Introduction
Most CEOs have been through this scenario, a counter party walks through the door, and states that they are looking to collaborate on a project, where they can both benefit. A common initial reaction, is the welcoming CEO wondering how much time and money entertaining this proposal is going to cost the organisation. Another reaction is an outright dismissal of the proposal stating that the proposal is beyond their current interests.
Proposal
Focusing on the CEO who decides to proceed, in this case we’ll use the example of the development of a solar farm. With the structure being, party:
- A – owning the land,
- B – access to solar technology and operational knowledge, and
- C – providing financing
Concerns
Whilst a business case can easily be drawn from the above, each party will have their own unique concerns. For example, party A will want to ensure that a solar farm will render the highest available yield for that site, versus other potential uses. Party B must be comfortable sharing proprietary technology and best industry practices with all parties, this can only be achieved once trust has been established. Party C may be ready to provide the finance but subject to certain conditions being met, for example a guaranteed minimal rate of return that may have penalty implications.
Formula for better joint ventures
It is important that when various parties are collaborating, that the parties jointly hold these attributes in common, being; trust, alignment of goals, mutual loyalty, and a focus on the ultimate results.
Trust
Whilst the senior persons may trust their counter party, that trust needs to trickle down to various levels of the organisation. This is particularly so especially when there is an overlap of duties between different organisations, without a clear definition of where one’s task finishes and another’s begins.
Alignment
Alignment of goals can come in various forms, but to stick with the current example, it could be to optimise the use of the land, in a profitable manner whilst allowing the various parties to the agreement to reach their ESG commitments.
Mutual loyalty
Mutual loyalty seeks the communal benefit of the joint venture, whilst also taking care of each other’s interests. An example would be, it would be party A’s responsibility to acquire the appropriate land permits, and party B may advise A as to which professionals to utilise to ensure a smoother process, for the benefit of the group. Whilst party A may advise party B of certain shading conditions that may possibly affect the site in the future.
Results
It must be clear as to the results the group intends to achieve and the key performance indicators (KPIs), they will be utilising to measure such results. As the project develops there may be a need to review such KPIs and re-define them in certain instances.
Conclusion
Whilst the above provides a general overview of the basic building blocks to a joint venture, there are numerous other factors that one may need to consider, apart from the financial and shareholding considerations that will arise. For a successful joint venture, the collaborators must see themselves as pulling together for the greater success of the venture.
idisav 