fundamentally anti-democratic.

Credence good Relationships: Those that know more than you in franchising

November 26, 2008

Remember as a child the feeling you had when you were the one that was WAY up there?

Remember the feeling in your stomach when you imagined what would happen if your partner decided to bail on the relationship?

  • This is exactly the problem with franchising: you are dependent and reliant on many people who know much more than you do.

In franchising you will enter into many relationships that by their very nature have hidden dangers. The source of the greatest danger is the economic reality of credence goods.

Credence goods relationships are commercial exchanges that have the following characteristics:

  1. the buyer cannot tell really well if he has a problem (can’t diagnose),
  2. the buyer does not know how much of the good or service he needs to fix a problem (can’t assign appropriate resources to solve problem),
  3. the buyer cannot judge the quality of the service they need or have received (even after paying for it) and
  4. the person providing the service knows your vulnerability and tends therefore (even sometimes unintentionally) to and persuade you what is in their (as opposed to your) best interests (see Credence Goods attracts Experts who Cheat).

Some examples in every day life are: your vitamin supplements, car mechanic, doctor, lawyer,  and accountant.

Credence goods have a very, very important role to play in franchising.

Let’s specify the sources of vulnerability (others know more than you do) for franchise investors:

  • often no small business experience (added to an arrogant attitude that running a SME is a no-brainer v. being an employee),
  • no experience in vertical market of franchise (can’t compare; relies on franchisor’s support),
  • there are much more monopoly or near-monopoly situations in franchising v. independent business (monopolist can charge more for lower quality: extracts economic rents from captive)
  • monopolies create a moral hazard: others do not pay the cost for their actions (externalities),
  • required to devote 100% of time to investment (all eggs in one basket),
  • spouse and others often gets sucked in as unpaid labourers, and
  • usually 1st time as franchisee (very few repeat mom-and-pop franchisees).

You’re on the short end of the information imbalance which creates an incentive for the other party to cheat (strip value from you).

Franchise Relationships

  • franchisee : salesman/consultant,
  • franchisee : media [sponsor of Discovery Day],
  • franchisee : franchisor executive [pre-sale honeymoon],
  • franchisee : pre-sale lawyer [usually a dunce generalist but gives the pretense of wisdom],
  • franchisee : current franchisee [most existing Ees know they will be punished if they are honest; so deeply into denial that they honestly believe their own lies],
  • franchisee : supplier [assume cost savings are going to flow-through to them],

il Duce Franchise Lawyer

September 15, 2008

Il Duce means leader in Italian.

It is a term that is often applied by those that choose to influence others in a dictatorial manner.

A national franchise association assists the setting up and marketing of business format franchises in that country.

They lobby and represent the franchisors’ view and oppose franchisees when their interests are in conflict with their masters’.

Most national associations are members of the World Franchise Council, WFC. The WFC is headquartered in the franchise powerhouse nation of New Zealandand controlled by the U.S. International Franchise Association.

Each Nation: Every country has one lawyer who is recognized as Il Duce, the general, the top dog or alpha male (ie. the individual in the community to whom the others follow and defer.).

He wields influence primarily through the national franchise association where he is often the general counsel, Chairman of the Board or other such title.

Their job is to co-ordinate the defence and promotion of franchising within their country.  They are profit maximizing businesspeople who rely on the public’s erroneous belief in their professionalism and impartiality. They give advice freely when they there is no client:solicitor duty to do so (before a contract is formed) and remain in the shadows otherwise.

Because of the credence good nature of legal services and their closely guarded monopoly on providing legal services, many franchise lawyers act as fraudulent experts. They are fully aware of this which explains why there are so many unhappy lawyers.

