[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]



 ========================================================================
 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.
 
 ========================================================================
 

  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