Meaning
A legal arrangement between a foreign owner and the government isolates the management of a defense contractor or sensitive asset from foreign influence. Under this proxy board agreement, the foreign parent company vests its voting rights in a board of independent trustees who are citizens of the host country and hold necessary security clearances.
Board Independence
The independent trustees assume full control over the company’s business operations and strategic direction. They are legally obligated to act in the interest of national security while preserving the economic value of the corporation for the foreign owner. This board must include at least three independent directors who have no prior relationship with the foreign owner, and all major corporate decisions must be approved by a majority of these cleared individuals.
Security Isolation
The arrangement prevents the foreign parent from accessing classified technical data or influencing daily corporate decisions. It allows the subsidiary to continue executing sensitive defense contracts while remaining under foreign ownership.
Corporate Governance
Regular audits and reporting are required to demonstrate that the isolation remains effective and that no unauthorized communication has occurred. This structure represents one of the most restrictive mitigation measures available to foreign investors in sensitive domestic sectors.
