Research paper Franchising; Management and Control Issues

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Researchpaper: Franchising Management and Control Issues

Table of Contents

1.0. Introduction 3

2.0. Relationship between a Franchisor and Franchisee 4

3.0. Role of Cooperation in Franchise Business 6

4.0. Control 11

4.1. The Issue is Control 11

4.1.1. Contractual Liability 11

4.1.2. The Lanham Act 12

4.2. Drafting Ideas 13

4.2.1. Disclaimer of Agency or Independent Contractor`s Clause 13

4.2.2. Control over Franchisee 14

4.2.3. Operations Manual 15

4.3. Insurance 15

5.0. Conflicts and Resolution 16

5.1. Actions by Franchisors that Cause Conflicts 16

5.2. Failures by Franchisee that Cause Conflict 16

6.0. Hypothesis 18

7.0: Relationship to Achieve Synergy 18

8.0. Conceptual Model 20

9.0. Case Studies 22

9.1. John D. BUTLER Plaintiff v. McDONALD’S CORPORATION, Defendant 22

9.1.1. Summary Judgment Standard 23

9.1.2. Landlord’s Duty of Care 24

9.2. Joni MILLER, Appellant, v. McDonalds Corporation 24

10. Conclusion 26

Reference List 28

  1. Introduction

Franchisingrefers to a way of conducting business. Essentially, it is amarketing concept that involves innovative ways through which goodsand services are distributed (Achrol1991, p. 77).Inother words, franchising describes the business models used inconducting business operations. According to International FranchiseAssociation, franchising is a continued relationship where thefranchisor provides licensed privileges for doing a business, as wellas the assistance accorded in organization, training, management andmerchandising in order to be considered for a franchisee. Franchisingcan occur between a manufacturer and retailer, manufacturer andwholesaler, wholesaler and retailer, and retailer and retailer(Anderson1990, p. 42).

Franchisingis based on continuous cooperation between the financially autonomousand juridical independent companies, namely franchiser and theindividual franchisees. In this case, the franchisor grants rights tothe franchisees and puts them under obligation of exploiting thebusiness based on business concept. In return, the franchisee paysinitial franchising fee to the franchisor, alongside other periodicadvertising or royalty fees. The franchisor grants the franchiseeright to use the brand name, know-how, trademark, commercial andtechnical tactics, intellectual property rights and operatingprocedures among others. This happens when signing a writtencontract. A franchising chain composes of the franchiser, multi-nitand single-unit franchisee, master franchisees and managers of thecompany-owned outlets (Achrol1991, p. 78).

Franchisorsshould exercise significant controls for their systems to enhance theeffectiveness of the franchise model. This implies that there shouldbe constant policing of franchisees` actions within the system toprotect the brand. Therefore, this paper describes the management andcontrol issues in franchising. Franchising is critical in almost allareas of business, and many businesses are adopting it.

  1. Relationship between a Franchisor and Franchisee

Themanagement of knowledge and relation form the pillars of anybusiness. Management of relationship enhances identification,establishment, maintenance and reinforcement of the economicrelationships with the customers and suppliers amongst other partnerswith capabilities and capacities. Objectives of the organization andpartners can be easily achieved through agreement and implementationof strategies that are mutually acceptable. Nevertheless, themanagement is required to adopt a perspective that enhancescooperation and collaboration when dealing with the suppliers,partners and customers. This influences overall franchise andpositioning strategies through identification, establishment andmaintenance of partnership through satisfying the expectations of thecustomers by the parties in agreement, as well as forming andimplementing synergetic efforts in business development (Anderson1990, p. 43).

Varioustheories have been put in place to describe the franchisor-franchiseerelationships. However, the relationship differs based on the type ofindustry and the country. Often, this leads to conflicting conceptson relationship. Nevertheless, all the studies conclude that some ofthe major components of the good relationship are flexibility,dependence, commitment, relationship, power balance and communication(Anderson1990, p. 43).

