Franchise Records Management

• Author: Steven M. Goldman, H. Bret Lowell.
• Pages: 141-174

CHAPTER 3

Franchise Records Management

Charles B. Cannon, Jerry Lovejoy, and Ken Minami

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

What Are the Objectives of a Franchise Records Management Program?. . . . 143

Designing and Administering a Corporate Records Management Program. . . 145

Records Storage and Retrieval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

Paper Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

Electronic Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

Protecting and Safeguarding Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Records Retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

Typological Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

Functional Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

Length of Time to Retain Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

Administering a Records Retention Program . . . . . . . . . . . . . . . . . . . . . . . . . 160

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

Appendix 3-A: Design Checklist for a Records Management Program . . . . . . 166

Appendix 3-B: Sample Record Retention Schedule . . . . . . . . . . . . . . . . . . . . 169

Introduction

Various statutes obligate American companies to keep records of their business

activities. The Internal Revenue Code compels every business to generate and

retain tax records. The Securities Exchange Act requires that public companies

develop and preserve detailed corporate and financial records. The Immigration

Reform and Control Act forces American employers to obtain and preserve doc-

umentary evidence of their employees’ nationalities. Examples of other such

statutory record keeping requirements could fill an entire book.

Practical considerations also force companies to keep detailed records of

their activities. Manufacturers can develop reliable production schedules only by

knowing how many units they produced in the past and when customers wanted

those units delivered. Sales representatives can keep track of their customers’

buying habits only by developing customer profile databases. Franchise execu-

tives can determine which franchisees are complying with system standards

only by referring to Quality/Service/Cleanliness (QSC) reports and notes of field

141

representatives. People remember with their minds; corporations remember with

their file folders and computer records.

No company can survive without business records. Without records, Ameri-

can businesses would grow blind and lose their institutional memories. But a

company that continues to accumulate outdated, redundant and other unneces-

sary records can grow clumsy and sluggish. To be used effectively and reliably,

records must not only be created, they must also be managed properly.

A recent study led by Pitney Bowes Inc.1demonstrates one reason why

proper records management is imperative. The study examined the communica-

tions techniques that employees of America’s Fortune 1000 companies use and

found that these companies are approaching a communications gridlock. As

employees rely increasingly on electronic communications technology, such as

e-mail, intranets, and the Internet, they are not abandoning traditional paper-

based ways of communicating. Rather than replacing the older methods with

electronic means, employees are “bundling” electronic tools with paper-based

media to ensure that messages get through.

The Pitney Bowes study was designed to determine whether a trend toward

“paperless” communications is actually evolving and does not directly assess the

stress that employee behavior is placing on records management. However, sev-

eral implications from the study’s conclusions are inescapable. In addition to cre-

ating an increasing volume of messages, these tendencies are creating more types

of records with which corporate America must contend. As bundles of paper and

electronic communicates proliferate, the logistics of storing, retrieving, and index-

ing these records grow enormously complex. Further, tracking these records to

ensure that they are properly preserved and purged becomes increasingly com-

plicated and tedious. To avoid gridlock in records management, corporate exec-

utives must continually monitor the type and volume of records their companies

are creating and commit themselves to maintaining effective records manage-

ment programs.

Records management programs vary widely in complexity and sophistica-

tion. Start-up companies usually depend on relatively simple arrangements;

most use metal file cabinets for document storage and personal computers to

store accounting records and databases. A mid-size company that is organized

into departments may create a separate file storage area for each department and

manage its file network through a manual or computer-based records retention

program. A multi-national corporation with many regional and local offices may

install a sophisticated computer network that serves both data storage and com-

munications functions and complements (if not overshadows) its hard-copy

records management system. A company’s size, organizational structure, and sen-

sitivity to record keeping issues all contribute to the type of records management

program it adopts. Conversely, a company’s records management system may

influence its organizational structure to the extent the system constrains, or lib-

erates, the way its departments access and share information.

Small companies often grow into mid-size organizations and beyond without

carefully planning and monitoring the evolution of their records management

142 The Franchise Law Compliance Manual

programs. Most survive without dire consequences. Missing receipts sometime

lead the IRS to disallow tax deductions; incomplete personnel records can result

in fines by the Immigration and Naturalization Service; and a misplaced letter

can undermine proof of a claim. These developments often prove frustrating and

financially painful, but sloppy records management rarely surfaces as a principal

cause of an enterprise’s collapse.

Although records management may never rival other concerns with which a

company must grapple in order to survive, timely attention to the logistics of

records storage, retrieval, and retention can significantly reduce overhead and

increase employee productivity. Companies with the foresight to include records

management in their strategic planning can make seamless transitions from one

growth phase to the next, while avoiding errors that waste corporate assets and

contribute to employee stress.

Safekeeping of essential contracts, correspondence, and financial records, and

sound administration of records retention policies lie at the heart of a records

management program. These functions entail significant legal considerations,

and many companies assign responsibility for the design and administration of

their records management programs to their legal departments. This chapter

examines the elements a comprehensive franchise records management program

should include and explores the issues a legal department should address when

chosen to serve as architect and gatekeeper of a franchise company’s records

management program.

What Are the Objectives of a Franchise

Records Management Program?

A comprehensive franchise records management program accomplishes four

objectives:

1. The program expedites access to files and records by employees who

need to use them.

For the sake of administrative efficiency, employees must be able to

find the files they need speedily and with a minimum of effort. File

rooms and file cabinets must be located conveniently to the people who

use them. File cabinets, and the files they contain, must be arranged in a

logical order. Otherwise, employees must commit too much detail to

memory in order to find the files they need. Employees must be able to

determine the location of files that others are using, so the program must

include a checkout system that is simple and easy to use.

A skillfully designed storage arrangement, coupled with user-friendly

indexing and checkout systems, can dramatically increase employee pro-

ductivity by eliminating wasted time; it can promote group harmony by

reducing the emotional stress associated with long, sometimes fruitless,

searches for misnamed or misplaced files.

Chapter 3 Franchise Records Management 143