MANAGING A JOINT VENTURE can be the most exciting job you will ever have, but it is also pound-for-pound one of the toughest jobs in business. As we watch the continuing stream of new joint venture announcements – whether that be Monsanto entering into a new joint venture with Remington Holding Company LLC to drive innovation and investment in the global sorghum market; or Russian oil major Rosneft signing a JV agreement with BP to explore oil reserves in the Russian Federation – it is easy to see the allure of joint ventures in the eyes of those who will be asked to run them.
After all, joint ventures often involve combining technologies, capabilities, and capital in novel ways, and JVs are usually instilled with exciting growth prospects. And joint venture CEOs and management teams are afforded a level of responsibility rarely seen in leadership positions within a business unit of the same size. But running a joint venture is a difficult business – a job only for those who have the right stuff.
Indeed, many public companies have found JVs to be a useful proving ground for their own top leadership ranks. The current or recent chief executives of BP, Kvaerner, and LyondellBasell were all JV CEOs in the years leading up to their top appointments. Running a JV can offer persuasive evidence that an executive has what it takes to operate in a complex environment involving disparate stakeholders. At BP, CEO Bob Dudley fully forged his reputation between 2003 and 2008 when he was running the company’s massive Russian JV, TNK-BP – a hornets’ nest of shareholder misalignment and palace intrigue that ultimately generated more than $40 billion in value for BP.
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For every Bob Dudley, however, there is at least one spectacular flameout, and countless tours of duty cut short with disappointment. As the new JV CEO of a large, 50:50 JV told us: “The last five CEOs were carried out on stretchers, and most were just dumped on the side of the street, left for dead or with careers that never recovered.”
The purpose of this note is to distill our experience serving hundreds of joint ventures over the last 20 years – and to offer guidance to JV CEOs and their teams on how to address the added challenges that JVs introduce.
ADDED CHALLENGES OF JVsWhat does it take to run a JV? First is a recognition that the job of a JV CEO and management team requires all the capabilities needed to succeed in any ordinary business, plus the skills and tools needed to meet the added demands resulting from the shared ownership structure of joint ventures. These added demands are felt most acutely in five areas: Strategy, governance, shared services and operations, organization and talent, and finance and planning (Exhibit 1). In strategy, for example, a joint venture CEO must steer the business to meet the needs of the market and the needs of multiple owners – owners which often hold differing objectives, investment and risk preferences, views on which products and markets to prioritize, and how the JV should evolve.
Second is a willingness of management to take on these challenges, and not wait for the Board to solve them. While all of these issues relate to the shareholders – and therefore are not fully within management’s delegated authority or control – strong JV CEOs and management teams proactively catalyze discussions, shape solutions, and help the shareholders resist some bad behaviors that are detrimental to the businesses. This is not to say that a JV CEO can or should do this alone, or that the Board has no responsibility. On the contrary, the Board as a whole – and the Chair or Lead Directors in particular – must set the frame, and create an environment where JV management can create solutions to these challenges.
Make no mistake: There are real consequences, both business and personal, for JV CEOs and management teams that do not meet these added demands. JVs that fail to meet these challenges tend to stall, under-delivering on their potential, and on the owners’ financial and operating objectives in forming the JV. In addition, JVs that discount these challenges may expose themselves – and their owners – to elevated levels of risk with regard to safety, health, environment, and reputation.
More personally and insidiously, a failure to respond to these JV-specific challenges can lead to chronic misalignment among owners, and shareholder overreach into the venture – creating a “tax” that can easily lead to management team members spending 30 to 35% or more of their time responding to shareholder-related matters, rather than operating the JV. For JV CEOs, the challenge of managing the shareholders cascades into deep frustrations across the management team, undermining productivity and professional satisfaction, increasing turnover, and making it harder to recruit new talent.
The extent to which any particular JV will face these added challenges varies based on the relationship between the JV’s shareholders, the extent to which a JV is independent, the cultural similarities or differences between the partners, and the venture’s scope, performance, and other factors. For example, the management teams of long-standing, highly independent ventures with similar partners (such as Dow Corning or Bosch Siemens) may face some added JV challenges (e.g., governance and aligning on growth), but, generally, these are fairly limited. The same can be said for the typical production-phase asset joint ventures in the oil and gas, mining, and chemicals industries that are operated by a single partner – and thus much less susceptible to owner-related complexities.
Contrast this with, say, joint ventures like Tesla-Toyota, Walmart-Bharti, or TNK-BP – ventures that assemble partners with radically different corporate cultures. Or compare this to JVs like Merck-Schering, Starbucks-Pepsico, Airbus, and Kashagan – ventures that, at different times, have depended extensively on their parent companies for technology, services, and infrastructure along the value chain, and have needed to orchestrate a web of operational interactions with the owners’ internal functions and other businesses. Or compare this to Star Alliance, a 27-partner global airline alliance, where the alliance’s activities are woven into virtually all of the operating functions of its owners – including the product, network planning, technology, maintenance, purchasing, branding, and customer service functions.
While a JV will not face all of these added challenges at any one moment, the presence of any of these challenges is enough to undermine the success of the mission.
This work is based on an article authored by Gerard Baynhan with the help of David Ernst, Geoff Walker, and Peter Daniel. In future insights, we will outline the five functional areas where the added challenges of JVs are felt most acutely (Exhibit 2), and illustrate some of the ways that JV CEOs and management teams can address them.