Joint Ventures - The Fundamentals
Universities are, by nature, collaborative beasts. Working together with other parties to explore or achieve a common purpose is fundamental to a university's pursuit of sharing knowledge and expanding its reach.
Now, more than ever, as Universities grapple with a post pandemic world, inflation at record levels and a government with a 'growth, growth, growth' agenda, they will need to assess and potentially adapt the way they work with others to achieve their aims and ambitions.
This article is a reminder to institutions of how to get the best out of collaborative working and stresses the importance of good planning from the outset. We have focused on 'joint ventures' - a term used to describe an arrangement between two or more economically independent parties coming together to pursue or achieve a particular objective. This captures all manner of university arrangements from research collaborations to international partnerships and the same fundamental principles apply to them all.
Fundamentally, to be successful, the joint venture must create a common purpose with all parties incentivised to achieve that common purpose. Joint ventures have the potential to be incredibly powerful structures but equally they can lead to financial loss and reputational damage if not planned and executed carefully.
University management and leaders can spend months and sometimes years discussing their aims and visions with their collaborators and (with all good intentions) wanting to press the 'go' button as soon as that shared aim or vision has consensus. Too often, lawyers and other professional advisors are engaged quite late in that process and inevitably, the questions they raise and the complexities they probe can frustrate the eager project teams. But these types of projects have the potential to pose significant risks (reputational and financial) to institutions as well as rewards, so leaders need to ensure they plan carefully which includes factoring in sufficient time for taking professional advice where this is warranted. No two joint venture projects are ever the same so be careful of just "doing what we did last time" - it might not necessarily get the desired result.
At the outset, make sure leaders are considering the following fundamental questions:
Why Does the Institution Want to Embark on the Joint Venture?
Is it about making money, expanding reach, improving student experience, meeting regulatory or funding requirements, fulfilling ESG ambitions? Being clear about the "why" will impact how the institution implements the joint venture (for example does an opportunity need to be seized quickly), what joint venture structures will be optimal and what the acceptable level of risk might be. It will also help to ensure any professional advice is aligned to the project objective and the right in house teams are engaged to advise or authorise as appropriate.
Who Will Be Involved?
Having adequate knowledge about the other parties (and the individuals involved) is crucially important - both in terms of managing legal risks and being able to develop productive relationships with them. This is especially so if there is to be some longevity in the venture or the relationship is a new one. As with any legal transaction, do an appropriate level of due diligence on your partners (corporately and individually). Look at their financial status, operational history, experience and skill set, public profile and reputation as well as raising questions to satisfy your own obligations regarding money laundering, modern slavery and other ESG requirements. Given the increased regulation around national security, leaders should be reminded of the need to consider sanctions lists, the relevance of export controls and whether the subject matter of the joint venture falls into one of the 17 sensitive sectors introduced by the National Security and Investment Act 2021.
From a governance perspective, if a project board or steering group is to be established how should it be constituted and who will sit on that? Will your personnel be able to work with co-collaborators effectively? Could there be any clashes of personality which could derail progress? Who has appropriate levels of authority to make decisions on behalf of a partner?
It's not just the parties to the venture themselves that need to be taken into consideration in this planning stage. The roles and influence of other stakeholders need to be factored in at an early stage, for example, funders, regulators, relevant government bodies, impacted staff, suppliers and beneficiaries. What will their requirements be and at what stage do they need to be brought into discussions (if at all)?
What Is the Institution's Role?
Reaching consensus on the objective of the joint venture is pivotal. From there parties can develop their plan for achieving that objective and clarify what each of their roles will be in the process. Do not underestimate the level of detail parties should go into before pressing go. What activities will the institution actually be required to undertake, what contribution is required from it? What responsibilities (practically and legally) will it assume? Does it have the necessary power and resources to do so? What are the potential risks and liabilities in performing those activities and how can those risks and liabilities be mitigated or eliminated? If they cannot be mitigated or eliminated, is the ultimate reward worth taking on the risk?
It is only when an institution has a clear understanding of exactly what its role will be in a joint venture and how the joint venture will operate, that it can start properly evaluating the level of risk and reward.
Where Will the Joint Venture Be Performed?
Operating in new jurisdictions or with overseas partners - whether physically or virtually - creates an element of uncertainty and most likely regulatory and cultural differences. As mentioned above, the heightened significance of national security and combatting financial crime necessitates appropriate checks to be undertaken at the outset.
Engaging local advisors will help you to better understand the regime you will be working within and any cultural traditions and formalities which will help smooth the negotiation process and implementation of the venture. Institutions also need to understand the extent to which they can enforce their rights under the joint venture in other jurisdictions. This will be particularly relevant if sensitive information or intellectual property is being shared.
What Is the Exit Strategy?
Being clear about how an institution can bring its (or others) involvement in a joint venture to an end is just as important as getting into the operational nuts and bolts. Having just emerged from unprecedented pandemic restrictions and being in the midst of financial, environmental and political turmoil, we are constantly reminded that nobody knows what the future holds. Frank discussions with your partners at the outset about how to handle the expiry or failure of the joint venture or a party's inability to comply or continue with the joint venture, is time well spent as is being clear about each parties' red lines when measuring success and failure. Devising appropriate exit strategies can ensure resources and reputations are protected in the long run. This is especially true where there is a high level of integration between the partners - for example, where assets are to be pooled or a joint venture vehicle is to be incorporated.
Structuring the Joint Venture
Getting the right structure for your joint venture will influence its success (or failure). Having carefully considered the fundamentals of the joint venture, you can then determine a legal structure to achieve the objectives and to mitigate the identified risks.
Avoid falling into the trap of shoehorning arrangements into a legal structure you (or other parties) have used before without first evaluating whether it is truly going to be fit for purpose. There is no "one size fits all" when it comes to structuring a joint venture, nor a "template agreement" which can be rolled out to adequately deal with all the nuances of a particular project. There are many factors, over and above the practicalities of the 'why', 'who', 'what', "where" questions posed above, that will dictate an optimal structure - taxation, resourcing, ringfencing and legal regulation to name but a few.
Getting professional advisors engaged early on in the planning process can not only help you tease out some of this detail but can also ensure the joint venture is structured in such a way as to maximise rewards and mitigate risks.
The venture might be capable of being implemented through a single or series of contracts. Alternatively, it might be necessary to establish a new corporate vehicle. The contributions, rights and obligations of each partner and stakeholder will need to be mapped out, with the legal structure accommodating each of these and facilitating the pursuance of the agreed objective.
Our VWV team has a breadth of experience in advising on all manner of joint ventures for higher education institutions and we will be delighted to help in any aspect of planning and implementing your project.