Before the coronavirus worsened and jeopardized the 2020 baseball season, there was much discussion about the Houston Astros and the sign-stealing scandal that may have fueled their 2017 World Series Championship. Since the scandal broke, a number of people have lost their jobs, including the Astros manager and general manager, as well as the manager of the Boston Red Sox and a newly-hired manager of the New York Mets, both of whom were with Houston in 2017. The American public has little tolerance for large-scale cheating and will, more often than not, support the underdog.
Of course, that has never stopped the cheaters from trying to skew results to their favor—whether in sports or in business. Major League Baseball has endured a cheating scandal involving some of the sport’s superstars like Roger Clemens, Barry Bonds and Alex Rodriguez, who have thus far been denied entry to the Hall of Fame because of their use of performance enhancing drugs.
Last year, we witnessed the uncovering of a major cheating scandal on the tree-lined campuses of prestigious U.S. colleges. Beyond that, there have been numerous examples of cheating among Wall Street behemoths, like Wells Fargo Bank. It is an unfortunate reality of our human condition; some people will use whatever means necessary to grab more than their share and game the system—regardless of the cost to the people or institution they are cheating.
Franchising, like every other industry, is just as susceptible to cheating when one side takes advantage of the other. Franchisees in the Subway and 7-Eleven systems often complain about their franchisor taking advantage of them—tilting the playing field to the company’s advantage and cheating franchisees out of the opportunity to realize profits.
Of course, when done right, franchising epitomizes a healthy, symbiotic partnership. The franchise company shares its trademark, its expertise and the quality of its product with individual entrepreneurs who, in turn, share their work and their wealth (their blood, sweat and tears, if you will) to build a successful business. When the franchisee succeeds, so does the franchisor. A franchisee that generates robust top-line sales for his franchisor and bottom-line sales for his enterprise helps expand his brand’s reach and reputation. When the relationship is built on a foundation of trust, the sky can be the limit.
Too often though, that partnership is threatened and that bond of trust is broken when one side takes advantage of the other—essentially cheating the other party and poisoning the partnership. One example that comes to mind is Tim Hortons, the Canadian coffee and donuts chain owned by Restaurant Brands International. Tim was cheating on prices by limiting the suppliers that franchisees could use and collecting rebates from those suppliers. In essence, Tim Hortons was gouging its franchisees in order to pocket an unfair share of profits. Franchisees were being charged $75 for a case of Coke, for which franchisees in other brands were paying $28.
It was the Great White North Franchisee Association, the independent association representing Tim Hortons’ franchisees, which uncovered the cheating and filed a lawsuit seeking to put an end to the practice. The case is pending, but the damage is already done and the trust between franchisees and their franchisor has been broken.
Then there is Jack-in-the-Box, whose independent franchisee association also has a suit pending against the chain accusing it of retaliating against the association leadership and unilaterally changing a written agreement detailing how it collaborates with its franchisees. Jack-in-the-Box created a Franchise Advisory Council to replace the Strategic Leadership Council that was favored and supported by its owner/operators. The cheating has been exposed, the litigation is still pending, and the bond of trust is no more.
Before that, the chain El Pollo Loco was caught cheating certain franchisees by using inside knowledge of their successful operations to encroach on their businesses and siphon off their sales. Company stores were opened in close proximity to high-performing restaurants. The cheating was exposed in a lawsuit, the franchisor punished financially, and the bond of trust forever destroyed.
Today, the Dunkin’ partnership is strong and the level of trust that exists between the brand and its franchisees is high. Cheating is unacceptable. But we also know that wasn’t always the case. A decade ago, DDIFO uncovered rampant cheating in Dunkin’s Office of General Counsel. It was an ugly time, but Dunkin’ demonstrated its commitment to a healthy franchisor/franchisee relationship by realigning its course, reconstituting its legal team and rebuilding trust with the franchisee community.
It remains to be seen where and when the next significant breach of a franchise partnership will occur, but if the history of human behavior is any guide, such an occurrence is not just likely; it is inevitable. What is also likely is that when it does happen, the cheating will most certainly be exposed by an independent franchisee association, whose value – like the value of an insurance policy – is often most apparent when something goes wrong.
There’s another thing that is just as certain. When they take the field, the Houston Astros will face a loud chorus of boos and jeers. It will take time for the team to demonstrate to its fans, and to Major League Baseball, that they’ve learned their lesson and abandoned their cheating ways.
It’s a lesson Dunkin’ learned when it struck out with its franchisees a decade ago.
DDIFO Executive Director