EARLY RESULTS OF OUR recent study on how companies perform across different aspects of the JV dealmaking process has revealed fairly pedestrian performance all around, with critical gaps across key functions within core JV transaction workstreams. With respect to financial modeling, for example, we find that companies struggle to create a dynamic model of what we call “Total Venture Economics.” And since a complete picture of Total Venture Economics is needed to dynamically and deeply inform negotiations regarding partner contributions, JV valuation, service pricing, and other economically driven deal terms, it is no surprise that the dealmakers we surveyed also reported dissatisfaction with their ability to structure those terms – especially those related to partner contributions to the JV (Exhibit 1).Read More
IT MAY BE AS DRY AS unbuttered toast but chew on this: Experienced JV CEOs use a variety of seemingly mundane pre-, post-, and within-Board meeting techniques to drive real, rather than perceived, alignment across their ventures. Our research has consistently shown that misalignment – whether among the owners, between the owners and management, or even within one owner company – is the single largest challenge facing joint ventures.
Every year, Water Street Partners hosts a JV CEO Roundtable in Washington DC. In our most recent roundtable, the discussion turned to how JV CEOs structure and manage Board conversations to foster alignment. That conversation unearthed three subtle practices that hold potentially broad relevance: the use of Board concurrence rather than approval, post-meeting memos, and the restructuring of JV Board agendas to drive alignment.
TENS OF MILLIONS of people are employed in joint venture companies around the world. In many cases, these ventures are partly-owned by large national and international companies. Today, Siemens, IBM, Royal Dutch Shell, General Motors, Airbus, and Nestle each have ownership interests in joint venture companies that employ tens of thousands of people. Typically, a tiny fraction of staff are seconded, or loaned, employees from one of the shareholders, while the vast majority are direct employees of the joint venture company.
Are shareholders doing enough to steward these employees – using their considerable scope, capabilities, networks, and development opportunities to enhance the level of engagement and employee value proposition of those directly employed by joint ventures?
In our experience, the answer is no.
ONE OF THE ENDURING tenets of good joint venture governance is the central importance of getting true decision makers from each shareholder in the same room, talking directly to each other. In many JVs, however, the actual decision makers are too senior, too busy, or otherwise unwilling to serve on the JV Board or equivalent body. As one European aerospace executive put it: “I don’t have the time – or the interest – to fly halfway around the world once per quarter to attend a day-long Board meeting spent reviewing budgets, plans, and operational performance.”
It’s a fair point.
But when the true decisions makers operate outside the governance structure, bad things can happen. Decisions are delayed. Misalignments fester. Issues are not raised, and management is surprised. And Board members feel disempowered and not accountable for outcomes. One JV Director summed up his governance context this way: “We operate
in an Oz-like environment, where our business unit president is the Wizard, making all our decisions from behind a curtain.”
HUNDREDS OF companies across scores of countries have formed three or more new joint ventures in the last decade (Exhibit 1). The JV portfolios of some of these companies like ExxonMobil, DowDupont, and Vodafone – are enormous, representing a material portion of the company’s assets, revenue, or income. But in other companies such as Renault, Alcatel-Lucent, and Amyris, the portfolios are much smaller, often containing no more than 3 to 15 JVs. Not only are these portfolios small, but they are often a motley lot – with individual ventures scattered around the world, scoped and structured in very different ways, and governed on a one-off basis by local business unit leaders (Exhibit 2).
How should such a company think about small JV portfolio governance?Read More
BECAUSE MANY JVs are closely related to – or even directly connected with – parent company businesses, opportunities often emerge for the JV to create value by working with the parents in new and uneven ways. This might mean developing new products, functionality, or technologies favored by one parent. It might mean allowing the JV to enter markets where one parent company already has a competitive presence. It might mean having the JV consolidate certain functions or
assets with one parent company in order to reduce costs or avoid future capital investments (Exhibit 1).