As franchisors partied in Cairns, the body representing them was on the brink of financial ruin

Hundreds of franchisors headed to sunny Cairns last month for a three-day flagship industry convention. They heard from business leaders, networked with colleagues around the country, and threw their support behind the Franchise Council of Australia.

But the event was close to not happening, and there are now serious questions about how this industry association – meant to be the standard-bearer for Australian franchisors – will survive beyond the National Franchising Convention.

The Age and The Sydney Morning Herald have uncovered a litany of financial problems plaguing the Franchise Council of Australia (FCA), two formal complaints to the board about its chief executive, who abruptly resigned last month, and concerns about the organisation’s sustainability.

“There was mismanagement; there was incompetence,” one former staff member said. Another added: “Everyone was on eggshells – it was like The Hunger Games. It was awful, literally awful.”

FCA interim chief executive Tanya Robertson at this year’s National Franchising Convention. Credit: LinkedIn

‘Unacceptable’

A decade ago, the then-$150 billion franchising industry was thrust into the national spotlight for all the wrong reasons. There was the wide-scale wage underpayment scandal at 7-Eleven; Retail Food Group, the franchising giant behind Gloria Jean’s, Donut King and Brumby’s, was slugging franchisees with high fees; and Pizza Hut had ordered its franchisees to sell pizzas below cost, pushing many to collapse.

The media and political glare went a long way to force the industry to clean up its act, and the Franchise Council of Australia was entrusted to enforce the high standards set by the government.

But today, as the federal government considers tougher penalties and a new licensing scheme for franchisors, the FCA is in shambles. It has burnt through staff, cash and its reputation.

This masthead has obtained leaked copies of the organisation’s February and April board reports, which paint a bleak picture of its finances and reveal it is struggling to survive.

“The bar for us at the FCA is set higher because we’re meant to be the standard-bearers,” one former staff member said. “We’re held to a higher standard, but no right-minded person thinks this is in any way acceptable.”

The FCA reported a net loss of $1 million in the nine months to March 31 and is on track to lose $471,000 in the 2024 financial year, according to its March financial report presented to the board last month.

In March, the FCA reported a net loss of $138,000 after forecasting it would report a net profit of $88,000.

Its cash in the bank, which was about $1.3 million in September 2022, plunged to a low of $158,000 by March 31 – and insiders say it is likely to be even lower today as the association grapples with the cost of hosting the three-day Cairns convention.

The FCA’s total net assets were deficient by $405,000 at the end of March. The company did not have any borrowings and was keeping up with paying its suppliers.

Its total wages and salaries expenses soared more than 120 per cent in one year (from $600,000 to $1.3 million), while travel and accommodation expenses nearly doubled in that period (from $55,000 to $95,000).

It managed to raise $50,000 from new members in the first nine months of the financial year, falling well below its target of $340,000. The chief financial officer noted their new system would reflect new memberships.

“Currently, the team is monitoring cash flow weekly to ensure the FCA can meet its commitments and current payroll and on-costs,” the chief financial officer said in a statement to the board at its April meeting, according to leaked documents.

“The company is working on commercialising education and other revenue streams, controlling expenses and implementing cost-cutting measures to improve profitability. It is recommended that the board consider the company applying for a form of lending to help with cash flow and timing of revenue v expenses.”

The chairman, Brendan Green, is also being paid a $55,000 stipend for the first time in the FCA’s history, according to the financial reports and a contract seen by this masthead.

The organisation’s financial burden is so great that the FCA considered increasing membership fees by more than 60 per cent before settling on a smaller increase following a backlash.

However, this masthead can reveal the board is deciding whether to increase the cost of the prestigious Certified Franchising Executive program.

Under the current pricing model, member candidates pay $595, and non-members pay $990. The FCA is required to pay the International Franchise Association a licence agreement fee of $US135 ($200) per candidate, but the FCA says this model is no longer financially sustainable.

The board is considering increasing the fees by 60 per cent. FCA members would be required to pay $957.50, while non-members would be slugged with $1536.50, according to the March board report.

Leaked internal documents show staff raised “concerns regarding IFA registration and payment” because the FCA had not been paying its licensing fees to the IFA as required.

“Uncertainty exists regarding registration and payment processes with the IFA,” a leaked internal report states.

“Payment discrepancies have been discovered, indicating potential outstanding fees owed to the IFA.”

‘Never saw it coming’

Cracks began to emerge in May 2023, according to a dozen people who spoke to this masthead on the condition of anonymity, not long after the FCA board appointed Matthew Monaghan as chief executive.