Forinstance, in relational exchange theory, exchange is described as anisolated transaction on one dimension and a full relation exchange onthe other. The relational exchanges are said to be durable, adaptableand dynamic in nature. The concept of interdependence and mutualcommitment is central to relational exchange theory, withmanifestations and trust forming the most critical aspects. Thisreflects important features of the relationship which includesupport, cooperation, control and support. In relationships, whencommitments meet or exceed the expectations of either party, furtherinvestments may be required since transactions are normally perceivedin on the basis of history and anticipated future. The relationshipfeatures allow the franchisor and franchisee lay the platform foreffective and long lasting relationship. This enhances trust andcommitment of each other through consensus, increased positivecontrol, confidence and information power. In relationship consensus,trust, cooperation and commitment are attained through supportmechanisms, power and control (Achrol1991, p. 79)

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Figure1: FranchiseBusiness Relationship

Relationshipwithin a franchise is relatively intricate than other relationships,especially in its mode of acquiring cooperation between the partners.The franchisor and franchisee interact, communicate and exchangevital information regularly to enhance cooperation. The effort of thefranchisee in this exchange is to win maximum assistance from thefranchisor that is crucial in business development. On the otherhand, the franchisor aims at controlling the behavior of thefranchisee to minimize opportunism, shirking and other uncertainbehaviors, and to secure the cooperation of the franchisee to meetthe micro-level targets and objectives. Franchisor may use both thecoercive and non-coercive powers through well-planned controlmechanisms to motivate the franchisee. This in return ensures supportand cooperation for the business development (Anderson1990, p. 44).

  1. Role of Cooperation in Franchise Business

Thereare several studies that describe cooperation as a critical constructin building relationships. Some elements like trust and commitmentand the related components of integrity, credibility and benevolence,are crucial in enhancing cooperation. Trust and commitment form thebasis of cooperation achieved through consensus in order to promotebenevolence, integrity and credibility amongst the partners.Consensus is normally achieved through exercise of different controlmechanisms that enhance exchange and communication with one another.Use of control measures determines the level of trust and commitment.The interaction between the franchisor and franchisee is aimed atearning credibility, integrity and benevolence in order to ensurethat individual and joint business goals are achieved (Achrol1991, p. 80)

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Figure2: Cooperationin Relationship of Franchise Business

Trustis developed for a certain period of time, normally in 5 phases.Phase 1 is the pre-relationship stage, stage 2 is the earlyinteraction stage, stage 3 is the relationship growth stage, stage 4is partnership stage, and finally, stage 5 is the relationship endstage. Phase 4 marks the most mature stage where partners havedeveloped high-level experience while dealing with one another. Thismarks the level of stability of the relationship where the partiesinvolved feel important to each other. This may be characterized byexplicit and implicit pledge to continue the relationship, withhigh-level commitment showed towards each other. The five stage marksthe end of the relationship where parties involved do not need eachother (Anderson1990, p. 45).

Commitmentto any relationship marks and enduring desire of maintaining valuedrelationship. The commitment is evident only when the partnersconsider the relationship to be important, and they may express adesire for wanting the relationship continues indefinitely, with thewillingness to work towards maintaining the ties. On the other hand,trust reflects willingness of a person to rely on another in whomhe/she has confidence. This implies that partners have a highsusceptibility to breaking commitments that can cause problems.Therefore, from the initial stages, parties may seek trustworthypartners to enhance relationship commitment made (Baucuset al. 1996, p. 359).

Theconsensus on ends and means desired by the franchisee and franchisorwarrants a vital influence on the competitive advantage of franchisefirm, though the disparate individualistic challenges, physicalseparation and incompatible goals may cause disputes. The franchisorsshould establish contracts that specify key decisions on how thefranchise will be run. This should e accompanied by extensivetraining programs that educate franchisee on operations within theretail outlets. The franchisee receives authorization of carrying outthe business based on certain standards specified in the contract. Asa result, the franchise arrangement will encompass various objectivesand motives by the firms they are in the relationship with. Thepartners comply with the formal contracts but heavily depend oncooperation in order to advance common goals and methods, as theybelieve to have built each other in a way that promotes cooperationand trust (Achrol1991, p. 81).

