[Federal Register Volume 75, Number 69 (Monday, April 12, 2010)]
[Rules and Regulations]
[Pages 18726-18745]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-7755]



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Part V





Farm Credit Administration





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12 CFR Parts 611, 613, 615 et al.



Organization; Eligibility and Scope of Financing; Funding and Fiscal 
Affairs, Loan Policies and Operations, and Funding Operations; 
Definitions; and Disclosure to Shareholders; Director Elections; Final 
Rule

  Federal Register / Vol. 75, No. 69 / Monday, April 12, 2010 / Rules 
and Regulations  

[[Page 18726]]


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FARM CREDIT ADMINISTRATION

12 CFR Parts 611, 613, 615, 619 and 620

RIN 3052-AC43


Organization; Eligibility and Scope of Financing; Funding and 
Fiscal Affairs, Loan Policies and Operations, and Funding Operations; 
Definitions; and Disclosure to Shareholders; Director Elections

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA or we) issues this final 
rule on Farm Credit System (System) bank and association director 
elections and other voting procedures. The final rule clarifies 
director election processes and updates FCA regulations to incorporate 
interpretations made through bookletters to System institutions. It 
also consolidates general election procedures, clarifies the role of 
nominating committees, enhances eligibility and disclosure requirements 
for director candidates, and improves annual meeting information 
statement instructions. The final rule also adds new regulations on 
floor nominations and meetings of stockholders. We expect this final 
rule will increase stockholder participation, enhance impartiality, and 
strengthen disclosures in director elections.

DATES: This regulation will be effective 30 days after publication in 
the Federal Register during which either or both Houses of Congress are 
in session. We will publish a notice of the effective date in the 
Federal Register.

FOR FURTHER INFORMATION CONTACT: Elna Luopa, Senior Corporate Analyst, 
Office of Regulatory Policy, Farm Credit Administration, McLean, VA 
22102-5090, (703) 883-4414, TTY (703) 883-4434; or Laura D. McFarland, 
Senior Counsel, Office of General Counsel, Farm Credit Administration, 
McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-4020.

SUPPLEMENTARY INFORMATION:

I. Objectives

    The objectives of this final rule are to:
     Strengthen the independence of nominating committees;
     Encourage greater stockholder participation in the 
director election process;
     Ensure that procedures on nominations from the floor are 
equitable and known to stockholders;
     Clarify director election procedures;
     Enhance impartiality and disclosure in the election of 
directors; and
     Incorporate FCA interpretations and responses to questions 
raised by System institutions and FCA examiners in our regulations.

II. Background

    The Farm Credit Act of 1971, as amended (Act) (Pub. L. 92-181, 85 
Stat. 583), establishes the System as a farmer-owned cooperative system 
that provides credit to farmers, ranchers, producers or harvesters of 
aquatic products, and rural homeowners. The System's cooperative 
structure relies on stockholder control, participation, and ownership, 
supported by accurate and timely information provided by the directors 
of System institutions. Boards of directors have the responsibility of 
encouraging stockholder participation in the management, control, and 
ownership of the cooperative. Importantly, it is also from this pool of 
interested, active, and informed stockholders that the cooperative 
draws its next generation of directors.
    On April 16, 2009, we published a proposed rule (74 FR 17612) to 
strengthen certain director election provisions and add other 
provisions to ensure that stockholders' interests continue to be the 
focus in the boardroom through their elected directors. We further 
proposed consolidating our director election rules into subpart C of 
part 611, ``Election of Directors and Other Voting Procedures,'' to 
keep subject matters together and facilitate ease of use. We initially 
established a 60-day comment period but, on the request of the public, 
extended that period another 60 days.\1\ The extended comment period 
for the proposed rule closed on August 14, 2009.
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    \1\ See 74 FR 23961 (May 22, 2009).
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III. Comments and Our Response

    We received 96 comment letters to our proposed rule from 
individuals and entities associated with the System, including the Farm 
Credit Council (FCC), acting for its membership, and each of the five 
Farm Credit banks. Of the comment letters received, 62 expressed 
support for the FCC comment letter, adding individual elaborations when 
they deemed them appropriate. We discuss the comments to our proposed 
rule and our responses below. Those areas of the proposed rule not 
receiving comment are finalized as proposed unless otherwise discussed 
in this preamble.

