[Federal Register Volume 60, Number 111 (Friday, June 9, 1995)]
[Proposed Rules]
[Pages 30470-30471]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14217]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 60, No. 111 / Friday, June 9, 1995 / Proposed
Rules
[[Page 30470]]
FARM CREDIT ADMINISTRATION
12 CFR Parts 615 and 620
RIN 3052-AB60
Funding and Fiscal Affairs, Loan Policies and Operations, and
Funding Operations; Disclosure to Shareholders; Director Elections
AGENCY: Farm Credit Administration.
ACTION: Proposed rule.
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SUMMARY: The Farm Credit Administration (FCA), by the Farm Credit
Administration Board, proposes to amend the regulations relating to the
implementation of cooperative principles to allow greater flexibility
in the method by which directors of Farm Credit System associations and
banks for cooperatives are elected, consistent with cooperative
principles. The amendments are intended to permit regional election of
directors.
DATES: Comments should be received on or before July 10, 1995.
ADDRESSES: Comments may be mailed or delivered (in triplicate) to
Patricia W. DiMuzio, Associate Director, Regulation Development, Office
of Examination, Farm Credit Administration, McLean, Virginia 22102-
5090. Copies of all communications received will be available for
examination by interested parties in the Office of Examination, Farm
Credit Administration, McLean, Virginia.
FOR FURTHER INFORMATION CONTACT:
John J. Hays, Policy Analyst, Regulation Development, Office of
Examination, (703) 883-4498, TDD (703) 883-4444;
or
Rebecca S. Orlich, Senior Attorney, Regulatory Operations Division,
Office of General Counsel, (703) 883-4020, TDD (703) 883-4444.
SUPPLEMENTARY INFORMATION: The FCA has received requests from a number
of Farm Credit System associations to reconsider its regulation
pertaining to the at-large election of directors of associations. This
regulation is one of many promulgated by the FCA in 1988 to implement
extensive changes to the structure of the System affected by the
Agricultural Credit Act of 1987. It provides that voting shareholders
of associations and Banks for Cooperatives (BCs) shall:
[b]e accorded the right to vote in the election of each director
and, unless otherwise provided in the capitalization bylaws, be
allowed to cumulate such votes and distribute them among the
candidates in the shareholder's discretion.
12 CFR 615.5230(a)(1)(ii). At the time of promulgation, the FCA
believed that enabling each shareholder to vote in the election of each
director was necessary to ensure that each director is accountable to
all shareholders of the institution, since each director owes fiduciary
duties to all shareholders. The FCA was also concerned that
shareholders in regions with a small number of shareholders would be
able to wield proportionately more voting power than shareholders in
regions with a greater number of shareholders. It therefore required
the at-large election of directors but permitted associations that, in
1988, had bylaws providing for regional elections of directors to
continue to do so until January 1, 1993. In response to the desire for
regional representation expressed in the comments, the FCA placed no
restrictions on the institution's ability to provide for geographic
representation on the board and provided for cumulative voting unless
shareholders approved bylaws providing otherwise.
A number of associations have objected that the prohibition of
regional election of directors imposes an unreasonable burden on
director candidates, who must campaign over widespread territories, and
deprives voting shareholders of the ability to elect a representative
to the board who lives and farms in their area, and with whom they
could become acquainted. Furthermore, these associations have argued
that regional voting in agricultural cooperatives is increasingly
commonplace and is consistent with cooperative principles. In response
to these concerns, the FCA has reconsidered the issue and has
determined that its concerns about director accountability and
equitable voting power can be addressed in a less burdensome way,
consistent with cooperative principles, that will permit the regional
election of directors. The Agency has also determined that regional
voting should be an option for BCs. This proposed regulation has no
application to agricultural credit banks at this time, because issues
pertaining to corporate governance for an agricultural credit bank,
including board structure, are being studied separately. The FCA does
welcome comments concerning Farm Credit Bank director elections on a
regional basis, as stated later in this proposed rule.
The FCA proposes to amend Sec. 615.5230(a)(1)(ii) to permit the
regional election of directors of associations and BCs subject to the
following conditions:
(1) To ensure that a director is accountable to all shareholders,
institutions with bylaws providing for shareholder removal of directors
must provide that each director may be removed by a majority vote of
all voting shareholders and may not be removed by a vote of only the
shareholders in his or her region; and
(2) The bylaw provides for the apportionment of the institution's
territory into voting regions with approximately equal numbers of
voting shareholders and ensures equitable representation from each
voting region through an annual evaluation by the institution's board
of directors.
The bylaw procedure to ensure equitable voting regions may, for
example, contain procedures to redraw the boundaries of the voting
regions, alter the number of directors from a region, or other similar
action.
The FCA also proposes a conforming amendment to Sec. 620.21(d)(1)
of the FCA regulations. This regulation would be amended to require
disclosures regarding regional voting in the association's annual
information statement.
