Proxy board
Encyclopedia
A proxy board is a requirement imposed by the U.S. Department of Defense
's Defense Security Service
on foreign investors
seeking to acquire certain American companies. This is for national security
reasons and applies mainly to defense contractor
s which are involved in highly classified contracts.
A proxy board is a board composed entirely of American citizens which are responsible for the day-to-day running of the business. In this way the company's classified information is "insulated" from foreign exploitation but the parent company still benefits from any profits made by its subsidiary.
described the "firewalled" status of BAE's US subsidiary, BAE Systems Inc., " The British members of the corporate leadership, me included, get to see the financial results; but many areas of technology, product and programme are not visible to us.... The SSA effectively allows us to operate in the US as an American company, providing the highest levels of assurance and integrity in some of the most sensitive fields of national security provision."
United States Department of Defense
The United States Department of Defense is the U.S...
's Defense Security Service
Defense Security Service
The Defense Security Service is an agency of the United States Department of Defense . Within areas of DoD responsibility, DSS is tasked with facilitating personnel security investigations, supervising industrial security, and performing security education and awareness training. It is not a...
on foreign investors
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
seeking to acquire certain American companies. This is for national security
National security
National security is the requirement to maintain the survival of the state through the use of economic, diplomacy, power projection and political power. The concept developed mostly in the United States of America after World War II...
reasons and applies mainly to defense contractor
Defense contractor
A defense contractor is a business organization or individual that provides products or services to a military department of a government. Products typically include military aircraft, ships, vehicles, weaponry, and electronic systems...
s which are involved in highly classified contracts.
A proxy board is a board composed entirely of American citizens which are responsible for the day-to-day running of the business. In this way the company's classified information is "insulated" from foreign exploitation but the parent company still benefits from any profits made by its subsidiary.
Special Security Agreement
A variation is a Special Security Agreement (SSA) where the board of the company can be composed of both American citizens and nationals from the parent company's country. In this case when issues relating to national security are discussed only American managers may participate. SSAs require companies to be run under American law and by American citizens. In May 2006 the CEO of BAE SystemsBAE Systems
BAE Systems plc is a British multinational defence, security and aerospace company headquartered in London, United Kingdom, that has global interests, particularly in North America through its subsidiary BAE Systems Inc. BAE is among the world's largest military contractors; in 2009 it was the...
described the "firewalled" status of BAE's US subsidiary, BAE Systems Inc., " The British members of the corporate leadership, me included, get to see the financial results; but many areas of technology, product and programme are not visible to us.... The SSA effectively allows us to operate in the US as an American company, providing the highest levels of assurance and integrity in some of the most sensitive fields of national security provision."
Examples of proxy boards
- GEC/Tracor — When the British conglomerate GEC acquired the US defense contractor TracorTracorTracor was a major North American defense electronics contractor which was acquired by Marconi Electronic Systems , a subsidiary of General Electric Company plc, in 1998. Following the purchase of MES by British Aerospace in November 1999 to form BAE Systems, Tracor became BAE Systems Integrated...
in 1998 it was required to establish a proxy board due to the highly classified nature of some Tracor contracts. - Rolls-Royce/Allison — Rolls-RoyceRolls-Royce plcRolls-Royce Group plc is a global power systems company headquartered in the City of Westminster, London, United Kingdom. It is the world’s second-largest maker of aircraft engines , and also has major businesses in the marine propulsion and energy sectors. Through its defence-related activities...
was required to establish a proxy board for its newly acquired subsidiary AllisonAllison Engine CompanyThe Allison Engine Company was a U.S. aircraft engine manufacturer. In 1929, shortly after the death of James Allison, the company was purchased by the Fisher brothers. Fisher sold the company to General Motors, who owned it for most of its history...
in 1995. However the Department of DefenseUnited States Department of DefenseThe United States Department of Defense is the U.S...
lifted this requirement in April 2000 and allowed Rolls-Royce to adopt the more flexible Special Security Arrangement. - QinetiQ — UK defence technology company QinetiQQinetiQQinetiq is a British global defence technology company, formed from the greater part of the former UK government agency, Defence Evaluation and Research Agency , when it was split up in June 2001...
set up a proxy board to manage its US businesses in 2004 following the acquisitions of Foster-Miller IncFoster-MillerFoster-Miller, Inc., is a United States based military robotics manufacturer, a division of the United Kingdom's QinetiQ North America. Its two best-known products are TALON robots and LAST Armor....
and Westar Aerospace and Defense Inc