[Federal Register Volume 63, Number 54 (Friday, March 20, 1998)]
[Proposed Rules]
[Pages 13564-13566]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-7342]
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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: Proposed rule.
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SUMMARY: The Farm Credit Administration (FCA or Agency), through the
FCA Board (Board), proposes to amend its regulations concerning Farm
Credit System (System or FCS) voting 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 proposed amendments would
allow the use of identity codes on ballots, as long as the votes are
tabulated by an independent third party, and would conform the scope of
the regulation to statutory requirements. The amendments would 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 regarding the conduct
of stockholder votes, to extend security and confidentiality
requirements to all stockholder votes, and to accelerate the effective
date of the above-described corporate actions.
DATES: Written comments must be received on or before April 20, 1998.
ADDRESSES: Comments may be mailed or delivered to Patricia W. DiMuzio,
Director, Regulation and Policy Division, Office of Policy and
Analysis, 1501 Farm Credit Drive, McLean, VA, 22102-5090 or sent by
facsimile transmission to (703) 734-5784. Comments may also be
submitted via electronic mail to reg-comm@fca.gov''. Copies of all
communications received will be available for review by interested
parties in the Office of Policy and Analysis, Farm Credit
Administration.
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 is continuing its efforts to reduce regulatory burdens on
System institutions and to retain only regulations that: (1) Implement
or interpret the Farm Credit Act of 1971, as amended (Act); or (2)
protect the safety and soundness of the System. See 58 FR 34003 (June
23, 1993); 60 FR 57913 (November 24, 1995). The FCA has previously
deleted a number of unnecessary or obsolete regulations and has
modified others to reduce the burden of compliance. This rule is
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 more fully described below.
II. Maintaining Secrecy of Ballots
Three institutions have requested that the FCA amend Sec. 611.330
to allow FCS institutions to use identity codes on election ballots.
The commenters stated that, in some elections, many stockholders who
were confused by the procedures for voting by mail or proxy sent back
incomplete or improperly completed ballots or proxies. As a result,
their votes were not counted. The associations stated that, if the
forms had contained identity codes, the stockholders in question could
have been contacted before the stockholders' meeting and permitted to
submit properly completed ballots or proxies. The commenters asserted
their belief that identity codes, printed names on ballots, or other
means of identification would not violate a voter's right to a secret
ballot under section 4.20(2) of the Act, if an FCS institution: (1)
Ensures that members of an independent tellers' committee abide by
confidentiality restrictions; and (2) establishes ballot custody
requirements.
Section 4.20 of the Act, which was amended by the Agricultural
Credit Act of 1987 (1987 Act), prohibits the use of signed ballots in
connection with any election or merger vote or other proceeding subject
to a stockholder vote. Section 4.20 also requires FCS institutions to
implement measures to protect voters' rights to a secret ballot
process. In 1988, the FCA published a final rule that, among other
provisions, established standards for the election of directors to
comply with section 4.20. See 53 FR 50381 (December 15, 1988). Section
611.330 of that rule requires System institutions to adopt policies and
procedures that assure confidentiality in the election of board members
and prohibits the use of ballots
[[Page 13565]]
or proxy ballots that must be signed or that contain an identifying
character or mark that can be used to identify how an individual
stockholder's vote is cast.
The FCA proposes to amend Sec. 611.330(b) to allow System
institutions to use identity codes on ballots, provided that an
independent third party tabulates the votes. The proposed regulation
would also require that, in all votes in which an independent third
party tabulates the votes, the independent third party must certify in
writing that no information regarding how or whether a particular
stockholder has voted will be disclosed to any person. However, the
independent third party would be required to disclose such information
to the FCA, if requested, in the event a vote is contested or
otherwise.
The Agency agrees with the commenters that the use of an
independent third party to review and count the votes will carry out
the purpose of section 4.20 of the Act to preserve the secrecy of
stockholder votes in relation to the institution, its directors,
employees, and other stockholders. Examples of such third parties are
outside auditors, accounting firms, or outside counsel. Tellers'
committees that include stockholders or employees would not qualify as
independent third parties. This proposed change will provide
institutions with the opportunity to address the problem of incorrect
ballots.
The FCA also proposes to modify Secs. 611.330 and 611.340 to extend
the confidentiality and security requirements to all stockholder votes,
not just director elections. These changes will conform the scope of
the regulations to section 4.20 of the Act, as described above. A
provision is added requiring a 5-year retention period for records
related to a vote other than a director election. The existing
regulation provides for the retention of director election records
until the end of the term of office of the director.
In addition, the FCA proposes nonsubstantive changes to
Sec. 611.330 regarding the confidentiality of mail or proxy ballots.
These changes would clarify that, in mail or proxy balloting,
institution procedures must provide for a marked mail ballot or proxy
ballot to be returned to the institution in a separate sealed envelope
that is placed inside of another envelope for mailing. In proxy voting,
the stockholder must return the proxy authorization form along with the
sealed envelope containing the proxy ballot. In mail balloting,
institutions may, but are not required to, provide for stockholders to
verify their eligibility to vote, as long as such verification is not
on the ballot or on the sealed envelope containing the ballot. The
verification could, for example, be on a separate piece of paper placed
in the outside envelope or could be on the outside envelope itself.
III. Change of Effective Date for Merger, Consolidation, or
Transfer of Lending Authority
Two institutions suggested that the FCA amend Sec. 611.1122, which
establishes timing and disclosure requirements for mergers of FCS
institutions. One of the institutions asserted that the regulation
mandates excessive periods for review and unnecessarily delays the
effective date of such mergers beyond the required stockholder
reconsideration period. This institution suggested that the FCA develop
new procedures to expedite effective dates of mergers of FCS
institutions.
