Outgoing JV CEOs: Should They Transition to a Role on the JV Board?

By Lois D'Costa | Tuesday, March 12, 2019

RECENT STUDIES SHOW that more than 50% of outgoing public company CEOs retain a formal role on the company’s Board of Directors1. In contrast, our analysis of 112 joint venture CEO transitions reveals that 15% of outgoing JV CEOs transition to a formal role on the JV Board2.

Should more joint ventures consider giving their outgoing CEOs a role on the Board? Our view is yes, with some important caveats.

In public companies, evidence and opinions on the benefits of retaining former CEOs on the Board are mixed. Some research has concluded that companies with former CEOs on their Board perform better, while others have established the opposite 3,4. Anecdotal evidence is similarly varied. Chip-maker Intel’s CEO succession process, for example, had each outgoing CEO serving as Chairman, actively mentoring the successor, and handing-off day-to-day operational responsibilities. This process has been credited with enabling a series of orderly CEO transitions at the company from Andrew Grove to Craig Barrett to Paul Otellini.

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Silent But (Potentially) Deadly: The Power of the Status Quo in Joint Ventures

By Tracy Branding | Tuesday, February 26, 2019

JOINT VENTURE PARTNERSHIPS have a significant say in the structure, actions, and strategy of a venture. Management also has a voice in the direction of the joint venture. But what partners and management often fail to understand is there is another, silent party at the table influencing the outcome of key decisions: the status quo. In fact, the status quo (i.e., current state) plays a dramatic role in the life of a joint venture. It affects the deal terms the parties agree to and minimizes changes to the venture once operating (Exhibit 1).

STATUS QUO IN NEGOTIATIONS

During initial deal negotiations, the “status quo” is determined by the party who provides the first draft of a term sheet or joint venture agreement. The other partner is highly likely to “anchor” on the valuations and other contractual provisions in this initial draft.

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

By James Bamford | Tuesday, February 12, 2019

IT 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.

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Shareholder Stewardship of Joint Venture Employees: Opening the Aperture

By James Bamford | Tuesday, January 29, 2019

TENS OF MILLIONS of people are employed in joint venture companies around the world. In many cases, these ventures are partly-owned by large national and international companies. Today, Siemens, IBM, Royal Dutch Shell, General Motors, Airbus, and Nestle each have ownership interests in joint venture companies that employ tens of thousands of people. Typically, a tiny fraction of staff are seconded, or loaned, employees from one of the shareholders, while the vast majority are direct employees of the joint venture company.

Are shareholders doing enough to steward these employees – using their considerable scope, capabilities, networks, and development opportunities to enhance the level of engagement and employee value proposition of those directly employed by joint ventures?

In our experience, the answer is no.

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Operator Authorities: Deceptively Clear or Clearly Deceptive?

By Lois D'Costa | Tuesday, January 15, 2019

IN 2014, ONE OF Western Australia’s most successful natural resources partnerships started unraveling. Santos, the non-Operator partner of the multi-billion-dollar Spar gas joint venture, took Apache, the other partner, and Operator, to court. Santos claimed that Apache had breached the joint venture agreement by taking certain actions prior to receiving the Operating Committee’s formal approval, including completing front-end engineering and design, corresponding with regulators, awarding contracts for major equipment, and conducting other activities related to the project’s development. The Western Australia Supreme Court ruled in favor of Santos, stating that Apache – despite being motivated by time and cost advantages from moving quickly – had circumvented the oversight of the Operating Committee through which Santos was entitled to influence or have input into matters such as budgets, contract awards, and project timing.1

In the midst of the dispute, a fairly standard clause in natural resource joint venture agreements was dragged into the limelight: “The Operator has exclusive charge and conduct of operations as agent on behalf of the parties under the supervision and control of the Operating Committee.” The court asserted that there was no inference that an Operator could act without the authority of the Operating Committee.

This standard clause – present in some form in almost all natural resource joint venture agreements – has the potential to give many joint venture Operators and co-venturers considerable grief.

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An Inside Look at Joint Ventures and Other Deals in U.S. Healthcare

By Molly Farber | Tuesday, December 18, 2018

WATER STREET PARTNERS periodically convenes joint venture dealmakers from an array of industries and geographies to speak to the latest JV trends, challenges, and best practices from their vantage points. Most recently, we spoke with Scott Musch, the Vice President of Corporate Development at Cambia Health Solutions, for perspectives on joint ventures and other partnership transactions in U.S. healthcare. Cambia is a total health solutions company headquartered in Portland, Oregon; its family of companies includes Blue Cross Blue Shield plans operating in Oregon, Washington, Idaho, and Utah, as well as interests in other companies seeking to improve the consumer experience in healthcare.

The healthcare industry – particularly in the United States – remains subject to sustained disruption, with companies grappling with regulatory uncertainty, new types of competitors, and an evolving consumer and technological landscape. This flux has generated a substantial volume and diversity of deals, some of which have taken the form of joint ventures. Despite a track record of mixed performance (Exhibit 1), joint ventures remain top-of-mind for healthcare dealmakers, and in recent years have been deployed as a means to both cultivate innovation and consolidate scale in core competencies. Cambia, in particular, has emerged as a leader in healthcare innovation with substantial experience in partnerships, and we asked Scott for his thoughts on high-level deal trends as well as the particulars of certain transaction structures and terms.

An edited transcript of his remarks follow.

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