A. General Issues

    We received 68 comments on the need for additional regulations on 
election processes in the System, including one from the FCC and 
multiple letters from members of individual System associations. While 
most commenters supported our objective of improving System election 
processes, the FCC, three Farm Credit banks and several associations 
questioned the need for additional regulations. The FCC and a couple of 
other commenters acknowledged that some of the existing regulations 
needed updating, but remarked that they were unaware where the existing 
rules had failed. Other commenters remarked that we should not impose 
regulatory requirements that restrict individual institution discretion 
in elections. These comments are addressed here.
1. Need for Regulation
    The FCC and 49 other commenters asked that we withdraw the rule and 
work with the System to find a nonregulatory approach to strengthen 
institution elections. Many of these commenters remarked that active 
dialogue with System boards can address any weaknesses in the current 
election process, as can FCA informal guidance and examination. The FCC 
and a few other commenters remarked that our existing rules on election 
practices already exceed other regulators and suggested we adopt the 
practices of other financial regulators by requiring each institution 
to have policies in place specifying election practices in lieu of 
regulations. A few associations commented that the election process in 
the System is working and the rule would have a negative impact and 
increase costs, but one association remarked that the rule provided 
many opportunities for enhanced elections. This association also 
cautioned that those opportunities should not be forced upon the 
institutions. Another association stated that the rule does not follow 
best practices and expressed dismay at the implementation efforts that 
would be required if the rule became final, including changes to bylaws 
and policies. This same association asserted that the rule does not 
further the safe and sound operations of the System. Conversely, one 
association expressed appreciation that the rule recognizes best 
practices, but the commenter questioned the need to capture best 
practices in regulations. Another commenter stated that associations 
are in a better position to structure election procedures. The FCC and 
other commenters remarked that the proposed regulatory scheme seemed 
unjustified based on the limited election provisions in the Act. Still 
another commenter

[[Page 18727]]