Section 7.9 of the Act, as amended by the 1987 Act, provides for
stockholder reconsideration of mergers or consolidations, the transfer
of direct lending authority from a bank to an FLBA, and terminations of
FCS status. The statute provides that, if the FCA receives a
stockholder petition from at least 15 percent of the stockholders for
reconsideration of a vote in favor of any such action within 30 days of
the date on which stockholders are notified of the results of the vote,
the institution in question must call a special stockholders' meeting
to vote again on the proposed action. If a petition that meets the
statutory requirements is filed, the proposed action (if approved in
the second vote) cannot take effect until the expiration of 60 days
after the date on which stockholders were notified of the result of the
first vote.
Sections 611.505(e) and 611.1122(k), promulgated in 1988 pursuant
to section 7.9 of the Act, provide that, in the case of an association
merger or a transfer of direct lending authority, the effective date of
the merger or transfer must be at least 50 days after the date of
mailing of the notification to stockholders of the first vote. In the
preamble to those regulations, the FCA explained that the period of 50
days was specified to allow for: (1) A 5-day period for delivery of the
notice to stockholders; (2) a 30-day period during which stockholders
may file a petition for reconsideration; and (3) fifteen (15) days
after the end of the reconsideration period for the FCA to receive and
review the institution's documents for final approval. See 53 FR 50389
(December 15, 1988).
At the time of the promulgation of the regulation, the FCA was of
the view that a 50-day period was necessary to ensure that the Agency
had adequate time to process final approval documents. However, the
FCA's experience in processing the final approval documents is that its
review and approval can occur during the 30-day reconsideration period
if the institutions timely submit such documents to the FCA. Therefore,
the FCA proposes to eliminate the additional 15 days intended for
Agency review following the end of the reconsideration period and to
provide that the effective date of an association merger or a transfer
of lending authority may be 35 days after stockholder notification, or
15 days after submission of final documents to the FCA, whichever
occurs later.
The FCA also proposes, for purposes of clarification, to restate in
Secs. 611.505(e) and 611.1122(k) the provision in section 7.9(b)(3)(A)
of the Act that, if a valid petition for reconsideration is timely
filed 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.
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 proposed to be 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 amended by removing the word ``election'' and
adding in its place, the word ``voting'' in the first sentence of
paragraph (a); by removing the words ``an election'' and adding in
their place, the words ``a vote'' and by removing the comma after the
word ``contested'' in the last sentence of paragraph (a); and by
revising the section heading and paragraph (b) to read as follows:
[[Page 13566]]
Sec. 611.330 Confidentiality in voting.
* * * * *
(b) Except as provided in this paragraph, System institutions shall
not use ballots or proxy ballots that must be signed by the stockholder
or that contain an identifying character or mark that can be used to
identify how an individual stockholder's vote is cast.
(1) Institutions may use a form of identity code on the ballot if
they also provide for tabulation of the votes by an independent third
party.
(2) In mail balloting, institutions may adopt procedures that
require the stockholders to sign or otherwise verify their eligibility
to vote, so long as the marked ballot is in a separate sealed envelope
that accompanies any document that identifies the stockholder.
(3) In proxy voting, an institution's procedures shall provide that
the proxy ballot be returned in a separate sealed envelope, which
envelope is accompanied by a signed proxy authorization form.
(4) Where the identity of the voting stockholders is necessary to
determine the voting weight of ballots, the institution shall use a
form of identity code on the ballot and shall require that the votes
are tabulated by an independent third party.
(5) In a vote in which identity codes are used on the ballots, the
independent third party that tabulates the votes shall certify in
writing that such party will not disclose to any person (including the
institution, the directors, stockholders, or employees) any information
regarding how or whether any stockholder has voted. However, the
independent third party shall disclose such information to the Farm
Credit Administration, if requested, in the event a vote is contested
or otherwise.
* * * * *
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 ``the election of board members'' and
adding in their place, the words ``a stockholder vote'' in paragraph
(a); by removing the word ``election'' and adding in its place, the
word ``voting'' the first and last place it appears in the first
sentence of paragraph (d); by removing the words ``an election'' and
adding in their place, the words ``a stockholder vote'' in the last
sentence of paragraph (d); by removing the word ``election'' and adding
in its place, the word ``vote'' the last place it appears in the last
sentence of paragraph (d); and by revising paragraph (c) to read as
follows:
Sec. 611.340 Security in voting.
* * * * *
(c) Ballots and proxy ballots shall be physically safeguarded
before the time of distribution or mailing to voting stockholders and
after the time of receipt by the banks and associations until disposal.
In an election of directors, ballots, proxy ballots and election
records shall be retained until the end of the term of office of the
director and promptly destroyed thereafter. In other stockholder votes,
ballots, proxy ballots, and records shall be retained for at least 5
years after the vote.
* * * * *
Subpart E--Transfer of Authorities
5. Section 611.505 is amended by revising paragraph (e) to read as
follows:
Sec. 611.505 Farm Credit Administration review.
* * * * *
(e) The effective date of a transfer shall be not 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
shall agree on a second effective date to be used in the event the
transfer is approved on reconsideration. The second effective date
shall be not 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 shall be a date
which is not 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
shall agree on a second effective date to be used in the event the
merger or consolidation is approved on reconsideration. The second
effective date shall be not 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: March 17, 1998.
Nan P. Mitchem,
Acting Secretary, Farm Credit Administration Board.
[FR Doc. 98-7342 Filed 3-19-98; 8:45 am]
BILLING CODE 6705-01-P
