Franchisors and Franchisees Alike Need to Worry About Data Privacy and Security

June 18, 2014

I’ve written in the past about the importance of protecting the confidential data of your customers and, that everyone in the franchise system—both franchisors and franchisees—face this risk together. Franchise Times has an article that talks about how safeguarding customer data is not just the duty of the franchisor but of each and every franchisee in the franchise system. I wanted to add just a few short comments in support of this insightful article.

The article does a terrific job illustrating that data privacy issues are a growing exposure that franchise systems should recognize and address. Recognizing that this is a risk to your brand is the first step. In this case you and your brand are at risk from the practices of whichever franchisees are doing the poorest job protecting the confidential data of your customers. The second step is to put together plan to address this risk across your franchise brand. I’ve written about this before in The Top Six Things Franchise Systems Should Learn From the Target Data Breach. 

Small businesses face increasing exposure from data privacy risks and, ultimately, entire franchise brands are exposed. If customer data is compromised at one franchise location the public is likely to believe it is a problem throughout that brand. It’s no different than a couple of years ago when a few burger chains had a problem with tainted beef. The issues were contained to a few locations, but the entire franchise system suffered a loss of revenue because the public perceived this as more than just a localized problem. The same is true, in this regard, for data privacy. If the public perceives that your brand does not handle data appropriately, business can suffer at all locations.

Data privacy risks are a significant vicarious liability exposure facing both franchisors and franchisees today. Both need to be aligned on and understand its importance and relevance to their business and work together to mitigate the risks. An experienced franchise insurance broker can help you tailor the right plan for your system that takes into account the specifics and details of your unique business model.