Five lessons for franchising in the Labor leadership tussle

The recent Labor Party leadership contest has important lessons for franchising at a number of levels, particularly dispute resolution.

Under the Franchising Code of Conduct, disputes that can’t be resolved between the parties should be mediated at either party’s request and, in the main, mediations achieve an outcome acceptable to either party in about 75% of cases.

However, where a serious dispute can’t be resolved at mediation, the situation can quickly escalate into a full-blown litigation. In drawing from the recent challenge for the Labor leadership between Kevin Rudd and Julia Gillard, here is a quick look at five key lessons for the franchise sector.

1. The acknowledged argument is only the tip of the iceberg

A Notice of Dispute between a franchisee and franchisor may set out what the dispute is about, but often this is just the tip of the iceberg. For Rudd versus Gillard, it was never about just challenging for the leadership, but getting square for Rudd’s assassination by Gillard in 2010, and revenge for the humiliation inflicted on him at the time.

While a dispute (and consequently a mediation) can and usually does provide an opportunity for parties to resolve their acknowledged problem, the unacknowledged problems might never be resolved and consequently flare into dispute at a later stage.

Like a fire that has not been doused properly, unacknowledged problems remain dangerous to the relationship, and can flare again at any time. Don’t expect that now Rudd has been defeated he will disappear from view indefinitely.

2. Bold public statements frequently amount to empty rhetoric

Occasionally in franchise disputes either party will make extreme comments to support their respective points of view. Sometimes these are done overtly and in a very public forum. Other times these may be less public, but no less relevant.

The problem with bold public statements is that they frequently exaggerate the issues at hand, and do more to inflame rather than resolve the dispute (and of course do not allow themselves to be explored in the proper detail necessary to get to the bottom of the problem).

For example, claims that the system was “totally deficient” are just as broad and meaningless as the franchisee was “completely unsuitable”. The corollary to these claims (“there’s nothing wrong with the system” or the franchisee “couldn’t have operated any better”) demonstrate rhetoric on a scale that refuses to be defined in detail, and where detail is lacking, rhetoric inevitably prevails.

3. Rubbernecking does not count as support

Franchise disputes – or any other dispute for that matter – can end up like schoolyard brawls, where countless others unrelated to the dispute chant “fight, fight” as much for the entertainment value of the brawl as for any perceived injustice being addressed.

While the media frenziedly covered the ALP leadership dispute and sought comment from anyone with a heartbeat, no amount of sideline speculation will make a difference to the outcome other than to increase its publicity value. Sideline speculation and rubbernecking does not constitute support, especially if a dispute gets serious.

Franchisees and franchisors should appreciate that legal advice based on rights and wants is a form of rubbernecking divorced from the outcome which ignores what either party can really live with in order to draw a line under the matter.

4. No brand can withstand continual public humiliation

During the leadership tussle, electoral polls indicated that ALP support was going backward. Rudd chose to capitalise on his public popularity, while Gillard relied on her popularity with Labor’s caucus (and the perceived consequences of change) to ultimately prevail, but most now agree that the ALP brand has been so tarnished as to be almost unelectable.

Only time will tell just how bad the brand damage is, but in any dispute where dirty laundry is washed in public, the first casualty will be customer confidence, and consequently their loyalty. The consequences for a franchise brand of a protracted and public dispute include fallout for all parties and their stakeholders, including those not involved in the dispute.

5. A dispute diminishes both sides

Not just the brand is damaged in a dispute, but so too is the standing of both parties, partly as a result of their attacks on one another, and partly as the public nature of the brawl challenges public expectations of rational behaviour. If a dispute escalates and becomes increasingly toxic, the reputations of both parties suffer.

Where one party feel they have nothing left to lose, their concern for their own reputation may amount to nil compared to the damage they may hope to inflict on the reputation of the other party. This type of self-destructive conflict has much in common with the kamikaze tactics of Japanese pilots in World War II who would crash their planes into the decks of Allied ships. The outcome for the pilot was predictable, and the damage caused was often far less than expected.

Much more could be written about the nature of franchising and political disputes, but if they were all resolved quickly, quietly and to the satisfaction of all parties involved, not only would public faith in the political process be enhanced, but franchising too would benefit substantially.

Jason Gehrke is the director of the Franchise Advisory Centre and has been involved in franchising for nearly 20 years at franchisee, franchisor and advisor level. He advises both potential and existing franchisors and franchisees, and conducts franchise education programs throughout Australia, and publishes Franchise News & Events, a fortnightly email news bulletin on franchising issues and trends.