Foundationof relationship trust and commitment depends on the fact that valuesshared by the franchisors and franchisees have a high likelihood ofmanipulating commitment and trust. The cost of terminating therelationship and related benefits play a major role in influencingcommitments. Opportunistic behavior of the franchisee will directlyaffect trust between the partners involved. Relevant and timelycommunication increases trust between the partners and influencesconfidence and commitment that the parties have on each other.Therefore, the franchisor and franchisee can easily overcome certainproblems affecting them through information exchange. Normally, thisis accomplished through frequent and regular information exchangewithin the franchise system. Timely investments and energy for apositive interpersonal relationship between the franchisor andfranchisee should take place on a regular basis. In this regard, thelatest information on procedures, prices and products should be doneappropriately and in-time.

Infranchise business, the control mechanisms are managed andimplemented through the Head Office or agent. Normally, franchisorsand franchisees operate in an environment where they depend on eachother, and influence one another, either intentionally orunintentionally. In B2B markets, the basis for possession of powerfor the members in a relationship lies in the dependence of the eachother. Nevertheless, in the franchise, power is also involved basedon influence of the person in business. This is major in allfranchise business growth. The franchisee may use power to controlthe behavior of the franchisor, and this implies that power isnecessary to enhance understanding the means adopted by the partnersin changing in changing or modifying the behavior of one another(Baucuset al. 1996, p. 360).

TheFigure 3 below illustrates two different ways through whichfranchisors control the behavior of the franchisee. This involves theuse of both the coercive and non-coercive power. The coercive poweris exercised primarily through a franchise contract and relates tothe finances of the franchise economic power. The non-coercive poweris mainly exercised using the support activities by the franchisor toinfluence the behavior of the franchisee to enhance control anddevelopment of the business.

Figure3:Control Process in Franchise Business Relationship

Thecoercive power is used in rare occasions such as maintaining qualityof relationships as it relates directly to finances. In this case,the franchiser is not supposed to demand a cooperation that invokessome agreement clauses. Coercive power is dependent on concern orfear to lose possession or some rights, hence, franchisee may bethreated or warned by the franchisor regarding the operations of thefranchise or future expansion opportunities (Baucuset al. 1996, p. 361).

Onthe other hand, legitimate power relates to the legal rights of thefranchise, which is dictated by terms and conditions of a franchisecontract. The reward power is dependent on the ability of thefranchisor to distribute a valuable reward for meeting the objectivesand expectations of the franchisor. Additionally, in internationalfranchise systems, the support and maintenance of a franchise isdifficult resulting to higher costs of providing the franchisesupport. As the franchise expands globally, maintenance and supportto the franchise may be challenging leading to higher costs forsupporting the franchise. As the franchisor expands internationally,environmental and behavioral problems may start to crop up due toincreased distance.

Therefore,the implementation of the non-coercive approach becomes hard, andovertime, the coercive sources and economic, legal model for managingthe system become dominant. Nevertheless, since communication andinteraction at domestic level is easier, the non-coercive andinstitutional systems are implementable at national level. In certaincircumstances, the agent or master franchisee can be subjected tocoercive power and control so as to minimize the shirking,opportunism and uncertainties. In such scenarios, the agent reportsto the head office. In the case of a breach or action that reflectsany party to be out of the norm, the conflicts can easily occur(Achrol1991, p. 83).

4.0. Control4.1.The Issue is Control4.1.1.Contractual Liability

Creationof quality products or services requires the entrepreneur to design amethod of delivering that product or service using specific standardsand procedures. The franchisor entrepreneur must define the standardsclearly in the operations manual and franchise agreement.Well-defined standards enhance proper operations of the franchise.Nevertheless, the franchisor can voluntarily and inadvertently assumethe control and responsibility for all aspects related to franchiseebusiness that results to increased liability. The financial liabilityis applicable to the franchisor through use of tort principles of therespondeat superior and vicarious liability. Thus, the tension by thefranchisor revolves around the operational end for the business needsand creation of brand unity and identity while establishing ahigh-level control to the franchisee in order to minimize thefranchisor`s liability. The determination of the appropriate controlmay be impossible. The decisions on appropriate controls remainconfusing, and the review for existing case laws may enhance moreconfusion (Baucus et al. 1996, p. 362).

