The First Ten Years

by Myron P. Gordon

INTRODUCTION

At first blush it may appear that there is nothing very glamorous or appealing about the history of a businessmen's trade association. Nor would there seem to be much of general interest in such a history even though it involved the relatively recent concept of mass franchising and the even more recent emergence of franchisee associations. Yet, to those who lived with this history, with its ups and downs, its strategy consultations and discussions, and eventual success, it has been an exciting and rewarding experience. That alone might be reason enough for making this record.

Hopefully, however, there may be greater justification than personal gratification for setting it all out. If history's role is to teach us how to deal with the present and the future, then the lessons learned from this story may well be of value to those who may follow. Perhaps, also, other franchisors and franchisees may profit from our struggle and learn to live with each other. Both the franchisor and the franchisees, in our case, will attest to the value of a peaceful rapprochement.

There are, in the United States, such a large number of franchisors and so very many franchisees that it is amazing that the number of successful franchisee associations can be counted on the fingers of both hands. Not that a substantial number of franchisee groups have not tried to organize, but their thrust has almost uniformly been towards militancy and confrontation - an understandable reaction to what they perceive to be uncooperative and dictatorial franchisors. Nor should we fail to understand that the natural reaction of franchisors to organizing attempts by their franchisees is defensive and hostile. The polarization and even radicalization, which results from this clash of attitudes, makes patience and cooperation virtually impossible. Yet those are the very ingredients that are necessary to a successful relationship.

It will be an eternal memorial to Harold Forkas, Hugh Landrum and the other founders of NMDA that they had the courage to stand forward and expose themselves to possible reprisals and to be bold in espousing positions which were certainly unpopular with Midas officials and even some Midas franchisees. They had the unselfishness to rise above their own interests and devote their time and energies to the good of the greater number. They also had the wisdom to lead others to be patient in the face of serious provocations and always to seek to be constructive and to try to work for the improvement of the entire Midas program while, at the same time, seeking to improve the positions of Midas franchisees.  Many, many people have worked for the organization and left their mark, but it is only right that we single out the individuals who made it all possible, which we will do at the appropriate places in this narrative. 

BACKGROUND

NMDA was started in 1970 an no history of a franchisee organization would be complete without some mention of the conditions which existed then and in large part continue to exist. Franchising, we have noted, is a relatively recent phenomenon. It has grown almost beyond belief because it filled needs for both the parties in the relationship. For the franchisor, there was the opportunity to expand with little or no risk, using other people's (franchisee's) money and efforts. For the franchisee, there was the opportunity to be "in business for yourself" while taking advantage of the experience and expertise of the franchisor, all at minimum risk because this was a going business with, in most cases, a good track record. When the particular franchise program became large enough to be able to afford national multimillion-dollar advertising campaigns, the rewards for both parties were substantial.

Franchising, however, was a peculiar relationship with consequences to the parties which they often themselves did not fully understand. Everyone who thought about it knew that the franchisee necessarily gave up a good deal of his freedom of action when he signed a franchise agreement. Not as well known was the tendency of many franchisors to consider themselves in loco parentis to franchisees - and the willingness of so many franchisees to become and remain "children" of the franchisor. If the franchisor was the father and the franchisees the children, then the bulk of franchisors became more and more autocratic and dictatorial - and with reason; for parents always knows more than their children. But, as the children grew older, many of them wanted to rebel and assert themselves. More and more excesses by the franchisor brought more and more rebellion and battles began to erupt in the courts, in the halls of Congress, and in the various state legislatures. Central to the raging dispute was the clear economic imbalance, which existed between the franchisor and any single franchisee. And it was this economic imbalance that engendered widespread fear among franchisees and prevented any but the most courageous from taking steps to protect themselves. So, while a brave few tried to fight, the vast majority remained on the sidelines, satisfied to be dictated so long as they were assured of a living.

If the foregoing seems like a replay of early employer-union confrontations, there is good reason. All of the elements that have kept the employer-union pot boiling are present in the franchisor-franchisee relationship. And, just as trade unions were born to redress economic imbalances, so were franchisee associations. Just as many employers believed that they had the right to operate their own businesses without interference from employees or groups of employees and had to be dragged kicking and screaming into at least an armed truce with employee unions, so, many franchisors bitterly fought what they considered to be infringements on their right to dictate the terms under which the business would be operated, including the rights of franchisees. Just as many employees and unions were so outraged at employer excesses that they lost all sense of purpose and fought for principle rather than economic sense, so, many militant franchisees and their representatives could, and still can, find no answer to the excesses of some franchisors other than constant confrontation.

