Mar 19th 2016, 20:11

AN EXCELLENT AND INTELLIGENT EXPLORATION OF HOW TO ASSESS A JOINT VENTURE WITH ALL ITS INHERENT RISKS

An appreciation by Phillip Taylor MBE and Elizabeth Taylor of Richmond Green Chambers

As the distinguished editors say in this excellent new work from Edward Elgar Publishing Limited, “although they have the potential to create synergies, joint ventures by their nature contain inherent risk. Therefore, each partner in a joint venture needs to incentivize each other in order to maximize its own payoff”. And it is addressing the risk element which we feel will be of substantial interest to both academic and professional readers with the thoughtful and scholarly approach adopted throughout the work.

Writing in the Preface, the three editors describe this book for defining synergies as a “total return for each partner”. “The total return” is comprised of three types of payoffs covering the return on investment, return from transaction and ancillary return. The editors view this definition as not only realistic from a practitioner’s point of view, but also because it enables an analysis of incentive bargaining in a joint venture from what they term a “game-theoretic” perspective. The sensible conclusion is that the successful joint venture is where each involved partner is satisfied with its own total return.

Of course, the authors consider the converse where a partner is dissatisfied with its total return and can actually present the following result with the partners’ incentive to provide its monetary and human capital to the joint project being lost. The result sadly is that the other partner will not obtain sufficient synergies in the long run and, naturally, partners will bargain to maximize their own payoff.

Therefore, to say a joint venture is a risky project is a bit of an under-statement because it almost always comes with in-built conflicting interests well explored here. Unfortunately, many joint ventures fail, not necessarily as the result of operational management failure which is actually an incentive bargaining failure. In addition, partners will confront various tradeoffs in incentive bargaining. So the key point of successful bargaining strategies is the maintenance of good balance between partners’ incentives.

The book concludes that extensive pre-contractual and post-contractual bargaining is essential. The editors provide successful bargaining strategies from the point of view of each partner company which is probably one of the greatest benefits of the work for readers. The book uses the game theoretical framework which we referred to earlier come the analysis of joint venture strategies with the writers describing practical and legal issues that arise with the creation of synergies and incentive bargaining in a joint venture.

There is a particular and welcome focus on intellectual property law, including analysis based on many real cases, the book covers issues relating to creating synergies, corporate law issues of conflicts of interest, and antitrust law issues relating to cooperation between independent companies.

To sum up the work in the words of the editors, the theoretically new and practically useful, “Joint Venture Strategies” will appeal to both scholars and practising lawyers. We agree that from a corporate perspective this book will be “essential for successful joint venture planning and strategy” and is another excellent title from Elgar which we are most grateful to add to our corporate library.

'Joint Venture Strategies: Design, Bargaining, and the Law is a thoughtful approach to negotiating workable joint ventures. Significant detail is devoted to performing appropriate preparatory activities to improve the range of terms that could be considered in forging contractual agreements. The book sets realistic expectations for firms who might cooperate with partners by delineating the pitfalls of venturing and anticipating the posturing of potential parties with the objective of creating synergistic returns for all. Company examples inform their explanations of how to structure controls and share the benefits of working with partners. Special detail is devoted to the needs of venture capital and private equity investors. The book is necessary homework to be read before courting attractive opportunities through joint ventures.' -- Kathryn Rudie Harrigan, Columbia Business School, US