4.1.2.The Lanham Act

Thedefinition of a franchise results when the franchisee in licensedwith trademarks by the franchisor for a fee to gain control of it asper the agreement. To ensure that the integrity of the trademarks ispreserved, the franchisor must ensure regulation is adhered to. Thetension of the franchisor regarding the control is compounded. Courtsare aware of the challenges facing the franchisors in the control ofthe franchisee, as well as the vicarious liability. They note that acertain level of the franchisee control is both a legal necessity anda business reality (Baucus et al. 1996, p. 363).

TheThird Circuit Court of Appeal in Drexel vs. Union PrescriptionServices, Inc explained the legal necessities using the Lanham Act.This states that the trademark owner might license the mark toanother company through abandonment if it was issued in a manner thatmay make the mark lose significance because of its origin. The Drexelcase involved a wrongful death that resulted from negligence of thepharmacy franchise. As a result, the franchisor won the judgmentsummary after the court found out the controls that were establishedby the franchisor in the agreement were necessary for protecting thetrademarks and the name of the franchise. Ultimately, the ThirdCircuit reversed the trial court. Nevertheless, the circuit court hadto reaffirm the reasoning of the trial court by stating that thedetermining factors of the franchisor’s control of the business isdependent on the pivotal analysis.

Similarly,the analysis was applied during the court trial of Oberlin v.American Corporation in Seventh Court of Appeal. In this case, theplaintiff, Oberlin, argued on grounds of Lanham Act on agencyrelationship between a franchisor and franchisee. Seventh Circuitrejected stated that Lanham Act is required to ensure the integrityof the registered trademarks rather than create a federal agency law,hence rejected the argument brought forward by Oberlin. The role of afranchisor does not encompass the management of operations of license beyond ensuring uniform quality of the services or productoffered. The licensor is not automatically saddled withresponsibilities under the state laws for the agent’s principal(Baucus et al. 1996, p. 364).

Therefore,the major dilemma remains of whether the franchisor is required tocontrol the daily operations of a franchisee. The major challengelies in the way to control franchisee so as to preserve its marks, aswell as enhance valuation of the system without using much control.

4.2.Drafting Ideas4.2.1.Disclaimer of Agency or Independent Contractor`s Clause

TheFranchisor is required to draft a direct agency disclaimer into itsfranchise agreement. The disclaimer is written in the form of anIndependent Contractor`s Clause that can be set aside in preferenceto control-based analysis. Nevertheless, courts can inevitablycomment on the existence of clauses because they are instrumental inexamination of the franchise agreement.

Theindependent contractor indemnity is an agreement that does notinvolve any relationship between the principal and agent, and agentand Franchise. The Franchisee acts as an independent contractor andin some exceptions granted under the certain circumstances, the agentholds itself and acts as an agent or representative. Further, thefranchisee indemnifies agent against all demands, claims, expenses,costs or damages that may be incurred by agent, and which resultsfrom findings by the regulatory agency or courts of the franchiseebeing an agent. The franchisee is required by agent to takeaffirmative action reflecting that the franchisee is an independentcontractor. This involves maintaining and placing plaque within aconspicuous place at the premises with a notice for all the businesscards, stationery, contracts, sales literature and other documentsthat that state the agent is independently operated and owned by thefranchisee (Achrol 1991, p. 85).

