[Federal Register Volume 63, Number 226 (Tuesday, November 24, 1998)]
[Rules and Regulations]
[Pages 64841-64844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31340]
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FARM CREDIT ADMINISTRATION
12 CFR Part 611
RIN 3052-AB71
Organization; Balloting and Stockholder Reconsideration Issues
AGENCY: Farm Credit Administration.
ACTION: Final rule.
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SUMMARY: This final rule will amend Farm Credit Administration (FCA or
Agency) regulations concerning Farm Credit System (System or FCS)
ballots and the effective dates for mergers, consolidations, or
transfers of direct lending authority from a Farm Credit Bank (FCB) or
agricultural credit bank (ACB) to a Federal land bank association
(FLBA). The amendments allow the use of identity codes on ballots, as
long as the votes are tabulated by an independent third party; limit
the scope of the regulation to System banks and associations; and
remove descriptions of specific balloting procedures from the
regulations. The amendments also reduce the earliest effective date of
a merger, consolidation, or transfer of lending authority from 50 days
to 35 days after stockholder notification, or 15 days after submission
of documents to the FCA for final approval, whichever occurs later. The
effects of the amendments are to provide more flexibility to
institutions and stockholders when stockholder votes occur, to extend
security and confidentiality requirements to all stockholder votes of
banks and associations, to apply such requirements only to banks and
associations, and to accelerate the effective date of the above-
described corporate actions.
EFFECTIVE DATE: This regulation will become effective 30 days after
publication in the Federal Register during which either or both Houses
of Congress are in session. Notice of the effective date will be
published in the Federal Register.
FOR FURTHER INFORMATION CONTACT:
Alan Markowitz, Senior Policy Analyst, Office of Policy and Analysis,
Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4479;
or
Rebecca S. Orlich, Senior Attorney, Office of General Counsel, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703)
883-4444.
SUPPLEMENTARY INFORMATION:
I. Background
The FCA proposed amendments to its balloting and reconsideration
period regulations on March 20, 1998 (63 FR 13564) as a part of its
continuing efforts to reduce regulatory burdens on the System. This
rule was proposed in response to requests by several System
institutions to revise the secret ballot procedures and to accelerate
the effective date of certain corporate actions.
As explained more fully below, we have made revisions to the
proposed amendments to Secs. 611.330 and 611.340 and adopted
substantially as proposed the amendments to Secs. 611.505(e) and
611.1122(k).
We received comment letters on the proposed regulations from the
Farm Credit Council (Council) on behalf of its member banks and
associations; AgriBank, FCB (AgriBank); Farm Credit Leasing Services
Corporation (Leasing Corporation); and one individual via electronic
mail. In addition, we received comments via telephone from the Farm
Credit Banks Funding Corporation (Funding Corporation) and from two
FLBAs. AgriBank made general comments supporting the proposed changes.
Other comments addressed specific issues, as described below. All of
the comments were carefully considered in the formulation of the final
rule.
[[Page 64842]]
II. Maintaining Secrecy of Ballots
We amend Sec. 611.330 to (1) apply the regulation only to banks and
associations, (2) give affected institutions more flexibility than in
the existing or the proposed regulation to choose how to comply with
confidentiality requirements, (3) clarify that institutions may allow a
stockholder to give voting discretion to the proxy of the stockholder's
choice, and (4) apply the provisions to all bank and association
stockholder votes, not just director elections. The form of
Sec. 611.330 has been significantly revised, as described more fully
below. We also adopt amendments to Sec. 611.340 to (1) limit its scope
to banks and associations, (2) apply its provisions to all bank and
association stockholder votes, and (3) add a 3-year retention period
for records in votes other than director elections. The remainder of
Sec. 611.340 is adopted substantially as proposed.
