[Federal Register Volume 59, Number 40 (Tuesday, March 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4536]
[[Page Unknown]]
[Federal Register: March 1, 1994]
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FARM CREDIT ADMINISTRATION
12 CFR Part 650
RIN 3052-AB49
Federal Agricultural Mortgage Corporation; Conflicts of Interest
AGENCY: Farm Credit Administration.
ACTION: Final rule.
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SUMMARY: The Farm Credit Administration (FCA), by the Farm Credit
Administration Board, adopts a new regulation relating to reporting and
disclosure of conflicts of interest by directors, officers, and
employees of the Federal Agricultural Mortgage Corporation
(Corporation). The regulation is adopted in response to section 514 of
the Farm Credit Banks and Associations Safety and Soundness Act of
1992. Section 514 directs the FCA to ensure that its regulations
require the disclosure of financial information and the reporting of
potential conflicts of interest by directors, officers, and employees
of all Farm Credit System (System) institutions and that such
requirements are adequate to fulfill the purposes of the section.
The regulation requires the Corporation to adopt a conflict-of-
interest policy that defines the types of relationships, transactions,
or activities that might reasonably be expected to give rise to a
potential conflict of interest. The regulation also requires the
reporting of sufficient information about financial interests,
transactions, relationships, and activities to inform the Corporation
about potential conflicts of interest. The regulation further requires
disclosure to shareholders, investors, and potential investors of any
unresolved conflicts of interest involving its directors, officers, and
employees identified by the Corporation under the policy. Such
disclosure is in addition to disclosures already required under the
Federal securities laws.
EFFECTIVE DATE: The regulation shall become effective 180 days after
publication in the Federal Register or on such later date as may be
necessary to comply with the statutory requirement for a delayed
effective date of 30 days after Federal Register publication 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: Suzanne J. McCrory, Director, Office
of Secondary Market Oversight, Farm Credit Administration, McLean, VA
22102-5090 (703) 883-4280, TDD (703) 883-4444.
SUPPLEMENTARY INFORMATION: On October 14, 1993, the FCA published for
comment conflict-of-interest regulations (58 FR 53161) for the
Corporation. The regulations were proposed in response to section 514
of the Farm Credit Banks and Associations Safety and Soundness Act of
1992, Pub. L. 102-552, 106 Stat. 4102 (1992 Act). The 1992 Act directed
the FCA to review its current regulations regarding the disclosure of
financial information and the reporting of potential conflicts of
interest by the directors, officers, and employees of System
institutions to determine whether the regulations: (1) Are adequate to
fulfill the purpose of section 514 and other purposes determined by the
FCA to be necessary or appropriate, consistent with the Farm Credit Act
of 1971, as amended (1971 Act); (2) require the disclosure of financial
information and reporting of potential conflicts of interest by the
directors, officers, and employees of all System institutions; and (3)
require such disclosure of all of the appropriate directors, officers,
or employees of System institutions. The 1992 Act further directed the
FCA to amend its current financial disclosure and conflict-of-interest
regulations to carry out the purpose of section 514, which is to ensure
that FCA regulations require the disclosure of financial information
and the reporting of potential conflicts of interest to provide
sufficient information for: (1) Stockholders to make informed decisions
regarding the operation of the institutions; (2) investors and
potential investors to make informed investment decisions; and (3) the
FCA to examine and regulate all System institutions effectively and
efficiently.
The comment period closed on November 15, 1993. Comments were
received from the Corporation and from The Farm Credit Council (FCC), a
trade association for the banks and associations of the System. The
Farm Credit Bank of Baltimore submitted a letter endorsing the comments
of the FCC.
The Corporation supported the regulatory approach to conflicts of
interest, but made a number of substantive and clarifying comments.
Most notably, the Corporation asserted that the definition of
``employee'' is broader than necessary to effectuate the stated purpose
of the 1992 Act and will result in irrelevant or immaterial reporting
by receptionists, secretaries, bookkeepers, clerks, and other employees
without regard to their functions or duties at the Corporation. The
Corporation noted that its existing policies also define ``employee''
broadly, but reporting requirements are tailored to screen out
reporting by employees who are not in a position to influence activity
with respect to their financial interests.