It was a decision the board has now come to regret.

Without naming him, board chair Brendan Green effectively admitted that Monaghan’s appointment was a mistake. He said the board last year was looking for a chief executive with experience in advocacy and politics to steer the FCA as the federal government embarked on a review of the franchising code of conduct.

“Fast forward to now, we’ve got a change at the helm, and I’ve had a lot of feedback coming through whether the appointment was the right one,” Green said in an update to members ahead of the National Franchising Convention.

“Probably with the benefit of the hindsight lens, we could have made a different choice.”

Monaghan has a long CV. But his tenures helming organisations are very short.

In 2017, he headed the Australian College of Nurse Practitioners for a year, then moved to Dogs Victoria for another year, Chiropractic Australia for one year and four months, and finally, to the FCA, where he lasted for less than a year.

He landed the role after the FCA awarded business consultancy group BDC Partners’ talent acquisition team a contract to find the association a new chief executive. FCA board director Tanya Robertson is the chief executive of BDC’s franchise strategy and was also on the FCA’s chief executive recruitment panel.

In a statement, the FCA said the recruitment process was conducted with full diligence, and it had engaged two recruitment firms, one of them BDC, on a non-exclusive basis as was “standard practice”. It said Robertson was not part of the BDC talent acquisition team, which is a separate part of the business that conducted the chief executive search.

But soon after Monaghan joined the small team of about seven people, complaints were raised. The FCA confirmed two formal complaints were made to the board about Monaghan, and three sources said Monaghan left the FCA in April after the second complaint triggered an investigation.

“The FCA board has taken prompt action in relation to two workplace complaints made to it over the past year and to satisfy itself that there is an appropriate workplace culture and environment at the FCA office,” the board said in a statement to this masthead.

Former FCA chief executive Matthew Monaghan. Credit: LinkedIn

Former staff and member businesses expressed concern about Monaghan’s leadership. They said that, in their experience, he was reluctant to make decisions, stymied staff, and set unreasonable expectations that put intense pressure on employees.

Two staff members told this masthead they were slowly stripped of their responsibilities, and one made a formal complaint to the FCA in August that their role changed without real explanation, adding to their anxiety about the security of their position.

Staff turnover was high, and the number of people lawfully dismissed during their probationary period put staff on edge.

“You just never saw it coming,” one person said. “Stress was high, productivity and turnover was high because we were constantly working. There was just constant pressure.”

In a statement, Monaghan said any allegations that he oversaw a toxic workplace were “inaccurate and nonfactual” and that the association had the “systems and processes in place to address such allegations.”

Monaghan said the board had endorsed the budget, which included transitioning from an “outsourced model”, and said claims travel costs had nearly doubled were “grossly non-factual”.

“All steps and processes have been documented,” Monaghan said in a statement. “FCA uses an HRM system to ensure compliance [HR Central] meetings minuted as standard practice through a governance system [Board-Pro] and external HR advice sought during [the] transitional period.”

The board and Monaghan were repeatedly warned about the dismal state of the accounts and that the FCA needed to increase membership revenue. In his final report to the board in February, the former chief financial officer reiterated his concerns the FCA was not hitting its membership targets.

He noted the “budget deficiencies are related to revenue targets not being obtained”.

Board papers show the FCA had budgeted to rake in $16,000 from new members in December but collected only $6000. It also expected to raise $28,000 from partnerships but fell short. On expenses, it had anticipated it would not spend any money on consultants but ended up spending $9000.

“New membership revenue is still coming in under budget and is an area that will need to be monitored closely to ensure forecasted budget targets are feasible and achievable,” the report stated. “If these targets are not met, the organisation will deliver a sizeable loss for the financial year.”

In response, Monaghan told this masthead those claims were “inaccurate”. “At that time, new membership categories had not been launched, and collection of outstanding membership dues had not been concluded, however now have,” he said.

After handing in the report to the board, the chief financial officer, who was a contractor, quit and told Monaghan the terms of his contract were not being met.

“I am not being provided with what was agreed, and the scope creep has become significant,” he said in a leaked email seen by this masthead.

“I am not satisfied that on an ongoing basis, I will be provided with the information and detail I require to fulfil my role within my allocated budget … I have little to no control over the spending decisions, and I am not prepared to be held responsible for these spending decisions.”

Under pressure

He wasn’t the only one concerned about being able to fulfil their duties.