remarked that adoption of the rule could carry unintended consequences 
undermining the stated objectives of the rule. A couple of commenters 
expressed concern that the rule does not give sufficient consideration 
to the different sizes and operations of various System institutions. 
One commenter went so far as to state that the rule was a regulatory 
burden. Another expressed a lack of optimism that the rule would 
improve election processes. Two Farm Credit banks cautioned FCA on 
regulating election procedures within the System, questioning if such 
rules are in keeping with FCA's status as an arm's-length regulator. 
One bank stated that the proposed rule and existing rules are too 
detailed, explaining that individual institutions are better equipped 
to control election procedures. This same bank questioned why this 
rulemaking was needed as it was not aware of any harm or purpose that 
would be addressed by the rule.
    We are not withdrawing the rule, but, in response to the comments 
received, we have amended certain provisions based on specific 
comments. While voluntary administration of elections is valuable, it 
does not replace the stability that rules provide in assuring System 
stakeholders of the safety and soundness of the System, and we have a 
responsibility to address this issue. Moreover, an effective director 
election process is critical to good governance, which in turn is 
essential for institution safety and soundness. The FCA is the 
independent Federal agency in the executive branch of the Government 
responsible for examining and regulating System institutions. In the 
course of issuing regulations, we consider whether the rulemaking may 
duplicate other requirements, would be ineffective, or impose burdens 
that are greater than the benefits received. Also, we promulgate rules 
necessary to implement the expectations and requirements of the Act, 
which, in the case of director elections, is to support stockholder 
participation in the management, control, and ownership of the System. 
We believe this rule clarifies the intended meaning of certain existing 
rules, eliminates confusion through reorganization of the rules, 
replaces outdated regulatory language with more current terminology, 
and introduces technological alternatives to existing requirements. We 
also believe that this rulemaking is not a regulatory burden, as a 
large portion of it incorporates previous informal guidance provided to 
institutions and, therefore, does not result in significant adjustments 
to individual institution operations. We do not agree with comments 
that our rule is inconsistent with what other regulators require. The 
FCA, as an independent regulator of the System, is not required to 
follow the actions of other regulators. Instead, we consider the policy 
positions of other regulators to decide if we should follow them or 
take a different approach if appropriate to implement the requirements 
and expectations of the Act.
    Our election rule sets a minimum level of performance and gives 
prime consideration to the cooperative structure of the System. We 
believe the assurances derived from this regulatory minimum standard 
will benefit the System overall by increased stockholder, investor, and 
public confidence. In this rulemaking, our intent is to ensure that 
appropriate election standards exist for all System institutions. We 
carefully considered the size, complexity, risks, interrelationships, 
and resources of System institutions when developing our rules, and 
incorporated variations and flexibility as appropriate. While we 
believe it is important to preserve individual institution flexibility 
when possible, our regulatory responsibility requires us to issue 
regulations that we determine appropriate for safety and soundness 
reasons. While commenters remarked that they knew of no risk or problem 
that needs to be addressed in a regulation, we explain that we are not 
limited to issuing regulations only when there is an existing problem. 
It is our responsibility as a safety and soundness regulator to be 
proactive in our rulemaking and provide standards that help avert 
potential problems.
2. Examination Instead of Rulemaking
    Thirty-four (34) System commenters cited our examination and 
enforcement authorities as a sufficient means to address election 
issues, concluding that additional regulations are unnecessary. Many 
explained that the FCA examination function is better suited to 
addressing individual problems, rather than a rulemaking that impacts 
the entire System, and that we should focus our attention on those 
institutions with election concerns instead of developing a set of 
regulations impacting all institutions. The FCC and several other 
commenters suggested FCA issue an election governance policy statement 
and then use its examination authority to verify compliance with the 
policy. Commenters also stated that we have all the enforcement powers 
necessary to correct any unsafe or unsound election practices without 
this rule. The FCC commented that because there are no problems in 
election of bank directors, there is little burden on FCA in examining 
individual bank election policies, rather than issuing regulations and 
examining for compliance with those regulations.
    We examine to ensure the safety and soundness of System 
institutions and their compliance with laws and regulations. This 
function is not a substitute for our responsibility to issue 
regulations implementing the Act and ensuring the safety and soundness 
of System institutions. Our examiners use our rules as the basis for 
compliance determinations and to require any necessary corrective 
actions. Regulations reduce the likelihood that examinations will 
uncover unsafe and unsound practices and provide a minimum standard of 
performance to assure stakeholders of the safe and sound operations of 
System institutions. While we agree with the commenters that we have a 
high level of enforcement authority, we do not view it as our primary 
tool for ensuring the safety and soundness of System institutions. Safe 
and sound operations of individual System institutions are ensured by a 
clear set of rules and thorough examinations.
3. Interaction With Bylaws
    The FCC and eight other commenters stated that our rulemaking 
efforts conflict with section 5.17(b) of the Act. This section of the 
Act precludes FCA from approving institution bylaws. As we have 
explained in other rulemakings, issuing rules impacting bylaws does not 
mean we are approving bylaws in violation of section 5.17(b) of the 
Act. The prohibition on bylaw approval doesn't preclude rulemaking on 
matters affecting an institution's bylaws or the safe and sound 
operations of System institutions. In fact, the Act at section 
5.17(a)(9) directs us to issue rules and regulations ``necessary or 
appropriate'' to carry out the Act. In pursuit of ensuring a safe and 
sound System and carrying out the Act, institution bylaws and 
operations are necessarily impacted by our rules. Additionally, while 
the authority of System institutions to establish bylaws is fairly 
broad, it is not without limits. Bylaws must be consistent with 
applicable laws and regulations, and we retain the responsibility to 
examine institution bylaws to ensure compliance. Consequently, we may 
regulate the terms and conditions by which institutions exercise their 
powers through their bylaws, while not approving the bylaws themselves, 
and then examine compliance with our regulations.

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4. Differences between Farm Credit Banks and Associations
    Two Farm Credit banks expressed concern that the regulation does 
not adequately recognize the differences between bank and association 
election procedures. One commenter remarked that the rule is too 
restrictive for banks, while not providing enough protection of 
association rights. This commenter asked the FCA to reevaluate the 
proposed rule to recognize differences in election procedures between 
banks and associations contained in the Act. One association remarked 
that FCA should adopt the concept of 75-percent stockholder-
associations' affirmative vote on all bank election procedures, similar 
to the current rule on overturning cumulative voting in bank elections. 
We disagree with the suggestion that stockholder-associations be 
allowed to overrule bank board decisions on a bank's election process. 
Each Farm Credit bank may consider the suggestions of its stockholder-
associations and incorporate them into the bank's election policies and 
procedures if the bank desires. We agree that the rule requires further 
clarity in its application to Farm Credit banks versus associations and 
have made modifications to those sections of the rule we considered 
appropriate. We addressed these specific modifications in the section-
by-section analysis of this preamble below.
5. Implementation Date
    We received five comments asking that the implementation date of 
the rule be extended to facilitate compliance. We proposed no delayed 
implementation date because we do not consider it necessary. As stated 
earlier, much of this rulemaking incorporates previous guidance 
provided by FCA to the System. We are not delaying the implementation 
of the other areas of the rule because the timing of the rule's 
effective date is not anticipated to impact ongoing elections.

