What are the key tips for managing a franchising crisis?

A customer of a fast food outlet accidentally leaves his mobile phone in the restaurant. Later, when he realises it is gone, he contacts the restaurant which confirms they have found the phone, and agree to keep it safe until the customer can collect it.

Staff at the restaurant access the phone, and view pictures stored in its memory. Some of the pictures include naked photos of the customer’s wife. The staff upload these to the internet, causing ridicule and embarrassment to the phone owner and his wife. They sue both the franchisee and franchisor.

Elsewhere, the owner of an unrelated fast food outlet of a different franchise system makes a political donation to a campaign to ban gay marriage in accordance with his personal beliefs. However the official donation record includes the franchisee’s business name and system brand, prompting an online campaign by a vigilant blogger to promote a boycott of the system to oppose perceived discrimination and intolerance. The franchisor acts quickly to direct the franchisee to reverse the donation, and at the same time modifies the system’s non-discrimination policy to include a sexual orientation clause.

In an entirely different food system, an employee of a franchised store takes a bath in the same sink used to wash dishes and utensils. Video of the bathing incident is posted online and becomes a YouTube hit. Customer confidence in the brand’s hygiene standards and food quality is shaken.

These are true instances where the actions of franchisees, or employees of franchisees, have deliberately or accidentally caused damage to the reputation and integrity of a franchise system’s brand.

While the franchise system and franchisor are not responsible for initiating such behaviour, the brand and the investment of all its franchisees are negatively affected. The potential damage to an organisation’s reputation – no matter how well-regarded it may be – could be incalculable when such an incident occurs.

Mature franchisors will develop strategies and tactics to limit the risk of internally-generated threats to the brand, but even the best risk management planning won’t predict the nature and extent of every potential threat.

For this reason, franchisors need to have sound crisis management plans with near-instant access to the human and capital resources required to best manage the crisis. A key platform of any crisis management plan is the availability, visibility and accountability of the franchisor’s CEO and leadership team in their handling of the issue.

Availability

The franchisor CEO and key executive team must be on hand to deal with the crisis and available to speak with key stakeholders – particularly the media, legal counsel and franchisees – at all times.

Visibility

Not only does the CEO and executive team need to be on hand dealing with the situation, they must also be seen to be dealing with the situation. Being visible among stakeholders is an important leadership function.

Accountability

In a crisis, the actions of organisations and their leaders are often determined by a fear of future litigation and the subsequent cost to the organisation. Yet some studies on crisis management have indicated that an apology and early signs of contrition greatly improve stakeholder confidence in the long term without materially affecting future liabilities. Additionally, demonstrating that an organisation and its team can learn from the crisis and put in place checks and balances to prevent something similar happening again also demonstrates a genuine desire to avoid future reoccurrences.

It is difficult if not impossible to predict all the things that may cause a crisis in a franchise organisation, but scenario planning is one way to consider possible future issues and establish some general response mechanisms beforehand. Management texts differ on the number of generic types of crisis that may occur, and generally consider crises to occur from technical or organisational failure, or natural disaster. Few consider that crises can also occur by the well-intentioned but ultimately flawed actions of its own stakeholders, as illustrated by the three opening examples in this article.

Franchise system leaders and executives should prepare for crises by undertaking media and crisis management training. Media training provides skills on dealing with the media by understanding the media’s requirements for timely and credible information with which to inform its audience. Crisis management training can involve developing various “what if” scenarios, and developing procedures to prevent these, or response plans to address these.

Not all crises arise from the well-intentioned but flawed actions of stakeholders. Some are caused by deliberate malevolence, including the following real examples:

• A franchisee’s business explodes and burns to the ground. Dozens of residents in surrounding apartments are evacuated amid fears that the fire could spread. A person is severely injured and receives emergency care. Authorities are at first concerned the explosion was caused by a gas leak and equipment failure. Later, the franchisee is charged with arson;
• A food delivery worker of a popular franchise chain is shot and killed by an unstable customer during a delivery;
• A drug deal in the carpark of a popular food outlet turns sour, resulting in a shootout among the participants. Patrons of the outlet fear for their lives as the violence erupts. Another drug deal elsewhere also results in a shooting. The wounded victim makes his way into a franchised outlet for help before collapsing in front of customers;
• An armed siege closes down a food outlet as a gunman variously threatens the staff and patrons, as well as threatens to harm himself. Fortunately, the siege ends peacefully.

There is no limit to the nature, cause or extent of crises which a franchise system or any business organisation may face. Limiting the potential for such crises to occur in the first instance by establishing comprehensive controls, policies and procedures across the organisation is a critical step toward avoiding future disaster.

Crisis management and franchise selection

The extent to which an organisation has plans to manage crisis events may even be a factor which assists potential franchisees to distinguish between rival franchise offers in their assessment of future business opportunities. If all else is equal between the offers, a franchisee might consider the safest investment to be the system that can demonstrate it has crisis management capabilities which can best protect the value of its franchisees’ assets in the event of a disaster.

Likewise, franchisors who have an understanding of crisis management issues will equally assess franchise candidates on their ability to avoid crises in future based on their capacity to follow the system’s policies and procedures.

The outcome of any crises management planning is to prepare for the unexpected, and to minimise the risk of the unexpected occurring at all so as to preserve and enhance the value of franchisee and franchisor businesses, and ensure ongoing stakeholder confidence.

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Jason Gehrke is a director of the Franchise Advisory Centre and has been involved in franchising for 18 years at franchisee, franchisor and advisor level. He provides consulting services to both franchisors and franchisees, and conducts franchise education programs throughout Australia. He has been awarded for his franchise achievements, and publishes Franchise News & Events, Australia’s only fortnightly electronic news bulletin on franchising issues.