The Corporation suggested that the term ``employee'' be replaced
with the term ``key employee,'' defined to mean ``any salaried manager
or supervisor or part-time, full-time, or temporary salaried employee
who is involved in any significant activity related to the processing,
analysis, or guarantee of loan pools or other significant financial
activity or who is engaged in any policy-making, managerial,
supervisory, or professional function for the Corporation.'' This
definition would apply only to employees other than officers and
directors, who are already specifically referenced in the regulation.
The FCA is opposed to removing groups of employees from the
regulation's applicability. Although the proposed regulation broadly
defines potential conflicts of interest to apply to all employees, it
requires the Corporation to define the types of specific transactions,
relationships, and activities that reasonably could be expected to give
rise to potential conflicts of interest and to require reporting of
sufficient information to inform the Corporation of these potential
conflicts of interest. The FCA believes that the regulation gives the
Corporation sufficient latitude to tailor its reporting requirements
based upon the function various employees perform for the Corporation.
The FCA believes that each employee, no matter what his or her
function, should be subject to a requirement to report any matter that
might adversely affect impartiality in the performance of his or her
duties. Accordingly, the FCA declines to replace the term ``employee''
with the term ``key employee'' in the definition of ``potential
conflict of interest.'' However, because officers are separately
defined, the FCA has amended the definition of ``employee'' to exclude
officers.
The Corporation and the FCC requested that the language of the
regulation be amended to clarify that only material conflicts need to
be resolved to avoid disclosure. The FCA confirms that this is the
intended result and adopts minor language changes to the definition of
``resolved'' and to Sec. 650.3 to make this point clearer.
The Corporation requested that the regulation be modified to
provide a defined period of time for the development of the conflict-
of-interest policy by the Corporation and suggested that a reasonable
time period would be 180 days from the effective date of the final
rule, noting that developing such a policy will involve issues that
must be decided by the Corporation's Board (Board).
The FCA recognizes that the policy required by the regulation may
be different from the Corporation's existing policy and that Board
participation in its development is required. Indeed, in requiring the
Corporation to adopt a conflict-of-interest policy, the FCA
contemplated that the Corporation must act through its board of
directors. The FCA views the request as a reasonable one, but believes
that 180 days from the date of publication of the final rule should be
a sufficient period to develop a policy. Consequently, the FCA has
adopted a delayed effective date of 180 days after publication in the
Federal Register or such later date as may be necessary to comply with
the statutory requirement for a delayed effective date of 30 days
during which either or both Houses of Congress are in session. In the
interim, the FCA expects that employees of the Corporation and its
subsidiaries will adhere to high standards of honesty, integrity,
impartiality, loyalty, and care consistent with applicable law and
regulation in furtherance of the Corporation's public purpose. The FCA
further expects that the Corporation will be vigilant in monitoring and
resolving potential conflicts of interest under its existing policy.
The Corporation also suggested adding a requirement to establish
procedures for resolving material conflicts of interest and for
maintaining adequate records of non-material conflicts of interest and
resolutions of material conflicts of interest. The FCA believes that
these requirements are fairly implied from the requirement to disclose
unresolved conflicts of interest and the requirement to retain, for a
period of 6 years, reports and statements on potential conflicts of
interests and documentation of materiality determinations and
resolutions of conflict of interests. However, an express requirement
to develop procedures for resolving material conflicts of interest has
been added as paragraph (e) of Sec. 650.2 of the final regulation and
succeeding paragraphs have been renumbered.
The FCC expressed general agreement with the rationale underlying
the FCA's decision to treat the Corporation differently from System
banks and associations, but expressed reservations about the extent of
delegation granted to the Corporation to define its own conflict-of-
interest policy, especially with regard to standards that may be
established for members of the Board. In particular, the FCC asserted
that the emphasis in the preamble on the fiduciary duties of directors
to all of the shareholders ignores the representative character of the
board of directors.\1\ Although the FCC agrees that traditional
concepts of fiduciary responsibility apply, it asserts that System and
non-System directors are under no obligation to disregard the interests
of the shareholders who elected them, and that to prohibit
participation by System directors or non-System directors in board
deliberations and voting on matters potentially affecting the interests
of System institutions or non-System institutions would be contrary to
congressional intention.
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\1\The Corporation's Board is composed of 15 directors--5
elected by class A shareholders (non-System financial institutions
such as commercial banks and insurance companies), 5 elected by
class B shareholders (System institutions), and 5 appointed by the
President.