Since these proposed amendments would significantly affect the
voting rights of individual borrower/shareholders and cooperatives,
rather than the rights of associations and BCs, the FCA specifically
seeks comment on the proposals from voting shareholders. The FCA
strongly encourages the associations and BCs to call on their member-
borrowers to make their views known to the FCA on this matter.
There are certain director election matters that would not be
changed by an association's or BC's adoption of [[Page 30471]] regional
voting. Pursuant to section 4.15 of the Act, there would continue to be
only one nominating committee for an association, who would ``endeavor
to assure representation to all sections of the association territory
and as nearly as possible to all types of agriculture practiced within
the area.'' Both association nominating committees and BCs must assure
that there are at least two nominees for each elective office to be
filled. Nominations for association directors will continue to be
accepted from the floor and may be made by any eligible voting
shareholder, whether or not he or she resides in the nominee's region,
unless the bylaws provide otherwise. In addition, each director would
continue to owe a fiduciary duty to all the shareholders of the
association, not just to the shareholders in his/her region.
Finally, the FCA has received a request from one System association
to propose amendments to the regulations that would extend regional
voting to elections of Farm Credit Bank directors and make changes
regarding the cumulative voting requirement. The FCA is considering
this request and seeks comment on whether other System institutions,
shareholders, or members of the public share the requester's same
interest.
It is the FCA's view that this proposed regulation is consistent
with the FCA Board's Policy Statement on Regulatory Philosophy and
achieves the statement's objectives of: (1) Addressing specifically
identified risks in a way that causes the least burden for
institutions; (2) formulating regulations that are clear and easy to
understand; and (3) providing flexibility to institutions in their
election procedures.
List of Subjects
12 CFR Part 615
Accounting, Agriculture, Banks, banking, Government securities,
Investments, Rural areas.
12 CFR Part 620
Accounting, Agriculture, Banks, banking, Reporting and recording
requirements, Rural areas.
For the reasons stated in the preamble, parts 615 and 620 of
chapter VI, title 12 of the Code of Federal Regulations are proposed to
be amended to read as follows:
PART 615--FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS,
AND FUNDING OPERATIONS
1. The authority citation for part 615 continues to read as
follows:
Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5,
2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.9, 4.14B, 4.25, 5.9, 5.17, 6.20,
6.26, 8.0, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the Farm Credit Act (12
U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076, 2093,
2122, 2128, 2132, 2146, 2154, 2160, 2202b, 2211, 2243, 2252, 2278b,
2278b-6, 2279aa, 2279aa-4, 2279aa-6, 2279aa-7, 2279aa-8, 2279aa-10,
2279aa-12); sec. 301(a) of Pub. L. 100-233, 101 Stat. 1568, 1608.
Subpart I--Issuance of Equities
2. Section 615.5230 is amended by adding a new paragraph
(a)(1)(iii) and revising paragraphs (a)(1)(ii) and (a)(3) to read as
follows:
Sec. 615.5230 Implementation of cooperative principles.
(a) * * *
(1) * * *
(i) * * *
(ii) Unless regional election of directors is provided for in the
bylaws pursuant to Sec. 615.5230(a)(3), be accorded the right to vote
in the election of each director (except for a director that is elected
by the other directors);
(iii) Unless regional election of directors is provided for in the
bylaws, or unless otherwise provided in the bylaws, be allowed to
cumulate such votes and distribute them among the candidates in the
shareholder's discretion.
(2) * * *
(3) Regional election of directors is permitted under the following
conditions:
(i) A bylaw establishing regional elections is approved by a
majority of voting shareholders, voting in person or by proxy;
(ii) The bylaw provides for the apportionment of the institution's
territory into voting regions with an approximately equal number of
voting shareholders and ensures equitable representation from each
voting region by means of an annual evaluation by the institution's
board of directors; and
(iii) If there is a bylaw providing for shareholder removal of
directors, it provides that all voting shareholders of the institution,
whether or not they reside in the director's region, have the right to
vote to remove each director.
* * * * *
PART 620--DISCLOSURE TO SHAREHOLDERS
3. The authority citation for part 620 continues to read as
follows:
Authority: Secs. 5.17, 5.19, 8.11 of the Farm Credit Act (12
U.S.C. 2252, 2254, 2279aa-11); sec. 424 of Pub. L. 100-233, 101
Stat. 1568, 1656.
Subpart D--Association Annual Meeting Information Statement
Sec. 620.21 [Amended]
4. Section 620.21 is amended by adding the words ``or elected''
after the word ``nominated'' in the first sentence of paragraph (d)(1).
Dated: June 6, 1995.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 95-14217 Filed 6-8-95; 8:45 am]
BILLING CODE 6705-01-P
