Improving the Performance of Your Joint Venture Committees

  

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Commentary from Oil & Gas Professional and former JV CEO, Eric Namtvedt, on his experience with JV Committees

Improving the Performance of Your Joint Venture CommitteesSKETCH OUT THE governance and organizational structure of a joint venture, and you’ll often find at least a few Board and other owner committees, sub-committees, and working teams operating in -between the Board, the shareholders, and joint venture management. Most are not classic Board committees but, rather, groups charged with performing narrow roles beyond the mandated functions of the Board and are mainly comprised of functional experts from the parent companies who do not sit on the JV’s Board.


Recently, Water Street Partners held a webinar outlining the common challenges associated with these committees and introducing best practices to improve their efficiency and effectiveness. We were joined by former JV CEO, Eric Namtvedt, who complemented Water Street’s best practices by providing real-world JV management experience. Eric has 38 years of experience in the international oil & gas industry, working with Mobil Oil, the Norwegian government, and several global E&C contractors and joint ventures. Most notably, Eric led the establishment of FloaTEC LLC, a deepwater JV between Keppel and McDermott, a world-class floating production system company, which delivered deepwater FEED and EPCI contracts in excess of $1 billion within its first 8 years of operations. Edited transcripts of the webinar remarks between Water Street panelists, Gerard Baynham and Molly Farber, and our guest speaker, Eric Namtvedt, follow.

Join us for a webinar discussion on August 4th on The JV Board Self-Assessment  >>

KEY COMMMITTEES TO CONSIDER PUTTING IN PLACE

  1. Finance, Audit and Risk Committee. The following responsibities fall under this committee’s purview:
    • Compliance and risk management (e.g., oversight of internal controls, coordination of external audit, monitoring capital discipline, ensuring legal/regulatory compliance)
    • Accounting policies and reporting (e.g., integrity of JV financial statements, optimization of tax, dividend, other financial policies)
    • Other, including establishing guidelines for non-financial reviews, assisting with project financing, recommendations on key plans
  2. HR, Talent, Compensation Committee. The following responsibities fall under this committee’s purview:
    • Compensation (e.g., JV CEO performance contract, development of compensation and incentive philosophy and framework for JV management, oversight of talent plan)
    • Nomination and evaluation of JV CEO, plus succession planning for JV management
    • Oversight of secondee-related policies and matters
    • Some oversight of owner company employees who support the JV (e.g., managing compliance training, securing access to necessary owner company experts)
  3. Governance Committee. The following responsibities fall under this committee’s purview:
    • Governance principles and policies (e.g., establishing governance guidelines, creating evaluation criteria for Board and individual Directors, developing Board Book or other on-boarding material)
    • Governance principles and policies (e.g., establishing governance guidelines, creating evaluation criteria for Board and individual Directors, developing Board Book or other on-boarding material)
    • Ongoing monitoring of governance health (e.g., assessing Board, committee, and Director performance, maintaining Board competency map)
  4. Strategy / Long-term Life of Field Committee. The following responsibities fall under this committee’s purview:
    • Strategic direction (e.g., making informed recommendations, evaluating industry trends, addressing competitive issues with owner companies)
    • Strategy process oversight and resourcing (e.g., overseeing processes and ensuring sufficient resources in place, potentially securing owner company resource commitments)
    • Business development (e.g., vetting initiatives proposed by JV management, evaluating new opportunities)


AD HOC COMMITTEES

Eric Namtvedt: I have to say that in my experience, committee formation has been more ad hoc than formal. Water Street has presented an ideal organization structure and has brought a lot of issues to the table. However, when a CEO is in the middle of a JV, and the Board has been formed, and he or she starts learning what operational experience the Board Members and JV Management Team members have, you begin to form committees and not necessarily formal ones. We established Water Street’s “must-have” committees such as the Audit and Compensation committees from the outset of the JV, but in my experience, the majority of committees are formed in an ad hoc manner because they are project-specific. For example, at FloaTEC, we signed a billion-dollar job with a major Brazilian petroleum company, and I can assure you that even before being allowed to take on that job we had formed ten different ad hoc committees with our parent companies related to legal matters, risk exposure, and parent company guarantees, in which the parent companies were all heavily involved. Not only were our parent companies part of executing the job with the JV’s combined resources, their involvement went beyond that, creating an inordinate governance tax on the JV by consuming an enormous amount of time to satisfy the two member organizations' unique internal requirements before we could even move forward with bidding on and executing the job. My general remark is that there are a few fundamental committees that need to be formed at the inception of the JV. However, there is another category of committees, which can very easily introduce a governance tax, that are formed whenever there is a big project at hand, or if the JV is entering an execution phase, or even if there is some sort of technology issue hampering the JV.

 


COMMON CHALLENGES FACING JVS AND THEIR COMMITTEES

Common Challenges Facing Joint Ventures and Their Committees


COMMITTEE MUST-HAVE’S

Eric Namtvedt: Drawing from my experience with small to medium-size JVs, the single -most important feature of a succesful committee is clarity of mandate, whether the group is an ad hoc project committee or a more formalized committee. When I was managing joint ventures, I had to organize off-site meetings with board members and representatives from the parent companies to sit down and discuss the mandate of each of the respective committees in order to ensure alignment on the committee’s mandate and to create clear and transparent reporting lines between the committee and the parent company as well as between the committee and the JV itself. Having a clear mandate might be the most-important feature of a succesful committee; however, in close second comes having proper reporting lines. There has to be an understanding from all parties involved in each committee - what the reporting lines are.

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          Continuing our analysis of JV governance, Water Street Partners will be hosting a webinar Thursday, August 4th, for JV CEOs and management team members, board directors, shareholder reps, and executives who oversee a portfolio of JVs, A Must-Have for JV Boards & Management Teams: The JV Board Self-Assessment.
You will have an opportunity to learn and discuss with other senior leaders:

      • The case for doing a Board self-assessment and how to get buy-in;
      • The differences between a JV Board self-assessment and a Corporate Board self-assessment;
      • What good looks like.

If you would like to attend the webinar, please register here.