In announcing what he described as “the most sweeping reform of the Franchising Code of Conduct since its inception 12 years ago” federal Small Business Minister Craig Emerson used the phrase “eyes wide open”. These three little words in fact come fairly close to describing the thrust of the reform proposals. “Eyes wide open” is the new mantra for prospective franchisees. Franchisee protection is to be delivered primarily by enhancing prior disclosure to facilitate informed due diligence rather than by regulating conduct within the franchisor and franchisee relationship.
The typical business format franchise relationship is characterised by both an information imbalance and a power imbalance. In countries such as Australia which have specific franchise regulation the information imbalance is addressed by mandatory prior disclosure. This regulatory strategy is widely supported and uncontroversial.
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