[Federal Register Volume 60, Number 78 (Monday, April 24, 1995)]
[Rules and Regulations]
[Pages 20011-20013]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10008]
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FARM CREDIT ADMINISTRATION
12 CFR Part 620
RIN 3052-AB37
Disclosure to Shareholders
AGENCY: Farm Credit Administration.
ACTION: Final rule.
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SUMMARY: The Farm Credit Administration (FCA), by the Farm Credit
Administration Board, issues a final regulation amending its disclosure
requirements for association annual meeting information statements
including required disclosures for director candidates nominated from
the floor. The amendments provide associations more flexibility in
accepting floor nominations for director positions, clarify disclosure
requirements when annual meetings are held in more than one session and
shareholders vote by mail, and make other technical changes.
EFFECTIVE DATE: The regulations shall become effective upon expiration
of 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:
Laurie A. Rea, Policy Analyst, Office of Examination, Farm Credit
Administration, McLean, VA 22102-5090, (703) 883-4498, or
James M. Morris, Senior Attorney, Office of General Counsel, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703)
883-4444.
SUPPLEMENTARY INFORMATION:
Background
On September 13, 1993, the FCA issued a proposed regulation (58 FR
47836) that would amend certain aspects of Sec. 620.21(d) pertaining to
required disclosures in the association annual meeting information
statement (Statement) concerning the nominating and balloting process
for association directors. The FCA proposed changes to Sec. 620.21(d)
after learning that the regulation may have inadvertently placed an
undue burden on certain members. Section 620.21(d)(3) required the
Statement to ``contain a notice that nominations from the floor must be
made at the first sectional meeting'' when the association's annual
meeting was held in consecutive sectional sessions. Consequently,
certain members that would have otherwise attended a different session
were required to travel to the first sectional session if they wished
to participate in the floor nominating process. Sections 620.21(d)(5)
and (d)(6) also required that persons nominated from the floor provide
the necessary written disclosures ``in writing at the meeting(s) at
which the nomination is considered.''
The FCA proposed regulatory amendments to make it less burdensome
for members to participate in the floor nominating process. If the
association's members are voting by mail ballot at the conclusion of
all sessions of the annual meeting, the proposed rule allowed floor
nominations at any sectional session. The proposed rule also relaxed
the disclosure requirement for floor nominees by allowing them to
provide the mandated disclosures ``within 10 days of nominations''
instead of ``at the meeting(s) at which the nomination is considered.''
The FCA believed that these regulatory changes would afford members
more opportunity to nominate candidates from the floor when voting by
mail ballot after the annual meeting is concluded and make it easier
for floor nominees to provide the required disclosures without any
significant inconvenience to management or other nominees.
The FCA received four comment letters on the proposed rule during
the comment period that expired on October 13, 1993. One letter was
submitted by a Farm Credit bank, two letters by associations, and one
by the Farm Credit Council (Council) on behalf of its membership.
Commenters were generally supportive of the proposed changes. The
Council commented that its membership applauded the FCA's
responsiveness to Farm Credit System institutions' concerns.
The final regulation allows persons to be nominated from the floor
at any sectional session when the director election is conducted by
mail balloting following the final session of the annual meeting.
However, in response to a comment from the Council, the FCA has changed
the regulation so that associations can specify in their bylaws that
nominations from the floor will be accepted only at the first session.
The final rule requires persons nominated from the floor to provide
associations with the written disclosure information for mailing with
the ballot. The final rule also allows associations using mail
balloting after the last session the latitude to prescribe in their
bylaws the time period for floor nominees to submit the required
disclosures. [[Page 20012]]
Response to Comments
The Council asserted that some associations interpreted the
proposed regulation to require a change in their current method of
nominating and electing directors because their stockholders have the
option of voting by mail or in person at each association's annual
meeting. Therefore, the Council requested that the proposed regulation
be modified to permit associations that hold annual meetings in
sectional sessions and conduct elections by mail ballot after the final
sectional session to require in their bylaws that all floor nominations
be made at the first sectional session. Section 4.15 of the Farm Credit
Act of 1971 (Act), concerning the nomination of association directors,
states ``Nominations shall also be accepted from the floor.'' To comply
with Sec. 4.15 of the Act, associations must continue to afford a full,
fair, and meaningful opportunity for members to make viable nominations
from the floor. Section 620.21(d)(3) has been revised to emphasize this
requirement.