The books are full of cases in which employers fought long and bitter battles to avoid bargaining with unions. Franchisors have fought similar battles to avoid bargaining with groups of franchisees. Discharges of employees, threats and other forms of intimidation against employees have found similar counterparts in actions against franchisee associations or even against individual franchisees who dared to question a franchisor's actions. The results for franchisees were generally either to knuckle under and accept whatever the franchisor proposed, to sell out, or to seek relief through the courts or in legislation.

THE EARLY YEARS

In the meantime, the proxy fight had materialized.  Nate Sherman had won and he promptly set about selling his stock to IC Industries.  The fledgling association kept growing.  In October 1971 the Association held its first convention in Phoenix, Arizona.  It again asked for recognition from Midas, a new franchise agreement, and other changes.  It elected its first Board of Directors and Hugh Landrum as its first permanent president.  Hugh busied himself consolidating the progress that had been made in the organization of the Association, as well as in talking to executives in IC Industries about the programs of recognition. 

In the middle of his term, in May 1972, Midas called for an election of a Dealer Advisory Committee of eight people, two from each of the four sections of the United States.  Even though there was not enough time within which the Association could do any campaigning, predictably, the leaders of the Association were elected to the Dealer Advisory (DAC) Committee.  The members of this committee were Robert Amstadt, Ohio; Stanley Brown, California; Horold Forkas, New York; Fred Goldman, Illinois; Ted Harris, California; Hugh Landrum, Georgia; Jerry Orns, Florida and Arnold Yusim, Illinois.

Just before the first meeting of this new committee, it was learned that IC Industries and Midas had been working for months on a proposed new franchise agreement and that they intended at this meeting to present the agreement to the members of the Dealers Advisory Committee in the hope that it would be embraced by the members of the committee and thereafter adopted by the dealership at large. A copy of the proposed agreement was obtained in advance and an analysis by Association counsel showed that, while it was in many respects superior to the existing agreement, there were many provisions that were not satisfactory and a number of omissions. The committee (and the rest of the Association Board of Directors) met with Association counsel the day before their first meeting with Midas and they went to the meeting in Chicago armed with position papers and critiques.

However, after a day of discussion, it became obvious that the members of the committee were no match for Midas officials and their counsel and the committee sought to have the help of the Association attorney. It was not possible to accomplish this directly since even a mention of the Association was anathema to Midas. Once again Harold Forkas came to the rescue, as he was to do frequently in the future. He stated that he was unable to continue to negotiate the terms of a complex agreement without the assistance of his attorney. This led to an invitation to bring his attorney into the negotiations. When Midas officials discovered that "his attorney" was the Association attorney, they evidently decided not to disrupt negotiations by withdrawing the invitation. However, they continued to rely on the fiction that they were not dealing with the Association by including in all bulletins a notation that Harold Forkas' attorney, Myron P. Gordon, participated.

During these negotiations provisions considered offensive were changed and many of the additions sought by the committee were granted. The document, as it finally emerged, became one of the more outstanding and fairer franchise agreements in the United States in the protections that it afforded franchisees.

One item, however, remained a sticking point until the very end. Midas insisted that it would determine, in its own discretion, the length of the term of the franchise for each franchisee. The Association committee insisted that all franchisees should be treated alike. Finally, after the intercession of Stanley Hillman, President of IC Industries, it was agreed that everybody would receive a new twenty-year term.

By October 1972, at the time of the second Association convention in Key Biscayne, Florida, the negotiations for the new franchise agreement had been concluded and a full explanation of each and every provision of the agreement was presented to the members, who approved the agreement. By this time 389 shops were members of the Association and it was continuing to grow. It was at this convention that Harold Forkas was elected as its second president. He was later reelected to a second term and served again as president two years later.

At this convention, also, the franchisees agreed that there should be a change in the procedures related to the guaranteed muffler. At that time Midas was reimbursing the dealers for 50% of the cost of the replacement muffler and the dealers were making a service charge to customers. This was not satisfactory for a variety of reasons and the leaders of the Association were urged to seek the elimination of the service charge, along with a greater reimbursement margin from Midas. This was eventually accomplished, but not until March 1974.

