Critical Conversations in JVs: What’s Your State of Readiness?

   
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Capital Call_opt (1).jpgIF YOU’RE A JV CEO, you have a series of interactions with your owners across the course of the year. Some are planned and formal – regular board and committee meetings, for instance. Others are informal – e-mails, one-off phone calls, and visits – to address specific issues or generally catch-up.

In most joint ventures, there is one meeting a year in which the CEO has the opportunity for a more strategic conversation with his or her owners – a chance to step back from the quarterly quizzing on financial and operating performance, and the press of recurring topics such as annual budgeting and compensation, to talk about and secure owner commitment on larger, more strategic issues that can fundamentally change the JV’s direction and performance.

We call this a critical conversation.

COMMON CHARACTERISTICS OF CRITICAL CONVERSATIONS

While every venture is different, the characteristics of these conversations share notable similarities. First, “big stuff” gets talked about – topics like long-term strategy, new product or market stepouts, a major investment or acquisition, a business model shift from being an owner-captive to a more market-facing entity, or a change in governance to enable more agility (Exhibit 1). Even seemingly routine topics, like the annual operating plan, can escalate into a critical conversation if major changes are being proposed. Second, the time horizon is longer than other conversations, usually three to nine months to navigate a path to owner agreement, followed by implementation over a period of at least that length. Third, the issues raised require the owners to actively engage, approve, and buy-in to a course that differs from the status quo. The aim is more than a head-nod or polite applause. Rather, success requires the JV Board Directors and the owner organizations to take action – e.g., provide funding, give management freer rein, or secure internal approvals to allow the venture to move in a new way. And fourth, because of the above, these conversations require a higher level of preparation by the JV CEO.


Exhibit 1: Critical Conversations in JVs – Example Topics

Exhibit 1 Critical Conversations Water Street Insight v2.png

JV CEOs also expose themselves to risks in advancing critical conversations. The matter may be sensitive. The owners may not be aligned. Changes may risk undermining current operations or bringing added work to the JV management team. Or the conversation may entail confronting the owners with underperformance of the business.

But the alternatives of not having the conversation, or not doing it well, are often worse. In our experience, while JV Boards may not say so explicitly, they look to the JV CEO to lead them as a group – and expect CEOs to align the owners through a fog of differing ideas and interests. The safe roads of avoidance or not pushing too hard will mean the venture can continue on for another year, but that the business has missed a key moment to unlock a new growth idea, make a needed investment, or address a fundamental issue with the business. And when this happens, the JV typically fails to move apace with market, business, and owner needs. And sooner or later, performance suffers and the CEOs job may be in peril.

Critical conversations are challenging. Our data shows 53% of JV CEOs struggle to secure alignment on a long-term strategy and evolution path for their venture, and 72% experience real difficulty in aligning their owners and board on the JV’s medium-term plan. And more than 70% of JV CEOs stay in the role for three years or less – often because they struggle with these critical conversations, and fail to meaningfully drive the business forward.


To see how ready your JV’s board and management team are, take this six question, 90 second survey >>