4.2.2.Control over Franchisee

Normally,the franchise agreement lists the duties and obligations of both thefranchisor and franchisee. In the light of vicarious liabilityquestions, the franchisor must evaluate whether the integrity of thetrademark will be protected. This involves executives in charge ofoperations, sales and legal to review the working of a franchisesystem. For each control, the obligations harmful to the preservationof the system should be avoided at all costs. After the franchisor isthrough with the process, the contractual obligations of thefranchisee must be re-examined. In this step, the review shouldevaluate for the effectiveness of controls on performance of dailyoperations of the franchisee. The obligations should also beevaluated to determine how the franchisee performs the dailyoperations. Also, the franchisor should investigate the effectivenessof the controls in preserving the integrity and goodwill of thetrademark. The exercises are normally educative where the executivestaff from the franchisor’s side is guaranteed to get more insighton system and how he/she can contribute towards its success (Bogazzi1975, p. 32).

4.2.3.Operations Manual

Normally,the franchisees get operations manual from the franchisor. The manualacts as a functional tool through which the system standards areenforced among the franchisees, and provide the most flexible avenuefor enforcing the system changes. Most franchisors update the manualon a regular basis in order to track the changes taking place in thesystem. Operations manual is incorporated by reference into thefranchise agreement. This includes provisions that ensure that thecurrent version of the manual is availed. The incorporation into theagreement of the manual by reference is risky to the franchisor as itsupports claims on agency relationship between the franchisor andfranchisee (Achrol 1991, p. 88).

Theinterpretation of the court for the existence and content of themanual may indicate the control for the daily operations. Whendrafting the manual, franchisor should divide the content intosuggestions and mandates. The suggestions are supplemental in natureand offer guidance on how to use the system, while mandates areenforced by the field personnel on the franchisor`s side. In themandate in the manual is subject to same analytical process assuggested by the obligations of the franchise. The courts have a highlikelihood of perceiving the mandates as extension of the contractualcontrol (Achrol 1991, p. 87).

4.3.Insurance

Insuranceforms the last bastion in analysis of the vicarious liability. Thefranchisor must review with the risk managers, insurer and thecounsel to enable him prescribe the specific insurance requirementsfor the franchisee. The agreement with the franchisee must prescribethe specific details. Also, the agreement must stipulate how thefranchisee is to name the franchisor in the policy. The franchisormay require yearly proofs of insurance from the franchisee.

5.0. Conflicts and Resolution

Conflictsmay arise when either the franchiser and franchisee fails in doing asexpected(Aksel et al. 2002, p. 211).

5.1.Actions by Franchisors that Cause Conflicts

  • Modifying the strategies in order to offset effects of the increasing competition

  • Encroaching on the franchisee market or allotting it to another

  • Terminating the contracts of the franchisees unfairly

  • Fabricating success

  • Providing irrelevant support materials to the franchisee charging high prices for promotions and supporting the cheaper alternatives that are in the market

  • Impressing through asking to tie

  • Maximizing the benefits by using the maximum number of the franchisee which minimizes the distance and territory between the franchisees

  • Failure in giving real-time services for the promises made

  • Failure to listen to the inputs of the franchisee

5.2.Failures by Franchisee that Cause Conflict

  • Demonstration of unexpected talent and managerial energy

  • Laziness in work assigned

  • Failure to complement the goals and objectives set by the franchisor

  • Entry into unauthorized territories

  • Failure to adopt quality standards set by the franchisor

  • Late payments for royalties

  • Unauthorized disclosure of franchisor’s information

  • Deviation from the franchisor’s formulation

  • Resistance to changes that enhance competitiveness of the system

Theabove outlined sources of conflict are major causes of power strugglewithin a relationship that changes the design as per the franchisor`sneed based on the stage of life cycle of the business, as well as thecorporate structure. In the case of presence of the masterfranchisee, balance may tend to slant despite use of variousLegislations to promote power balance(Bogazzi 1975, p. 33).

Theprocess of resolving conflicts is among the central component of theinter-organizational exchange model. The process is considered as theprimary means through which manifest conflict is reduced in thedistribution channels. Scholars have put across various procedures,approaches and processes on conflict resolution between franchisorsand franchisees for the creation of dissension. Solutions are notgeneric. They are put forward to help in solving conflicts, and arespecific to certain countries and franchise business sectors(Bogazzi1975, p. 34).

