Harold Brown, franchising activist

April 15, 2011

From the back inside cover:

Mr. Brown chose to write this book rather than a treatise because he felt strongly that what is needed to be said about franchising should not be obscured in scholarly terms. He is an activist with extensive trial experience in Anti-trust, tax, equity, labor, corporate and administrative proceedings, minority stakeholder derivative suits, mortgages, conveyances, wills, and trusts. In this age of specialists, he prefers to be known as a general practitioner.

Harold Brown graduated from Yale in 1936, magna cum laude in economics and three years later received his LL.B. from Harvard with honors in administrative law. In Washington, he served on the National War Labor Board and today is senior partner of Brown and Legihton in Boston. He was principally responsible for the passage of the Massachusetts “long-arm” statute and, as a member of the Civil Procedure Committee of the Boston Bar Association, has been working on a revision of the procedural code to be based on the Federal Rules of Civil Procedure. Mr. Brown participates regularly in legal workshops and is a frequent contributor to professional journals and periodicals.

Brown, Harold, Franchising: Trap for the Trusting, Little, Brown and Company, 1969.

Advertisements

Franchising: Trap for the Trusting by Harold Brown

April 8, 2011

Written in 1969; franchisor opportunism has become worse.

Inside cover:

This book is designed to inform the public and the legal profession of the egregious imbalance that exists in the franchise relationship and to suggest various forms of redress by means of litigation and legislation. By discussing (and printing) the contents of the usually secret franchising contract in complete detail, the author makes the reader thoroughly familiar with such inimical and routine restrictions as the covenant not to compete, the informer clause, supplier kickbacks, the “bad boy” clause, the “yellow  dog” clause, arbitrary termination, the suspension clause, and many other forms of contractual coercion, both stated and implied.

For too long the law has permitted franchisors to invoke “quality control” and “sanctity of contract” to ruthlessly enforce their unjust agreements…

Until definitive franchising legislation is passed, FRANCHISING: TRAP FOR THE TRUSTING can show the reader how to avoid the pitfalls of the standard franchising agreements or provide his attorney with a blueprint for seeking relief through existing statutes and case law. Arguments and citations from the franchise related fields of fraud, equity, securities regulation, Anti-trust, and labor relations are included.

Still Unsafe at any Brand.


SureSlim says: We are not a cult & +80% of our operators did not tank in 2008

March 1, 2009

sureslimnz

They must have just been unlucky in choosing their franchisees, then?

However, running a New Zealand SureSlim franchise seems to be a one-way ticket to losing your life savings and your home

A great article from New Zealand’s Sunday Star Times and Garry Sheeran called Big losers in SureSlim row head to court:

Failed SureSlim franchise owners are lining up to take legal action against the franchisor in New Zealand after 17 of the 21 SureSlim diet clinics here closed their doors last year.

SureSlim NZ says those businesses failed because people had cut discretionary spending on attempts to slim as the recession began to bite.

But franchisee business owners, themselves under fire from clients who paid money for diet regimes and now feel left in the lurch, say the SureSlim franchise model is the cause of their woes.

Here are some classic death rattles (sounds made just before death) of a failing franchise system:

  1. lost homes for franchisees but profits to lenders (lending due diligence?),
  2. churning: rapid re-sale of franchises (Fee1 gift to franchisor, sells to F2, etc.)
  3. can’t afford legal action to get money back or prove fraud,
  4. the business model is broken; sales free-fall (ie. 80% sales drop in 2008),
  5. 29% royalty and ad fund cost (unusual in that it is out-in-the-open; most charges are buried in mandatory products from the franchisor and their suppliers) ,
  6. franchisor slashes co-op advertising to during recession,
  7. independent accounting points toward “hugely questionable” franchisor actions,
  8. new president spewing excuses du jour RE: blaming the franchisees (bad lot with +80% tanking in one year: fire the s.o.b.s that accepted their applications!), and
  9. tip-of-the-iceberg litigation history in an older market (at least Oz has a toothless franchise law to plead).

The only bright spot is the honesty of a Sydney, Australia lawyer named Mark McDonald. He hits the nail-on-the-head for thousands of franchisees caught in franchising’s Trap for the Trusting:

“Most poor bastards caught in the SureSlim net can’t anyway because they have totally done their arse. And we discourage people from throwing good money after bad.”

Throwing good money after bad. An apt description of taking legal action against any franchisor in many countries.

