Corporate governance has become a top priority for executives of public companies. Yet too few of them have raised the bar for governing joint ventures, whose financial-management systems, most executives tell us, just aren't as good as those of wholly owned businesses. Such systems, we hear, don't regularly incorporate joint ventures into the standard corporate-planning and review process, and parent companies don't pay enough attention to them. Where standards exist at all, they are informal and vary quite widely.

This neglect is risky. Most large companies today have ten or more sizable joint ventures accounting for 10 to 20 percent of their annual revenues, income, or assets. And in our experience, the effects of weak governance—chronic underperformance, a failure to adapt and evolve, and excessive managerial costs—help sink many such partnerships.

More than a decade ago, the California Public Employees' Retirement System (Calpers), hoping to improve the performance of corporate boards, established a set of corporate-governance guidelines. Applying them to joint ventures, of course, calls for adjustments. Nonetheless, we believe that such guidelines will not only help companies (and perhaps their public shareholders) to assess the governance of their existing joint ventures more clearly but also make their executives better...