The application of the final regulations to only banks and
associations is a change from both the existing and the proposed
regulations and is made in response to comments from the Leasing
Corporation, the Funding Corporation, and the Council. Those commenters
observed that the confidentiality requirements of section 4.20 of the
Act expressly apply only to ``lending institutions'' of the System;
therefore, they suggested amendments to conform the scope of the
regulation to the statute. System institutions made similar comments
when these regulations were originally promulgated in 1988, but we
opted at that time for a broader application. See 53 FR 50384 (December
15, 1988). We have now reconsidered our position and determined that
the purpose of section 4.20 of the Act is met if the regulation applies
only to banks and associations. We believe that the Act's secret ballot
requirement is intended to assure borrowers that their voting decisions
on institutional matters will not adversely affect their loan
relationships. This principle is equally applicable to borrowers of
FLBAs, even though these institutions are agents for the lending banks
and are not direct lenders. Therefore, in the final rule, Secs. 611.330
and 611.340 apply only to System banks and associations.
Section 611.330(a) of the final rule continues to require each bank
and association to adopt policies and procedures ensuring
confidentiality. It also continues to prohibit signed ballots in any
bank or association stockholder vote, even when an independent third
party tabulates the votes. The only persons that may have access to
information regarding how or whether a stockholder has voted are an
independent third party and the FCA.
Paragraph (b) of Sec. 611.330 allows banks and associations to use
identity codes on ballots or other types of identification procedures
in all stockholder votes, provided that individual stockholder votes
can be identified only by an independent third party that tabulates the
votes. In weighted voting, an independent third party is still required
to tabulate the votes. Unlike the existing regulation, the final rule
does not contain descriptions of permissible procedures, because we
believe that some institutions may have incorrectly viewed the specific
descriptions as limiting the range of permissible procedures.
Paragraph (c) of Sec. 611.330 has no substantive changes from the
existing regulation. It has been restated to clarify that, in proxy
voting, a stockholder's vote is not considered to be final until
balloting begins. Until balloting begins, a stockholder may withdraw
the proxy and vote the ballot himself or herself. This means that an
institution must retain all proxy ballots unopened until the
stockholders who attend the stockholders' meeting have had an
opportunity to withdraw any proxy ballots that have been mailed.
Subsequent to the publication of the proposed rule, an FLBA
informed us that it had discarded approximately 40 percent of the proxy
ballots cast in a recent stockholder vote because some stockholders had
failed to mail back a proxy authorization form along with their ballot.
The FLBA asked us to amend the regulations to allow proxy
authorizations either to be a part of the proxy ballot, which is a
format typically used by corporations, or to be printed on the back of
the return envelope.
The inclusion of a signed proxy authorization form on the ballot
itself would violate the Act's prohibition against signed ballots.
However, printing the proxy authorization form on the back of the
return envelope would not violate either the existing or the final
rule, as long as the ballot is in a separate sealed envelope inside of
the return envelope.\1\ We believe that the broader language of the
final rule will help associations, especially those that previously had
stockholder votes with significant numbers of spoiled ballots, to craft
more user-friendly secret ballot procedures.
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\1\ Only one envelope would be needed if an independent third
party opens the envelope and tabulates the votes.
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We reviewed the proxy voting practices used by the System and
observed that some practices differ from those used by publicly held
corporations. Although some FCS institutions permit stockholders to
choose a proxy other than the one designated by the institution,
stockholders do not usually receive the right to give voting discretion
to their proxy. In order to provide stockholders greater voting
flexibility, we add a new paragraph (d) to Sec. 611.330 clarifying that
institutions are permitted to give stockholders the opportunity to give
voting discretion to their proxies. An institution granting this
discretion to its stockholders does not violate the secret ballot
requirements in the Act.
The Council asked us to confirm the System's understanding that,
notwithstanding the provision that an independent third party that
tabulates the votes may not make disclosures about how or whether an
individual stockholder voted, the third party could disclose the total
numerical results of a stockholder vote. The Council stated that such
disclosure helps ``to preserve confidence in the integrity'' of the
stockholder vote. The final rule does not prohibit the disclosure of
total numerical results, but we encourage institutions with weighted
voting to consult with their stockholders on this issue. In weighted
voting, as the Council pointed out, it is theoretically possible to
determine from the total results how individual stockholders have
voted, particularly when the institution has a relatively small number
of stockholders.
