JOINT VENTURE DIRECTORS – TRAINED FOR SUCCESS?
Many companies entrust joint venture Directorships to their highest-performing and most-promising executives. They position the role as valuable to the company, and an opportunity for personal growth – a chance to steward an important business or asset, to rub shoulders with peers at a partner company, and to gain experience in a fiduciary governance role. For these executives, the appointment should be cause for celebration.
In truth, there is cause for concern.
Our research shows that a majority of companies provide no training to their JV Directors, and of those that do, many have outdated or inadequate training programs. In too many companies, JV Director Training is treated like a check-the-box exercise, with an emphasis on legal liabilities, and a tendency to see the role as identical that of a Director of a corporate Board.
Make no mistake: Under most venture structures, JV Directors do have fiduciary duties similar to corporate Directors. But JV Directorships also introduce a series of added needs and challenges for which few new Directors are prepared. For instance, as an employee of one shareholder that is doing business with or alongside the venture, JV Directors must understand how to artfully manage commercial conflicts of interest. They must learn how to exercise influence over a business or asset that they do not control, and collectively steer management without being individually directive. And they must be prepared to forcefully champion the venture within their own company – securing skills and resources the JV needs – while defending the venture from excessive interference from company functions hungry for information, and insatiable when it comes to meeting corporate requirements. A well-prepared Director can leave all sorts of positive fingerprints on venture performance, and help keep a lid on risks.
In contrast, ill-prepared JV Directors can cause significant collateral damage, including increased inefficiency in the JV governance system, mismanagement of company secondees, prematurely shortened JV CEO tenure, heightened company risk exposure, and sustained JV underperformance. The negative effects can also be also personal. Consider the words of a business unit president at an alternative energy company:
“We put people on JV Boards without any real guidance on what we expect from them. But when a JV runs into problems, we all point fingers at those Directors. We ask, ‘How could they have not seen those risks? How could they have let the business erode to this point?’ Highly promising careers have been hurt. And it’s completely unfair.”
Fortunately, a handful of companies have recognized the importance of effective JV Director Training. They provide a model for how to balance risk management, compliance, and legal training with an equal focus on effective governance, partner influencing, managing conflicts of interest, and value creation.
Water Street Partners has benchmarked many of the largest companies in the world to understand how they manage their portfolio of JVs. A handful of those companies have recently created robust JV Director Training programs that are worthy models for other companies to follow. Though each program was industry- and company-specific, all of the programs reflected the following five characteristics that we believe define worldclass Director Training:
The program is organized around the real risks, challenges, and opportunities of JV Directorship. Training on topics like duties of care and loyalty, and compliance with applicable laws and regulations related to corruption, competitively sensitive information, and the like are necessary. But that should just be the start of the discussion. New JV Directors need training on a variety of additional JV-specific topics layered in to meet the additional demands of being an effective JV Director. This requires translating dry policies into practical illustrations of the mindsets and behaviors that Directors should adopt across a range of issues.
The program is filled with cross-company functional voices. The best JV Director Training programs touch on a variety of cross-functional topics, including corporate strategy, finance, HR, legal, operations, HSE, and other industry-specific areas. Putting different voices in the room creates a number of benefits. First, JV Directors have the opportunity to actively engage with the company’s experts, and expand their thinking and network. Second, the corporate functions have a chance to improve by hearing new JV Directors’ concerns and perspectives.
The program incorporates different learning modes and formats. The most impactful JV Director Training uses multiple forms of engagement to meet different learning styles. Role-playing exercises present JV Directors with challenges similar to those they will face in the real world (e.g., potential conflicts of interest; lack of alignment with partner on taking an investment decision; poor JV CEO performance), and gives participants the opportunity to immediately practice utilizing the skills taught to them during training. They are also far more engaging than the legalistic training we typically see.
The training is run as a program, not as an event. Worldclass JV Director Training should be thought of as an ongoing process that continually reinforces key skills, rather than a singular event that tries to encompass all potential learning. In a leading technology company, JV Director Training is organized as a series of events across the year. The company has found that this arrangement creates a constant cadence of improvement rather than treating training as a singular event that is quickly forgotten.
The program emphasizes expectations of peers and senior leadership. JV Directors are not the only company employees involved in governing, supporting, and otherwise interacting with a JV. Other actors from the company include Shareholder Representatives; JV/Asset Managers; secondees; and other staff supporting or providing assurance to the venture. The best JV Director Training brings the voices of these other actors into the room, allowing for a collective understanding of how responsibilities are to be allocated, and cross-company roles will need to interact.
Being a JV Director can be a uniquely rewarding job – as well as a uniquely difficult one. Too many executives discover this in the middle of a foreseeable challenge that they could have been better prepared to face, were it not for the lack of training, and tools to adequately address the challenge.
To be fair, JV Directors are not without personal responsibility for their own growth. We think they can do plenty without company support, like carefully reading the JV agreement, meeting with other Directors as part of onboarding, and seeking out external learning opportunities. But we also believe that companies have a critical responsibility to train their JV Directors on the tools and skills they need to succeed.