FRANCHISEAND DISTRIBUTION

. MANAGEMENT
M&As and
the Audit of
Management
Practices
Jean J. Bourret
Bourret RateIIe Dupuis
Franchising, as well as every other busi-
ness activity, has been hit low and hard by the
economy's new wave of market rationalization
and mergers and acquisitions spree.
This global market phenomenon more
felt in this new fad of "bigger is better" and
industrial strength corporate megalomania.
Not to complain where consultants are. abun-
dantly put to contribution for preventative
professional services. such .the Of
increasingly pervasive due dIlIgence In every
single aspect of targeted org.anizations.
Unfortunately, though, while due diligence
check-lists and methods keep growing in
complexity and effectiveness in fields of
accounting and the law, there eXIst but very
few useful tools to scrutinize, let alone assess,
the gap separating these two: the actual
practices. ofrnanagement. fact, are t.here any
reliable tools that can yIeld practIcal and
systematic results that will explain failing
management
crepancies based on obJectIve evaluatIon crIte-
ria and, at the same time, allow for a definite
set of corrective measures which are generally
accepted?
The answer is yes. And this new rev-
olutionary tool is the high ground of a new
breed of consultants: the Registered Experts
in Franchising ("R.E.F."). These management
professionals, are members of the Quebec
Order of Chartered Administrators, itself a
professional corporation created and mon-
itored under this province's Code of Pro-
fessions.
This professional practice is called the
Opinion of Sound Management Practices and
consists of a strict analysis and audit of an
organization, based on a series of norms that
448
are both objective. and day.t?
day management. This three.dlme,nslOnal gnd
uses a combination of sound management
principles, management basic activities and
the targeted level of operation or function to
derive a clear picture which highlights the
existence or absence of proper administrative
concerns that. must be addressed in order for
the organization to perform adequately..
these are objectively assessed, no \subJectlve
opinion may interfere with the process and the
result cannot reflect any opinion on anyone's
right or wro
l1
g style. rather
.single out the practices that must be
or provided to' the organIzatIon s
functionalities. .
While the certified expresses
the conformity or lack thereof as to the gen-
erallyaccepted sound management principles
("GASMP"), the analysis report (or dtle dil-
igence process)shoVf;S the
photographic evaluati?n of.the ?rgant.zatlOn.
This may then yield for bus-
iness process reengineering or improvement. It
also serves as a. powyrful tool in measuring
precisely and the .
aspects of the adequacy and opportttnlty for
merging or acquiring this organization.
To better grasp the gist of this new
method, let us .look at the three components
which are combined to establish the objective
norms (codified in the sound management
practices of sound
the principles of sound management, man-
agement basic process and the targeted level
of o.peration or function.
Principles of Sound Management
The management principles and
which are defined therefrom form the baSIS
and the pre-requisites of sound management in
businesses and organizations. Transparency,
continuity, efficiency, balance,' fairness and
abnegation are values that serve as
models aIld ideals for the manager when
exercising his functions. Sou,nd management
is no more and no less than the generally
accepted notion of managing as a "reasonable
and pnldent person," enriched with principles
that take into consideration the modern tools
and circumstances of administratiotl.
1
1 BRAULT, COUTU, OSTIGUY', Guide de la saine
gestion des entreprises et des organisations, Montreal,
Quebec Order of Chartered Administrators, 1992.
About Transparency
Transparency. is. th.e qua!ity of. what
presents the reality In Its
alteration or bias. No other IS more
virtuous than the transparency of an ad-
ministrative action taken by a manager who
exercises a power on behalf of someone fr0t?
whom such. power originates. The one who IS
vested with a power must render account of
his actions to his originator.
Essentially, it can be said that a manager
must render ,account of hisadrninistration;
whether to his principal or to a person or a
group designated by such principal" for
example: to a board Of direct?rs, to s.uper-
visory committee, or to an audItor. WIthIn.the
limits permitted by the principal who sufrers
no prejudice, the manager must also act a
ttansparent way with third parties. or
subordinates who ,may be affected by hIS
actions. ,-transparency, therefore, impliesmak..
ing information available to third, J?art!es,
including members of one's own organIzatIon,
to ensure sound management.