The FCA believes allowing nominations at any session of an
association annual meeting when mail balloting occurs after those
sessions is the best method of ensuring members an opportunity to
nominate candidates from the floor. Nevertheless, the FCA is aware that
some associations may wish to retain bylaw provisions that provide for
the acceptance of floor nominations only at the first session. The FCA
is engaged in a continuing effort to reduce regulatory burden by
eliminating regulations that prescribe specific operational or
managerial practices1 and amending regulations to provide
flexibility, so long as the requirements of the Act are satisfied.
Accordingly, the FCA has revised the final Sec. 620.21(d)(3) to allow
associations to prescribe that nominations from the floor will be
accepted only at the first session. Further, the FCA notes that, if an
association uses a combination of voting in person and voting by mail
ballot, nominations from the floor can only be made at the first
session so that every stockholder has the opportunity to vote on floor
nominees.
\1\The FCA Board's Policy Statement on Regulatory Philosophy (59
FR 32189, June 22, 1994).
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One commenter suggested that the regulations be modified to
expressly accommodate a pre-annual meeting mail balloting process. The
commenter argued that it is impossible for associations employing a
pre-annual meeting mail balloting process to comply with the floor
nomination and disclosure requirements of the proposed regulations
because many stockholders have already voted by mail at the time a
floor nomination is made. The commenter suggested that the FCA allow
associations to accept nominations by mail. The suggestions were not
incorporated in the final regulation for several reasons.
The FCA does not believe the use of mail ballots prior to an
association's annual meeting is legally permissible. In addition to the
slate of eligible candidates presented by the nominating committee,
Sec. 4.15 of the Act expressly requires associations to accept
nominations ``from the floor.'' A stockholder voting by mail prior to
the annual meeting would not be able to vote for floor nominees because
their candidacy would not be known until the meeting. In addition, a
stockholder who has voted by mail prior to the annual meeting would not
be able to revoke his or her mail ballot and vote in person at the
meeting. Consequently, stockholders who vote by mail ballot prior to
the annual meeting relinquish their rights to vote for candidates
nominated from the floor at the meeting.
The FCA believes that accepting nominations solely by mail would
discourage the borrowers' active participation in the management and
control of System institutions. Mail nominations do not foster
borrowers' active involvement in the director nomination and election
process but rather may minimize the stockholders' role. Nominations by
mail restrict stockholders' opportunity to discuss potential candidates
for director positions. If nominations by mail were employed, the
absence of consideration and discussion by members at the annual
meeting would also inhibit the origination of viable nominations from
the floor. Accordingly, the FCA has not modified the regulation to
include a procedure to accept floor nominations by mail so that
associations may conduct mail balloting prior to the annual meeting.
The FCA notes that proxy voting in director elections is a permissible
alternative voting method, although it is not specifically mandated by
the Act.2 A secret proxy ballot allows a stockholder who will be
absent from the meeting to designate another person to cast his vote.
Although proxies must be returned to the association prior to the start
of the annual meeting, a stockholder attending the meeting can revoke
his or her proxy prior to the balloting at the annual meeting and vote
in person for a floor nominee.
\2\The rights of stockholders to vote by proxy is mandated by
the Act in certain situations. See Secs. 4.3A(c)(2), 7.8(a)(3), and
7.13(a)(3) of the Act.