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In addition, the FCC asserted that it would be inappropriate for
the Corporation to adopt a policy that prohibits directors from
discussing matters deemed confidential by Corporation management with
anyone other than Board members and employees of the Corporation, as it
would impede directors in the exercise of their independent business
judgment if they were unable to disclose information to their own
advisors. The FCC noted that ``legitimately confidential'' information
would, of course, be disclosed to advisors on a confidential basis. In
addition, the FCC asserted that System directors must be free to
discuss information with a reasonable number of other individuals who
represent System institutions, subject to strict guarantees of
confidentiality.
The principles of statutory construction require that all of a
statute's provisions be interpreted together. As the FCC has noted, the
representative character of the Corporation's Board must be reconciled
with its corporate structure and associated principles of corporate
governance. In the FCA's opinion, such a reconciliation can be achieved
by: (1) Interpreting ``representative'' to be a qualification for
office; and (2) recognizing that directors owe fiduciary duties to the
Corporation and all its shareholders (rather than to the electing class
of shareholders exclusively or primarily). The FCA's interpretation of
``representative'' does not require elected directors to disregard the
perspectives of the electing class. Rather, directors should share
these perspectives with the Board at large so that each director can
act in the best interests of the Corporation and all of its
shareholders.
The FCA believes that the statutory term ``representative'' means
that elected directors must have an official affiliation with a class A
or class B institution in order to serve as a Corporation director. The
FCA views an official affiliation as a substantial and visible
connection such as serving as director, officer, or employee of a class
A or class B institution. This interpretation of ``representative''
stems in part from the vacancy and continuation of membership
provisions of sections 8.2(a)(4) and 8.2(b)(5)of the 1971 Act. Vacancy
of an elected Board seat is filled by the permanent Board ``from among
persons eligible for election to the position for which the vacancy
exists,'' suggesting that some objective eligibility criterion exists
other than being elected by the shareholder class. The continuation
provision has the effect of terminating the term of a director when he
or she ceases to be ``a representative.'' By contrast, were
``representative'' interpreted broadly to mean anyone who is selected
by the institutions to act as a delegate, everybody would be eligible
for election when a vacancy occurred and the automatic termination
provisions would not work. Taken together, these provisions suggest
that elected directors must have an official affiliation that is
visible and substantial so that the presence and termination of this
affiliation can be readily ascertained.
Although the Board is representative in nature, Congress chose a
corporate structure to govern the operations of the Corporation. Common
law corporate principles affirm the fiduciary duty of directors to act
in the best interests of the Corporation and all of its shareholders.
The FCA believes that the representative character of the Board does
nothing to alter this fiduciary duty of directors.\2\ That is,
irrespective of the manner of appointment or election, each director
has a duty to act in the best interests of the Corporation and all of
its shareholders. The legislative history supports this interpretation
by indicating, ``There is to be no distinction between the three
categories of directors in terms of their duties and responsibilities
as directors to the Mortgage Corporation and all stockholders.''\3\
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\2\Some public companies have boards with representative
features analogous though not identical to the Corporation's. For
example, public companies may have seats designated to be elected by
minority shareholders or seats designated to be filled by a union
representative. However, the fiduciary responsibilities of directors
are unchanged by the representational aspects of these boards,
according to an official from the Securities and Exchange Commission
with whom the FCA consulted. Each director owes fiduciary duties to
the Corporation and its shareholders collectively.
\3\Senate Report 100-230, p. 52 (November 20, 1987).
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When ``representative'' is interpreted as a qualification that
directors must satisfy to be elected, directors can discharge their
fiduciary duties in the context of a representative Board. Although
directors may attain Board seats through different processes, each
needs the same opportunity to understand the perspectives of different
shareholders and secondary market participants on an issue to properly
discharge his or her fiduciary duties to the Corporation. With an
official affiliation, elected directors are authoritatively able to
bring the perspectives of the class to the Board's deliberations. When
the elected directors convey such perspectives to the Board at large,
each director gets the information needed to discharge his or her
fiduciary duties to the Corporation and all of its shareholders.
The FCA believes that ``representative'' should not be interpreted
to mean a delegate elected solely to further the viewpoints of the
electing class without regard to the impact on the Corporation and all
its shareholders. Such an interpretation implies that directors need
not consider the interests of any class of Corporation shareholders
lacking authority to elect them--a result inconsistent with corporate
common law principles of a director's fiduciary duties and
congressional intent.
