The Opportunity for Re‐inventing Corporate Governance in Joint Venture Companies

• Published date: 01 January 2000
• DOI: http://doi.org/10.1111/1467-8683.00182
• Author: John Carver
• Date: 01 January 2000

The Opportunity for Re-inventing

Corporate Governance in Joint

Venture Companies

John Carver*

Joint venture boards ± compared with widely held companies ± may prove more amenable

to changes in corporate governance theory that significantly alter traditional patterns for

directors, chairmen, and chief executive officers. Parent companies' control over directors is

more direct than that exercised by widely scattered shareholders or even institutional

investors. Therefore, parent companies have a vested interest in joint venture board strength

in order that parents be fittingly represented. Yet they also understand the crucial importance

of relatively robust management. This dual, albeit competing, motivation makes attractive

any approach to governance that assures strong directors, a rigorous chain of accountability,

and, at the same time, an appropriately empowered chief executive. The author's Policy

Governance1model offers these improvements to board leadership, but compels funda-

mental changes from traditional board practice. The ownership circumstances found in joint

venture companies are favourable for implementing the new paradigm.

Introduction

Boards of companies totally or largely

owned by two or more distinct parent

companies present unique opportunities for

significant governance improvement. The

motivations of shareholders and directors in

joint venture companies are unusually amen-

able to a governance style designed to enable

simultaneously stronger boards and powerful

chief executives. This article highlights the

fortuitous setting joint venture boards pro-

vide for successful implementation of an

emerging theory of corporate governance.

While the perspective is based on American

corporate experience, the governance realities

are by no means a uniquely American

phenomenon.

Pawns or Potentates

The dilemma facing corporate directors is

aptly captured by the descriptive title of Jay

Lorsch's 1989 book, Pawns or Potentates

(Boston: Harvard Business School). Directors

are theoretically and legally powerful, yet in

practice often merely the politically and

socially acceptable front for a chief executive

who is really in charge.

In theory, the line of corporate authority is

unambiguous: shareholders delegate most of

their powers to a board of directors, the board

delegates to a chief executive officer, and the

CEO divides labour still further through

executives and others in the management

structure. Accountability is unbroken from

the lowliest clerk, lineman, or technician all

the way to shareholders. But while this

theoretical simplicity is normally true within

company management, it is just as normal for

theory and reality to separate in the board

room.

CEOs formally work for the board. But in

the curious CEO-centric development of cor-

porate history, it is frequently the directors

who are chosen by and often chaired by

the CEO. Frequently, until there is a crisis of

#Blackwell Publishers Ltd 2000. 108 Cowley Road, Oxford OX4 1JF

and 350 Main Street, Malden, MA 02148, USA. Volume 8 Number 1 January 2000

*Address for correspondence:

PO Box 13007, Atlanta, Geor-

gia, USA. Tel: 1 404 728 9444;

Fax: 1 404 728 0060; Email:

polgov@aol.com

EMPIRICAL RESEARCH-BASED AND THEORY-BUILDING PAPERS 75