IN A PREVIOUS INSIGHT, Critical Conversations in JVs: What’s Your State of Readiness?, we defined the critical conversation as the one meeting a year in which the CEO has the opportunity for a more strategic conversation with his or her owners.
Critical conversations are challenging. Our data shows 53% of JV CEOs struggle to secure alignment on a long-term strategy and evolution path for their venture, and 72% experience real difficulty in aligning their owners and board on the JV’s medium-term plan. And more than 70% of JV CEOs stay in the role for three years or less – often because they struggle with these critical conversations, and fail to meaningfully drive the business forward.
Several factors make these conversations structurally challenging. For starters, the owners may have fundamental misalignments outside of the JV CEO’s control that cannot be resolved solely in the boardroom. Additionally, with median JV Director tenure of just 30 months, high turnover on JV Boards puts a burden on management to bring all Directors up to a com- mon base of understanding of the JV – which is needed prior to major decisions. High turnover also means that Directors often don’t have strong personal relationships with each other, or with the CEO. And many JV Directors have limited experience sitting on Boards and bring an operational mindset to the role – which makes strategic discussions difficult to keep on track.
Meanwhile, JV organizations are often thin on corporate functions, and
rarely have well-staffed strategy, planning, finance, business development, or shareholder relations functions and few people with experience facilitating these types of conversations. At the same time, the prospect of major changes to the venture can expand the universe of interested parties within the owner organizations to include corporate functions, shareholder reps, and adjacent business units, some of which may be annoyed or threatened by the proposal – and engage in fact-checking, problem-solving, behind-the scenes critiquing, and commenting that can derail the discussion.
In about half of all JVs, the CEO or at least one other management team member is a secondee, which creates at least the appearance of competing loyalties and conflict. Whether a secondee or not, a JV CEO must tread deftly in seeking owner input, guidance, and help in clarifying opinions and resolving issues. Go to one owner, and a CEO risks appearing to favor that company. Go to all the owners together, and risk getting feedback that is so vanilla that its unhelpful. Go to each owner separately, and risk getting conflicting guidance.
Indeed, JV CEOs can be surprised that the owners have already discussed – and started to frame an answer for – a strategic issue during a meeting where the CEO was not present or even aware the meeting was occurring. When that happens, the JV CEO has lost control of the narrative and an ability to lead the business.
But JV CEOs themselves are not without culpability. Many lack self- awareness. Many are not as good in these meetings as they think they are. Materials presented to the Board are not well prepared, or do not meet the analytical or clarity bar that Board members have come to expect from their own, admittedly larger, organizations. This is especially true when it comes to strategy and business model conversations – as one of those relating to key enablers such as the operating model or governance – where JV CEOs and management teams lack distinctive skills.
IS YOUR JV ACTUALLY READY?
Dimensions of Readiness: Having witnessed many critical conversations – some successful, some extremely challenging, a few leading to raised voices and finger pointing in the boardroom – we believe that great conversations happen when a JV scores high on two dimensions of readiness (Exhibit1):
Exhibit 1: Assessing Readiness for the Critical Conversation
❖ CEO Readiness: CEOs are ready for a critical conversation when they actually understand what the owners want and expect from the venture, and integrate that with the venture’s own business needs. CEOs are ready when they have a realistic grasp of the owners’ perceptions of JV performance and management capabilities and capacity. CEOs are ready when they have conducted various input and “pre-wire” pre- discussions to set-up the collective conversation.
❖ Board Readiness: Boards are ready when they hold an accurate and common understanding of the JV – its performance, risks, value delivered to the owners, competitive landscape, and prospects. Boards are ready when they have trust in the CEO and management team, including a belief that management is capable of stewarding owner resources.
Boards are ready when Directors have functional relationships with one another and collectively, and thus able to have open and honest conversation about strategic interests, constraints, trade-offs, and uneven costs or benefits.
Few JV CEOs enter the critical conversation in the top right corner of the gameboard. For most JV CEOs, the starting point is somewhere else – and the best of them chess-move their way to the top right corner prior to having the collective conversation. The journey will likely take several months, require restraint and pacing, and draw deeply on reservoirs of strategic, political, and operational skills from both the CEO and management team.
Getting to yes in critical conversations is not a game for the impatient, dis-
tracted, disorganized, or politically unsavvy. Indeed, it is process strategy of the highest order, requiring JV CEOs to achieve advanced levels of un- derstanding of readiness to have these conversations, and to take deliberate steps to set-up these conversations before they happen. In many ways, joint ventures are a “continuous negotiation” – among the owners, and between the owners and management. Getting the critical conversations right re- quires approaching these conversations with similar levels of strategic pre- paredness as a commercial negotiation.
Many times, however, JV CEOs and management teams have the conversation somewhere short of needed readiness.