Mostchallenges originate from unbecoming behaviors of individuals andgroups hence the behavioral mechanisms of conflict resolution arecritical in promoting good organizational behaviors. Research showsthat the reaction of the firm to conflict can potentially formvarious processes of problem solving, bargaining, persuasion andpolitics. Upon emergence of a conflict, partners involved may embarkon institutionalized mechanisms, either through negotiations orinstitutionalized conflict resolution methods like legal remediesunder contract`s provisions(Aksel et al. 2002, p. 212).

6.0. Hypothesis

Fromthe discussion above, then the following hypotheses should beinvestigated

  1. If the partners involved enhance the efficiency and effectiveness of their communication, then there is a high likelihood of relationship being maintained

  2. When the relationship between the franchisor and franchisee is strong, the business will experience unlimited growth, increased franchisee’s commitment and heightened security of the company

  3. The increased effort by the franchisor to build the capacity of the franchise increases commitment and confidence of the franchisee

  4. When the disputed history between the franchisor and franchisee is prolonged, the yielding and contending approaches may be applied to enhance negotiation and problem-solving processes

  5. The increased recognition levels of the franchisee by the franchisor results to increased commitment of the franchisee in maintaining and preserving the relationship.

7.0: Relationship to Achieve Synergy

Thefranchise company should understand and strategize on the how tocounter the threats facing them, such as, external influencers,uncertainties associated, constraints, asset specificity and othernegative forces that can potential affect development. Such forcesact against the firm, thus the franchise company should develop somesynergetic strategies and activities that will allow parties involvedunderstand the business environment and cooperate towards achievingthe business objectives(Aksel et al. 2002, p. 213). According, everyrelationship component gets appropriate concentration, synergeticapproach and interest in working towards business development bytaking note of their relationship. This enables them get sufficienttime, as well as to combine their resources for the growth ofbusiness. However, studies indicate that many relationships fail inproviding the expected benefits. The concept of a strong relationshipenhances the understanding of the components of a successfulrelationship by showing that success is a product of variouscompensatory factors as opposed to a single factor. The increasedtrust between the parties is largely influenced by their behaviors.The fulfillment of commitment on all activities of businessdevelopment gain momentum as the trust increases, and all thepartners involved benefit(Bogazzi 1975, p. 35). The Figure 4 belowpresents how franchiser and franchisee can work together to enhancebusiness development.

Figure4: Frameworkfor Synergistic Efforts by Franchisor and Franchisee in BusinessDevelopment

Bothpartners desire to win the cooperation of one another, hence,maximize their support mechanisms, minimize use of coercive force andeconomic power, and decrease use of control instruments to enablethen secure the cooperation of the franchisee. Consensus on sources,resources and objectives should be carefully considered. However,franchisors must examine the methods used in order to identify thedimensions through which a franchisee should agree, and those thatgive a room for dissension(Aksel et al. 2002, p. 211).

Thefranchisee value discretion but they may tend to rebel if undulycontrolled, particularly when the franchisor intrudes and tries toinfluence their decisions, which might have been made by experiencedfranchisees, on how to compete at local levels. The franchise systemsmay operate successfully, and the franchise can experience fewerconflicts when the franchisee latitude towards competition reduces(Bogazzi 1975, p. 37).

8.0. Conceptual Model

Itis clear that whenever the franchiser and franchisee initiate arectification process for their differences that cause conflict, theywill be in a better position to work in a manner that is morecoordinated, as well as concentrate on business development for therespective business as a team(Bogazzi 1975, p. 38). This enhancessharing of common goals in a more flexible manner to enhanceperformance as illustrated in figure 5 below.

Figure5: ConceptualModel for Business Relationship in a Franchise

Aftercompleting the empirical work, the related tasks by the franchiseeand franchisor are pointed out based on the features and elements ofthe relationship. The model, therefore, highlights actions by largerorganizations franchisors, and small organizations franchisee, andtheir daily business implementable through effective communication inthose relationships (Aksel et al. 2002, p. 211). This allows thepartners involved work towards business development in order toenhance productivity, as well as streamline the functions in a waythat is similar so as to enhance total management of quality. Figure6 below presents an example of quality management philosophy used inEurope.

