MANY JOINT VENTURE BOARD DIRECTORS find themselves in a perceived state of conflicted interest: deference to their nominating shareholder versus loyalty to the joint venture company. The dilemma is a difficult one, as directors often receive conflicting guidance as to whether they should vote based on what is best for the venture in their own independent, professional judgment, which may limit their nominating shareholder’s interests outside the venture, versus simply voting what is in their shareholder’s interests, which may undercut venture performance and expose them to legal liabilities.

Directors on joint venture boards likely owe certain fiduciary duties to the company, most notably a duty of care and duty of loyalty. The duty of loyalty is especially tricky in joint ventures, as board directors who are employees of one shareholder are simultaneously a fiduciary to their employer and to all other shareholders. This issue of mutual agency introduces three types of conflicts: business opportunity conflicts (i.e., situations where a director needs to decide whether a new opportunity is best pursued through the venture or by their shareholder outside the venture); self-dealing conflicts (i.e., situations where the director needs to vote on whether the venture will buy, sell, or otherwise transact with their shareholder for products, services, technology, or other assistance, and the terms associated with such arrangements); and information disclosure conflicts (i.e., situations where a director must decide what potentially-valuable information can and cannot be shared between the venture and their shareholder).

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