Specifically, the FCA responds to the FCC's comment by noting that
the use of information gained in private consultations with class
members about Corporation matters to inform only a director's personal
judgments but not the Board deliberations would systematically prevent
class A directors from learning the views of class B institutions and
class B directors from learning the views of class A institutions. The
``public directors'' would have neither perspective. This withholding
of information would likely lead to factional voting patterns because
no director would be able to understand and weigh the many and
different views of all shareholders. Because each director is obliged
to act in the best interests of the Corporation and all of its
shareholders, the FCA believes that withholding from Board
deliberations useful perspectives and pertinent information gained from
private consultations could undermine the ability of directors to carry
out their fiduciary duties.
In light of its interpretation of the ``representative'' nature of
the Corporation's Board, the FCA makes the following determinations
about three amendments requested by the FCC related to the
representative character of the Board.
First, the FCC requested that the definition of ``potential
conflict of interest'' be modified to recognize that it is not a
conflict of interest for Corporation directors to consider or act on
matters that affect the financial interests of the class of
shareholders that elected them if the matter is one of general
applicability that affects all the shareholders in that class and does
not have its effect exclusively or disproportionately on the particular
shareholder with which that director is affiliated.
The FCA agrees that ``potential conflict of interest'' should not
be so broadly defined as to make it impermissible for any of the 10
elected directors to participate in matters affecting the financial
interests of the class or the institution with which he or she is
affiliated. To regard participation by an elected director in such
matters as impermissible would render the Board nonfunctional since
such decisions are unavoidable and large blocs of directors would be
disenfranchised on certain general questions being deliberated by the
Board. However, the FCA believes that no change is needed to respond to
the FCC's concerns because the regulation does not disqualify directors
from participating in deliberations affecting the electing class of
institutions.
The FCA believes that matters affecting class institutions as
secondary market participants would not likely constitute potential
conflicts of interests. Therefore, the regulatory definition of
``potential conflict of interest'' does not impute the interests of the
class to the directors elected from that class. However, FCA notes that
any Board action having differential effects on the class as
shareholders may constitute a breach of fiduciary duties by directors.
A director must act in the best interest of the Corporation and all of
its shareholders.
Second, the FCC requested that the regulation be modified to
provide that Corporation directors may discuss with representatives of
the shareholder class that elected them the implications of a proposed
action that has general applicability and that such activity not be
considered a conflict of interest.
The regulation neither permits nor prohibits consultations by
Corporation directors with outside parties. The appropriateness of such
consultations depends on the facts and circumstances at hand. FCA
declines to create a safe harbor for director consultations in order to
avoid sanctioning consultations that might be inconsistent with a
director's fiduciary duties.
While the FCA agrees with the FCC that directors have a duty to
exercise informed independent judgment on Corporation matters, and may
from time to time need to consult knowledgeable advisors, the FCA also
recognizes the right of the Corporation's Board to maintain the
confidentiality of the Corporation's business matters. Consequently,
the consultation of advisors in order to make an independent judgment
must be undertaken with due regard for the Corporation's interest in
maintaining confidentiality. Any advisors consulted by a director on a
confidential matter would be bound by the Board's confidentiality
constraints and could, by virtue of the consultation, become insiders
of the Corporation subject to the prohibitions of the Securities
Exchange Act of 1934 and rules thereunder. The director should make
every effort to ensure that the confidentiality of consultations can
and will be maintained. Fiduciary duty to the Corporation requires the
director to share with the Board any material information in his or her
possession that is germane to Board decisions, regardless of its
source.
Third, the FCC requested that the regulation be modified to
recognize that the Corporation's directors are free to vigorously
advance the interest of the institutions they represent, provided they
make clear that they are not acting in their capacity as Corporation
directors.
The FCA declines to modify its regulation as requested because it
believes that such a modification might sanction actions inconsistent
with a director's fiduciary duties. As the FCC's comment letter noted,
inherent within the organizational framework of the Corporation's Board
is the potential for perceived conflicts of interest. Elected directors
typically have simultaneous responsibilities to the Corporation and to
a competing class A or B institution.