Figure6: QualityManagement Philosophy

Amongthe major outcomes of the model is that the franchisor and franchiseewill be in a position to perceive the problems and understandlimitations, strengths and weakness is a more pronounced way. Thiswill enhance collaboration and allow making of any adjustments in amanner that is well coordinated. As a result, dissemination ofknowledge within the organization will be enhanced in all thebusiness development processes, and this will add value and help theorganization achieve synergy (Aksel et al. 2002, p. 215).

9.0. Case Studies9.1.John D. BUTLER and Corliss E. Butler as parents and legal guardiansof their minor child Bryan A. Butler, Plaintiff v. McDonald’sCORPORATION, Defendant. No. CA98–439–L

Inthis case, parents neglected their action towards a franchisor of arestaurant on behalf of a child. The child got injured by the glassdoor during entry into the restaurant. The summary judgment ondefendant’s motion at District Court, Lagueux J., stated that:

  • The franchisor, under the Rhode Island Law, failed in owing a duty of care to a minor and

  • Genuine issue of a material fact was evident regarding the level of control used by franchisor over the franchisee, precluding summary judgment on whether to hold the franchisor vicariously liable.

Motionwas denied based on provisions of negligence 202, landlord and tenant167(8), principal and agent 1.48, principal and agent 1, master andservant 5, federal civil procedure 2515, and principal and agent 99.The opinion and order implied that the defendant has leased thebuilding that housed the restaurant (Franchise restaurant) andsurrounding premises to James Cooper. Also, the defendant held alicense franchise agreement which allowed Cooper operate the businessunder the name of McDonald`s on the basis of various terms andconditions, typically in franchise arrangements. The plaintiff workedas a patron at the restaurant.

9.1.1.Summary Judgment Standard

Rule56(c) of Federal Rules of Civil procedures outlines the standards onall summary motions, where the judgment sought is rendered forthwithif the depositions, pleadings, answers to interrogatories, affidavitsand admission files reveal lack of genuineness to an issue and themoving party receives judgment as a matter of the law. Under the lawof Rhode Island, for the establishment of prima facie negligencecase, the plaintiff is required to show that defendant breached theduty, defendant owe due care duty, the negligence act by thedefendant constitutes proximate and actual causes of injury to theplaintiff and that plaintiff has been exposed to actual damages. Itis through the doctrine of the respondeat superior that a party canbe held liable for torts of another. Often, vicarious liabilityinvolves the relationship between employer and employee or agent andprinciple.

9.1.2.Landlord’s Duty of Care

Theelement of negligence in the duty of care refers to the obligationimposed on a person by the law. This requires a person to conform tothe standard actions. According to the rule in State of Rhode Island,landlord is not held liable for the injuries sustained by thetenant`s guests within the premises, unless the injury is as a resultof negligence to maintenance or repair with respect to theresidential lease. In the case presented, the agreement does notcontain any covenant for the defendant repairing or maintaining thepremises. Also, there were no claims by the plaintiff of injuryresulting from latent defect that was known to the defendant. Theplaintiff never claims that the defendant was a landlord.

Accordingto the articulations of the Supreme Court in Rhode Island, thenegligence of the defendant could have been established throughcircumstantial and indirect evidence, and by enough proof of factsand circumstances from which such negligence was reasonably andfairly inferred. According to the court, the jury, throughexamination of circumstantial evidence and getting inferencestherefrom, then it was worth concluding that spider crack that was atthe glass door to the restaurant was proximate cause of the injuriesto the plaintiff without assistance of an expert testimony witness.Therefore, because of the preceding reasons, the motion of thedefendant for summary judgment was denied.

