Future proof your network with a re-tooled risk strategy

Consumer markets: Navigating COVID-19 for franchisors

Australia Publication October 2020

Some of our clients are bunkered down in survival mode, but a large number are also relatively stabilised. For all franchisors, and especially those who are continuing to operate with relative stability, now is perhaps a unique opportunity to equip themselves with a re-invigorated and re-tooled risk strategy.

No one was able to predict the timing of this new coronavirus sweeping across our globe. But can these learnings be applied to future arrangements? Are there other risks that you also didn’t see coming that are now perhaps more predictable and more mitigatable? There might well be and assessing those risks as relevant to your corporate business and your network of franchisees could put you in a highly desirable position should such a risk present itself in the future.

Considering in brief then some of those risks that might be of relevance to franchisors and retailers:

Remote workforces and work health and safety (WHS): How equipped is your business to effectively transition staff to a remote working arrangement, and support franchisees to do the same with their staff (where applicable). WHS regulations and requirements will continue to apply to staff working from home or remotely and without appropriate policies in place, businesses could be exposed to greater risk of WHS non-compliance and workers compensation claims.

Financial stress: What steps can the business take early on when faced with a disruptive event causing financial stress to avoid the need to consider the more drastic of measure such as external administration and how much non-essential spend can be quickly cut to minimize the extend of losses?

Cash flow and supplier management: This risk is very much tied to financial stress will be managing cash flow and supplier arrangements. Can your business quickly alter supply arrangements or put a hold on them? Are you bound to meet minimum volume purchases?

Documentation: Did your documents give you the ability to take the action you needed to take during the COVID-19 pandemic? Should new clauses be inserted to address new types of “force majeure”, or to give rights of payment deferral or contractual exit in the event of future unusual circumstances? Whist the pandemic was arguably not reasonably foreseeable then, it is now. What changes are needed to your documentation?

Insurance cover: In light of what we are learning from the economic impact of COVID-19, franchisors should consider their insurance exposure and whether current policies are up to the task in a future event. In particular, policies such as business interruption, event cancellation, trade credit/debtor insurance, professional liability (where negligence claims may arise due to alleged error or omission in response to a crisis), directors and officers liability, and cyber liability.

Regulatory compliance: While many of the key regulators relevant to franchisors, such as ASIC and the ACCC, have been quick to introduce new measures and offer leniencies, franchisors need to be in a position to comply with applicable regulations as adjusted. In particular, those regulators have emphasized they will continue to investigate and enforce regulations that threaten to harm consumers.

Similarly what impact has COVID-19 had on your disclosure document? Should you adjust any revenue or expense predictions? Are there any warnings or caveats needed? Now is the time to revise your business’s regulatory and compliance strategy, processes and documentation.

We suggest the above topics should be taken as an agenda for preliminary discussion in senior management groups to assess how these risks might impact your business. The aim for any board or senior management group will be to:

  1. Determine the business’s ‘impact tolerance’, being the upper limit for the impact to a business service that a business can tolerate as a result of severe operational disruption, such as a future crisis, and ideally assessed against various degrees of crisis duration, and nature of a disruption event.
  2. Develop (or reassess an already existing) crisis management and business continuity plan that considers the range of scenarios determined by their impact tolerance and focusing on the business’ response steps as it reaches varying stages of impact by external disruption.

As always, the team at Norton Rose Fulbright can offer expert and tailored advice on identifying these risks and putting in place sensible and effective protocols to manage them.

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