KEY POINTS:
The multi-million dollar Green Acres ironing franchise debacle is likely to have a domino effect on the franchising industry, says a business consultant who specialises in reputation issues.
"A problem in the industry tarnishes everyone and everything associated with it and a domino effect can occur," said Hannah Samuels, former general manager of business development agency Enterprise North Shore and founder of online performance-based service directory, TRUSTcite.
"The franchising industry is definitely likely to feel the effects of the recent Green Acres situation: it won't be a mortal blow, but it is severe."
About 200 people bought non-existent Green Acres ironing franchises from former "master franchisee" Keith Lapham, and many of them are looking at taking legal action against the parent company, Green Acres.
Green Acres chief executive Andrew Chisholm has ruled out financial compensation.
However the company offered a rescue package under which victims were offered a new franchise if they could meet the company's qualifying criteria.
But a group representing victims said few were likely to take up the offer as many would struggle to meet some of the requirements - such as paying for uniforms and setting up a vehicle with the company's logo.
The case is being investigated by the Serious Fraud Office.
"Franchising is a business built on reputation and promises," Ms Samuels said.
"The bigger the franchising business becomes, the more at risk it is from reputation damage. If you have a 1000 franchisees, that's a 1000 different ways your business could be tainted by someone with your business name."
More than 350 franchise systems operate in New Zealand, giving the country one of the highest proportions of franchise per capita in the world.
"Investment in franchises is based largely on reputation; patronage of franchises is based on reputation," Ms Samuels said.
"Reputation by association is a powerful component of the industry.
"The number one reputation damager is overpromising and underdelivering.
"In an industry built on promises and reputation it is essential to maintain trust and integrity and reduce doubt. A loss of faith is hard to recover from."
Ms Samuels said a master franchisor should look beyond what is stated in a contract to ensure those they do business with have shared values and ethics.
How people responded to an adverse reputation event would either shorten or lengthen the time of impact and the damage to their business.
"This recent situation may have introduced speed wobbles into the franchise industry, but one of the signs of a mature industry is how well incidents are handled," Ms Samuels said.
"It won't kill the industry, but it's a timely wake up call for those with a business or interest in franchising."
- NZPA
