Governance Structure Fit

Governance Structure Fit – Best Practice #36

Relevant questions:

• How would you describe your current governance structure?
• How optimal is that structure for your business in 1-3 years’ time given your plans and growth trajectory?

Franchisors need a governance structure that befits their situation and plans. And franchisors need good governance, as 1) franchise companies are naturally complex businesses to lead and manage, and 2) all companies face an increasingly dynamic operating environment.

Good governance according to New Zealand’s Institute of Directors helps a company:

• Improve performance
• Have a defined vision for the future of the company
• Take a big picture view of the business separate from the operations
• Ensure there is accountability and oversight of operations
• Manage risk
• Find the right balance between making short-term gains and building long-term wealth

For franchising companies, as you would imagine, many of the points have additional nuance – emanating from growing, guiding, managing and evolving a network of franchisees. And while franchisors and franchisees have an interdependent relationship, their interests are never totally aligned.

And so for governance, as for other businesses, franchisors have a spectrum of possibilities from which to select. At one end a franchisor can self-govern as an owner sole director, perhaps with the assistance of key employees and existing advisors (e.g., banker, lawyer, accountant, consultant, coach, mentor, etc). At the other end of the spectrum, a franchisor may operate with a large formal board of say eight directors – with the latter comprising non-executive and independent directors and, ideally, an independent chair.  In between, there are various informal and formal structures involving advisory boards and/or formal (or statutory) boards. These can range in their formalisation of structure and operation (e.g., terms of reference, meeting focus, regularity, duration), types and experience of members, degrees of member independence (e.g., from executive positions and shareholdings), to mention a few dimensions.

There is no one structure suited to all situations. And for literally all franchising companies, the governance structure will need to be planned and develop overtime. After all, not all companies can afford to invest more than $200,000 per year in director fees. *

Important here is a fit between the franchisor’s situation and its governance structure – to ensure the franchise system has the best governance it can practicably afford.

Other best practices will explore some of the many important dimension relating to franchising company governance.

* Recent research on New Zealand Franchising Company Governance, conducted by Franchize Consultants, indicated governance fees ranging from $17,500 to over $400,000 per year.

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This is part of a series of franchising best practices. Franchize Consultants is sharing and publishing these best practices weekly for the betterment of franchising. We know that better knowledge and execution of franchising best practices leads to bigger and more valuable franchisor and franchisee businesses.