Franchise Fight

Regulation threatens business opportunities for women.

JoAnn Shaw started The Coffee Beanery Ltd. with a single store in 1977. Her company now has 125 franchised stores, cafés, carts, and kiosks across the country, and she projects that another 75 outlets will open by the end of the year. Thousands of other women have followed Shaw into the franchising world, which now has a workforce of more than 8 million people. They now own 20 percent of all franchises (up from 3 percent in the early '80s). But proposed federal and state "franchise relationship" laws could make such business opportunities for women difficult to find.

Rep. John LaFalce (D-N.Y.), chairman of the House Committee on Small Business, heads the movement to increase the regulation of franchises at the federal level. "Many [franchise investors] find that they purchased low-paying jobs with few protections or benefits [or] lose everything in fraudulent franchise ventures," he told Success magazine. His proposed legislation would restrict the contractual relationships between franchise owners and investors. Among other things, it would require the public disclosure of detailed business information that franchise owners say their competitors could benefit from.

In addition, a December U.S. appeals court ruling in Cincinnati lends support to proposed regulations that would curb franchise owners' ability to cancel or refuse to renew contracts with investors who do not meet company standards.

Research suggests that such restrictions are unnecessary. Studies have consistently found the success rate of franchises to be much higher than that of independent businesses. A 1991 study of franchises conducted by Arthur Andersen and Co. reported that only 3 percent of franchises opened within the previous five years had folded. By comparison, over 60 percent of all new businesses between 1978 and 1988 were dissolved within the first six months of operation.