What the first ninety days of a joint venture decide

Suppose a Malaysian manufacturer and a Nigerian distributor agree to form a joint venture. The manufacturer brings the product and the know-how to assemble it locally. The distributor brings its customers and a warehouse near the port. After months of negotiation the lawyers produce a long agreement covering capital, shares, board seats, dividends, transfer of shares and what happens if either side wants out. Both parents sign, and both feel the hard part is over.

Then the venture has to hire a sales manager. The distributor has a candidate it trusts. The manufacturer wants someone with experience of its product. The agreement, for all its length, does not say who decides.

What the agreement covers, and what it leaves out

A joint venture agreement is written to protect ownership. It sets out what each parent contributes and what each receives. It lists the reserved matters that need both parents' consent, such as new capital, a sale of the business or a change to its purpose. And it usually has a deadlock clause for when the board cannot agree on one of those.

These are the decisions that matter most to the parents, and they seldom come up. The decisions that come up every week are operational. Who to hire, which supplier to use, what to charge the first customers, whether to extend them credit, who can sign a payment. Most agreements say little about them, or leave them to "management" without saying who management answers to on the day the two parents want different things.

A sales manager is not a reserved matter. Neither is an opening price. So nothing in the documents settles either one, and the board is not due to meet for three months.

Why the early weeks set the pattern

The first ninety days of a venture are dense with decisions that have no precedent. Every role is new. There is no price list, no approved supplier, no budget that has been tested against a real month. Money is going out before much is coming in, which makes each choice feel larger than it is.

Each parent also has people inside the venture, often seconded from its own staff, and those people still look to the parent that sent them. When the first disagreement arrives, it tends to be settled by whoever is on site, or whoever is louder on the phone. Nobody means that to become the rule. It becomes the rule anyway, because the next disagreement is settled the same way, and by the end of the quarter one parent is running the venture while the other is wondering what it invested in.

Unpicking that later is slow and expensive. It is much easier to agree the rule before anyone has a stake in a particular answer.

Write down who decides what

The fix is a short document, separate from the main agreement or attached to it, that lists the operating decisions the venture will face in its first year. For each one it states who proposes, who decides, and who has to be consulted first. Many teams lay this out as a simple table. A few lines of it might read:

• Hiring below the general manager: the general manager decides, after consulting both parents' nominees.
• Opening prices and discounts: the general manager proposes within a band both parents approved in the business plan; anything outside the band goes to both parents.
• Choice of suppliers, including either parent: the general manager decides, with the parent concerned stepping out of the discussion.
• Payments above a set amount: two signatures, one nominated by each parent.

The exact allocation matters less than the fact that it is written down and both parents signed it before day one. It should also say what happens when the people named still disagree: who it goes to next and how quickly they must answer. That route should be measured in days. A quarterly board meeting is far too slow for a question about this week's price.

Two points to settle first

If time is short, two decisions deserve attention before any others.

The first is the general manager's authority. Whoever runs the venture day to day needs to know what they can decide alone and what they must refer, and both parents need to accept that list. A general manager seconded from one parent, without a written mandate from both, will be seen by the other parent as an agent of the first. Sometimes that suspicion is fair.

The second is the price at which each parent trades with the venture. If the manufacturer supplies components and the distributor buys finished goods, the venture's profit sits between those two prices, and each parent has a reason to move them. Agree how they are set and how often they are reviewed. Without that, every invoice between a parent and the venture becomes a negotiation.

Measure from the start

The same document should name the handful of figures the venture reports each month and who receives them. Both parents should see the same numbers on the same day. Most disagreements in a young venture are about what is happening as much as about what to do, and a shared monthly sheet removes a good part of them.

None of this needs to be long. A few pages, agreed while the parents are still enthusiastic about each other, will do more for the venture's first year than another clause on share transfers. The ownership will matter in ten years' time. Who decides the sales manager matters in week three.