The FCA agrees with the FCC's comment that such directors are not
agents of the Corporation in all their doings and may also owe
fiduciary duties to other institutions. However, the FCA believes a
Corporation director who advances the interests of another institution
must be mindful of his or her fiduciary duties to the Corporation and
its shareholders, including System and non-System shareholders. Where
directors have fiduciary duties to competing institutions, they must
balance these duties to avoid harming either institution. To advance
the interests of one corporation to which a director owes duties in a
manner that injures another corporation to which he also owes fiduciary
duties could heighten shareholder concern about the good faith and fair
dealing of the director. The difficulty of balancing fiduciary duties
to competing institutions has previously led the FCA to prohibit
directors of Farm Credit banks and associations from serving as
directors of competing institutions. While the FCA cannot prohibit such
dual responsibilities, it is reluctant to sanction by regulation those
actions by directors to advance the interests of one institution that
are potentially at the expense of the Corporation's interests.
As in the previous matter, the FCA believes that the
appropriateness of a director's action must be evaluated in light of
the specific circumstances. In some cases, action might be considered
improper; in others it might not. As a result, the FCA declines to
exclude from the definition of ``potential conflict of interest'' those
actions by the Corporation's directors to ``advance vigorously the
interests'' of a competing institution. The effect of declining to make
such a change will be to continue to subject such actions to scrutiny
as potential conflicts of interest.
In addition to its general comments, the FCC made a number of
specific suggestions regarding particular sections of the regulation.
The FCC suggested that the definition of ``potential conflict of
interest'' be changed to parallel the definition of ``conflict of
interest'' in the regulations proposed for System banks and
associations. Specifically, the FCC recommended changing ``might
adversely affect or appear to adversely affect'' to ``actually affects
or appears to affect.''
The change proposed by the FCC would narrow the reportable
conflicts to those that an individual believes would affect or would
appear to affect the individual's impartiality. The FCA believes that
it would be inappropriate to adopt the FCC's suggestion in light of the
fact that the approach taken for Farm Credit banks and associations
differs from the regulatory approach for the Corporation. Specifically,
the FCA has prohibited certain activities for employees and directors
of Farm Credit banks and associations. Because most conflicts are
banned in the regulation, a narrower definition of reportable conflicts
of interest seems appropriate. By contrast, Corporation directors,
officers, and employees are not subject to similar regulatory
prohibitions. In the absence of specific prohibitions, the FCA believes
it important to have reporting requirements that establish the broadest
possible net so that the actual existence of a conflict is determined
by the Corporation rather than the reporting individual. The regulation
allows the Corporation to review all potential conflicts of interest
for materiality before determining that an actual conflict must be
resolved or disclosed. Because the FCA believes the different
regulatory approaches warrant different reporting requirements, the FCA
declines to make the change requested by the FCC.
The FCC asserted that the regulation should be extended to agents
in a manner similar to that currently in effect for agents of System
banks and associations, especially since many of the various aspects of
the Corporation's business are accomplished through agents, and
recommended a definition similar to that used for banks and
associations.
Although responding to the direction of the 1992 Act does not
require that the regulation address conflicts of interest of agents,
the FCA considered this suggestion in light of how the Corporation's
business activities are structured. Since the statute permits the
activities of the Corporation to be carried out through affiliates
chartered under state law, the FCA concluded that the intention of
section 514 could be subverted were the requirements of the regulation
not applied to such affiliates. Accordingly, the final regulation
clarifies that the Corporation policy required by the regulation must
also apply to officers, directors, and employees of any affiliates the
Corporation establishes to carry out its function. The clarification is
accomplished by expanding the definition of ``Corporation'' to include
affiliates established under section 8.3(b)(13) of the 1971 Act.
Similarly, with respect to agents that are not affiliates, the
final regulation would require the Corporation's policy to address
potential conflicts of interest by agents. The FCA recognizes that the
Corporation has less control over agents that are not affiliates. The
FCA believes the regulation is sufficiently flexible to permit the
Corporation to make reasonable distinctions. Definitions of ``agent''
and ``affiliate'' have been added in the final regulation.
The FCC suggested that the same basic due process and other
protections set forth in the recently proposed System bank and
association regulation be incorporated in the final regulation for the
Corporation. The FCC deems this especially important in view of the
fact that the penalties of part C of title V of the 1971 Act are
available to enforce the policy. Specifically, the FCC suggested adding
the following:
(1) A requirement that all directors and employees be informed of
the regulatory and policy requirements;
(2) A requirement that the policy establish various criteria for
business relationships and transactions to provide guidance to
directors and employees;
(3) A requirement that there be a reasonable time during which
directors and employees may terminate prohibited transactions;
(4) A requirement for recusal procedures;
(5) A requirement for a standards-of-conduct officer and
documentation of his or her actions; and
(6) A requirement for appeal procedures.