About Continuity
Continuity is a Characteristic of \vhat
allows the administration not to be
in time. Continuity implies the obligation by
the representative to the
all powers and of all that IS. for
exercising the powers vested In hIm. The
organization must
it. The receIves, ImphcItly or, eK-
plicitly, a mandate to ma!1age [or .a gIven
period of time, thIS.peno.d IS. deter-
mined or expires WIth or agaInst hIS WIll,. the
lllanager must take all the measures he.
necessary, or those that are proposed to hIm,
from time to time during his mandate, to
ensure sound management whatever the ad-
ministrative level of which he is responsible.
Upon the expiry of his mandate,. the
manager must offer as. much as possible, with
diligence and, good faith, his
his co-operation for the'transfer of InformatIon
necessary to the transition of ppwers. The
manager, aware of the principle of continuity,
will not act in bad faith, n01' uphOld at any
time information or doculnents, nor create any
illicit situation which would make impossible
his dismissal or the termination of his mandate
without causing severe prejudice to the
FRANCHISEAND DISTRIBUTION
mandators or to the organization. In order to
ensure .continuity in his administration, the
manager must: prepare his files, keep
memos, minutes, and reports of workIng
committee or others" and make sure th:at the
same are transferred. Hel1lust also make sure
that his main assistants and subordinates know
the ropes of the. administration of which he is
responsible. '
About Efficiency
Efficiency is a quality.whieh the
characteristics of. effectiveness, WhICh are the
achievement of result's, and' the economy ,of
resources, in the administrative. action. A
manager is efficient if he achieves optimal
return while maintaining minimal 'utilization
of resources. The manager, aware that every
resource is limited, must systematically be
concerned with efficiency in exercising his
fu,nctions with diligence, and to' the' best, of
his knowledge, make minimum of
resources which have been vested WIth hIm In
, order to' optimiz'e the achievement of anti -
cipated results.
The blatant absence of such a systematic
search for an economy of resources cqnstitutes
negligence; a fault which to
the principals, who have entrusted In.hls care
the tnanagelnent of their resOurces. Moreover,
the efficient utilization of resources must not
be done at the.e'xpense or the unwarranted
prejudice of third parties, or subord,inate, for
example, the quality of ,life or.
of the environment. effICIent IS an
essential quality, ,of' the manager. Efficiency
and thrift are attributes of sound management.
About Balance
Balance is a form of stability springing
from a fairprop()rtion between opposite forces
and ideas. HarmQny is a ,result of balance and
it contributes to sound management of bus-
inesses. A manager demonstrates his balance,
in exercising his powers, through the fair
choice of the means made available to him and
of the actions which he must take to achieve
his objectives or. anticipated results. The man-
also demons!rates.h.is
faIr and dynamIC utIlIzatIon of means In
relation with available resources, constraints
and, limits, within an environmental situation
in constant evolution.
449
FRANCHISE AND DISTRIBUTION
Basically, to ensure sound management,
the manager must avoid the mismatch between
means and results.
About Fairness
Fairness is the characteristic of' what is
fundamentally fair. Basic principles exist
which must 'govern every action thata person
undertakes or makes. These principles imply
and produce effects toward other persons.
Many applications are enshrined within our
Charter of Rights and must serve as a rule of
cOndtlct to every manager toward someone
else in every situation to ensure a quality of
sound management to the organization or to
thebtlsiness as 'well as 'prevent the abusive or
arbitrary exercise of power.
About Abnegation
Abnegation is the rationale of a person
who foregoes, in favor of the organization,
any personal advantage or interest other than
that which has been contractually or explicitly
granted to her in the performance of her man-
agerial' functions. To ensure SOtlnd manage-
ment in performing his functions, 'a manager
must subordinate his interests and devote
himself to safekeeping 'the organization's
patrimony.
The manager may not, therefore, place
himself in a situation of potential or real con-
flict between his own interests and those of the
organization which he has to manage.
Now these principles must not 'remain
static wishful thinking, and the audit of sound
management 'factors them into the actual
functions of management which have tradi-
tionally been segmented into planning, orga-
nizing, .directing, controlling and co-ordi-
nating. This combination has yielded a series
of norms that enable the exact measuring of
the practice of sound management.
2
Let us
review such management functions to better
appreciate the 'value, of practice combinations
in their context.