We received two additional comments regarding the proposed
amendments to Sec. 611.330. AgriBank stated that the provisions
regarding confidentiality in a stockholder vote appeared to ``fairly
balance a stockholder's right to a confidential ballot with the rather
minimal burden imposed on System institutions.'' An individual
commenter expressed concern regarding the proposal to allow the use of
identity codes on ballots. This commenter stated that the codes would
defeat the secrecy of voting and provide an opportunity for misuse by
those who had access to the marked ballots. We understand the
commenter's concern but believe that the final rule's requirement of an
independent third party to open the ballots and tabulate votes is an
adequate means of preventing misuse of ballot information. We will, of
course, continue to evaluate compliance as a part of our corporate
approvals and examinations.
An FLBA commented on the proposed addition to Sec. 611.340(c) that
provided a 5-year minimum retention
[[Page 64843]]
period for records in votes other than director elections. The FLBA
requested that, in any case where an independent third party tabulates
votes and maintains the voting records, the independent third party be
required to hold the voting materials for only 3 years. With respect to
votes other than director elections, we agree with the FLBA that a 3-
year retention period is adequate and have reduced the retention period
in the final rule for all voting records that do not pertain to
director elections. The minimum retention period applies to such
records held by either the institution or an independent third party.
However, for director elections, the existing retention period of the
term of the director is unchanged. In most cases, director terms are
for 3 years or less, and there is no compelling reason to retain the
voting records for a period longer than the term of the director.
III. Change of Effective Date for Merger, Consolidation, or
Transfer of Lending Authority
We amend Sec. Sec. 611.505(e) and 611.1122(k) to provide that, in
the case of a transfer of direct lending authority or an association
merger, the effective date of the transfer or merger may be as early as
35 days after stockholder notification of the results of the
stockholder vote on the transaction, or 15 days after submission of
final documents to the FCA, whichever occurs later. The effect of these
changes is to accelerate by 15 days the earliest possible date when the
merger or transfer of lending authority may occur. In addition,
language is added to the same paragraphs to restate the requirement in
section 7.9(b)(3)(A) of the Act that, if a valid petition for
reconsideration is filed in a timely manner with the FCA, the merger or
transfer of lending authority cannot take effect until the expiration
of 60 days after the date on which stockholders were notified of the
final result of the first vote. These provisions are adopted
substantially as proposed.
We received two comments on the proposed effective date amendments.
AgriBank stated that it fully supported the proposal, especially in
merger transactions where the merging institutions will be able to
implement the wishes of their stockholders more quickly. An individual
commenter was opposed to the proposed amendment, maintaining that
stockholders should have the full amount of time required by statute to
reconsider the merger or transfer of lending authority, because of the
importance of the matters involved. We agree with the commenter that
the decision is an important one and point out that the amendments we
have adopted do not shorten the statutory time period during which
stockholders may petition the FCA for a reconsideration vote.
Stockholders will still be able to petition the Agency up to 35 days
after results of the original vote are mailed: the 30-day period
required by section 7.9(b)(3)(A) of the Act, and 5 days for delivery of
the notice to the stockholders. The amendment merely shortens the time
for the FCA to process final approval documents.
List of Subjects in 12 CFR Part 611
Agriculture, Banks, banking, Rural areas.
For the reasons stated in the preamble, part 611 of chapter VI,
title 12 of the Code of Federal Regulations is amended to read as
follows:
PART 611--ORGANIZATION
1. The authority citation for part 611 is revised to read as
follows:
Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 4.15,
4.20, 4.21, 5.9, 5.10, 5.17, 7.0-7.13, 8.5(e) of the Farm Credit Act
(12 U.S.C. 2011, 2021, 2071, 2091, 2121, 2142, 2183, 2203, 2208,
2209, 2243, 2244, 2252, 2279a-2279f-1, 2279aa-5(e)); secs. 411 and
412 of Pub. L. 100-233, 101 Stat. 1568, 1638; secs. 409 and 414 of
Pub. L. 100-399, 102 Stat. 989, 1003, and 1004.
2. Subpart C is amended by revising the heading to read as follows:
Subpart C--Election of Directors and Other Voting Procedures
3. Section 611.330 is revised to read as follows:
Sec. 611.330 Confidentiality in voting.
