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Managing crises in a franchise situation

|Written By Jennifer Brown
Managing crises in a franchise situation
The choice of spokesperson or persons is an important issue that should be contemplated and planned well before a crisis hits. Photo: Shutterstock

When it comes to a crisis, companies with franchises spread across the country and around the world may have a tougher time managing the message.

In an era when it’s not a question of when but if a company will be hit by a crisis, how you respond can determine how painful it will be over time for the brand to recover.

At the annual Ontario Bar Association franchise law conference in Toronto last week, a panel of in-house counsel and external lawyers spoke to the issue on the theme of: “Keep calm and franchise on: crisis management in franchise systems.”

The panelists talked about how franchisors and franchisees can face a range of complex crises including supply chain failures, food-borne illnesses occurring at one location, broader contamination across the system, or a product failure.

For example, this month, the Chipotle Mexican Grill fast-food chain in the United States was under the microscope when 37 cases of E. coli infection were supposedly traced to its restaurants in Oregon and Washington. More than 40 of the chain’s restaurants were closed by the company for almost two weeks so it could conduct an investigation.

The stores were to reopen after tests came back negative for the bacteria, but the illnesses were still being investigated by the Centers for Disease Control and Prevention as of last week.

Such situations speak to the importance of knowing what is going on in your company’s supply chain, said panelist Joel Levesque, vice president and general counsel for McDonalds’s Restaurants of Canada Ltd.

Product recalls can also be challenging for companies when they originate in another country and the rest of the organization is pressured to follow suit. Levesque recalled when in 2010 McDonald’s did a voluntary recall of Shrek-themed collectible drinking glasses in the U.S., and the Canadian operation had to  do the same. The glasses were found to have been made with paint containing cadmium, a toxic metal.

“It required dealing with technical experts as to what risk it was to customers,” said Levesque.

The examples involving franchisees demonstrate the two-fold challenge of communicating not only with the public but the franchisees as well, and the need to plan for the pre-crisis stage, the management of the crisis, and the aftermath.

Effective crisis management includes containing the damage, investigating the cause, resolving the issue, protecting the brand, and managing communications.

When it comes to who should be the designated spokesperson during a crisis in a franchise situation, the panel discussed the pros and cons of managing the message at the head office versus letting franchisees speak to an issue locally.

“In many crisis situations, franchisees don’t have the qualifications to comment,” Levesque said.

The choice of spokesperson is an important issue that should be contemplated and planned well before a crisis hits, said John Ratchford, principal and general counsel of Navigator Ltd.

Depending on the circumstances, more than one spokesperson can be considered and could include technical experts as well as senior management. He cautioned against using a third party to speak for your organization.

“Use someone with skin in the game,” advised Ratchford.

The panellists advised against using a franchisee as a spokesperson unless it is a local issue that is at stake and is subject matter he or she can handle.

“When in the throes of a crisis, the franchisee should be involved with focusing on the customer, not in the war room,” said Levesque.

If it is decided the franchisee should be interacting with the media during a specific crisis demanding local reaction, providing franchisees with media training is a good idea.

When considering people to respond during a crisis, it’s also important to not just focus on company leaders such as the CEO but identify and train key players. In many instances, frontline people such as those the media might encounter first at a head office should be prepared in the event of a crisis.

“Don’t forget the receptionist,” said Ratchford. “Train them to deliver a message and direct the media to a spokesperson.”

But when is a “crisis” not a crisis? These days, consumers are more inclined to take to Twitter or Facebook when disgruntled, but sometimes a string of hash tags might appear to be signaling a crisis in the making when really it’s an isolated incident.

“These days, we can tell where tweets are coming from. If they are all coming from one intersection in Vancouver, you may not need a national response,” said Ratchford.

But Levesque emphasized that any “potential flashpoint” moves faster today than five to 10 years ago. That means organizations must be adept at identifying problems before they erupt.

Data hacks have proven to be some of the biggest problems for retail-based companies in the wake of massive hacks experienced by Home Depot and Target, who suffered credit card data breaches in 2014.

It’s “not if but when” with data breaches, so plans for managing them should be prepared in advance.

“In the data protection context, data breach monitoring systems can notice activity volumes and logins occurring from strange places,” says Kelly Friedman, a partner with DLA Piper Canada LLP.

Friedman suggests conducting a gap analysis to determine what experts you might be lacking and doing a third-party audit for credibility purposes.

Ultimately, how a company reacts to a crisis can dictate how consumers receive the brand in the future.

  • Franchise Strategic Advisor

    Frank Zaid
    Good article, but the comments fall short of what is really needed. The most important element in crisis management is that there be a dedicated, knowledgeable senior executive in charge. Not necessarily a lawyer, but often the lawyer has major involvement. Franchisors need to learn from consumer product and service companies who have been doing this for several years. All departments in the corporation need a contact person who understands crisis management and is responsible for input and updating of the company's crisis management policy and system insofar as that person's department is concerned. This is an ongoing 24/7 requirement and not just updated at periodic times. Franchisors have enormous exposure to crises because of the difficulty controlling corporate activities, franchisee activities and supply chain activities. And social media will not wait for an informed response.

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