Ulysses and the Sirens: Governing Multilateral Alliances

Abstract: There is a bewildering variety of organizational arrangements in which ‘parent firms’ share some assets as well as some rights, from franchising to strategic alliances, joint-ventures, and so forth. However there are few developments in the literature about how multiple parents who otherwise remain competitors monitor their relationships when involved in joint activities that create new assets. Using extensive information and data collected on a complex joint venture in the French milling industry, we exhibit a “private order” in which owners transfer substantial decision rights to a Strategic Center that has the power to develop initiatives of its own and to discipline partners. The paper analyzes the governance structure implemented, the contractual provisions delineating a self-enforcing range of action, and resulting performance that confirm the durable success of this arrangement in a highly competitive environment.