Whilst joint ventures aim to pool the resources of the various parties for a greater outcome, they do have their challenges. In this scenario we will consider a joint venture that has achieved relative success over the last few years though has now reached an impasse.
Agreement
When forming a joint venture, within their agreement there are often clauses when a deadlock happens. Below are some of the decision process clauses one may find:
Veto
The agreement may be structured that the parties are able to utilise a veto right on certain key decisions in the lifetime of the business, such as, the hiring of key personnel or when deciding on matters over a certain financial value.
Selection by the board
The parties may set-up a board or committee selected by the various partners, to undertake certain organisational tasks, such as, recruitment of key individuals, or the selection of particular suppliers.
Decision by one venture party
It could be decided that in certain decisions, possibly related to the joint venture partner’s key competencies, the decision may be taken by that one venture partner.
Alternating venture party selection
The partners may decide that every couple of years they will choose to alternate who is undertaking the senior management of the venture. This will need to conditioned in the context that a steady management environment can be ensured through these alternations.
Co-CEO arrangement
The joint venture could possibly have two co-CEOs, each selected by a different venture party. This approach is also relatively less common, and comes with a number of drawbacks.
When it is selected, the joint venture parties will need to determine the scope of each co-CEO’s authority. This will include the decisions, if any, a particular co-CEO may make unilaterally, and which decisions may require the approval of both co-CEOs.
The joint venture parties will also need to decide whether to mandate how deadlocks between the co-CEOs will be resolved.
Conclusion
The above is far from a comprehensive list, and each joint venture agreement needs to be viewed on its own merits. It must also be kept in mind that throughout the joint venture’s operations, the partners need to constantly assess whether the current structure is working at its optimum. In addition, the partners need to ensure that they are able to consider re-negotiating and adapting the joint venture agreement to reflect the realities of the current operations.
Should the deadlock clauses not reach the desired outcome, best practice joint venture agreements, will have certain clauses for the possibility of an exit strategy.
Reading sources:
- https://hbr.org/1982/05/how-to-make-a-global-joint-venture-work and
- Take Me To Your (Joint Venture) Leader by Stephen Glover and Alisa Babitz
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