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Commenters raised concerns about the appropriateness of the 10-day
timeframe prescribed in proposed Sec. 620.21(d)(5) for floor nominees
to provide written disclosure information. Three commenters suggested
that the 10-day period be shortened to 5 business days. Commenters
argued that this would give floor nominees sufficient time to prepare
and submit the required disclosure information without unduly delaying
the mailing of ballots after the last sectional session. The Council
stated that its members suggested a time period of 3 days or no more
than 5 days, and it recommended that associations be allowed to set an
appropriate timeframe in their bylaws. Consistent with its role as an
arm's-length regulator, the FCA has revised the regulation to allow
associations the latitude to prescribe in their bylaws the time period
for floor nominees to submit the required disclosure. Associations
should provide a sufficient time for floor nominees to compile the
information necessary to comply with the regulatory requirements and
ensure that the election process is completed expeditiously. Therefore,
the time period for floor nominees to submit the required disclosure
information was changed in the final rule from ``within 10 days of
nomination'' to ``within the time period prescribed by the
association's bylaws.'' If the bylaws do not address this issue, the
regulation requires that this information be submitted within 5
business days.
The Council also requested that the regulation, as proposed, be
changed by adding the words ``upon conclusion of all sessions'' after
``mail ballot'' in Sec. 620.21(d)(5). The FCA agrees that the suggested
change clarifies the meaning of paragraph (d)(5) and modified the
regulation accordingly.
The final regulation makes a technical correction to
Sec. 620.21(c)(3). (See 51 FR 8644, March 13, 1986). The technical
correction deletes the words ``during the last year fiscal year to
date'' and inserts the words ``since the last annual meeting'' to
clarify that associations are required to disclose in the Statement any
resignations by directors that stem from disagreements with the board
that occurred during the time period between annual meetings.
List of Subjects in 12 CFR Part 620
Accounting, Agriculture, Banks, banking, Reporting and
recordkeeping requirements, Rural areas.
For the reasons stated in the preamble, part 620 of chapter VI,
title 12 [[Page 20013]] of the Code of Federal Regulations is amended
to read as follows:
PART 620--DISCLOSURE TO SHAREHOLDERS
1. 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
2. Section 620.21 is amended by revising the heading and paragraphs
(c)(3), (d)(1), (d)(3), (d)(5), and (d)(6) to read as follows:
Sec. 620.21 Contents of the information statement and other
information to be furnished in connection with the annual meeting.
* * * * *
(c) * * *
(3) If any director resigned or declined to stand for reelection
since the last annual meeting because of a policy disagreement with the
board, and if the director has furnished a letter requesting disclosure
of the nature of the disagreement, state the date of the director's
resignation and summarize the director's description of the
disagreement contained in the letter. If the institution holds a
different view of the disagreement, the institution's view may be
summarized.
* * * * *
(d) * * *
(1) If directors are nominated by region, describe the regions and
state the number of voting shareholders entitled to vote in each
region. Any nominee from the floor must be an eligible candidate for
the director position for which the person has been nominated.
* * * * *
(3) State that nominations shall be accepted from the floor.
(i) If the annual meeting is to be held in more than one session
and mail balloting will be conducted upon the conclusion of all
sessions, state that nominations from the floor may be made at any
session or, if the association's bylaws so provide, state that
nominations from the floor shall be accepted only at the first session.
(ii) If shareholders will not vote solely by mail ballot upon
conclusion of all sessions, state that nominations from the floor may
be made only at the first session.
* * * * *
(5) For each nominee who is not an incumbent director, except a
nominee from the floor, provide the information referred to in
Sec. 620.5 (j) and (k) and Sec. 620.21(d)(4). If shareholders will vote
by mail ballot upon conclusion of all sessions, each floor nominee must
provide the information referred to in Sec. 620.5 (j) and (k) and
Sec. 620.21(d)(4) in writing to the association within the time period
prescribed by the association's bylaws. If the association's bylaws do
not prescribe a time period, state that each floor nominee must provide
the written disclosure to the association within 5 business days of the
nomination. The association shall ensure that the information is
distributed to the voting shareholders with the mailing of the ballots
for the election of directors in the same format as the comparable
information contained in the association's annual meeting information
statement. If shareholders will not vote by mail ballot upon conclusion
of all sessions, each floor nominee must provide the information
referred to in Sec. 620.5 (j) and (k) and Sec. 620.21(d)(4) in writing
at the first session at which voting is held.
(6) No person may be a nominee for director who does not make the
disclosures required by this subpart.
* * * * *
Dated: April 13, 1995.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 95-10008 Filed 4-21-95; 8:45 am]
BILLING CODE 6705-01-P