bourret, j. j. (1999). m&as and the audit of management practices

8/4/2019 Bourret, J. J. (1999). M&as and the Audit of Management Practices

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FRANCHISEAND DISTRIBUTION

. MANAGEMENTM&As andthe Audit ofManagementPracticesJean J. BourretBourret RateIIe Dupuis

Franchising, as well as every other business activity, has been hit low and hard by theeconomy's new wave of market rationalizationand mergers and acquisitions s p e ~ d i n g . spree.This global market phenomenon l s e v e ~ morefelt in this new fad of "bigger is better" andindustrial strength corporate megalomania.Not to complainwhere consultants are. abundantly put to contribution for preventativeprofessional services. such a .the c o ~ d u c t Ofincreasingly pervasive due dIlIgence In everysingle aspectof targeted org.anizations.

Unfortunately, though, while due diligencecheck-lists and methods keep growing incomplexity and effectiveness in t ~ fields ofaccounting and the law, there eXIst but veryfew useful tools to scrutinize, let alone assess,the gap separating these two: the actualpractices. ofrnanagement. I fact, are t.here anyreliable tools that can yIeld practIcal andsystematic results that will explain failingmanagement p r a c t i c e ~ , . p ~ n p o i n t a c ~ u a l ~ i s crepancies based on obJectIve evaluatIon crIteria and, at the same time, allow for a definiteset of corrective measures which are generallyaccepted?

The answer is yes. And this new revolutionary tool is the high ground of a newbreed of consultants: the Registered Expertsin Franchising ("R.E.F."). These managementprofessionals, are members of the QuebecOrder of Chartered Administrators, itself aprofessional corporation created and monitored under this province's Code of Professions.This professional practice is called theOpinion of Sound Management Practices andconsists of a strict analysis and audit of anorganization, based on a series of norms that

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are both objective.and m e a s u ~ a b l e i ~ day.t?day management. This three.dlme,nslOnal gnduses a combination of sound managementprinciples, management basic activities andthe targeted level of operation or function toderive a clear picture which highlights theexistence or absence of proper administrativeconcerns that.must be addressed in order forthe organization to perform adequately .. S i ~ c ethese are objectively assessed, no \subJectlveopinion may interfere with the process and theresult cannot reflect any opinion on anyone'sright or wrol1g style. o ( r n ~ a g e m e n t , ~ . u t rather.single out the practices that must be l ~ p r ? v ~ dor provided to' s t r e n g ~ h e n the organIzatIon sfunctionalities. .

While the certified o p i ~ i o n expressesthe conformity or lack thereof as to the generallyaccepted sound management principles("GASMP"), the analysis report (or dtle diligence process)shoVf;S the d e t a i l e d ~ . a l ~ o s tphotographic evaluati?n of.the ?rgant.zatlOn.This may then yield . ~ o n s i d e r a t l o n s for business process reengineering or improvement. Italso serves as a. powyrful tool in measuringprecisely and a c c u r ~ t e l y . the . m a n a ~ ~ m e n taspects of the adequacy and opportttnlty formerging or acquiring this organization.

To better grasp the gist of this newmethod, let us .look at the three componentswhich are combined to establish the objectivenorms (codified in the sound managementpractices . ~ a n d b o o k ) of sound m ~ I 1 a g e r n e n t :the principles of sound management, management basic process and the targeted levelof o.peration or function.Principles of Sound Management

The management principles and n o r n ~ swhich are defined therefrom form the baSISand the pre-requisites of sound management inbusinesses and organizations. Transparency,continuity, efficiency, balance,'fairness andabnegation are values that ~ o s t serve asmodels aIld ideals for the manager whenexercising his functions. Sou,nd managementis no more and no less than the generallyaccepted notion of managing as a "reasonableand pnldent person," enriched with principlesthat take into consideration the modern toolsand circumstances of administratiotl. 11 BRAULT, COUTU, OSTIGUY', Guide de la sainegestion des entreprises et des organisations, Montreal,Quebec Order of Chartered Administrators, 1992.