The FCA has considered each of these suggestions in light of the
different approaches taken in the proposed regulations for the
Corporation and for System banks and associations. Because of the
different approach, the FCA believes that the specific requirements
outlined in the proposed bank and association regulation are
appropriate in some cases but not others. Specifically:
(1) The FCA agrees that all directors and employees should be
informed of the conflict-of-interest requirements and has added
Sec. 650.2(g) to accomplish this.
(2) Because Sec. 650.2(a) already requires the Corporation to
define the types of activities, transactions, and relationships that
could give rise to potential conflicts of interests, criteria for
permissible business relationships and transactions will be
established, at least by exclusion. Consequently, the FCA finds
changing the regulation unnecessary.
(3) The FCA agrees with the FCC that directors, officers, and
employees should have an opportunity to bring themselves into
compliance when the policy changes and has added language to that
effect in Sec. 650.2(g).
(4) In response to a Corporation comment, the FCA added a
requirement that the Corporation's policy establish procedures for
resolving and disclosing material conflicts of interest. The FCA has
not specifically included a requirement that recusal procedures be
established because recusal is just one way in which a conflict of
interest can be resolved.
(5) The FCA finds it unnecessary to require a standards-of-conduct
officer, although the Corporation is free to appoint one, and believes
that documentation requirements are already fairly implied from the
recordkeeping requirement.
(6) The Corporation may opt to establish appeals procedures as part
of its resolution methods. However, the FCA declines to add such a
requirement by regulation because procedures for conflict resolution
are to be specified by the Corporation. The FCA believes that the
appropriateness of appeal procedures can only be evaluated in light of
the policy and procedures, which are yet to be developed. Finally,
since the Corporation's policy must be adopted by the Board, directors
will have an opportunity to address the concerns expressed in the FCC's
letter as they deem appropriate.
At the request of the FCC, the FCA changed ``highest standards'' to
``high standards'' in Sec. 650.4(a)(1) to achieve consistency with the
regulation governing Farm Credit banks and associations. The FCA finds
it unnecessary to define ``director'' as the FCC requested. The FCA
previously eliminated the definition in its proposed rules for Farm
Credit banks and associations, making both regulations consistent.
List of Subjects in 12 CFR Part 650
Agriculture, Banks, Banking, Conflicts of interest, Rural areas.
For the reasons stated in the preamble, a new part 650 of chapter
VI, title 12 of the Code of Federal Regulations is added to read as
follows:
PART 650--FEDERAL AGRICULTURAL MORTGAGE CORPORATION
Subpart A--Conflicts of Interest
Sec.
650.1 Definitions.
650.2 Conflict-of-interest policy.
650.3 Implementation of policy.
650.4 Director, officer, employee, and agent responsibilities.
Subpart B--[Reserved]
Authority: Secs. 5.9, 5.17, 8.11 of the Farm Credit Act; 12
U.S.C. 2243, 2252, 2279aa-11; sec. 514 of Pub. L. 102-552, 106 Stat.
4102.
Subpart A--Conflicts of Interest
Sec. 650.1 Definitions.
(a) Agent means any person (other than a director, officer, or
employee of the Corporation) who represents the Corporation in contacts
with third parties or who provides professional services such as legal,
accounting, or appraisal services to the Corporation.
(b) Affiliate means any entity established under authority granted
to the Corporation under section 8.3(b)(13) of the Farm Credit Act of
1971, as amended.
(c) Corporation means the Federal Agricultural Mortgage Corporation
and its affiliates.
(d) Employee means any salaried individual working part-time, full-
time, or temporarily for the Corporation.
(e) Entity means a corporation, company, association, firm, joint
venture, partnership (general or limited), society, joint stock
company, trust (business or otherwise), fund, or other organization or
institution.
(f) Material, when applied to a potential conflict of interest,
means the conflicting interest is of sufficient magnitude or
significance that a reasonable observer with knowledge of the relevant
facts would question the ability of the person having such interest to
discharge official duties in an objective and impartial manner in
furtherance of the interests and statutory purposes of the Corporation.
