Adapted from Trusted Partners, Jordan D. Lewis

 

There are three possible JV governance arrangement: full equality; policy equality, and lead parent arrangement. Generally speaking, full equality gets the best from both parents, while the lead parent form makes governance easier.

 

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  1. The full equality arrangement is essential for JVs that depend on both parents for continuing substantial know-how inputs, such as technical, managerial or market expertise, at policy and operating levels. It will also help produce the best results from a JV that is closely tied to both parent's activities. You should also use full equality in JVs with rivals, to ward off perceptions of bias or a chance for operating imbalances.  The full equality arrangement usually requires equal ownership (50/50) to make parents more willing to share decision-making, risks and rewards.

  2. Policy equality encourages both parents' know-how inputs at the policy level and is easier to manage than the full equality form. If you don't expect substantial, ongoing operating-level ties to both parents, and if your firms are not rivals, then policy equality is easier to manage than full equality. The policy equality arrangement also usually requires equal ownership (50/50).

  3. Lead parent arrangement is preferable when the situation does not call for equality in governance which takes more effort. In such ventures, one partner runs the JV while the other one has a voice and veto on designated matters. Use this option to share the ownership and output of a production or service facility.

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