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About TransparencyTransparency. is. th.e qua!ity of.whatpresents the reali ty In Its e n ~ I r ~ t y , ~ I t h o u talteration or bias. No other p r l n C l p l ~ IS morevirtuous than the transparency of an ad-ministrative action taken by amanager who

exercises a power on behalf of someone fr0t?whom such.power originates. The one who ISvested with a power must render account ofhis actions to his originator.Essentially, it can be said that amanagermust render ,account of hisadrninistration;whether to his principal or to a person or agroup designated by such principal" forexample: to a board Of direct?rs, to s.upervisory committee, or to an audItor. WIthIn.thelimits permitted by the principal who sufrersno prejudice, the manager must also act I at tansparent way with third parties. or w I ~ hsubordinates who ,may be affected by hISactions. ,-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 \vhatallows the administration not to be i n t e r t u p t ~ din time. Continuity implies the obligation bythe representative to e n s u r ~ the t r a ~ s f e r o fall powers and of all that IS. a ? c e s ~ I b l e forexercising the powers vested In hIm. Theorganization must s u r ~ i v e t ~ o s e : " , ~ b m ~ a n a g eit. The m a n a g ~ r receIves, ImphcItly or, eKplicitly, a mandate to ma!1age [o r .a gIvenperiod of time, W h ~ t h e r thIS .peno.d IS .determined or expires WIth or agaInst hIS WIll,. thelllanager must take all the measures he. f I ~ d snecessary, or those that are proposed to hIm,from time to time during his mandate, toensure sound management whatever the administrative level of which he is responsible.

Upon the expiry of his mandate,. themanager must offer as. much as possible, withdiligence and,good faith, his a v a i ! a b i l i t y ~ n dhis co-operation for the'transfer of InformatIonnecessary to the transition of ppwers. Themanager, aware of the principle of continuity,will not act in bad faith, n01' uphOld at anytime information or doculnents, nor create anyillicit situation which would make impossiblehis dismissal or the termination of his mandatewithout causing severe prejudice to the

FRANCHISE AND DISTRIBUTIONmandators or to the organization. In order toensure .continuity in his administration, themanager must: prepare his files, keep n o ~ e s ,memos, minutes, and reports of workIngcommittee or others" and make sure th:at thesame are transferred. Hel1lust also make surethat his main assistants and subordinates knowthe ropes of the. administration of which he isresponsible. 'About Efficiency

Efficiency is a quality.whieh c o ~ b i n e s ' thecharacteristics of. effectiveness, WhICh are theachievement of result's, and' the economy ,ofresources, in the administrative. action. Amanager is efficient if he achieves optimalreturn while maintaining minimal 'utilizationof resources. The manager, aware that everyresource is limited, must systematically beconcerned with efficiency in exercising hisfu,nctions with diligence, and to' the' best, ofhis knowledge, make minimum u s of ! h o ~ eresources which have been vested WIth hIm In, order to' optimiz'e the achievement of anticipated results.

The blatant absence of such a systematicsearch for an economy of resources cqnstitutesnegligence; a fault which c a u s e s p ~ e j u ~ i c e tothe principals, who have entrusted In.hls carethe tnanagelnent of their resOurces. Moreover,the efficient utilization of resources must notbe done at the.e'xpense or the unwarrantedprejudice of third parties, or subord,inate, forexample, the quali ty of ,life or . t ~ r e ~ p e c tof the environment. ~ e l n g effICIent IS anessential quality, ,of' the manager. Efficiencyand thrift are attributes of sound management.About Balance

Balance is a form of stability springingfrom a fairprop()rtion between opposite forcesand ideas. HarmQny is a ,result of balance andit contributes to sound management of businesses. A manager demonstrates his balance,in exercising his powers, through the fairchoice of the means made available to him andof the actions which he must take to achievehis objectives or.anticipated results. The mana g ~ r also demons!rates.h.is b ~ l a n c ~ t h r o u g h t ~ faIr and dynamIC utIl IzatIon of means Inrelation with available resources, constraintsand, limits, within an environmental situationin constant evolution.

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FRANCHISE AND DISTRIBUTIONBasically, to ensure sound management,the manager must avoid the mismatch betweenmeans and results.

About FairnessFairness is the characteristic of' what is

fundamentally fair. Basic principles existwhich must 'govern every action thata personundertakes or makes. These principles implyand produce effects toward other persons.Many applications are enshrined within ourCharter of Rights and must serve as a rule ofcOndtlct to every manager toward someoneelse in every situation to ensure a quality ofsound management to the organization or tothebtlsiness as 'well as 'prevent the abusive orarbitrary exercise of power.About Abnegation

Abnegation is the rationale of a personwho foregoes, in favor of the organization,any personal advantage or interest other thanthat which has been contractually or explicitlygranted to her in the performance of her managerial' functions. To ensure SOtlnd management in performing his functions, 'a managermust subordinate his interests and devotehimself to safekeeping 'the organization'spatrimony.The manager may not, therefore, placehimself in a situation of potential or real con

flict between his own interests and those of theorganization which he has to manage.Now these principles must not 'remainstatic wishful thinking, and the audit of soundmanagement 'factors them into the actualfunctions of management which have traditionally been segmented into planning, organizing, .directing, controlling and co-ordinating. This combination has yielded a seriesof norms that enable the exact measuring ofthe practice of sound management.2 Let usreview such management functions to better

appreciate the 'value, of practice combinationsin their context.Traditional ManagementFunctions Planning

