Franchise Ethics

Read about the franchise ethics of Management Recruiters International franchise.

Franchises are a good thing if they are run ethically by the franchisor. They offer a proven business model to people (franchisees) who wish to grow their own business in partnership with the the seller of the franchise (the franchisor). The ethics of the franchise are set and controlled by the franchisor. If the franchise is not run ethically then it will ultimately lead to problems for the franchisees.

There are many successful and ethically run franchises. However, I will be relating and contrasting the general principals of franchise ethics to my personal and actual experience whilst holding a franchise from Management Recruiters International, known as MRI Network, a recruitment franchise owned by CDI Corporation.

The Franchise Model:

In essence, any organisation with a successful proven business can expand by natural internal growth (organic growth) or take the franchise route.

If they take the franchise option, they become a 'franchisor'. They sell the rights to copy and use the business model and work under a contractual basis selling the goods or services as though they were part of the franchisor's organisation. The amount paid to buy a franchise varies dramatically from a few hounded pounds to many thousands of pounds. In return the franchisor will help the new franchisee build his/her business on their proven model. The franchisor will generally train and support the new business owner (the franchisee) and help grow their business. In addition to the initial franchise fee, it is quite typical for the franchisee to also pay a 'royalty' to the franchisor based on the turnover of the new franchised business. This is typically 7%-10% of the revenue achieved, and in some cases higher. The franchise option has proven to be a more successful route to business start-ups than going-it-alone. They still can and do fail, but their success rate is still higher than the going-it-alone approach that has a poor success rate. Once entered into, there are contractual obligations both on the franchisor and the franchisee for the duration of the franchise agreement.

Franchise Ethics - Management Recruiters International

Starting a business requires a lot of hard work and requires many skills and determination to overcome the inevitable setbacks. That is true of any business and is also true of starting a franchise, albeit that you have the support and assistance from the franchisor. Look at the failure rates of business start-ups and you will see the real truth about this. So there are many natural obstacle and problems to overcome in the real world of business. However, within the franchise business model, the franchisee is tied to the franchisor. The franchisor has the responsibility to set the standards and ethics of their system. Most franchisors are ethical but as with all things, this is a variable that must be considered by any prospective franchisee if considering entering a franchise agreement. It makes sense for the franchisor to be ethical as unethical behaviour will lead to long term problems with the business model. How would any franchisor grow a long term and sustainable franchise business if their ethical standards were not considered to be acceptable. For example, if a franchisor were to lead its own franchisees into believing that someone was still in the franchise network as a fellow franchisee when his franchise contract had expired years earlier, I think most people would agree that that is unethical behaviour by the franchisor. A one-off misrepresentation of the truth may be an oversight and considered to be a mistake. But if the franchisor did it again and again over many years, as Management Recruiters International did, would you not consider that to be fraudulent misrepresentation and unethical behaviour by the franchisor? If your particular franchise worked on the principle of inter-working with other franchisees within the network, as MRI Network do, then this misrepresentation of the truth becomes even more unethical of the franchisor in my opinion. Now add another fact into the equation. If the person that the franchisor repeatedly misrepresented as a regular franchisee was in massive and mounting debt for years to the franchisor and they kept quite about that too, would you consider it to be ethical franchising? If when the franchisor knew without any question, that you as a genuine franchisee was starting to inter-work with the bogus franchisee, who they had misrepresented for years, and share work and resulting money with, don't you think that any ethical franchisor would have stepped in and corrected their years of misrepresentation or warned the real franchisee that they were entering a known peril? But in my personal experience experience with Management Recruiters International, what Steve Mills (MRI Network Corporate) did was actually congratulate me in inter-working with this bogus franchisee and winning a substantial contract. Do you consider that ethical franchising? Do you imagine that it surprised Management Recruiters International when the bogus defaulted on payment to me in the same way he had been defaulting on payment to MRINetwork for years. Do you consider that to be ethical of the franchisor?

The overall point is that there are enough real issues to overcome in any business without having to deal with a franchisor who is not acting ethically. I would suggest to any franchisee (prospective or current) to examine at the ethics of their franchisor. A franchisor who is not acting ethically will cause problems to the long term growth and health of the franchise. Read the facts on the problems that I encountered and form your own opinion as to whether MRI Network and their owners, CDI Corporation have acted ethically as franchisors.

Franchises - more detail:

Whilst the term 'franchising' has broader meanings and has been used in many business relationships, the most common meaning of the term is in the creation an sale of a proven business model, or business format franchising.

Business format franchising is the sale of a license by the franchisor to another to another person, that person becomes a franchisee. That license allows the franchisee to trade under the trade mark or trade name of the franchisor. Additionally the franchisor generally provides support and training to the franchisor to enable a previously untrained person (the franchisee) to establish and run the franchise business.

This basic franchise option allows companies to grow by selling franchise licenses to people who are effectively buying into the proven business model of the franchisor. This is a proven and viable alternative to organic business growth that many companies choose as a route to grow their business. For the franchisee there are some clear advantages:

  • Firstly the franchisee does not need to think of the business concept themselves as the franchisor has already done that. Perhaps more importantly, the franchisor has tested the business model and proved that is works.
  • Established franchisors will also often have a well known brand name that is recognised by potential clients of the product or service. Some will even have national advertising campaigns that will enhance the franchisees route to market.
  • Most franchisors will provide their franchisees with training and support in the many aspects that are required to run the franchised business. This is a key aspect to getting the franchised business up and running.
  • Where appropriate, the many franchisors can often assist with the creation of business plans that can be used to help secure funding towards the start up costs. Additionally they can and often do provide discounted access to goods or other services that are required to run the franchise.

Franchises - who controls what?

When a franchisor sells a license, the franchisor is actually running their own business, albeit that the franchise contract defines limits and obligations on both parties. However, the franchisor normally defines control over the way in which products or services are marketed and sold. This control of the quality and ethical standards of the franchised business is key to a successful franchise model.

These issues are a very important aspect of the contractual franchise agreements. It follows logically that if the franchisor fails in its contractual duty to control the quality and ethical standards of its franchisees, then the whole business model of the franchise becomes questionable. In my opinion, that position was breached when CDI Corporation and MRI Network chose to misrepresent Mr JW as a regular Management Recruiters International franchisee to the whole of the MRI Network, whilst concealing the fact that he was not paying royalties, had growing debts year-on-year and continued to do so for a number of years after his franchise agreement had expired. Read more about this in MRI Network Problems Encountered and MRI Network Breach of Franchise Contract and years of franchise misrepresentation by MRINetwork, and form your own opinion on the ethics of Management Recruiters International Franchise and their parent company CDI Corporation.

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