Summary of "Navigating the Governance Challenges of Joint Ventures with Ankura’s James Bamford"
Summary: Navigating Governance Challenges of Joint Ventures (JVs) with Ankura’s James Bamford
Overview & Market Trends
James Bamford brings extensive expertise, having advised on over 400 joint ventures (JVs). His background includes McKinsey and Water Street Partners (now part of Ankura).
- JV market growth: There has been a significant increase in material JV deals globally (threshold $250-$500M) over the past five years, especially since 2020.
- Drivers of JV growth:
- Sustainability initiatives (e.g., EV automotive JVs, chemical recycling).
- Large capital projects in energy, mining, and healthcare.
- Innovation and growth through partnerships.
- JV activity vs M&A: JV formation shows steady growth, while M&A remains cyclical.
- JV prevalence:
- Large corporations (Volkswagen, Unilever, Microsoft, JP Morgan, etc.) often hold 20–30+ JVs.
- Sector reliance varies:
- Automotive JVs contribute ~20% of earnings.
- Natural resources (mining, oil & gas) have 75–90% production via JVs.
- Offshore wind capacity is ~80% JV-based.
- Tech and pharma use fewer equity JVs, preferring other partnership forms.
Strategic Reasons for Forming JVs
Organizations form JVs for several strategic reasons:
- Access capabilities and markets (regulatory/local partner requirements are decreasing but still relevant in some regions).
- Gain scale and synergies by combining existing businesses.
- Share risk and capital investment for large projects (e.g., $20B+ mining or energy projects).
- Capability development, notably by Japanese and Chinese firms leveraging JVs for learning.
- Planned staging and exit strategies (e.g., IBM-Lenovo PC JV).
- Financial/accounting benefits such as off-balance sheet treatment (a secondary driver).
Examples of Recent Large JVs & Restructurings
- BHP & Lundin: 50/50 JV for Argentinian copper assets.
- Anglo-American & Codelco: JV consolidating adjacent Chilean copper mines.
- ENI & Petronas: JV consolidating upstream assets in Malaysia/Indonesia.
- Intel & Apollo: $11B JV for semiconductor fab in Ireland.
- Rio Tinto: Restructuring via Turquoise Hill buyout for Mongolian copper mine.
- Clorox: Bought out Procter & Gamble in a 20+ year JV.
JV Lifespan & Governance Dynamics
- Median JV lifespan is approximately 10 years (up from 7 years 30 years ago).
- Lifespan varies by sector: longer in natural resources, shorter in tech/consumer goods.
- Governance challenges arise as shareholders initially aligned diverge over time in strategy, risk tolerance, and investment willingness.
- JV boards often serve as the forum to manage shareholder misalignments.
- There is a strong correlation between JV governance quality and business performance:
- Well-governed JVs tend to meet or exceed financial and operational targets.
- Poor governance correlates with underperformance.
Governance Structure & Practices
- Board composition:
- Majority of JV directors are shareholder executives, not independent.
- True independent directors (no current/past shareholder employment) are rare (~10–15% of JVs).
- CEO presence on the board is uncommon (~15–20%).
- Lead directors:
- Designated lead directors from each shareholder improve accountability and coordination.
- Board tenure:
- Median director tenure in JVs is ~3 years, compared to ~8 years in public companies.
- Short tenure reduces director effectiveness and ownership of decisions.
- Board time allocation:
- JV boards spending ≥20% of their time on strategy and growth outperform others.
- Board size & meeting dynamics:
- Typical JV board size: 6–10 directors.
- Actual meeting attendance often triples due to non-director attendees (management, alternates, observers), which reduces meeting effectiveness.
- Committee structure:
- JVs have multiple committees (audit, HR, technical), often staffed by non-board experts without fiduciary duties.
- Recommendation: Committees should include board members to maintain alignment and oversight.
- Governance “tax”:
- JV senior management spends ~20% of their time on governance-related activities (board preparation, shareholder management), compared to ~8–10% in public companies.
- JV governance is less professionalized and resourced than public company governance.
Governance Challenges Unique to JVs
- Shareholders are corporations (typically 2–4), not thousands of individuals, leading to:
- Competing shareholder interests (e.g., Exxon and Shell as JV partners but global competitors).
- Shareholders provide resources (IP, services, people) to the JV, creating complex interdependencies and conflicts of interest.
- Directors wear “two hats”: fiduciary duties to the JV and to their parent company.
- High director turnover and limited time commitment reduce board effectiveness.
- Independent non-voting chairpersons are recommended to:
- Provide neutral facilitation.
- Maintain shareholder alignment without diluting control.
- JV boards often lack formal performance evaluations or integration of board roles into shareholder executives’ objectives.
Best Practices & Recommendations
Governance Frameworks
- Lead directors from each shareholder to coordinate and align.
- Independent, non-voting chair to mediate and keep shareholders aligned.
- Limit number of non-board attendees in meetings to maintain focus.
- Committees should be chaired by or include board members to ensure connection to board agenda.
- Clear delegation of authority and decision-making processes, especially for capital investments and approvals.
- Regular governance reviews and well-staffed company secretary functions.
Strategic Engagement
- Hold strategic offsites including senior shareholders (CEOs) to address long-term issues, talent, and conflicts.
- Encourage CEO-to-CEO meetings for material JVs to reinforce alignment.
Talent & Localization
- Address “localization” or “Saudiization” by developing local talent through training, secondments, and succession planning.
- Board oversight of localization targets and talent development is critical in regions with local employment requirements.
Cultural Complexity
- JV boards often combine directors from diverse national and corporate cultures.
- Boards must navigate differing governance norms and communication styles.
- High director turnover exacerbates challenges in understanding partner behaviors.
Director Communities & Advisory Boards
- Some companies form communities of JV directors and practitioners to share knowledge and best practices.
- Such forums remain underutilized but beneficial.
- Advisory boards are occasionally used to provide independent perspectives without formal board membership.
- Not yet a widespread trend but can help bring external expertise.
Key Metrics & KPIs
- Median JV lifespan: ~10 years.
- JV board director median tenure: ~3 years.
- JV senior management time on governance: ~20%.
- JV board size: typically 6–10 directors.
- JV board time on strategy/growth: ≥20% correlates with outperformance.
- JV contribution to earnings (example sectors):
- Automotive ~20%
- Mining/oil & gas up to 90%
Presenters & Sources
- James Bamford — Joint Venture Governance Expert, Ankura (formerly Water Street Partners, McKinsey alum).
- David Bey — Co-presenter and governance expert.
- Quinn — Moderator.
This session provides a comprehensive framework for understanding the complexities of JV governance, highlighting the importance of structured governance practices, strategic alignment, cultural awareness, and talent development to maximize JV performance and longevity.
Category
Business