In the context of sound management, planning is meant to cOver all actions or inactions2 BRAULT, Bernard, Exercer la Saine Gestion, Theorieappliquee a I'audit de saine gestion, Publications CCfILtee, 1999.450

aiming for anticipating events, scenario evaluation, impact analysis and risk appraisal. Themanager is expected to ensure planning assoon as any administrative process is triggered. He must raise hypotheses that are wellsupported to demonstrate their likelihood.OrganizingOrganizing means all actions Of inactionsaiming, without limitation, at the fulfillment ofobjectives by mobilizing human, financial andasset-based resources, by setting in placeproper structures, by conceiving of means andInethodsand by delegating and attributing thepower to decide. "Directing

Directing covers all actions or .inactionsaiming, without limitation, at the achievementof objectives through decision making. Themaking of decisions i s found throughout theprocess of management. It is expressed in theadministrative act which manifests the intentand will to use the means required to reachsuch objectives. T h e ~ e f o r e , directing is, todecide in behalf of the organization the courseof actions and set in motion the coherent (theconceptbf unit of command) combination ofresources and skills.

The function of decision making alsoentails the appreciation of risk and the use ofprudence in analyzing the negative consequenceswhile seeking to protect the p'atrimony of the organization. Both imply stepback reflection and consulting or seekingadvice where needed.Controlling

Cotltrolling encompasses all actions orinactions aiming, without limitatio:tl, at evaluating the actions taken in view of the objectives, procedures fOr detecting 'discrepanciesand measures adopted to protect the patrimonyof the organization. It ensures the properoperation of the organization, the respect ofdirections and schedules. It is also' themeasuring of results and performance of theorganization and its management. The manager is expected to set controls as soon as anyadministrative process is triggered.


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Co-ordinatingCo-ordinating is all those actions andinactions aim.ing, without limitation, to synchronize activities of persons or groups ofpersons, or operational fllnctionalities of theorganization. It is the way of harmonizing

certain elements to synchronize the efforts andthe use of theorg.anization's resources in orderto achieve its goals.While these principles and functions ofSOllnd management yield a grid of aminimum

of thirty combinations (in addition to the,essential norms that stem from each one ofthose "pure" concepts on its own), the realvalue of this methodology lies in the "cubic"approach of the audit when applied, in turn,to the various departments or levels of theorganization: that of, for instance, the department of research and development, .the divisional manufacturing plant, the top-brassgeneral management, line versus staff, etc.

"The professional program further addresses certain domains of economic activitythat experience specific realities of their own,such as the environlnent or, more to the.pointin this publication, that of franchising andrelated businesses.Franchising is the object of a chapterwhich highlights and articulates the flavour offour additional and complementary manage

ment sub-principles: partnering, primacy ofthe network, uniformity and viability. Infurther elaboratitlg on such principles, alreadywell known and assumed by specialist

FRANCHISE AND DISTRIBUTIONpractitioners of this field, the symbiotic de-.velopmentOf the two-sided reality and ambivalence of franchising- (franchisor-franchisee, push-pull, us-versus-them relationship)is tlsed to impose upon the'manager an ex ..peeted code of conduct that takes into accounthis responsibility' for sound and maturemeasurement indefiy:ing what constitutes theorganization and in setting its goals, objectivesand end-results.

The methodology developed by theQuebec Order. of Chartered Administratorssets a rigorous and,thorough assessment ofthe management practices together- with theformat and precise potential conclusions of thereport of analysis, as well a:sthe writtenexpression of the professional opinion itself.These will factor in elements of context,culture, mission and stakes of the organizationwhich mellow and damper the mathematicalabrasiveness of the t:esu1ts .. The .diagnosis is,therefore, Inore.palatable and compatible withthe very people respc;>nsible for implementingthe series of recommendations that are naturally drawn out of t h i ~ whole process.

And there lies the sheer advantage orproceeding to this exercise of due diligence inconte'mplatin.g either a merger Or an acqui.;.sition: here is finally. an in-depth menu .ofmeasures which should be taken to enhance,improve upon, if not squarely correct, theweaknesses or soft spots of the organization'smanagement. Not in terms of individuals but,rather, of effectiveness and completeness. Inshort, the audit of sound management practices is a new\tool worth discovering.

bourret, j. j. (1999). m&as and the audit of management practices

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