Effective Agreements' Blog

Strategic Business Alliance - 3 Pluses

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This would be a good time to download the Outline For an OEM Agreement, as it covers one example of a strategic alliance in some detail.

My previous post was, admittedly, a rant against joint ventures except where they are required to get the job done. Now, four reasons why I think a strategic business alliance can be a better structure, and some suggestions to make them so:

1. Adaptability and Specificity. The strategic business alliance can be created by one agreement or several, each specialized and with the level of detail required for its purpose. A Joint Development Agreement will be very complicated indeed, with huge sections on what happens to all of the intellectual property. On the other hand the Master Sales Contract can be much simpler.

2. Governance as Needed. If the arrangement is complicated and relatively long term, some management mechanism must be introduced. We suggest an escalation process. That would work this way:

   1. One person from each side will be named as the primary contact for the other. Usually these are named in the Agreement, with a provision that they can be changed out on written notice. These two individuals should be able handle 99% of the problems that come along. That means management allowing them to make some of the important decisions – it is called delegation.

   2. If there is a matter that they cannot solve in “x” days, the problem goes to their respective vice presidents.

   3. If the problem has not been solved within “y” days, it goes to the CEOs. For this reason, “x” and “y” should be some days in length, to keep the CEOs from being bothered too often.

   4. If the CEOs cannot reach agreement in “z” days, one party terminates or sues the other one.

3. Divorce. If it does not work out, all the parties have to do is terminate the several agreements. If all of them have the same termination clause (e.g., upon thirty days written notice from one party to the other), then notice is given and that is that. There is no haggling over the value of an asset as there might be with a joint venture. The contracts will require language about what happens on termination in regard to ongoing product maintenance, final payments and more (one of the ways that “Master Agreement” could be useful.)

Suggested limits on the length of the blog posts suggest stopping here, and picking up other aspects of the strategic business alliance in later posts.