The Il Duce is seen as an expert who is never personally tested on his abilities by a discerning superior: He never goes to Court. These cowards:

  1. control their clients (franchisors) by preying on their fears of what franchisees could accomplish if franchisees were smart and organized (the weakest franchisee group is stronger than the strongest franchisor),
  2. promotes the self-serving and hazardous thought that you should talk to only to a franchise lawyer (akin to having a murderer’s brother performng the autopsy),
  3. make sure the most lucrative legal service referrals (international expansion from North American franchisors) go only to lawyers who “play by the rules” (franchise lawyers who “support” the franchisors’ position),
  4. speak to governments under the guise of an “impartial” expert (although they NEVER take on franchisee cases),
  5. punishes franchisee advocates by suing them into bankruptcy (just for fun and as an example),
  6. award revenue-generating opportunities (speaking at association-sponsored trade shows) to themselves and “their team”,
  7. write carefully crafted legal columns in the national franchisor-sponsored trade rag (sales: see Franchise Canada magazine or pseudo-journalism, see Franchise Times),
  8. a senior partner of an internationally influential multi-line law firm (allies of friends into political back rooms),
  9. degrades the political process credibility by showing that money buys laws,
  10. keep active in the state, national and international bar associations, and, especially
  11. the American Bar Association’s Forum on Franchising (the latest and greatest ways to serve those that buy 95% of their services: ie. franchisors),

Credence Goods attract Experts who Cheat

August 27, 2008

If I had to choose the second concept that was critical to know in the study of franchising, it would be This one.

Lionel Hutz

HINT: If they’re talking about protecting franchisees and not talking about credence goods, they’re all hat and no cattle [all show and no go].

Some goods and services, by their very nature, come with much higher risks than others. These risks can be compounded and therefore astronomically high if:

  • there are few experts to choose from in a market,
  • the costs of switching experts is very high,
  • this is the first time you have contracted for these expert services, and
  • the experts organize themselves to protect one another.

As we shall see, franchising has compounded, interdependent and very aggressive expert stakeholders [see Big Franchising: franchisors, franchise bar, lenders, sales agents, consultants, politicians, media, etc].

  • As a franchise investor, you are at a severe disadvantage because of credence good service providers.

A Credence good is a good or services with the following 3 characteristics:

  1. the value is difficult or impossible for the buyer to determine accurately before they buy it,
  2. the buyer can’t know if it was useful [even after they did buy it] and
  3. also, the seller does know the value of #1 and #2 [could therefore exploit this ignorance for their own self-interest: information asymmetry leads to opportunism risk]. Wikipedia

Uwe Dulleck and Rudolf Kerschbamer:

Consumers’ concerns about being defrauded seem not to be unfounded: Emons (1997) cites a Swiss study reporting that the average person’s probability of receiving one of seven major surgical interventions is one third that of a physician or a member of a physician’s family. Wolinsky (1993, 1995) refers to a survey conducted by the Department of Transportation estimating that more than half of auto repairs are unnecessary…These examples reveal that infomational asymmetry matters. Free download: On Doctors, Mechanics and Computer Specialists – The Economics of Credence Goods

Gillian K. Hadfield, University of Southern California:

Economists refer to a good as a credence good if it is provided by an expert who also determines the buyer’s needs. Buyers of credence goods are unable to assess how much of the good or service they in fact need; nor can they assess whether or not the service was performed or how well. This puts buyers at risk of opportunistic behavior on the part of sellers: they may be sold too much of a service or billed for services not performed or performed poorly. Theoretical work on markets for credence goods predicts that markets for credence goods may be characterized by fraud (billing for unnecessary services or services not performed) and a price mark-up over cost…Legal services are credence goods… Free download: The Price of Law: How the Market for Lawyers Distorts the Justice System

Winand Emons, University of Bern:

With a credence good, consumers are never sure about the extent of the good that they actually need. Experts such as doctors and lawyers, as well as auto mechanics and appliance service-persons (the sellers) not only provide the services, but also act as the expert in determining the customer’s requirements. This information asymmetry between buyers and the seller creates strong incentives for the seller to cheat. Free dowload: Credence Good Monopolists

We will come back to credence goods and how these types of services really help value being stripped from investors with deceit [opportunism].


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