![]() Without close supervision, every franchisee will be tempted to cut corners, at which point all franchisees-and all their customers-are worse off than they would have been if uniform standards had been enforced against each of the outlets. At the same time, the astute franchisee knows that it will bear only a tiny fraction of the overall system loss. Each individual franchisee knows that it will pocket the full gains from any small decline in the quality of its goods or services. The business set-up is yet another variation of the common pool problem. A franchisor that allows its franchisees to work without explicit guidance or close supervision is in mortal danger of brand deterioration. Customers want the ironclad assurance of consistent quality of both product and service, no matter what franchise they attend. The basic job of a franchisor is to create a standardized product that will allow its strong and reliable brand to lure in customers across the franchisor’s entire national or global base. The standard economic set-up is needed to create a system of optimal incentives for all its participants. The most obvious explanation for the growth of the franchise system is that it works economically, wholly apart from any direct concern with labor relationships. Its standard business arrangements are, in broad outline, typical of other franchisee operations, of which there are today, according to the International Franchise Association-whom I have advised on these matters-about 750,000 outlets, employing some 8.1 million workers, whose direct economic output is about $770 billion per year, and whose indirect impact is surely larger. And why not, with such a huge target to shoot at? McDonald’s, of course, runs a major operation with its many independent franchisees. In the two weeks following the announcement, some 61 new complaints were filed, and more are coming in steadily. That decision has set the stage for one of the most contentious management labor disputes of recent years. Thus on December 19, 2014, Richard Griffin, the NLRB’s General Counsel, issued a short announcement that it would file unfair labor charges against both McDonald’s and its franchisees for “making statements and taking actions” against those employees who participated in nationwide fast food worker protests. One of its most salient initiatives has been its recent effort to expand the definition of an “employer” under the National Labor Relations Act. Under the Obama Administration, the National Labor Relations Board has taken strong pro-union stances on collective bargaining.
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