B. Specific Issues

1. Meetings of Stockholders [New Sec. Sec.  611.100 and 611.110]
a. Definitions [New Sec.  611.100]
    We received two comments on the definition of ``mail ballots.'' The 
commenters asked that we continue to permit mail ballots to be used by 
Farm Credit banks, whether or not a stockholders' meeting has been 
held. One of the commenters pointed out that Farm Credit banks, as 
acknowledged elsewhere in the proposed rule, do not always have 
stockholders' meetings when conducting director elections. This same 
commenter also remarked that proxy ballots could be used if mail 
ballots were eliminated.
    The commenter's point that the definition offered in the proposed 
rule would effectively prevent banks from using mail ballots absent a 
stockholders' meeting is well made. Our proposed definition was in no 
way intended to prevent Farm Credit banks from using mail ballots, 
absent a stockholders' meeting. We are therefore removing that portion 
of the definition and placing the language explaining that mail ballots 
may not be distributed prior to the conclusion of a meeting in 
paragraph (d) of Sec.  611.340, which discusses the time when proxy 
ballots may be accepted and mail ballots may be distributed in 
connection with stockholders' meetings. We believe this movement of 
language regarding when mail ballots are distributed from Sec.  
611.100(a) to Sec.  611.340(d) clarifies that when a stockholders' 
meeting is held to conduct elections, mail ballots may not be issued 
before the conclusion of that meeting.
    Although no comments were made on the definition of mail ballots, 
including by electronic means, we are clarifying that electronic 
ballots classified as mail ballots are those cast by electronic mail. 
We did not intend to characterize electronic, ``real time'' balloting 
procedures, such as electronic ballot stations or online balloting that 
may be used by stockholders attending a meeting either in a physical 
location or online, as mail ballots. Those electronic ``real time'' 
balloting methods would properly be characterized as in-person voting. 
We also clarify that text messaging is not an appropriate method for 
balloting as it is nearly impossible to verify the identity of the 
sender of text messages.
    One commenter remarked that the definitions for online meetings and 
online meeting spaces, while providing flexibility, do not allow for 
meetings without a physical space. This commenter asked for 
clarification on what business can be conducted by mail or online 
without physical meetings. This comment is better directed to Sec.  
611.110, ``Meetings of stockholders,'' since the definitions in Sec.  
611.100 do not contain the limitation mentioned, but we respond to the 
comment here. We require a physical meeting space when using online 
meetings for all associations and those Farm Credit banks allowing 
floor nominations. As explained in the proposed rule preamble, E-
commerce requires each stockholder to agree to electronic communication 
in lieu of traditional communications, so unless all stockholders have 
made such an agreement, a physical meeting space is needed to provide a 
``floor'' for floor nominations. Because the commenter thought our 
proposed rule would require Farm Credit banks to always have a physical 
meeting space when using online meetings, we are modifying Sec.  
611.110(a) to clarify this requirement always applies to associations, 
since associations must allow floor nominations. The requirement would 
only apply to Farm Credit banks permitting floor nominations, as 
reflected in Sec.  611.326(b)(2).
    We received one comment on the definition of a quorum, asking if a 
quorum applies to individual meeting items or the entire meeting. A 
quorum is the number of stockholders needed to be present to start a 
meeting; it does not vary for each agenda item. However, we are 
removing the definition of a quorum for reasons stated under section 
III.B.1.d. of this preamble. We received no comments on the other 
provisions of Sec.  611.100 and finalize those as proposed.
b. Stockholders' Meetings [New Sec.  611.110]
    We received 22 comments, including the FCC, on System associations' 
holding annual director elections and allowing for the use of online 
meetings as part of the annual meeting process. Many of these 
commenters expressed dismay at having to have one large meeting each 
year instead of individual and localized customer appreciation 
meetings. Several commenters also stated that institutions should 
remain free to determine the meeting process. An association commented 
that it had stopped holding annual meetings 12 years ago, instead using 
localized customer appreciation gatherings, which have resulted in 
significant increases in stockholder participation and attendance. 
Still another association stated that it has scaled down its annual 
meeting and redirected the cost savings in separate customer 
appreciation events. One commenter remarked that annual meetings are 
not practical, nor reliable, for generating stockholder involvement. 
Another commenter expressed concern that annual meetings are viewed as 
the only or best means of stockholder participation in institution 
business. Still another stated that one annual meeting, versus multiple 
local meetings, is difficult to schedule in a fair manner given the 
variety of agricultural production timelines involved. Other commenters 
remarked on the growing territorial sizes and difficulties presented in 
holding a single annual meeting. One commenter stated that even using 
regional meetings does

