Making JV Governance Sing: How to Use a Shareholders' Committee


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Making a Joint Venture Sing ImageONE OF THE ENDURING tenets of good joint venture governance is the central importance of getting true decision makers from each shareholder in the same room, talking directly to each other. In many JVs, however, the actual decision makers are too senior, too busy, or otherwise unwilling to serve on the JV Board or equivalent body. As one European aerospace executive put it: “I don’t have the time – or the interest – to fly halfway around the world once per quarter to attend a day-long Board meeting spent reviewing budgets, plans, and operational performance.” 

It’s a fair point.

But when the true decisions makers operate outside the governance structure, bad things can happen. Decisions are delayed. Misalignments fester. Issues are not raised, and management is surprised. And Board members feel disempowered and not accountable for outcomes. One JV Director summed up his governance context this way: “We operate
in an Oz-like environment, where our business unit president is the Wizard, making all our decisions from behind a curtain.”

There is an alternative. Today, some 30% of large JVs have some version of a Shareholders’ Committee – a governance body that includes senior decision makers who meet periodically to focus on issues that are typically beyond the purview of the Board (Exhibit 1). Done well, we believe it can make governance sing.

Exhibit 1: Where the Shareholders’ Committee Fits

Where the Shareholders’ Committee Fits

Source: Public filings; Water Street Partners’ analysis. © All rights reserved  
Click Chart to Enlarge


A Shareholders’ Committee can perform a number of critical roles. These include: (i) setting the tone for performance and collaboration; (ii) defining the shareholders’ strategic intent towards the venture, including the JV’s level of independence from shareholders, and how this will evolve; (iii) providing guidance on the venture’s long-term strategy, and serving as sounding board for strategic issues such as expanding or reducing venture scope; (iv) resolving disputes and deadlocks that are escalated from the JV Board; (v) discussing and approving shareholder-reserved matters, such as acquisitions, changes in capital structure, and sale of equity to new partners (Exhibit 2); and (vi) discussing opportunities or challenges beyond the venture related to the broader partnership among the parent companies. In some instances, Shareholders’ Committees may also review venture performance, assess the JV Board’s overall effectiveness, and review – and, if necessary, replace – individual Board members. 

Exhibit 2: Shareholder-Reserved Matters

  • Nature of the business – materially changing the nature or scope of the JV
  • Dividends – declaring a dividend or payout of the general reserves, or the redemption of any equity securities in the capital of the JV
  • Board of Directors – increasing or decreasing Board size
  • Changes in share capitalchanging the authorized or issued share capital of the JV
    Issuance of shares – issuing shares or instruments convertible into shares by any subsidiary of the JV
  • Guarantees – giving a guarantee or indemnity to secure the liabilities or obligations of any person (other than the JV or a wholly-owned subsidiary of the JV)
  • Dissolution, liquidation, or unwinding – doing anything that will result in the JV being unwound (whether voluntarily or compulsorily), except as otherwise provided for in the JV agreements
  • Sale or other disposition of assets – selling, leasing, creating an interest in, or otherwise disposing of a material part of the JV’s undertaking or assets, or contracting to do so (other than in the normal course of the business)
  • Merger, reorganization, or recapitalization – approving any merger, consolidation, acquisition, or divestiture of the JV
  • Subsidiaries – forming, acquiring, or selling to another party any subsidiary of the JV
  • Initial public offering – proposing that a registration statement be filed, an underwriter selected, or any other action be taken to implement an IPO of any shares of the capital stock of the JV

Source: Public filings; Water Street Partners’ analysis. © All rights reserved  


At its core, a Shareholders’ Committee is a forum for senior executives from the parent companies to provide direction and make decisions related to the venture, as well as their broader relationship. But this forum can take many forms – and there are meaningful differences between these forms in terms of role, legal standing, composition, and
workings (Exhibit 3).

Classic Shareholders’ Committee. Sometimes called a Shareholders’ Council or CEO Summit, the Classic Shareholders’ Committee serves as a forum for the senior sponsors within the shareholders to connect personally, and to discuss and agree on key strategic issues, shareholder-reserved matters, or major restructurings. Such a body proved invaluable in a liquefied natural gas joint venture during a period of under-performance. Chronically slow to make decisions, the venture was governed by a Board composed of the local country presidents of each owner company. A decision analysis showed that the true decision makers were not these Board members, whose focus tended to be on setting annual targets and approving the JV’s annual work program and budget. Rather, the true decision makers, operating behind the scenes, were senior executives inside each company (e.g., the president of the global gas business, and head of upstream production). While these senior sponsors occasionally met bilaterally, they rarely talked about the JV, and had never met as a group. Click below to download the entire article, including best practices. 

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