9.2.Joni MILLER, Appellant, v. McDonalds Corporation, A ForeignCorporation, Respondent, 9507-05008 CA A91993

Thecase involved the patron of a food restaurant that was operated by afranchisee after she discovered a foreign object in food hence, shesued the franchisor. Eric J. Neiman of the Circuit Court in MultnomahCounty granted the summary judgment to the franchisor based on thefact that the franchisor never owned or operated a restaurant. Thecase involved referring to provisions of principal and agent 3(2),Principal and Agent 159 (1), Principal and Agent 3(2), Judgment181(33), Principal and Agent 159 (1), Principal and Agent 14(1), 99,Judgment 181(33), Principal and Agent 3(2).

Inthis case, the plaintiff sought the damages for injuries causedafter biting a sapphire stone while she was eating from McDonald`sCorporation, the defendant. The trial court allowed the defendantsummary judgment. According to the agreement, the system includedproprietary rights in trademarks, trade names and service marks, aswell as color schemes and designs of buildings, equipment layout andspecifications of the restaurant.

Themanual had detailed information regarding the operation of therestaurant. The licensee, 3K, had agreed to use all the formulas andpolicies in the manual. The defendant could periodically send fieldconsultants to check the conformity of food prepared with thestandards set. There was agreement that 3K had to operate as anindependent contractor, hence responsible for all liabilities andobligations like claims based on injuries, death or illness. Theplaintiff assumed that the defendant managed, owned and controlledthe restaurant since everything had the trademark of the defendant.The argument of the plaintiff was that she went to the restaurant dueto the reputation and good quality services.

Therefore,based on these facts, the franchisee, 3K, was to be held directlyresponsible for the injuries suffered by the plaintiff, which was asa result of negligence. The summary judgment was, therefore, supposedto determine whether the defendant was vicariously liable based onthe relationship with the franchisee. Plaintiff asserted thatdefendant was vicariously liable because 3 K was its apparent agent.According to the requirements of the franchise agreement, thefranchisee was supposed to maintain uniformity and image of theentire system of the franchisor, hence all the menu, symbols andservices had the brand name of the franchisor. On the other hand, thedefendant required the Lanham Act to be used since her affidavit ofgoing to McDonald’s could not have been linked with previousexperiences at other restaurants operated by McDonald’s.

Plaintifftestified to have relied on her past experiences and generalreputation of the McDonalds that patronized Tigard Restaurant. In herexpectation of quality services and food, she decided to go to 3K. Inthe light of defense efforts of creating a public perception of thecommon McDonald`s system in all restaurants operated by McDonald,irrespective of the operators, the jury held that reliance of theplaintiff was objectively reasonable. Consequently, the trial courterred by granting the summary judgment based on apparent agencytheory, and the case was reversed and remanded.

10. Conclusion

Franchisersand franchisee are entitled to develop the business jointly since thedevelopment or deterioration of either of them affects the overalloperational effectiveness. Thus, the two should work towardsstrengthening, developing and maintaining a relationship. Normally,this is can be easily achieved by frequent exchange of informationand knowledge through adoption of behaviors and proceduresincorporated within the corporate strategy. This enhances mutualcompetitive advantage, as well as reduction in substitutability andimitability of the products and services, enhanced innovativecapability, increased approachability and durability in overallorganizational culture. Also, the organization is able to developskills and competence that helps in creation and acquisition ofknowledge, as well as modification of the behavior in order to affectnew insights and knowledge. The results are the achievement ofbusiness development and valuation.

Theconceptual model is critical in helping the franchise businessfulfill the objectives of their existence depending on mission andvision. Any value added organization with a competitive advantageover all the processes of business development will be capable ofcompeting and building itself on its distinctive and corecompetences. Therefore, by embarking on these practices, a franchisefirm can easily emerge as an ethical entity where all its socialresponsibilities will be met, while its style and culture will evolvewith expansion as illustrated in figure 7 below.

Figure7:Style and Culture for Overall Business Development

Thefuture research should, therefore, carryout a comprehensive survey ofthe franchise companies. This should include both the franchisees andfranchisers. This is to help in verifying and testing researchquestions, and the hypotheses and the findings will be recorded andreported.

References List

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