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not address timeframes or improve stockholder participation.
    The provision that associations hold annual meetings of 
stockholders comes from section 4.15 of the Act, which provides that 
each association ``shall elect a nominating committee by vote of the 
stockholders at the annual meeting to serve for the following year.'' 
In addition, we are seeking to recognize, within the general election 
procedures, Sec.  611.1123(a)(3) of our merger regulations. Under Sec.  
611.1123(a)(3), the governance plan for a continuing association must 
provide for the election of at least one director at each annual 
meeting held subsequent to the date of merger. Incorporating this 
requirement into general election provisions facilitates compliance as 
most associations have merged under this rule and therefore have annual 
meetings and director elections.
    We assure commenters that our rule does not require a single, large 
annual meeting, only that an annual meeting be held. Associations may 
use a single location or multiple locations to hold their annual 
meetings. It is up to the association to determine how to best meet the 
needs of its stockholders in structuring the meeting, but we encourage 
associations that serve diverse types of agricultural operations or 
that have large territories to consider using sectional sessions out of 
consideration for its borrowers. Annual meetings, besides serving as a 
forum for elections, provide the opportunity to review the 
association's financial condition, discuss its progress or setbacks 
over the previous year, look at the challenges that management and 
board expect to face in the year ahead, address member concerns that 
warrant the board's attention, and discuss the rights, privileges, and 
obligations of members, individually and collectively. The annual 
meeting creates the unique setting for such discussions.
    One association objected to requiring annual director elections, 
explaining that it rotates director terms each year and, because 
appointed directors are included in that rotation, a stockholder-
elected director seat may not be up for election each year. Another 
commenter expressed concern that the rule does not consider special 
circumstances, such as mergers, which make electing a director every 
year impractical.
    We disagree with comments that annual director elections, held in 
conjunction with annual meetings, are not necessary every year. We 
expect associations to stagger the terms of all their directors, but we 
do not expect the inclusion of appointed directors in a director 
rotation cycle to prevent the election of a stockholder-elected 
director each year. Since appointed directors (either outside directors 
or board-appointed stockholder directors) are not elected by the voting 
stockholders but instead, are chosen by the other board members, they 
should not be included in the director election rotation cycle. With 
respect to mergers, FCA has favorably responded to requests from 
associations to suspend director elections in a merger year or to 
facilitate a planned downsizing of the continuing board of directors.
    A commenter asked us to clarify the language in Sec.  611.110(a) 
regarding the interaction of mail ballots with annual meetings. The 
rule provides that in-person (including proxy ballots) and online 
elections of directors must occur at the annual meeting, but mail 
ballots may be distributed after the meeting. Thus, associations have 
to elect a director each year, but the timing of the election ballot 
depends on the balloting methods used: in-person, online, and proxy 
balloting happens at the annual meeting, but mail balloting happens 
after the annual meeting concludes. Based on this comment, we have 
revised Sec. Sec.  611.110(a) and 611.340(d) to make it clear that mail 
ballots may only be distributed after the annual meeting.
    The FCC and one association asked that banks not be required to 
have annual meetings because the Act does not require it. Another 
association asked that banks not be required to elect directors 
annually. These commenters explained that the manner in which banks 
communicate with stockholders for election purposes should be left to 
the banks. We clarify that this rule does not require banks to have 
annual meetings. While we are not requiring Farm Credit banks to hold 
these types of meetings, we believe, however, they should do so. Thus, 
we are not removing the language from Sec.  611.110(a) encouraging Farm 
Credit banks to hold annual or periodic meetings. We continue to 
strongly believe that the Act places significant expectations on System 
institutions to foster and facilitate stockholder involvement in, and 
knowledge of, the cooperative nature of each System institution and the 
System itself. Farm Credit banks should give serious consideration to 
the value of holding an organized, structured meeting wherein 
stockholder-associations can communicate with their board members on 
matters that may be of interest and concern to them. In addition, Farm 
Credit banks are required to elect at least one director on an annual 
basis.
    Most commenters on the online meeting aspect of the rule indicated 
appreciation for the provision, but expressed reservations on its 
usefulness, costs and implementation. One commenter remarked that using 
online meetings may not be appropriate or available in all locations 
and asked us to clarify whether or not we were requiring online 
meetings. A couple of commenters remarked that the cost of using 
technology to conduct meetings or elections may not be justified by 
actual use of the feature. One of these commenters also stated that 
based on ``hits'' to its Web site, stockholders do not prefer this 
manner of communication. A couple of commenters also stated the 
security requirements for online meetings and elections would outweigh 
their benefit. One commenter stated that its stockholders' 
infrastructure and culture did not support online meetings. Three 
associations remarked that some institution stockholders did not have 
the technical skills to participate in online meetings. Other 
commenters stated that online meetings are not viable means for 
increasing stockholder participation as many stockholders prefer not to 
participate in online banking activities. Two associations expressed 
concern with the implementation issues associated with using online 
meetings, such as coordinating a virtual floor for an online meeting. 
One of these commenters stated that online meetings send the message 
that the board is not interested in personal interaction with 
stockholders. A couple of commenters observed that a number of its 
stockholders do not have Internet access, particularly in rural areas, 
so would not be able to attend an online meeting. However, 12 other 
commenters favored the use of online meetings, most welcoming a 
regulation identifying it as a tool for associations to use to increase 
participation as long as it is not a requirement, but one of these 
commenters stated that online procedures should be left to the 
institutions. Another stated that online meetings should not entirely 
replace a physical meeting.
    The rule provides associations the option of holding their annual 
meetings in both a physical location and online. While we recognize 
that associations incur certain costs associated with annual meetings, 
we believe the association's investment in its members through 
stockholder participation and involvement in the annual meeting 
justifies the costs involved. In Sec.  611.110, System institutions may 
use online meetings to augment the traditional annual meetings held in 
a physical

