Friday, Feb 01, 2019

How Griswold Home Care Crafted a 21st Century Franchise Agreement

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By Tim Mullaney |  - As it approached its 35th anniversary this year, Griswold Home Care refreshed a key aspect of the business: Its franchise agreement.

Hashing out the new agreement was not always easy, but the process provides a model for how franchisors and franchisees can work together for their mutual benefit, according to the company’s CEO and leaders of its franchisee association.

Started in 1982 by entrepreneur Jean Griswold, the personal care provider based in the Philadelphia area now includes about 200 locations. After the family-owned business began to transfer to private equity hands in 2009, the franchisees started to consider the franchise agreement more carefully, according to Meg Mairn, director of a Griswold location in St. Petersburg and Pinellas County, Florida. She also was chairman of the five-person franchisee negotiating team that helped hammer out the new agreement.

The old franchise agreements had some onerous provisions that the franchisees felt confident would not be enforced, given their relationship with the Griswold family, Mairn said. Under private equity owners, the franchise owners came to recognize that they needed more formal protections.

“What we as owners realized was that the people enforcing the agreement can come and go,” she said. “Just because one CEO doesn’t abuse the powers, doesn’t mean the next person won’t.”

Early efforts to renegotiate the agreements were not successful, but the entrance of Matthew Murphy as Griswold CEO in 2014 changed the game.

“We’d had some failed attempts in our past to have a constructive, collaborative process,” Murphy told Home Health Care News. “I think there was some angst built up about how we were going to do that.”

One big step in overcoming that angst occurred when Murphy and the Griswold front office recognized the Griswold Home Care Franchisee Association (GHCFA). Similar to a union’s collective bargaining unit, franchisee associations like this one sometimes have a contentious relationship with the franchisor—but Murphy believed that collaborating was a better route.

With some goodwill established, negotiating could begin. The talks involved Murphy and Griswold’s COO Mike Magid, and the five-person team from the GHCFA. Here are a few of the practices they put in place, which both sides say led to a productive process:

  • Agreed to ground rules at the start, including a philosophy that the parties could “disagree without being disagreeable”
  • Adopted a “listen first” mentality, rather than making demands upfront
  • If negotiations got heated, the parties walked away, then came back to work on areas of agreement, to start rebuilding trust
  • Left lawyers out of the negotiating room, and were willing to push back against standard legal advice to accomplish shared franchisor/franchisee goals

This negotiating style enabled both sides to notch “wins,” including in some areas that would seem thorny.

For instance, the new agreements reduce monthly minimum royalties, establishing a rolling 12-month average on minimums. That is, if a franchise location has, say, a $12,000 annual minimum, it does not necessarily have to pay $1,000 each month. If starts off the year struggling, it can make smaller royalty payments on the front end but make up for it on the back end when business picks up.

The new agreements also recognize that the equity value of the franchise is created in part by the goodwill that owners create in the business, and that this belongs to them.

“This incentivizes more effort than giving the impression that the franchisor owns [the franchise] and sees the agreement as a lease,” said Stephen Rymal, the owner of a Griswold franchise in Hunterdon County, New Jersey, and another member of the GHCFA negotiating team. “From our standpoint, it’s important to have our ownership interest recognized.”

The updated agreements also create more equitable royalties and general fairness around registry versus full-employment franchises, since Griswold includes both models—another change from the early days of the company. This was an important part of the revision process, Murphy and the GHCFA reps said, considering other states might eventually require full employment of home care workers rather than giving them 1099 status.

From the franchisor perspective, wins included more “rational limits” around general marketing fund contributions. But overall, the idea was not for one side or the other to compromise or emerge victorious, but to create “win-win” scenarios by putting in place fair incentives to motivate and enable successful operations, Murphy emphasized.

They were successful in achieving this goal, according to the American Association of Franchisees and Dealers (AAFD), which recently named Griswold “Franchisor of the Year” for 2017, citing the fact that the new franchise agreement scored above 97% in compliance with the organization’s fair franchising standards. That’s one of the highest ratings in AAFD history.

“Rather than using the franchise agreement to punish, setting up standards or requirements in the agreement that were more inclined to be used as a reprimand, it’s a symbiotic relationship,” Rymal told HHCN. “It’s a win-win for everybody.”

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