Franchising is a business model that requires a franchisor to constantly be wearing two hats. Under the first hat, it retains responsibility for the development of the brand and oversight of the business economics, much like it would if it continued to operate the underlying business by itself. Under the second hat, it operates all of the necessary business components for franchising — new franchisee recruitment, disclosure, site selection, brand fund, franchisee compliance, system growth, human-resource management, territorial expansion, crisis management, system finance and succession.
Not surprisingly, start-up and developing franchisors don’t usually possess all of the management talent they need to fulfill all of these functions in-house. As such, it’s common for them to purchase the services they require — legal, accounting, sales, marketing, real-estate brokers and other consultants — on an as-needed basis. Similarly, the founders often remain the only formal members of the board of directors and may be heavily reliant on organizations such as their national franchise association and other providers of continuous education or programming so they can learn general strategies and best practices. People experienced in the industry don’t typically want to join a nascent board of directors because of liability concerns.
It’s strongly recommended that franchisors, from their earliest days, establish for themselves an advisory board to provide guidance in the development, oversight and accomplishment of strategic plans. An advisory board is a collection of industry expertise ownership is not likely to possess itself. The franchisee principals would retain an individual to act as the advisory board chair and assist the principals on the selection and recruitment of board members based on the skill sets that are not available in-house to the principals.
An advisory board is to be contrasted with a franchisee advisory council, which the franchisor may also come to have. A franchisee advisory council is a committee typically made up of franchisees selected by the franchisor and franchisor management personnel who discuss issues relating to the operation of the franchise system of concern to the franchisees or for the discussion and implementation of potential changes to the system.
An advisory board should be made up of up to six individuals to ensure full-membership meeting attendance is regular. The board would meet to assist the principals in establishing their short-, medium- and long-term strategic plans and provide advice to the principals on action plans to accomplish the strategies. Members would remain available between meetings to address any particular issue that may arise in their areas of speciality. The principals remain accountable to the advisory board. The board may be used to interview key prospective members of the management team as the needs arise to hire and, as resources warrant, the hiring of in-house expertise.
Advisory-board members don’t have the same exposure to liability as do formal directors — their appointments are generally at will. They’re often paid a flat fee to attend meetings. Key in-house personnel may be asked to make appearances at or make presentations to the advisory board from time to time. The advisory board owes no legal duty to the franchisor per se; it serves only in a strategy-advisory capacity to the principals. Membership expertise at the advisory-board level may change from time to time as the franchisor evolves.
Advisory-board members are expected to bring substantial industry and franchising expertise to the table and to take a keen interest in the overall performance of the franchisor. They’re also expected to have excellent contacts to be able to provide recommendations for whatever services or resources the franchisor may require in the operation of its business.
As examples, many franchisors are often in need of capital at various stages of growth. An advisory board with a strong finance representative should be able to assist in the planning for when such requirements will arise and the options and contacts for securing capital. Similarly, an advisory board can assist in the development of a crisis-management plan and assist if a crisis occurs. An advisory board can also plan for and assist the principals in determining potential exit scenarios or assist in identifying the need for and options for system change.
The end result is that a franchisor has access to experts that work together as a single team at every stage of development to assist the franchisor’s principals in the development of their franchise system. These individuals may not be financially invested in the franchisor, but critically, they can be expected to be emotionally invested in the franchisor and dedicated to providing value to the achievement of franchisor success.
By Allan D.J. Dick