(a) No bank or association may use signed ballots in stockholder
votes. Each bank and association must adopt policies and procedures to
ensure that all information and materials regarding how or whether an
individual stockholder has voted remain confidential, including with
respect to the institution, its directors, stockholders, or employees,
or any other person except:
(1) An independent third party tabulating the vote; or
(2) The Farm Credit Administration.
(b) A bank or association may use balloting procedures, such as an
identity code on the ballot, that can be used to identify how or
whether an individual stockholder has voted only if the votes are
tabulated by an independent third party. In weighted voting, the votes
must be tabulated by an independent third party. An independent third
party that tabulates the votes must certify in writing that such party
will not disclose to any person (including the institution, its
directors, stockholders, or employees) any information about how or
whether an individual stockholder has voted, except that the
information must be disclosed to the Farm Credit Administration if
requested.
(c) Once a bank or association receives a ballot, the vote of that
stockholder is final, except that a stockholder may withdraw a proxy
ballot before balloting begins at a stockholders' meeting.
(d) A bank or association may give a stockholder voting by proxy an
opportunity to give voting discretion to the proxy of the stockholder's
choice, provided that the proxy is also a stockholder eligible to vote.
4. Section 611.340 is amended by removing the words ``the election
of directors'' and adding in their place, the word ``voting'' in the
heading; by removing the words ``System institution'' and adding in
their place, the words ``bank and association'' and by removing the
words ``the election of board members'' and adding in their place, the
words ``a stockholder vote'' in paragraph (a); by removing the word
``shall'' and adding in its place, the word ``must'' each place it
appears in paragraphs (a) and (b); and by revising paragraphs (c) and
(d) to read as follows:
Sec. 611.340 Security in voting.
* * * * *
(c) Ballots and proxy ballots must be safeguarded before the time
of distribution or mailing to voting stockholders and after the time of
receipt by the bank or association until disposal. In an election of
directors, ballots, proxy ballots and election records must be retained
at least until the end of the term of office of the director. In other
stockholder votes, ballots, proxy ballots, and records must be retained
for at least 3 years after the vote.
(d) The voting procedures of each institution must provide for the
establishment of a tellers committee or other designated group of
persons which must be responsible for validating ballots and proxies
and tabulating voting results. An institution and its officers,
directors, and employees may not make any public announcement of the
results of a stockholder vote before the tellers committee or other
designated persons have validated the results of the vote.
Subpart E--Transfer of Authorities
5. Section 611.505 is amended by revising paragraph (e) to read as
follows:
[[Page 64844]]
Sec. 611.505 Farm Credit Administration review.
* * * * *
(e) The effective date of a transfer may not be less than 35 days
after mailing of the notification to stockholders of the results of the
stockholder vote, or 15 days after the date of submission to the Farm
Credit Administration of all required documents for the Agency's
consideration of final approval, whichever occurs later. If a petition
for reconsideration is filed within 35 days after the date of mailing
of the notification of stockholder vote, the constituent institutions
must agree on a second effective date to be used in the event the
transfer is approved on reconsideration. The second effective date may
not be less than 60 days after stockholder notification of the results
of the first vote, or 15 days after the date of the reconsideration
vote, whichever occurs later.
Subpart G--Mergers, Consolidations, and Charter Amendments of
Associations
6. Section 611.1122 is amended by revising paragraph (k) to read as
follows:
Sec. 611.1122 Requirements for mergers or consolidations.
* * * * *
(k) The effective date of a merger or consolidation may not be less
than 35 days after the date of mailing of the notification to
stockholders of the results of the stockholder vote, or 15 days after
the date of submission to the Farm Credit Administration of all
required documents for the Agency's consideration of final approval,
whichever occurs later. If a petition for reconsideration is filed
within 35 days after mailing of the notification to stockholders of the
results of the stockholder vote, the constituent institutions must
agree on a second effective date to be used in the event the merger or
consolidation is approved on reconsideration. The second effective date
may not be less than 60 days after stockholder notification of the
results of the first vote, or 15 days after the date of the
reconsideration vote, whichever occurs later.
Dated: November 16, 1998.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 98-31340 Filed 11-23-98; 8:45 am]
BILLING CODE 6705-01-P
