Damage to MRINetwork Franchise | Roger H Ballou CDI Corporation

In this mail to Roger H Ballou CEO of CDI Corporation, I explain my opinion of the long term damage to the Management Recruiters International franchise and CDI Corporation revenue streams created by CDI Corporation actions and inactions of Roger H Ballou. It explains why I believe that most (if not all) current Management Recruiters International franchisees could terminate their franchise agreements today for breach of their franchise contract by MRINetwork.

Read the correspondence below to Roger H Ballou, CEO of CDI Corporation, the owners of MRINetwork, and form your own opinions on the franchise ethics and business practices of MRINetwork and CDI Corporation as demonstrated by them over a number of years.

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3rd November 2006

Mr Roger Ballou
President and Chief Executive Officer
CDI Corporation

Mr Ballou

As a shareholder in CDI Corporation, I believe the stance that you have taken is quite absurd and exceedingly dangerous to the Company and shareholders alike. Let me explain why:

You have consistently treated the facts and issues that I have raised, as though they are of no importance and you have consistently refused to enter into discussion about them.

Let us just examine some of the facts that you keep trying to ignore and sidestep.

It is a fact that you had an MRI franchisee referred to here as Mr JW. When Mr JW’s MRINetwork franchise agreement expired in 1999, you continued to represent him to the rest of the franchise network as a regular bone fide franchisee in good standing. For almost 4 years whilst you continued with this deception, Mr JW’s franchise debts grew year on year to over £170,000 UK Pounds (approximately $316,000 USD).

I believe that that is important and it has a number of very serious implications. Let me explain just a few reasons here:

You know that your revenue stream and profit comes from your franchisees. For example, last year MRI accounted for more than 1/3 of CDI’s total profit.

You train your franchisees in sharing work (jobs and candidates and the resulting money) as a fundamental part of your franchise offering. You repeatedly encourage all franchisees to do this. This is a key part of your basic methodology and a major selling feature to prospective franchisees. This networking capability is one of the major reasons that most people buy a franchise.

By continuing to represent Mr JW as a regular bone fide franchisee in good standing to the whole MRINetwork for almost 4 years whilst his debts grew year on year to over £170,000 (approximately $316,000 USD), and almost 3 ½ years after his franchise agreement had expired, is, in my opinion, completely negligent and has a number of very serious implications. Let me explain some of my opinions:

1. As my franchisor you breached my franchise contract. My contract franchise agreement states:

Franchisor’s Continuing Obligations. Operate a system of co-operation between the Franchisee and other franchisees of the Franchisor to facilitate the interchange of candidates and position openings to enable the Humana Network to maximise business opportunities. (Extract taken from my franchise agreement that predates the CDI acquisition of Humana and the renaming of it to MRINetwork)

The key word in that obligation Mr Ballou is ‘Operate’. You failed in that obligation as you chose to include a person in your published network, with no franchise agreement, with growing and substantial debts for around 4 years. You therefore breached my franchise agreement in failing your continuing contractual obligations.

2. More importantly than the contract breach of my individual franchise agreement is the wider issue that you breached the contract of all other franchisees that have a similar clause in their contract. I suspect that that is the vast majority of MRINetwork franchisees, if not all of them. This means that they could justifiably walk away from their franchise agreement today, as you have breached it. If they choose to do that, it would be devastating to your revenue stream as you could lose more than 1/3 of your profitability overnight!

3. I believe that you have breached your own code of ethics that states:

All company personnel are expected to foster a culture in which legal and ethical conduct is recognized, practiced and valued by everyone.

It goes on to say:

Be honest and fair in all business activities with customers, vendors and competitors.

Do you believe, Mr Ballou, that you have been ethical, honest and fair during the years that you chose to represent Mr JW as a regular franchisee in good standing to the rest of the MRINetwork?

4. I believe that this is a clear case of deliberate misrepresentation that endangered the business of all other franchisees in the network. All franchisees are trained and repeatedly encouraged to share work and resultant money with fellow franchisees. In the case of Mr JW, you chose to deliberately represent him as a regular franchisee in good standing for many years, when that was clearly not the case.

5. How do you expect to sell new franchise agreements to prospective franchisees when you have a demonstrable track record of allowing this situation to exist within the network? How will you grow your revenue stream? I believe that your actions and inactions have seriously damaged the prospect of new franchisees joining the network with the obvious impact on revenue and shareholders.
Who would join such a network with the knowledge that:

* The franchisor did not fulfil its basic continuing obligations?
* The franchisor represented people who’s franchise agreement had expired as a regular office in good standing?
* The franchisor allowed some franchisees to grow debts in excess of £170,000 but was still represented by the franchisor as a regular office in good standing?
* They are actively encouraged to inter-work with other offices portrayed by you as ‘in good standing’ when they have years of substantial debt and no franchise agreement?
* That the Company show no regard of their own code of ethics?
* You appear to be comfortable with this situation and refuse to discuss it or admit that anything may be wrong – or put another way, that this is perfectly acceptable?

Mr Ballou, I have tried to open the dialogue with you a number of times on this subject but you have consistently refused to enter into discussion. When as a franchisee I was damaged by inter-working with Mr JW, you failed to answer any one of the issues I raised then. Now as a CDI shareholder with more knowledge of the facts around this issue, you still refuse to answer any of the new concerns that I have raised. (With the exception of the Sarbanes Oxley aspect that I believe you have a legal obligation to address, but I am still waiting for the answer to).

You have refused to comment on any one of these issues that I believe are of fundamental importance to shareholders and the long term ‘health’ of CDI Corporation and its revenues. Your stance appears to be that these issues are not important. On that aspect we fundamentally disagree.

In my opinion the damage that you have caused by creating the above situation and allowing it to exist for almost 4 years, until the inevitable damage was caused to one of your genuine franchisees is devastating to your business model. But the damage that you are now perpetuating by refusing to acknowledge that anything is wrong and thereby implying that this is acceptable as ‘business as usual’ is, in my opinion, fatal to the business model and will have dire consequences on CDI Corporation, its profitability and its shareholders. That stance is your choice Mr Ballou and reflects on your leadership and business acumen.

The first stage of fixing a problem is to admit that you have made one. Of course, you can and may continue to choose to view this differently and simply continue to ignore all of this as irrelevant trivia. That is your ongoing right and as leader of CDI Corporation your management decision.

I have some additional issues of real concern that I wish to raise with you. I will be doing this shortly via my normal email account. You may now have chosen to block my normal email account to avoid hearing and facing these issues. That is your prerogative, but blocking my mails will not stop me stating the facts and asking the obvious questions.

Mr Ballou, my door has always been open for dialogue, but you consistently refuse to enter. That is your prerogative, but sticking your head in the sand and ignoring me will not make these issues go away. I personally believe that your stance of ignoring these issues is a dangerously flawed strategy as these issues are really important and have immense implications to CDI Corporation, its revenue streams and of course to my fellow shareholders. Clearly, one of us is wrong. Time and exposure of the facts will show who is right and who is wrong. My door will continue to remain open for dialogue as time progresses. Feel free to contact me at any stage to start to discuss them and start to answer my outstanding questions.

I will send you this email both via my normal email account and via a new account to ensure that you at least see one copy, to allow you to reconsider your stance of non-communication. I will also attempt to copy this mail to your fellow directors as I believe you are now at a critical point, of either continuing to ignore these facts, or addressing them and attempting to recover from your chosen path.

Please confirm receipt of this email by return.

Bob Stewart
CDI Corporation Shareholder

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