[Federal Register Volume 62, Number 80 (Friday, April 25, 1997)]
[Proposed Rules]
[Pages 20131-20132]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10750]


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FARM CREDIT ADMINISTRATION

12 CFR Part 615

RIN 3052-AB75


Funding and Fiscal Affairs, Loan Policies and Operations, and 
Funding Operations; Cumulative Voting

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: Section 615.5230 of Farm Credit Administration (FCA) 
Regulations provides for cumulative voting by shareholders in the 
election of Farm Credit Bank (FCB) directors and requires the unanimous 
consent of the voting shareholders to eliminate such cumulative voting. 
The FCA proposes to amend Sec. 615.5230(a)(2) to provide that an FCB 
may eliminate cumulative voting in director elections with the consent 
of 75 percent of the bank's voting shareholders, instead of the 
currently required unanimous consent.

DATES: Written comments must be received on or before May 27, 1997.

ADDRESSES: Comments may be mailed or delivered to Patricia W. DiMuzio, 
Director, Regulation Development Division, Office of Policy Development 
and Risk Control, 1501 Farm Credit Drive, McLean, VA, 22102-5090 or 
sent by facsimile transmission to FAX number (703) 734-5784. Comments 
may also be submitted via electronic mail to ``[email protected]''.
    Copies of all communications received will be available for 
examination by interested parties in the Office of Policy Development 
and Risk Control, Farm Credit Administration.

FOR FURTHER INFORMATION CONTACT:

Gaylon J. Dykstra, Policy Analyst, Office of Policy Development and 
Risk Control, Farm Credit Administration, McLean, VA 22102-5090, (703) 
883-4498;

      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: The FCA has received petitions from Farm 
Credit System (System) institutions and from an association board 
member in the Texas district requesting revision of the requirement of 
unanimous consent of an FCB's shareholders to eliminate the cumulative 
voting requirement for the election of directors set forth in 
Sec. 615.5230(a)(2)(ii). The petitioners stated their belief that the 
provision is unduly burdensome and that the requirement for cumulative 
voting, which was intended to make the election of bank directors 
fairer for smaller associations, actually provided questionable 
benefits. The petitioners contended that cumulative voting works most 
effectively in situations where the entire board of directors is 
elected each year, or at least where the board is relatively large and 
several positions are open for election each year, and they noted that 
these situations are relatively rare in the System. The petitioners 
stated that cumulative voting was almost impossible to change and 
requested revision of the regulation to enable a bank to eliminate 
cumulative voting with the consent of either a simple majority or a 
two-thirds' majority of the shareholders.
    Cumulative voting as discussed in the context of the present 
regulation relates only to the election of FCB directors by the owner 
associations and occurs only when more than one director position is 
being filled. Section 615.5230 was promulgated in 1988 to accommodate 
structural changes in the System effected by the Agricultural Credit 
Act of 1987. When the regulations were

[[Page 20132]]

proposed, the FCA provided for a continuation of the existing practice 
of weighted voting in the election of FCB directors. In weighted 
voting, an association is entitled to cast as many votes as there are 
voting shareholders in the association. In response to an association 
comment on the 1988 proposed rule that this method of voting ``may 
deprive small associations of any voice in the affairs of its bank if 
the district is dominated by a large district-wide association,'' the 
FCA retained weighted voting in the final regulation but also provided 
for cumulative voting unless each association, as a shareholder of the 
FCB, consents to eliminate it.
    The explanation in the preamble of the final regulations for adding 
cumulative voting states:

    To respond to the concerns that smaller associations would be 
disadvantaged [by weighted voting], the final regulation requires 
the bank to allow cumulative voting unless each association agrees 
otherwise, which will allow small associations a greater opportunity 
to place a director on the board.

53 FR 40033, 40038 (October 13, 1988).
    Unanimous consent to eliminate cumulative voting was required to 
assure that cumulative voting could be eliminated only with the consent 
of all of the associations that the provision was designed to protect. 
In addition, it assured that no single large association could defeat a 
protection for minority shareholders.
    Associations in all FCB districts are currently permitted to 
cumulate their votes (which would otherwise be cast as a weighted vote 
for the preferred candidate in each open director position) to support 
only one director, if desired. Thus, if an association were entitled to 
cast 300 shares to vote for three director positions (a weighted vote 
of 300 representing 100 shareholders multiplied by three open director 
positions), it could choose to vote 100 shares for its preferred 
candidate in each director position, or, at the association's 
discretion, it could cumulate its votes and cast 300 shares for its 
preferred candidate in one director position or distribute its 300 
shares in any combination among the preferred candidates in any of the 
open director positions.
    The structure of the System has changed since 1988; currently there 
are no single large associations that dominate an entire district. 
Based on present circumstances, the FCA believes that the importance of 
requiring unanimous consent to eliminate cumulative voting is less 
compelling. However, the FCA continues to believe that cumulative 
voting provides important protection to minority interests and, 
consequently, that this voting method should be subject to elimination 
only by a supermajority. The FCA believes that a two-thirds' majority, 
as suggested by many petitioners, may not be a great enough 
supermajority to provide that protection. In addition, in some 
districts there are different types of associations that may favor 
different bank policies, and one type of association may have 
substantially more votes than other types. The FCA proposes to amend 
the existing requirement to permit an FCB to eliminate cumulative 
voting by a 75-percent majority but requests comment on the 
appropriateness of this level.
    The FCA considered whether to provide for the elimination of 
cumulative voting on a weighted-vote basis, rather than according each 
association one vote, since weighted voting is the basis for all other 
shareholder votes. However, the Agency decided to propose a one-
association, one-vote requirement because small associations will have 
a greater say in the decision to eliminate cumulative voting if their 
votes are given the same value as large associations.

List of Subjects in 12 CFR Part 615

    Accounting, Agriculture, Banks, banking, Government securities, 
Investments, Rural areas.

    For the reasons stated in the preamble, part 615 of chapter VI, 
title 12 of the Code of Federal Regulations is 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, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17, 
6.20, 6.26, 8.0, 8.3, 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, 2154a, 2160, 2202b, 
2211, 2243, 2252, 2278b, 2278b-6, 2279aa, 2279aa-3, 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 revising paragraph (a)(2)(ii) to 
read as follows:


Sec. 615.5230  Implementation of cooperative principles.

    (a) * * *
    (2) * * *
    (ii) Have the right to vote in the election of each director and be 
allowed to cumulate such votes and distribute them among the candidates 
in the shareholder's discretion, except that cumulative voting for 
directors may be eliminated if 75 percent of the associations that are 
shareholders of the Farm Credit Bank vote in favor of elimination. In a 
vote to eliminate cumulative voting, each association shall be accorded 
one vote.

    Dated: April 22, 1997.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 97-10750 Filed 4-24-97; 8:45 am]
BILLING CODE 6705-01-P