Shareholder Stewardship of Joint Venture Employees: Opening the Aperture

   

Turning the JV’s ownership structure into a source of competitive advantage for attracting and retaining venture employees

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Shareholder Stewardship of Joint Venture ImageTENS 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.

Consider a mining joint venture in South Africa. Owned by two global players, the JV engaged in mining a specific resource base and employed about 600 people. Its Managing Director, Finance Director, COO, and a few other members of the management team were seconded staff from the shareholders, consistent with appointment rights provided under the joint venture legal agreement. An employee engagement survey and interviews revealed that, despite working for a company owned by two of the largest companies in the industry, employees generally viewed the company’s joint venture structure to be a disadvantage, as it prevented broader career advancement.

Indeed, a review of unwanted departures showed several members of senior middle management, including the controller and the plant general manager, had recently exited the company because their career headroom was capped since the next rung on the company career ladder was a contractually-mandated seconded position. Both went to a global competitor, thanks in part to a non-poaching provision between the shareholders that prevented them from hiring JV employees. Meanwhile, an assessment of the venture employee base showed that the capabilities of JV employees trailed those in similar roles in the shareholder companies due to a lack of broad exposure to different technologies and operating environments. This has a potentially significant impact on the performance and risk profile of the venture. Indeed, not long after the assessment, the venture experienced two fatalities.

Paradoxically, across industries and geographies, our data and client experience show that working for a company owned by multiple successful companies is too often a disadvantage, especially for high-potential talent. It doesn’t have to be this way. We believe that joint venture shareholders and management teams can use their joint venture status to their advantage, leveraging their shareholders in numerous ways to develop talent and expand professional experience.

The purpose of this memo is to offer some practical tools for JV Boards and shareholder companies to rethink and expand their role in stewarding the development of JV employees.

OPEN THE APERTURE

The median joint venture board spends less than 10% of its time on talent issues, according to our benchmarking data. And while roughly 40% of JV Boards have an HR Committee (or equivalent), these committees tend to meet for limited durations and spend the majority of their time on compensation matters and reviewing annual staffing costs and plans – and not on broader strategic talent issues, such as employee development, succession planning, corporate culture and employee engagement, or leveraging the shareholders to enhance the JV employee base. This is inadequate.

We believe that JV Boards should periodically evaluate opportunities to use the shareholders to develop venture employees and enhance the employment value proposition of those working for the venture. While every venture is different – and not all levers will make sense for each venture – we have identified 14 different practices, which fall into two categories (Exhibit 1). The first relates to training, learning, and networking. Such practices include allowing JV employees to access shareholder intranets, to participate in shareholder training programs and functional peer networks, to make site visits to similar shareholder assets, to join shareholder peer review and audit teams of similar assets, or to participate in shareholder technical certifications or competitions. The second set of practices fall under the banner of career development and rotations. Such practices include establishing mentoring programs and apprenticeships, including for early career professionals, and opening up opportunities for short-term rotations and reverse secondments of JV employees into shareholder companies.


Exhibit 1: Shareholder Stewardship of Joint Venture Employees

Identifying opportunities to leverage the shareholders’ organizations to develop and enhance the value proposition of direct employees of a joint venture

Shareholder Stewardship of Joint Venture Employees Opening the Aperture

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Such career management practices could be extended to having managerial-level and high-potential JV employees included in broader talent tracking and stewardship initiatives of one or more shareholders, including internal career mapping and succession planning discussions. The idea is to elevate awareness of key JV talent in the shareholders, and to use this awareness to ensure these people are developing and, as appropriate, finding temporary places for them in other company assets.

Going even further, shareholders could create a structure where JV employees have the opportunity to “re-badge” as secondees from one parent company and have their broader career then sponsored and managed by that company. A 100-person energy technology joint venture did just this. For JV employees who had been with the company for at least five years, had reached a certain job grade, and had consistently met a certain performance profile, the company gave them the chance to apply to transfer their legal employment status to one of the shareholders, with the expectation that they would then remain as a secondee in the JV for at least another three years. The objective was to use the JV’s status to open up new career pathways for employees, and thus improve the ability to attract, retain, and motivate people working in the venture.

Not all JVs have the same need to leverage the shareholders’ organizations to develop and enhance engagement levels of direct employees. Very large integrated joint venture businesses, such as Nokia Siemens , ESPN, Chevron Philipps Chemical, likely have the in-house scale to drive a full suite of professional development opportunities. Similarly, highly-entrepreneurial ventures on the leading-edge of business and technology innovation, such Google-GSK (bioelectronic medicines) or Hulu (media streaming), may see close relationships with the shareholders as a disadvantage to their desired culture. But for most JVs, especially “Asset JVs” in the semiconductor, chemicals, petrochemicals, oil and gas, and mining industries, leveraging the shareholders can be a powerful tool.

We believe that JV Boards should annually evaluate such a list for “current prevalence” and “potential relevance.” This simple exercise can serve as the basis for a structured discussion at the Board and, likely, agreeing to some practical actions to better leverage the shareholder organizations for the benefit of direct employees of the JV.

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