Shareholder Representatives in JVs: Legal Proxy, Accountable Executive, or Muddying Interloper?


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Shareholder Representatives in Joint VenturesIN CERTAIN INSTANCES, a company will appoint an individual to serve as its “Shareholder Representative” to a joint venture. The basic premise is that the Shareholder Representative is expected to act as the company’s agent with regard to the venture – a role that is empowered but not necessarily limited to signing agreements, amendments, consents, and waivers between the company and the other shareholders and/or the joint venture entity. Although it is not common in all industries, having a designated Shareholder Representative is fairly prevalent in natural resources companies.

Fundamentally, the purpose of the Shareholder Representative is to establish organizational clarity for making legally-binding commitments between the company and other JV parties. A related purpose is to establish legal separation between the company, as a shareholder in the JV with its own interests, and the executives it has appointed to serve as Directors on the JV Board, who will have fiduciary duties to that entity.

But companies can go too far with this idea.

In our experience, some firms have conflated the need for an legal proxy with the need for an empowered executive with clear single point accountability1 for the JV – i.e., an “Accountable Executive” who internally owns the P&L of the JV, the company’s strategy toward that JV, and the management of company’s risk exposure to the JV. We wholeheartedly agree that clear single point accountability is critical. But accountabilities start to get muddied in situations where a Shareholder Representative is treated as the Accountable Executive yet neither sits on the JV Board nor oversees someone who does. Or when the Shareholder Representative takes on elements of the Accountable Executive’s role – for example, owning the negotiation of commercial contracts with the JV – without being in the reporting line of the Executive whose P&L is directly linked to the contract.

The purpose of this note is to describe how companies go astray with the Shareholder Representative role, and to outline workable models when companies want to designate a Shareholder Representative.


Back in the 1980s and 1990s, a number of companies, concerned about legal risks associated with conflicts of interest with their joint ventures, decided to establish a formal role of a “Shareholder Representative” manage such conflicts and create sufficient separation between Board and Shareholder reserved matters. The idea was drawn from the world of acquisitions2, and repurposed to meet the context and needs of
joint ventures.

The original idea was that company-appointed Directors, despite being executives of one shareholder, would solely promote and protect the interests of the joint venture as a whole, and not advocate for the interests of the shareholder that appointed or employed them. The Shareholder Representative, in contrast, would not serve on the Board – and thus not have any fiduciary duties to the entity – but would represent the shareholder, including attending the annual general meeting, and deciding and voting on shareholder matters.

But this relatively vague description immediately created problems. Simply saying that the role is to “represent the company’s interests,” allowed it to be interpreted differently across JVs in the portfolio – which is not ideal for good governance. More importantly, it allowed for some Shareholder Representatives to interpret the role expansively, and thus undermine or create an alternative power center to the Accountable Executive.
Some companies responded by sharpening the role to be that of legal proxy and the company’s “negotiator-in-chief” – i.e., the executive responsible for negotiating all commercial contracts between the company and the company’s strategy for the JV, and another executive who lead commercial negotiations between the company, the JV and the Partner(s). This, too, diffused accountability strangely; the person who owned the impact of commercial negotiations was disconnected from the negotiation
process itself.

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Over time, companies ultimately extended and memorialized the Shareholder Representative role all the way to that of being the company’s Accountable Executive for the JV. But as many came to realize, combining the roles is highly impractical and leads to all sorts of confusing and fictional distinctions. For example, how could the Shareholder Representative be accountable, successfully advocate for their company’s interests, and fulfil their roles without being on the JV Board where so many critical issues are discussed and decided?

To overcome this, the best performing Shareholder Representatives met with the company-appointed Directors before and after Board meetings to create a highly-aligned company position. Even when done well, this drove extra work, substantial inefficiencies, and risk of organizational disconnect – not to mention the potential for diffused accountabilities.

What all these models have in common is that they create a situation in which the Accountable Executive has no, or limited, control in making, influencing and reviewing key decisions impacting the JV. In essence, removing the Accountable Executive from the Board or creating two competing power centers, in the name of creating legal separation or due to incoherent practices, undermines the very notion of accountability and ultimately leads to poor governance practices within the company.


Design Principles. Our view of the Shareholder Representative role is driven by certain core beliefs and a more practical school of thought. We acknowledge that a company should have someone not on the JV Board of Directors to act as its legal signatory on shareholder matters. We concede that it is useful to have one person designated to this role and acting as a legal proxy to prevent multiple people from formally “committing” the company.

But we also believe, deeply, that a company should have a single point of accountability for the venture. We also believe that this Accountable Executive can and should serve on the JV Board of Directors, and is capable of “wearing two hats.”But we also believe, deeply, that a company should have a single point of accountability for the venture. We also believe that this Accountable Executive can and should serve on the JV Board of Directors, and is capable of “wearing two hats.”3

Potential Models. Guided by these beliefs, there are two primary ways in which the Shareholder Representative role can be scoped and assigned (Exhibit 1).


Exhibit 1: Workable Models

Exhibit 1 Workable Models

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Model 1: Legal Proxy as Shareholder Representative with Clear Single Point of Accountability on the Board

One potential way in which companies can avoid diffusion of accountabilities is to narrowly and formally define the role played by a Shareholder Representative as that of a legal proxy. In this model, the Shareholder Representative plays a passive role in JV governance and is only responsible for acting as the company’s legal signatory for JV-related matters. In case of reserved matters, the Shareholder Representative votes in accordance with the guidance provided by the Accountable Executive. In essence, the role of the Shareholder Representative exists within the organization solely to create legal separation and nothing more.

Model 2: Senior Sponsor as Shareholder Representative with Direct Report to Senior Sponsor as Accountable Executive

Another workable model exists in which the role of the Shareholder Representative is scoped slightly more broadly, without diffusing accountabilities. In this model, the role of the Shareholder Representative is played by the company’s Senior Sponsor4 for the venture. The Shareholder Representative in this case is responsible for....

The full version of this article elaborates on certain sections and includes  additional tools and exhibits. Click here to download the full article >>