Making Alignment Real in Joint Ventures: Board Concurrence, Minutes, and the Post-Meeting Memo

  

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Water Street Insight Making Aligment RealIT 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.

Board Concurrence and Minutes: The Louisiana Offshore Oil Port (LOOP) is a joint venture of Shell, Marathon, and Valero that manages one of America’s most strategic energy assets – a deepwater offshore port and related transport and storage infrastructure that handles 13% of U.S. oil imports. Founded in 1972, LOOP is now the single largest point of entry for waterborne crude oil coming into the U.S., allowing tankers too large to dock at onshore ports to offload their cargoes. 

To ensure that the LOOP Board and owners are aligned on important management decisions, Tom Shaw, the CEO of LOOP, uses a process built around “Board Concurrence.” Occupying a space between formal approval and a Board update, “Board Concurrence” is aimed at ensuring real, rather than perceived, alignment among the owner group. The term means “union in action" – and is used to ensure agreement on important decisions not delineated within LOOP's LLC agreement as requiring formal Board or owner approval.

According to Shaw, it works like this. First, LOOP management lists in the Board pre-reading materials matters where management will seek board concurrence. According to Shaw, “It is important that they know ahead of time that we are going to ask for their concurrence.” Next, during the Board discussion, Shaw or one of his reports presents the issue and proposed plan or action. Management then asks the Board if they have any comments or whether they would like to propose any modifications. If the answer is no,” says Shaw, “I then ask for their concurrence.” This concurrence is then put in the meeting minutes, which creates a record that the issue was discussed and that the owners had no objections at the time.

The minutes create a reference point, which might be useful down the road, if any of the owners wondered why management took such action or whether the owners had a chance to provide input.

Post-Board Meeting Memo. To further solidify Board and owner company alignment and understanding coming out of a Board discussion, a number of JV CEOs have successfully used a post-meeting “Memo from the Chair.”

The CEO of a large automotive JV in China, for instance, worked with the Chair to draft a memo following each JV Board meeting which recapped strategic themes and decisions taken during the Board discussion. This Chairman’s Memo was then distributed to venture management, board members, and the two parent company organizations – including the politically-powerful functions within the U.S. parent company that provided all sorts of technology and support to the JV. The whole idea of the Chairman’s Memo was to drive understanding and alignment across this extended enterprise.

Board Agenda Structure. The structure of the Board agenda is a subtle but powerful tool to manage alignment. Placing the Executive Session before the Board meeting is one agenda-design practice that has paid dividends for a number of JVs, including a large 50-50 financial technology JV. According to their CEO:

It takes the elephants out of the room. By putting the Executive Session first, the Board meeting is much more effective. When the Executive Session is at the end, Board members have a tendency to hold back across the full length of the Board meeting.

LOOP takes a similar approach. According to CEO Tom Shaw:

Our Executive Sessions are also upfront – and we cover not just the most obviously sensitive matters, but also things like performance targets, which ultimately impact compensation, and therefore best discussed without other members of the management team in the room. Because there are no minutes, it creates a safe place to have a discussion.

Agenda shaping can be strategic in other ways too. The CEO of a multibillion-dollar processing JV recently revamped the Board’s standing agenda to include a “Report from the CEO” as the first substantive module of each meeting. A 30-minute recap from the CEO, this session is used to set the tone and highlight recent successes, which the CEO felt were not sufficiently aired in Board deliberations. The JV CEO also expanded the length of breaks, which created space for “hallway chats” among Board members and management, and thus a surprisingly valuable vehicle to build alignment and personal connections.

The JV CEO also eliminated the “around-the business” functional reports that had previously characterized Board meetings, where each JV department head would provide the Board with a 20-minute update on their area of the business. “It was a parade of management presentations that ‘bored the board’, and also invited owner functional experts sitting in on the Board meetings to challenge, and rag the board into,
operational matters.

The JV CEO also inserted a short “Board Feedback” session at the end of each Board meeting. Lasting no more than 10 minutes, the Chair asks Board members to publicly state how they rate the meeting on a half-dozen dimensions, including whether the agenda reflected the most strategic and pressing issues and allowed time for discussion; whether the pre-reads were well prepared and timely; participant preparation, candor and transparency; and insightfulness of Board comments, including whether the Directors brought new ideas, insights, data, external perspectives to the discussion that meaningfully enriched the discussion.

Subtle shifts in JV Board meeting design have the potential to make meaningful impact the nature of JV Board discussions and, within it, the level of alignment within and the performance of joint ventures of all flavors. And that is a tasty prospect.