Shortly after the Key Biscayne convention it became obvious that the brief honeymoon between the dealers and Midas during the negotiation of the new franchise agreement had come to an end. Even though the DAC had ostensibly been elected to deal with Midas with respect to all phases of the franchise program, the Midas officials then in office sought in every way possible to avoid further meaningful discussions with the committee.  Refusal to call meetings and failure to have top officials attend these meetings when they were called were indications of what the future would hold. Perhaps the most blatant example of the attempt by Midas to make the committee a meaningless gesture was the rule, which Midas attempted to put into effect, that members of the committee could be elected for one-year terms only and, once having served their brief one-year terms, could not be reelected for a period of 5 years. Understandably, the dealers were dismayed and the Board of Directors of the Association, at a meeting in early 1973, concluded that this could not be permitted to continue. As the first step in a plan devised by the Association's Board of Directors, an open letter to Midas was published (and copies sent to IC Industries officials) calling attention to the shortsightedness and bad faith of Midas officials in their dealings with the franchisees. The letter had the desired results. More frequent and more meaningful meetings were arranged, although the Association Executive Director was not permitted to attend. Eventually, (although it took almost another year and a half) Midas agreed that the dealers would make their own rules as to the selection of their representatives on the DAC. Since that time, the Association has designated the members who would meet with Midas officials.

In the meantime, the Third Annual Convention of the Association had been held in October 1973 in Colorado Springs, Colorado. At that time, almost 400 shops were members of the Association. That convention considered, among other important matters, details as to the elimination of the guarantee service charge, the proposal for which had been hanging fire for a year.

In January of 1974 Midas and the Association's representatives finally agreed upon the elimination of the guarantee service charge and they worked out a reimbursement plan which would lead, in stages, to a reimbursement to dealers of 95% of muffler cost, beginning July 1, 1976.

In May of 1974 IC Industries had installed a new chief executive at Midas and, at an historic meeting in New York City, top officials of IC Industries, along with the new chief executive of Midas, met with Association representatives and finally gave formal recognition to the Association. They also made a commitment that nothing that affected the profitability of the dealers would be put into effect without a prior discussion with the Association. It was not until then that the Association Executive Director was permitted to participate at joint meetings.

Unfortunately, as the franchisees were shortly to discover, recognition did not mean total acceptance! From that point, the relationship between Midas and the Association has had its highs and its lows. But, throughout, the Association continued to seek to maintain a dialogue with Midas officials.

There was some progress, but there was more reluctance by the franchisor than there was cooperation. As a result, it was difficult even to meet constructively with Midas officials, much less achieve anything substantial. It was not long before the new Midas chief executive found reasons for absenting himself from the joint meetings. As a result, proposals made by the Association generally had to be referred back to him for decision.

THE RELATIONSHIP FLOURISHES

It was not until late in 1976 that a new spirit of cooperation between Midas and the Association began. It was no accident that this new spirit dates from the appearance on the scene of Richard de Camara, first as Executive Vice-President and later as President of Midas International Corporation. Dick made it clear that he saw the value of working with the Association in solving problems and dealing with situations before they became problems. In turn, the Association leaders were able to put aside the suspicions and militancy, which had been ever present, and turn instead to trust and cooperation.

Prior to 1976 there had been two major areas of disagreement between Midas and the Association: (1) methods of dealing with a very substantial expansion program, and (2) implementation of a lifetime guarantee of foreign car mufflers.

Midas had embarked on a program of opening 100 new shops a year. This decision and the method of implementing it evoked a barrage- of criticism. How much" encroachment" on the territory of existing shops would be acceptable? Once it was decided that a location could support a shop without unreasonably damaging the business of another shop, who would be eligible for the new shop? Understandably, Midas officials believed that they should have the right to make all of the decisions. Just as understandably, the affected franchisees believed that they had a vested interest in their territories and many of them sought veto powers over any site and the right to any site that they did not veto. It was not until late in 1976 that there was some resolution of the problem. It took many hours of discussion before both sides admitted that each party's position had some merit and before a method of procedure could be worked out which would take account of both. Although the details of the agreement may not be of any great interest, the principles that led to the agreement are important because they demonstrate the elements that often comprise a solution to a whole host of problems. The basis for the accommodation was adequate advance communication of expansion plans to affected dealers, the opportunity for these dealers to object to particular locations and to be heard before the plans were finalized, and the formulation of a general principle that the nearest expandable dealer had the first opportunity to the location. No rigid formula was possible and no such formula was sought. Instead, open communication - in which the Association was permitted to participate - became the key to accommodation.

The foreign car muffler guarantee provides another example of the wrong and right way to bring about agreement between franchisor and franchisee. Association officials recognized the need for such a guarantee as a marketing tool. With considerable prescience they saw the coming increase in foreign car ownership and the importance of being able to stop advertising "as long as you own your American car". Company officials were willing to talk, but the sticking point was how much of the cost the Company should bear and how much the dealers. In addition, the Company wanted to tie in a reduction in the reimbursement to dealers on the American car guarantee. When months of negotiation proved fruitless, Company officials decided to go over the heads of the Association's leaders and present a program directly to dealers, which had been rejected by the Association. Early in 1976 a series of meetings was held across the country in an attempt to convince the dealers that it was in their interest to accept the proposed package. The Association made no attempt to influence its members and deliberately remained silent. The Company's attempt was a total failure. It was now clear that since there was a strong, responsible Association, which represented a majority of the dealers and had confidence, no progress could be made by the Company in dealer relations except through the Association.

