Being a joint venture (JV) CEO can be one of most rewarding jobs you’ll find. JV CEOs run companies built around the unique capabilities of their owners, which, when harnessed correctly, allow them to quickly pursue new products, new markets, or new or new customer segments/channels. However, few JV CEOs find their jobs to be easy. In addition to handling all the classic challenges of running a company – often in fast moving, emerging industries and markets – JV CEOs must also deal with a set of issues tied to having multiple owners that are unlikely to be perfectly aligned on financial or strategic interests, corporate cultures, or end games.
The JV CEO job can also be uniquely lonely. Few of your peers appreciate the challenge of having two or more owners who have to agree on all important decisions, e.g., changing authorized scope, conducting M&A, seeking bank financing, approving the annual operating plan and budget. Water Street Partners seeks to help by holding annual JV CEO Roundtables. It’s a rare opportunity for JV CEOs to discuss their most difficult challenges with an audience they cannot find elsewhere – their peers.
The night prior to the Roundtable, there’s always a welcome dinner. During a recent dinner in London, the conversation turned to shareholder reporting. Specifically, the question that the dozen or so JV CEOs and managing directors asked each other was: “What information do you provide to your shareholders – and in what format do you provide it – in order to keep them informed without creating an internal cottage industry in reporting?”
“The right information flows are essential for good JV governance.”
An interesting answer emerged. There are seven high-impact practices that these JV CEOs have collectively deployed to give their boards and shareholder organizations the information they need, while minimizing shareholder ad hoc information requests, and the potentially considerable demands of shareholder reporting.
- Co-Developed Monthly Operations Report. This practice involves the preparation of a detailed monthly report of 15 to 50 pages, assembled by JV management, that is based on the pre-specified and detailed reporting needs and formats of the shareholders. By agreeing with the shareholders to a standard report format, including a table of contents, key metrics, calculation methodologies, data tables, and exhibits (e.g., major risks register, planned and actual budget, major variances, cost curve), a JV may be able to reduce by 90% or more the shareholders’ ad hoc information requests.
- Weekly One-Pager. A weekly one-pager is a short memo or email of 5 to 15 bullet points in a consistent format from the JV CEO to the board members that provides an update on the past week’s progress and issues, and the coming week’s intended focus areas. The one-pager not only provides Board members with an easy-to-access and efficient update on the venture (and provides them with information and perspective that others in their company do not have), but also serves as a useful forcing event for the JV CEO to reflect on the past and future weeks, and as a communication device from the JV CEO to the rest of the management team, which gets a copy of the memo.
- Copy of Management-Level Reports. This practice involves simply providing the JV Board members with copies of the Management Report that the JV CEO and his or her team use to review JV performance and manage the venture on a weekly or monthly basis. The report presumable includes rolled-up operating and financial data across functions and business lines. Since this is exactly what JV management uses to run the business, it requires no additional investment in reporting, other than potentially redacting certain information (e.g. customer or pricing data) that might be inappropriate from a competitive and antitrust standpoint and ensuring that board members abide by their duty of confidentiality.
- Access to JV’s Underlying Financial System. Named individuals within the shareholder company can be granted password-protected access to the JV’s underlying financial system and database used to generate board reports on venture operations and performance. This practice allows the shareholders to access the information they need without burdening JV management and allows the JV CEO to spend less time in board meetings on detailed operational reviews, since this information is available to board members and their support staff in advance of meetings.
- Open-Invite Shareholder Information Meeting. On a monthly or quarterly basis, the JV CEO and CFO can host an open-invite meeting for relevant shareholder staff (e.g., asset managers, finance staff, board and committee members) that serves as an information clearing forum for the shareholders. Importantly, when ad hoc information requests arise prior to these meetings, JV management is under no expectation to respond, channeling such requesters and requests to the shareholder information meeting. This practice dramatically reduces the amount of time JV management spends handling information requests, and reinforces transparency, as both shareholders are in the room when questions are being asked and answered.
- One-Page Performance Dashboard. This practice involves the creation of a standard, one-page summary of key financial and operating metrics that serves as a JV performance update in board meetings. The format and content of the dashboard will vary by venture, but should be limited to one page, and usually includes red-yellow-green status summaries on each category or metric, plus summary commentary and proposed actions. The dashboard provides the board with an integrated picture of JV performance and issues, prevents the board meetings from engaging too deeply in unnecessary operational or financial details, and thus allows the board to spend more time on topics where its input is most valuable (e.g., on strategy and resourcing questions).
- “CC All” Email Response. When one shareholder requests information from the JV, the JV management team is careful to “CC” the response to the other shareholder(s). This simple practice promotes transparency between the shareholders, signals the neutrality of the management team, and reduces information requests, since each shareholder knows that requests will become public to the other Board members/shareholders.
It is important to note no CEO uses more than three or four of these practices. Therefore, these seven practices are better understood as items on a menu, to be selected based on individual taste and appetite.
The right information flows are essential for good JV governance. Too often, inefficient shareholder reporting leads to wasted time, added conflict, and ultimately poorer board and JV performance. But as we learned from the JV CEOs in London, with some table manners and the right practices in place, shareholder reporting doesn’t have to be a food fight.