Closing the Governance Gap in Joint Ventures

Businesses are increasingly partnering to meet their strategic objectives but neglecting governance puts JVs and their shareholders at risk.

- JAMES BAMFORD AND GEOFF WALKER

COMPANIES ARE ENTERING into joint ventures at an unprecedented rate. Across a wide range of industries, firms are using JVs and other partnerships as a way to make their businesses more sustainable and to gain access to capabilities, capital, and scale. Pepsico recently entered into a joint venture with Beyond Meat to develop and market sustainable protein-based snacks and beverages. General Motors has entered into more than 10 JVs in the past two years alone, including one with Plug Power to develop hydrogen fuel cells for light commercial vehicles. Globally, the number of material new JVs has more than doubled in the past two years, outstripping merger and acquisition activity during the same period.

While JVs make meaningful contributions to corporate revenue and can enable new growth strategies, they also increase their shareholders’ risk exposure, often in ways that are hard to manage; this is especially true of ventures that are not majority owned or controlled. Over the years, joint ventures have been at the center of numerous corporate scandals, missteps, and catastrophes, including bribery schemes, antitrust violations, environmental incidents, worker and public health and safety breaches, and human rights violations. And as large global companies seek new capabilities through JVs, many choose nontraditional partners — industry disrupters, venture-backed startups, sovereign wealth funds, and state-owned enterprises in less-developed countries — which makes managing risk via good governance even trickier and more important.