Traditional Management
Functions Planning
In the context of sound management, plan-
ning is meant to cOver all actions or inactions
2 BRAULT, Bernard, Exercer la Saine Gestion, Theorie
appliquee aI' audit de saine gestion, Publications CCfI
Ltee, 1999.
450
aiming for anticipating events, scenario evalu-
ation, impact analysis and risk appraisal. The
manager is expected to ensure planning as
soon as any administrative process is trig-
gered. He must raise hypotheses that are well-
supported to demonstrate their likelihood.
Organizing
Organizing means all actions Of inactions
aiming, without limitation, at the fulfillment of
objectives by mobilizing human, financial and
asset-based resources, by setting in place
proper structures, by conceiving of means and
Inethodsand by delegating and attributing the
power to decide. "
Directing
Directing covers all actions or .inactions
aiming, without limitation, at the achievement
of objectives through decision making. The
making of decisions found throughout the
process of management. It is expressed in the
administrative act which manifests the intent
and will to use the means required to reach
such objectives. directing is, to
decide in behalf of the organization the course
of actions and set in motion the coherent (the
conceptbf unit of command) combination of
resources and skills.
The function of decision making also
entails the appreciation of risk and the use of
prudence in analyzing the negative conse-
quenceswhile seeking to protect the p'atri-
mony of the organization. Both imply step-
back reflection and consulting or seeking
advice where needed.
Controlling
Cotltrolling encompasses all actions or
inactions aiming, without limitatio:tl, at evalu-
ating the actions taken in view of the objec-
tives, procedures fOr detecting 'discrepancies
and measures adopted to protect the patrimony
of the organization. It ensures the proper
operation of the organization, the respect of
directions and schedules. It is also' the
measuring of results and performance of the
organization and its management. The man-
ager is expected to set controls as soon as any
administrative process is triggered.
Co-ordinating
Co-ordinating is all those actions and
inactions aim.ing, without limitation, to syn~
chronize activities of persons or groups of
persons, or operational fllnctionalities of the
organization. It is the way of harmonizing
certain elements to synchronize the efforts and
the use of theorg.anization's resources in order
to achieve its goals.
While these principles and functions of
SOllnd management yield a grid of aminimum
of thirty combinations (in addition to the,
essential norms that stem from each one of
those "pure" concepts on its own), the real
value of this methodology lies in the "cubic"
approach of the audit when applied, in turn,
to the various departments or levels of the
organization: that of, for instance, the depart-
ment of research and development, .the divi-
sional manufacturing plant, the top-brass
general management, line versus staff, etc.
"The professional program further ad-
dresses certain domains of economic activity
that experience specific realities of their own,
such as the environlnent or, more to the.point
in this publication, that of franchising and
related businesses.
Franchising is the object of a chapter
which highlights and articulates the flavour of
four additional and complementary manage-
ment sub-principles: partnering, primacy of
the network, uniformity and viability. In
further elaboratitlg on such principles, already
well known and assumed by specialist
FRANCHISEAND DISTRIBUTION
practitioners of this field, the symbiotic de-
.velopmentOf the two-sided reality and am-
bivalence of franchising- (franchisor-fran-
chisee, push-pull, us-versus-them relationship)
is tlsed to impose upon the' manager an ex..
peeted code of conduct that takes into account
his responsibility' for sound and mature
measurement indefiy:ing what constitutes the
organization and in setting its goals, objectives
and end-results.
The methodology developed by the
Quebec Order . of Chartered Administrators
sets a rigorous and,thorough assessment of
the management practices together- with the
format and precise potential conclusions of the
report of analysis, as well a:sthe written
expression of the professional opinion itself.
These will factor in elements of context,
culture, mission and stakes of the organization
which mellow and damper the mathematical
abrasiveness of the t:esu1ts.. The .diagnosis is,
therefore, Inore.palatable and compatible with
the very people respc;>nsible for implementing
the series of recommendations that are natur-
ally drawn out of t h i ~ whole process.
And there lies the sheer advantage or
proceeding to this exercise of due diligence in
conte'mplatin.g either a merger Or an acqui.;.
sition: here is finally. an in-depth menu .of
measures which should be taken to enhance,
improve upon, if not squarely correct, the
weaknesses or soft spots of the organization's
management. Not in terms of individuals but,
rather, of effectiveness and completeness. In
short, the audit of sound management prac-
tices is a new\tool worth discovering.