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FROM THE EDITOR-IN-CHIEF

Balance the Interests of the Franchisor, Franchisee, and System

WILLIAM

L. KILLION
the fold by strong noncompete commitments. It must ultimately be an instrument that manages and minimizes risk-not because the franchisor has a license to engage in misconduct, but because lawsuits and arbitration are simply not the way to manage a franchise system. And although the highly successful franchisor strives for consensus and accord with its franchisees, sometimes it is "no more Mr. Nice Guy." No system will be without its dissenters. Sometimes the best approach is to remove the bad apples. This does not necessarily have to be done in a punitive way. In fact, the best approach is to work out the terms of a franchisee's exit from the system through a mutual termination agreement that allows a franchisee to sell its franchise to a third party. Unending compromises that place at risk the franchisor's control do not work in the end.

of the Highly Successful he second of the Five Habits Franchisor is this: The highly successful franchisor is keenly aware of the competing interests of franchisor, franchisee, and the system as a whole-and balances them properly. Although the successful franchisor ultimately manages its system through its relationship with its franchisees (the grit of William L.Killion the other habits), the successful franchisor never loses sight of the differing (and sometimes adverse) roles of franchisor and franchisee. Establish a Culture of Voluntary Compiiance The role of the franchisor is to develop a system, support franchisees, evolve the system over time, and enforce the system. The role of the franchisee, in turn, is to provide capital for the franchise location, provide unit management, and follow the system (i.e., play by the rules). The highly successful franchisor establishes a culture of voluntary compliance with system standards (the rules) but, in the end, vigorously enforces compliance by errant franchisees. The franchisor's hammer in enforcing, compliance with system standards is the franchise agreement, the document that ultimately governs the franchise relationship. But Never Give Up Control The point is simple: the highlO successful franchisor does not relinquish control of the system to its franchisees. The franchise agreement must protect the right of the franchisor to set the direction of the system without interference from the courts. The franchise agreement must protect the right of the franchisor to morph the system to respond to competition and changes in consumer demands. It must limit (through arbitration provisions that specifically preclude joinder of claimants) the ability of a few franchisees to place the entire system at risk through in terrorem class actions. It must maximize the ability of the franchisor to keep successful franchisees within William L. Killion is a partner in the Minneapolis office of Faegre & Benson LLP.

franchisor, franchisee, and system as a whole. 3. Stacks the deck with "ace" franchisees. 4. Obsesses over the franchisee's bottom line. 5. Empowers the franchisee.

106

Franchise Law journal

Winter 2006
HeinOnline -- 25 Franchise L.J. 106 2005-2006