Kempczinski Says Laws and Regulations Could Stifle Entrepreneurship and Generational Wealth
McDonald’s CEO Chris Kempczinski believes in the life-transforming power of franchising but also fears that legislation and regulation may erode that power. Kempczinski shared his views regarding those topics and more in a rousing speech on Monday, Feb. 27, at the International Franchise Association’s 63rd Annual Convention in Las Vegas.
“Our franchisees not only provide delicious food to customers each day; they are relied upon by the communities in which they serve. We know that when franchisors and franchisees succeed, communities succeed. Local suppliers succeed. Families succeed. Our economy succeeds,” Kempczinski wrote on LinkedIn as an introduction to the text of his IFA talk.
“If franchise businesses were to go away, so too would opportunities for wealth generation for tens of thousands of underrepresented entrepreneurs, millions of jobs and billions in GDP.” Kempczinski told convention-goers that people often view McDonald’s restaurants in a corporate context and not as “a small business at work.” He stated that “of the nearly 40,000 McDonald’s restaurants around the world, 95% of them are owned and operated by independent local franchisees.”
Ray Kroc’s Legacy for McDonald’s
He tipped his hat to franchise founder Ray Kroc for that success, achieved by putting the customer at the center of a community-focused business. “Kroc saw the untapped potential of committing to passionate, local entrepreneurs by giving them the tools and resources to advance their businesses. And he understood his role as a franchisor was to create a structure and environment where they would succeed.”
Kempczinski said that vision has led to 2 million-plus people who work for and with the brand today. Their local roots prompt them to support kids’ sports teams, hold fundraisers for charities and help when disasters strike, he said. By way of example, he cites Clementina Garza, a New Mexico franchisee.
“Clementina owns and operates nine McDonald’s restaurants with her father, Julian in New Mexico.” She serves customers every day, “but her real passion is education. Under McDonald’s Archways to Opportunity program, Clementina supports and helps pay for employees to learn English or earn a high school diploma or college degree. She is working hard to pay it forward, to ensure her employees can bring their best selves to work and achieve their goals just as she was able to do… This is the economic multiplier effect of franchising in action.”
If franchising were a country, it would have a bigger economy than Norway or Austria or many other countries.
Other U.S. franchises, which number about 800,000, similarly multiply these positive effects and create nearly 8 million jobs. “Franchising provides an on-ramp to entrepreneurship and generational wealth,” and in particular lends a helping hand to underrepresented groups that can face greater barriers to pursuing their business dreams and giving back. Kempczinski said franchisees add nearly $500 billion to the U.S. economy every year.
“If franchising were a country, it would have a bigger economy than Norway or Austria or many other countries.”
Threats to Franchise Industry
So if franchises go away, “so too would opportunities for wealth-generation for tens of thousands of underrepresented entrepreneurs, millions of jobs and billions in GDP. We would lose a vital source of stability and prosperity. It would make us less dynamic, more unequal economically and hollow out our communities.”
And he warned “that our business model is under attack.”
Some of this comes from proposed regulations by the National Labor Relations Board, under pressure from unions, he said. “Such regulations would change [franchisees] from independent small business owners to employees of the parent brands. Franchisees would no longer have sole control over their business or employees – rather, they’d be a ‘joint employer’ with the franchisor.”
Kempczinski also mentioned two California concerns: 1) a pending bill that proposes joint liability for franchisors and franchisees in the fast-food business and 2) the FAST Act that targets franchise restaurants with more than 100 U.S. locations. The FAST Act, which passed the state legislature and will be voted on by residents in a 2024 referendum, creates an unelected council that can set various work rules, including pay and schedules.
He worries that other states may follow suit. “If you’re not paying attention to these pieces of legislation because you think they don’t impact you, think again. IFA has pointed out that if you change one simple word in the FAST Act, this policy could be applied to anyone in franchising, in any industry – whether you’re in pest control, auto repair, convenience stores or health clubs.”
Kempczinski went on to say that “McDonald’s supports legislation that creates an even playing field and applies to all industries and workers. That includes legislation that leads to meaningful improvements in our communities, including responsible increases to the minimum wage. But policies like what we are seeing in California have the potential to diminish power for all franchise owners – and vastly alter the communities in which we operate. “
A Call for Unity to Save Franchising
The threats to franchising are staggering, he said, and “the stakes have never been higher. Our future depends on each and every one of us in the franchising business to speak up, to speak out, and to step forward.”
All of us [must] take responsibility for our future and to be the best possible ambassadors we can be.
He called on franchises to evaluate their workplaces and undertake their own reforms while supporting responsible legislation. “All of us [must] take responsibility for our future and to be the best possible ambassadors we can be, to speak not just to other franchisees or franchisors, but to change-makers at the local or state level,” from lawmakers and regulatory boards to business advocacy groups.
“Ray Kroc always said that the real magic of McDonald’s was that ‘none of us is better than all of us.’ It is the sum total of our collective efforts that will allow us to create the best possible future for franchising so that owners like Clementina and so many more, can continue to serve their communities, to drive industries and to fuel our economy. It’s doing together what none of us can do on our own.”
He concluded by saying it’s “a fight we can win – together.”