Wednesday, September 16, 2015

Social Franchising - Do Franchise Laws Impede Progress to Do Good?

Thanks to an old friend and former client, Tony Wells, I was introduced to the notion of "social franchising" this week. (Tony and his wife Dana operate the Wells Foundation - click here) Social franchising is related to "social entrepreneurship," which is loosely defined as applying business techniques and approaches to solve social problems and concerns. This may mean developing a product or service that serves the greater good rather than pure capitalistic interests, i.e. making a profit. It can also mean developing a business model that generates revenue to sustain a not-for-profit, charitable organization with all proceeds devoted to the charitable mission.

Well, in short measure, I learned that there is great interest in using the "franchise model" to advance the concept of "social entrepreneurship," In fact, the International Franchise Association has established the IFA Social Sector Franchising Task Force (find here), chaired by Michael Seid, founder and managing director of Michael H. Seid & Associates. As noted on the Task Force's website: The mission statement of the Social Sector Task Force is: “To Enhance The Quality Of Life In Underserved Populations – One Opportunity At A Time.

Further, I was informed by one of my franchise-lawyer colleagues, Donna Christopherson (who is a member of the Task Force) and by my old friend Tony that the social franchise model has been used in Europe and Africa but not so much in the U.S. Indeed, there is the European Social Franchising Network (click here) that indicates that the purpose of this type of franchise is "a social goal, such as the employment of disabled people, the democratisation of the economy or tackling climate change. As such the social franchise has a social purpose and is often owned by its social franchise members but it is also a business that makes profits. Without these profits, it could not survive and grow and meet its social aims."

So what's holding us up in the U.S.? Maybe nothing ...but in my learning process I was informed (by my brilliant colleagues on the ABA Forum on Franchising List-Serv) that state franchise laws and regulations, requiring disclosure documents and other qualifications, may apply to not-for-profits. The FTC staff, in a series of informal advisory opinions, has given legitimately organized not-for-profits a pass because it does not view these types of franchises as "commercial relationships." But, there does not seem to be any guidance from state franchise examiners that the same standard would be applied and there is concern that a federal case, Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the United States of America, Inc., 646 F.3d 983 (7th Cir. May 31, 2011), points to the application of state franchise laws to not-for-profit organizations.

This post is already too long ... but is it time for the adoption of an exemption from the FTC Rule and the state franchise and business opportunity laws to allow those who want to do good to do even more good?

1 comment:

  1. Jim,
    Social franchising or the "doing good" factor is definitely hindered by franchise regulations. As my contribution to a growing need I have franchised a system of caring for dementia patients that is revolutionary in the way it brings comfort and calmness both to the patient and to the families. This system called Comfort Matters has been acclaimed by the New York Times and other publications as the best dementia care system in the US but the trick is how do we take this not for profit effort nationwide and maybe worldwide and maintain the quality standards, franchising is the model that provides the answer.

    The cost in involved in the legal process and other key areas plus the time and effort needed to overcome objections is makes the task even more difficult. Our system is growing rapidly and is successful but there is a huge and growing need that we need to address and the longer and more costly it becomes the less those in need benefit.