(g) Officer means the salaried president, vice presidents,
secretary, treasurer, and general counsel, or other person, however
designated, who holds a position of similar authority in the
Corporation.
(h) Person means individual or entity.
(i) Potential conflict of interest means a director, officer, or
employee of the Corporation has an interest in a transaction,
relationship, or activity that might adversely affect, or appear to
adversely affect, the ability of the director, officer, or employee to
perform his official duties on behalf of the Corporation in an
objective and impartial manner in furtherance of the interest of the
Corporation and its statutory purposes. For the purpose of determining
whether a potential conflict of interest exists, the following
interests shall be imputed to a person subject to this regulation as if
they were that person's own interests:
(1) Interests of that person's spouse;
(2) Interests of that person's minor child;
(3) Interests of that person's general partner;
(4) Interests of an organization or entity that the person serves
as officer, director, trustee, general partner or employee; and
(5) Interests of a person, organization, or entity with which that
person is negotiating for or has an arrangement concerning prospective
employment.
(j) Resolved, when applied to a potential conflict of interest that
the Corporation has determined is material, means that circumstances
have been altered so that a reasonable observer with knowledge of the
relevant facts would conclude that the conflicting interest would not
adversely affect the person's performance of official duties in an
objective and impartial manner in furtherance of the interests and
statutory purposes of the Corporation.
Sec. 650.2 Conflict-of-interest policy.
The Corporation shall establish and administer a conflict-of-
interest policy that will provide reasonable assurance that the
directors, officers, employees, and agents of the Corporation discharge
their official responsibilities in an objective and impartial manner in
furtherance of the interests and statutory purposes of the Corporation.
The policy shall, at a minimum:
(a) Define the types of transactions, relationships, or activities
that could reasonably be expected to give rise to potential conflicts
of interest.
(b) Require each director, officer, and employee to report in
writing, annually, and at such other times as conflicts may arise,
sufficient information about financial interests, transactions,
relationships, and activities to inform the Corporation of potential
conflicts of interest;
(c) Require each director, officer, and employee who had no
transaction, relationship, or activity required to be reported under
paragraph (b) of this section at any time during the year to file a
signed statement to that effect;
(d) Establish guidelines for determining when a potential conflict
is material in accordance with this subpart;
(e) Establish procedures for resolving or disclosing material
conflicts of interest.
(f) Provide internal controls to ensure that reports are filed as
required and that conflicts are resolved or disclosed in accordance
with this subpart.
(g) Notify directors, officers, and employees of the conflict-of-
interest policy and any subsequent changes thereto and allow them a
reasonable period of time to conform to the policy.
Sec. 650.3 Implementation of policy.
(a) The Corporation shall disclose any unresolved material
conflicts of interest involving its directors, officers, and employees
to:
(1) Shareholders through annual reports and proxy statements; and
(2) Investors and potential investors through disclosure documents
supplied to them.
(b) The Corporation shall make available to any shareholder,
investor, or potential investor, upon request, a copy of its policy on
conflicts of interest. The Corporation may charge a nominal fee to
cover the costs of reproduction and handling.
(c) The Corporation shall maintain all reports of all potential
conflicts of interest and documentation of materiality determinations
and resolutions of conflicts of interest for a period of 6 years.
Sec. 650.4 Director, officer, employee, and agent responsibilities.
(a) Each director, officer, employee, and agent of the Corporation
shall:
(1) Conduct the business of the Corporation following high
standards of honesty, integrity, impartiality, loyalty, and care,
consistent with applicable law and regulation in furtherance of the
Corporation's public purpose;
(2) Adhere to the requirements of the conflict-of-interest policy
established by the Corporation and provide any information the
Corporation deems necessary to discharge its responsibilities under
this subpart.
(b) Directors, officers, employees, and agents of the Corporation
shall be subject to the penalties of part C of title V of the Farm
Credit Act of 1971, as amended, for violations of this regulation,
including failure to adhere to the conflict-of-interest policy
established by the Corporation.
Subpart B--[Reserved]
Dated: February 23, 1994.
Curtis M. Anderson,
Secretary, Farm Credit Administration Board.
[FR Doc. 94-4536 Filed 2-28-94; 8:45 am]
BILLING CODE 6705-01-P
