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  Does My Partnership Need a Joint Steering Committee?  Premium

Reuer, Jeffrey J.; Devarakonda, Shivaram V.
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In 2009, two U.S. pharmaceutical companies, Alnylam and Cubist, signed a collaborative agreement to develop a drug for treating respiratory virus. Rather than form a joint venture, the two companies opted for a non-equity agreement that featured a steering committee to oversee key aspects of the collaboration. These included development and promotion of the product, as well as the resolution of disputes, disagreements and deadlocks.

This example is not unusual: many technology companies have been turning to complex interorganizational relationships to gain access to new technologies, knowledge and financial resources. In doing so, they are making use of new organizational tools to govern their joint activities. A valuable addition to this toolkit is a steering committee, which is set up by the contract and is entrusted with the administration of the collaboration.

This article, based on studying non-equity alliances in the biopharmaceutical industry, examines steering committees as the axis of control to manage complex collaborations. Decisions about control are always critical, since they will directly affect how firms will interact, share resources and achieve their intended goals.

When partners aim to exercise control over collaborative activities, they tend to think about equity-based partnerships, such as joint ventures, in which they get to invest equity and jointly own the venture. For those alliances, the board of directors naturally becomes the seat of authority and facilitates administrative control over the venture.

However, in high-tech R&D settings, many companies are choosing to work collaboratively in a contractual alliance with no equity stake. Partnering companies can agree to include incentives and safeguards in the contract that induce them to act in each other's best interests.

Even with those incentives and safeguards, many collaborations experience unexpected developments, requiring continual attention and coordinated response. Despite the best efforts of partners to put as many details as possible into the contract, there will always be gaps -- and problematic issues will arise. This is when steering committees, as well as functional subcommittees that focus on specific activities within the alliance, can step in and serve as a lively administrative interface.

Contractual Trade-offs
In non-equity partnerships, contracts play a central role in the organization and management of exchange relationships between firms. When companies draw up a contract, they face a trade-off. They can create a detailed contract that seeks to address a wide range of contingencies. But in trying to incorporate as many details as possible, partners may see their contracting costs spiral while reducing their flexibility. For this reason, some firms settle for less exhaustive agreements. Or they incorporate other contractual devices in order to provide greater flexibility.

Are Steering Committees the Answer?
Steering committees and functional subcommittees help compensate for existing gaps and make the contract flexible. Firms can contractually create a joint steering committee that resembles a board-like structure yet exercises clearly delineated authority over activities specified in the contract.

By unifying the locus of decision-making responsibility and allowing for administrative command, steering committees can improve coordination, help adapt to changing circumstances of the alliance, and provide a platform to tackle disputes through "private ordering," a legal concept whereby the parties agree to police themselves.

The Right Conditions
So, could a steering committee be the answer for your own non-equity partnership? Well, if your proposed collaboration has high levels of the following three elements, then a steering committee might be right for you.

This article is based on:  Does My Partnership Need a Joint Steering Committee?
Publisher:  IESE
Year:  2018
Language:  English
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