  • I wonder how SureSlim is doing in other countries?

More garbage info in = better decisions?

July 12, 2008

A good article from the Mr Video situation that illustrates many of the basic problems in franchising, worldwide.

Australia and New Zealand investors and media have really picked up on the industry’s propaganda in the last 12 months or so. As I have increased my knowledge about franchising, the more I want to wash my hands.

Slindile Khanyile reports from South Africa in the Business Report article: Information is franchisees’ best friend in agreement with franchisors.

More is always better?: Partially true in theory but is absolutely misleading in franchise practice. It’s called baffling them with bullshit so the contract is seldom even looked at.

In FranchiseLand, things are often much more complex and counter-intuitive than a “rookie” small business investor would believe. Sheep are useful for both a fine woolen sweater or the barbecue

I would suggest that South Africa’s franchisor-only trade association has some explaining to do. BTW: whenever you see the words “franchising consultant” together, translate that into a commissioned salesperson. You’ll be right 95% of the time.

I took this article into the Information Sharing Project and these are the keywords I extracted:

  • 100 per cent of settlements have gag orders,
  • Access to justice is not available,
  • Apologists,
  • Cannon fodder,
  • Can’t afford to sue,
  • Churning (serial reselling),
  • Complaint letter to franchisors trade association,
  • Designed to fail as franchise investment,
  • Disclosure laws: 10 per cent solution,
  • Disclosure laws: false sense of security,
  • Financial failure of first franchisee a material fact to the second,
  • Franchise laws protect franchisors, not franchisees,
  • Franchise agreements are so complex, they are breached the moment they’re signed
  • Franchise agreements create a License to Lie, Cheat & Steal,
  • Franchise agreements: Masterpieces of deceptive wording and artful omission,
  • Franchisee repudiates loan,
  • Franchisee-on-franchisee opportunism,
  • Franchisor association not trusted by franchisees,
  • Franchisor association not trusted by professional journalists,
  • Franchisors want the minimum regulation they can get away with,
  • Gillian K. Hadfield
  • I own the assets but the franchisor controls them,
  • Incompetent or predatory: for the small business investor, the outcome is the same,
  • Loan repudiation,
  • McLaw: toothless legislation designed to protect the dominant parties,
  • Mediation: information gathering that aids the destruction of valid legal claims,
  • More one-sided information leads to greater deceit,
  • Must sell business (eventually) through franchisor,
  • No franchisor support,
  • Only 3 ways out: resell (next loser), independence (be sued) or abandon (bankruptcy),
  • Opportunism: contract creates powers which are used to strip investor value during relationship,
  • Opportunism: self-interest with deceit,
  • Opportunism Test: If asset ownership were reversed, would decision likely change?,
  • Stores shuttered,
  • System designed to fail for franchisees,
  • Sunk costs: franchisee’s trapped capital keeps them chained to treadmill,
  • Short-term profits to franchisor much higher with cannon fodder investors,
  • Shocked, I tell you: just shocked,
  • Unproven business model,
  • Unsophisticated buyers,

Want to gamble? You better know when you sit down with businesspeople who the chump or the fool is. If you don’t have superior relevant information and power, look for the victim in the mirror.

You may believe you are getting into a sort of a partnership with a franchisor. It is much, much more. You may not care but, believe me, if you ever have to disagree with your franchisor, these parties will create every barrier imaginable to your pathetic attempts at justice.

Usual Suspects

  1. your specific franchisor (good, evil, whenever…),
  2. a national trade association that defends the rights of the best franchisors to behave [if they see fit] as the most predatory [see FASA],
  3. an international network of these apologists & spin doctors (see next logo),
  4. the biggest law firms in the country who are paid 95% by the franchisors to destroy little guys like you [franchise bar],
  5. banks and lenders who love loan pushing, Predatory franchise lending,
  6. franchise consultants/sales agents [only paid when someone says yes],
  7. politicians whose jobs depend on giving the powerful what they want and
  8. monopoly suppliers.

If you don’t understand these issues, you are incompetent to evaluate a franchise offering in any country.

  • You are, however, fully qualified to sign a contract that gives others the right to Lie, Cheat and Steal from you.
  • And you should not be surprised when they, in fact, do so.

Harold Brown, Esq. didn’t call franchising a Trap for the Trusting for nothing.


%d bloggers like this: