AT WATER STREET, we believe that in order to succeed at joint venture governance, JV boards must focus on getting seven things “right.” As the sixth part in an eight part series, we turn our focus to the right information flows between the board and the JV management team. This insight illustrates the challenges associated with information flows in JVs and introduces a successful strategy to ensure alignment on key initiatives and proliferation of information.
RIGHT INFORMATION FLOWS
All boards need the right information – at the right time and in the right format – to do their jobs. Corporate boards are prone to information overload, often sitting at the receiving end of thick books of board materials, and JV boards often suffer from these ills too.
But JV boards and management teams are vulnerable to additional challenges, which stem from JV directors’ unique access to and appetite for information. Because of the connections between the JV and the parent companies, JV board Directors and the shareholders that appointed them often want daily, weekly, or monthly operational data, or want the JV to respond quickly to one-off queries. Requests for information may come from many sources in the shareholding companies and may require information to be provided in different formats and at different times, driven by the fiscal years and planning cycles of the parent companies. As one shareholder company manager said: “We own 50 percent of the company. We should get whatever information we want whenever we want it.”
Meeting the parent companies’ appetite for information can impose a “JV governance tax” of as much as 35 percent of the time of the JV management team. Equally important, managing these information flows can burden the board and increase oversight costs for parent companies without improving joint venture performance.
How can JV directors and CEOs ensure that the board and others within the shareholder companies are getting the right information while avoiding the distraction and extra costs of excessive shareholder requests?
The key, in well-managed JVs, is that boards and CEOs proactively set expectations and ground-rules for information sharing. To do this, an industrial sector JV in Latin America developed an “Information Register” – that is, a board-approved list of what information would be provided to the shareholders at what intervals and levels of depth. The board also developed and communicated a set of ground rules for information requests, including the principle that all requests would be channeled through the board director and a single JV asset manager, and that all information sent by the JV would be sent equally to both parent companies.
A large Australian energy JV took a different approach aimed at the same goal. Rather than creating an information register, the board focused on a Standard Monthly Operating Report. The board told a dozen senior managers from their organizations – including the JV asset managers from each company plus key finance, commercial, and operational staff – to lock themselves in a room with JV management and agree on a detailed monthly reporting format. “These were sleeves-rolled-up sessions,” one asset manager told us. “The idea was to put each of the three shareholders’ reporting wants on the table, to challenge each other as to whether this information was necessary to govern the venture, and to show examples of data formats from other operations. We needed to show management what we wanted – and to hash out differences between the shareholders.” The output was a detailed template for the Standard Monthly Operating Report – including a table of contents, key charts, calculation methodologies, and reporting format. According to the JV’s CFO, “That act alone reduced one-off requests by 90 percent.”
In addition to managing information flows to the board, JV directors also need to ensure the right information is flowing from the board to operational level managers within the parent companies who interact with the JV – for instance on product strategy, operating performance, customer support, or regulatory affairs. Otherwise, as one JV CEO said, “we had a great board meeting – the problem is that no one in the parent knew what was decided, so it was an uphill battle to get the support we needed to deliver on the strategy.”
A simple tool to accomplish this is a “Board Communiqué.” This is a 1 to 3 page memo from the board – typically drafted by the Chair or CEO and reviewed by one board member from each owner. The communiqué summarizes, in plain, non-legal language, decisions on board priorities and key action items. It is circulated within two weeks of the board meetings to parent company CEOs, executive teams, and operational staff who are involved with the JV. The communiqué helps ensure two things: everyone is aligned on what was agreed upon and what needs to happen next, and those who need to know what came out of the board meeting are informed. Obviously, it is best if this communiqué is the same across all the parent companies.