In any event, the matter of the foreign car guarantee languished until mid-1978, when an agreement between Midas and the Association was concluded.  The Association negotiating team consisted largely of the past presidents, the current president and the Executive Director.  This format proved successful because the Company and the Association’s membership respected the members of the committee.  It has since been used just as effectively for most negotiations with Midas.

A number of extremely important issues were raised and significant progress was made in franchisor-franchisee accommodation.

An Association advertising committee, under the chairmanship first of Charles Margolin and then Bill Curran, has been meeting regularly with advertising agency and public relations agency representatives and Midas advertising personnel.  Goals are set and reviewed, the thrust of future advertising is discussed and agreed on, the actual advertisements are presented and reviewed before they are put into production.  Annual accountings of advertising expenditures are rendered.

The need for a major supplemental product line was brought to the fore and discussed.  There was general agreement that brakes would fulfill that need.  A committee of the Association, headed by past president Howard Lichterman, worked with Midas officials in preparing a national brake program and promoting it among the dealers.  Now, the vast majority of dealers are in the brake business and it is on the way to becoming a significant part of Midas sales. 

Problems existed with respect to the method of controlling the real estate on which the shops were built.  A new system has been worked out between the Association and Midas, which permits a dealer to own his own real estate, protects the location for the franchise program, yet provides a fair return to the dealer, even if he later sells his shop but retains the real estate.

All of these are important milestones on the road of cooperation for mutual gain.  But the most outstanding example of what can be accomplished in this type of cooperative climate is the negotiations for a package of franchise agreement amendments.  In this package are a number of changes that Midas sought as important to them in strengthening the franchise program and one major change that the Association sought – a fair and workable arrangement for a twenty-year renewal at the conclusion of all present agreements.  Prevention of arbitrary refusal to renew and arbitrary termination has been a major goal of franchisees and a major bone of contention between franchisor and franchisees.  Midas franchisees now have this protection. 

Let there be no misunderstanding – all of the accomplishments listed in this history have been beneficial to the franchisor and franchisees alike. All of the recent major accomplishments have been achieved in an atmosphere of cordiality and cooperation, without litigation, without any flexing of muscles. Both the franchisor and the franchisees have become stronger as a result.

Along with the franchisor and the franchisees, the Association too has flourished. Over eighty percent of all franchised Midas shops in the United States are members. The decisions of the Association's committees and Board of Directors have invariably received the support of the members - because the Association leaders have always been careful to make sure that they represent the needs and aspirations of the membership.

In the Fall of 1978, Nate Sherman (since deceased), founder of Midas and an early Association opponent, was invited to be guest of honor at the Association's annual convention in Bermuda. He not only accepted but also publicly proclaimed that the Association was a positive force in the Midas program.

In February 1980, at the suggestion of Dick de Camara, the Association was invited to send a representative to the annual meeting of the International Franchise Association (IFA), of which almost all franchisors are members, to discuss how to have better relations with franchisees. Charles Margolin, the then Association immediate past president, along with a representative of a non-independent franchisee association, were the first franchisee representatives ever to speak to an IFA meeting.

In the spring of 1980, Canadian Midas dealers were determined to organize their own association and sought the help of the U.S. Association. With that help and with the cooperation of Midas officials, a Canadian association, with over ninety percent of franchised shops as members, was born and began operating.

CONCLUSION

In the story of the first ten years we have seen the growing pains of a franchisee association, the almost inevitable conflict and mistakes as the parties maneuvered for position and learned to accommodate to each other, the patience which was required from time to time for everyone to avoid a fatal confrontation, and, in the end, the rewards which flowed from the ability of franchisor and franchisees to overcome all of the obstacles.

Perhaps the key ingredients in this success story were the quality of the Association leadership and the loyalty and support of the ever-increasing membership. Each of the Association presidents in turn (Hugh Landrum, Harold Forkas, Fred Goldman, Howard Lichterman, Charles Margolin and Richard Stranik) contributed tremendously to the Association's progress and have continued to be active and supportive. Not enough can be said about the enlightened franchisor management, without whom there could have been no significant progress.

The first ten years are now history. Both Midas and its franchisees have learned that progress and prosperity do not require parties glaring across the bargaining table at each other. They have learned that awareness of and consideration for each other's needs are more important than litigation and legislation. If they remember these lessons well, the next ten years, and beyond, should be at least as successful as the first ten.