Three weeks after Monaghan started, one staff member, feeling under intense pressure, started documenting her experiences. She wanted a paper trail in case things got worse.

“I have decided to start noting down what is going on at work because I am worried about the behaviour Matthew is demonstrating, and I don’t want to be blamed when the projects I’m working on blow out,” she wrote on May 25 last year, according to her contemporaneous notes.

She wrote about Monaghan excluding her from decisions that affected her, the role ambiguity causing her stress and fear of redundancy, and witnessing other staff crying because they were under “so much pressure”.

In August, she formally raised her complaint with Green, who said her claims would be investigated. More than a week later, an external human resources company was appointed to investigate the allegations.

Almost two weeks later, when a senior executive was dismissed, she said she became so paranoid about losing her job that she decided to escalate her claim to WorkSafe.

On October 6, 2023, almost two months after the FCA launched an investigation and exactly a month after WorkSafe began its probe, she received an email from the HR company advising her allegations had not been upheld.

Hours later, WorkSafe informed her that her claim had been approved. Other than her manager, she said, no one from the board or organisation followed up on her welfare.

“The WorkSafe investigation was tough, draining, it wasn’t easy,” she said. “I had bad anxiety, panic attacks. I had two panic attacks over Christmas. I had self-doubt and turned it all on myself. I’d never felt so powerless in my life.”

In a statement, Monaghan said the WorkSafe “matter is in process and is confidential”.

FCA chair Brendan Green and interim chief executive Tanya Robertson. Credit: LinkedIn

At a senior managers’ meeting in early March, one staff member tearily asked Monaghan whether their jobs were safe.

“Are these roles secure … I can’t handle all the changes all the time,” the senior manager said, according to sources present at the meeting. “I’m so overwhelmed with the amount of work on my shoulders, and if I don’t deliver, my impression right now is, ‘I’m done’ because that’s what happens to everyone, so that’s where I’m concerned.”

Monaghan replied their roles were “most definitely” safe and that he would “take on board” the manager’s feedback.

“It was very easy to get a job at FCA, and even easier to lose it,” one former staff member says. “There was a revolving joke among staff about who’s next, who’s going to be next.”

In March, after Monaghan dismissed a staff member with one day left on their probation, the former employee made a complaint to the board, alleging “unconscionable management practices”, including a toxic workplace culture.

An external legal firm investigated the allegations. Three weeks later, the FCA announced that Monaghan had left for “personal reasons” and that Tanya Robertson had been appointed as interim chief executive.

Those who were at the office on Monaghan’s last day of work say there was no indication that would be the end of his reign. Green and Robertson came to the Victoria Street office and had a brief meeting with Monaghan, who was then escorted from the building while Green cleaned out his office.

It was an abrupt end to what people have described as a sad and bizarre chapter, but those remaining and those watching from afar have now turned their sights on the board, wondering what steps, if any, they took to ensure the ongoing viability of the 42-year-old organisation.

Members are questioning whether Monaghan was ever right for the job if, as Green said last week, the board was looking for someone with political and advocacy skills.

One former staff member said Monaghan had tasked him with judging the prestigious franchising awards handed out at this year’s National Franchising Convention, which are ordinarily judged by three industry peers and audited independently. At least eight of the entries were judged by only two people – the staff member and one franchisor.

Compass, the landlord of the FCA’s former Collins Street office, has now launched legal action against the FCA, seeking a further $65,000, according to leaked documents. After Monaghan joined the FCA, he cancelled the lease at the serviced office to move to premises on Victoria Street.

In a statement, Compass Australian manager Andrew Rothstadt said they were seeking to be “compensated for damages as a result of the breach of contract, less any unmitigated amounts and redistribution costs, plus interest and filing fees”. The FCA said it was confident it could successfully defend against Compass’ claim.

Robertson, who has been appointed as interim chief executive, is being paid $690 a day but has retained her position at BDC and has been conducting BDC-related work, including a weekly catch-up with BDC Partners chief executive Bruce McFarlane.

In accepting Green’s offer to serve as interim chief executive, Robertson said her daily rate was $690, equivalent to about $180,000 a year. She said that was based on five days a week and ideally would be reduced to four days once she had an opportunity to review what was required to ensure a smooth transition.

The FCA said Robertson had stepped into the role with “full knowledge and approval from the board” that she continued her role at the BDC on a part-time basis.

She has gone on a cost-cutting spree, and staff are bracing for job cuts, but one question lingered at the National Franchising Convention: how does the FCA survive after the past 12 months?

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