Joint Ventures Don’t Work

You need complete control to make the most of any business.

I once worked for someone who one day shouted at me across his rather palatial office “I will, never, never, never, never, do a joint venture!” in response to my suggestion that it might be worth considering doing one. I’d never done one, so what did I know? He had and I could hear the pain and hurt in ever syllable as they echoed around the room, bouncing off the plate glass like shrapnel and shredding my confidence in the idea.  I thought at the time that he was just having a bad day, but now realise what a wise man he was.  Trying to manage all of something is hard enough but trying to agree with someone else how to do it, so you are both satisfied, is actually impossible.

This all came to mind when I read about Dutch retail group Ahold’s decision to sell its 60% stake in ICA, Sweden’s largest food retailer, which operates 2215 stores in Sweden, Norway and other Baltic countries. Although it owns 60% of the business, it splits management control 50-50 with Sweden’s Hakon Invest. Ugh! Although ICA make money in Sweden and other Baltic countries the Norwegian business has been loss making for years. Ahold also own the Albert Heijn supermarket chain in the Netherlands and the Giant chain in the US.

Founded in 1887, Ahold, then just plain old Albert Heijn, went public in 1948 and become the largest grocery chain in the Netherlands by the 1970’s. For the next twenty five years or so it expanded internationally and then the wheels began to fall off, big time. Accounting irregularities were revealed in some of its subsidiaries in 2003 that lead to the CEO, CFO and other senior bods leaving. The legal ramifications went on for ages with criminal prosecution of management and a class action law suit in the US that cost it $1.1Bn. Since 2003 Ahold has been on the road to recovery and the ICA sale is the latest bit of tidying up it needed to do to regain focus and control of the business.

On the face of it working with local partners, when you want to expand geographically, would seem a sensible idea, wouldn’t it? Perhaps, if you take your time and you build deep and enduring relationships with like-minded folk who you can work with, but if you are in a hurry you are more likely to end up with trouble. The problem is that mostly people are in a hurry and there aren’t too many examples of where this has actually worked out too well in practice, so there appears to be quite a gap between this nice idea and the reality that most businesses face.

Ahold are now focused on assets where they have management control and to my mind they were unwise to think that they could get the best out of ICA, or any other business for that matter, in any other way. Do not enter into a joint venture relationship of any sort unless: you are very sure you know what you are doing and that means you have done it before; you have the right partner and that means you know them very well; and most importantly, you have control.

Joint ventures don’t work, so don’t do one, unless it is in name only. Being only half a boss is not a very satisfying experience.

Mark

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