Franchise sector faces potential Senate inquiry

BrumbysGo-HarbourTownIt has been a trying month for Australia’s franchise sector, which after a string of scandals is now staring down the barrel of a Senate inquiry.

A spokesperson for Senator John Williams has confirmed that he intends to move a referral to hold a parliamentary inquiry into the franchise sector by 20 March, and that he is confident he has the numbers to move ahead with proceedings.

The prospective inquiry will assess the effectiveness of industry regulation, including the franchise code of conduct, transparency in the industry and whether further legislation is needed to address any structural issues arising from the business models of large franchise networks.

The spotlight comes after several high-profile scandals in the industry relating recently to allegations of franchisee exploitation within Donut King owner Retail Food Group’s network and underpayment within Caltex’s franchised service station network.

It also follows the administration of franchise grocer Aussie Farmers Direct last week and a string of other underpayment scandals involving 7-eleven and Domino’s among others in recent years.

Industry veteran and Brumby’s bakery joint-founder Michael Sherlock has now joined the chorus of those calling for reform, advocating for more transparency around supplier rebates and franchise agreements.

“The headlines in the last week were pretty grim,” Sherlock said.

“I’m hearing reports that people trying to sell franchise businesses are being told by brokers not to bother – that’s appalling.”

Sherlock has advocated registering disclosure documentation, including franchise agreements, with ASIC similarly to commercial leases, which he said would increase transparency.

Sherlock has also criticised the FCA for not properly representing franchising and has called for the industry body to reform its membership policies to ensure that only established franchisors and franchisees can sit on the board.

“We need to reform the FCA board so it better represents franchising, which is an essential sector of the Australian economy,” he said.

Sherlock, who sold Brumby’s to RFG in 2007, argued that the current board is too stacked with periphery stakeholders.

“Consultants, lawyers and accountants and other professional service providers should have a restricted membership. They should not be eligible to serve on the board and can only attend limited parts of FCA meetings and gatherings,” he said.

Sherlock said that franchisor members should have a minimum of five years trading experience and at least 30 franchisees, as well as a “history of ethical trading”, before being allowed to join.

“Franchisees should also have a similar track record to be eligible to be on the board,” he said.

The FCA has been contacted for comment.

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