as printed in: Franchise Law News – Q4 2011
by: Michael Seid and Kay Ainsley
The most obvious area in franchising where the lines between franchise consultants and lawyers frequently blur is within the professional services provided to emerging franchisors. Companies new to franchising have difficulty understanding the essential differences between services provided by experienced franchise legal counsel and those provided by qualified franchise consultants in developing the structure and strategy of a franchise system.
Mature franchisors generally have a better understanding of the nature of franchising and what constitutes a business issue and a legal issue, and can therefore engage the proper advisors to assist them. Emerging franchisors often are more naive and are led to believe that because franchising requires defined legal documents and sales methodologies the law has a greater role in the structure of a new franchise system than do the underlying business issues.
Without causing too much consternation among our legal colleagues and friends, in some areas of the law (and certainly in some areas of applying the law), business advisors may have a superior understanding than do lawyers. This is common in many specialized industries and is the linchpin of the debate concerning the unauthorized practice of law. (A discussion of this issue can be found in the 2007 ABA presentation, “The Respective Roles of the Franchise Consultant and the Franchise Lawyer in Structuring the Franchise System,” by Lenny Vines and Michael Seid.)
However, business advisors are not lawyers and do not have the depth of training and understanding of the nuance of the law, especially in areas of the law that do not routinely affect their clients’ businesses. Consultants should never get caught in the trap of thinking they can provide legal advice, even when it may be legally allowed, and by extension practice law unnecessarily. It is past time that members of the bar and the ABA begin to focus on some of the bad practices in this area including but not limited to consultants preparing form agreements for review and approval by their client’s general legal counsel.
Franchise consultants view their primary role as helping their clients assess their current business performance and developing strategies and tactics to change and grow the channel sufficient to maximize the returns for all stakeholders. Clients turn to us and other professional business advisors because we bring to the table experience and expertise from working with numerous other companies in a wide variety of industries.
This outside expertise offers them a unique and external perspective on their own situation and frequently enables us to develop approaches more quickly and with greater clarity and lower cost than they could do internally.
The primary role of the lawyer, from the perspective of the business advisor, is to ensure that the strategies and tactics developed by business management is legal and that documentation required to execute that strategy is properly prepared and, where necessary, filed and approved. Just as lawyers chafe at consultants who make legal representations and recommendations, consultants are equally alarmed by lawyers who propose business strategies often based on limited knowledge or research and prepared without using the same professional rigor generally applied by the consultants in reaching their conclusions and recommendations.
Indeed, from the viewpoint of the professional consultants, the practice of business without due care by lawyers is as risky (maybe more so) for the client as is the practice of law by the non-lawyer. Simply because providing business advice generally does not require a license (as does the practice of law) does not mean that professional standards in consulting do not exist. Similar to the ABA, the AICPA has standards of practice and ethics that professional consultants who choose to be members must apply in their practice.
While lawyers may offer business advice, they need to understand that simply giving their clients averages or structures that have been used by other clients before is not adequate. As with the lawyers, there are professional rigors in developing strategies and tactics employed by business consultants, and unless a lawyer follows a similar rigor, they should not be providing that level of advice to their clients.
Clearly in providing professional services to franchisors, consultants and lawyers cross over into each other’s turf on a regular basis. This is both needed and beneficial. However for the benefit of the client, it is important that each discipline respect the need for the other’s contribution. Best practices, even in simple systems, must involve both disciplines. The services lawyers and consultants bring to a franchisor are distinct and important, and both are needed.