[[Page 18730]]

location, but are not required to do so. In response to the comments, 
we are modifying this aspect of the provision to clarify that the use 
of online meetings, online voting, and other technological resources, 
is optional.
    We do not view online meetings as eliminating the board members' 
personal interactions with stockholders, but as an opportunity for 
enhanced stockholder participation. Online meetings allow online 
attendees to communicate with board members and others who are present 
at the physical meeting site. Online attendees can also nominate a 
person as a director candidate from the virtual floor provided by the 
online meeting, ask questions of the meeting chair, and engage in 
discussions, etc., as if they were physically at the meeting. We 
recognize that implementing online meetings involves up-front costs to 
put this technology to use. Each institution must decide whether these 
costs are justified in light of the benefits to the institution and its 
stockholders in the long run. We also recognize that there are rural 
areas of the country where broadband Internet access is not yet 
available. For this reason, the rule requires that associations must 
always have a physical location for the annual meeting. The online 
meeting is an option that is available.
    Unlike associations, banks are not required to hold annual meetings 
or to elect their directors or the nominating committee as a part of 
the annual meeting process. For Farm Credit banks not using floor 
nominations, no physical meeting space is required. Thus, bank business 
can be conducted exclusively online, including conducting director 
elections and the election of the nominating committees, if the bank 
provides an online medium for casting votes or uses mail ballots.
c. Stockholder Attendance [New Sec.  611.110(d)]
    We received 25 comments, including one from the FCC and multiple 
letters from members of individual associations, on the proposed 
requirement that Farm Credit banks and associations actively encourage 
stockholder attendance at the annual meeting. Commenters stated that 
the requirement, while well intended, was not practical or necessary. 
Fourteen (14) commenters from the same association remarked that 
stockholder participation is achieved outside the annual meeting, such 
as in focus group meetings, education programs for young, beginning, 
and small farmers, and customer appreciation days. These same 
commenters observed that annual meetings are probably the least 
effective at obtaining stockholder participation, particularly in those 
associations with larger territories. Commenters from another 
association remarked that directors are the main source of attendance 
at annual meetings and that each stockholder receives notice of the 
meetings and has the freedom to attend or not. One commenter remarked 
that the regulatory provision would be difficult to enforce. One Farm 
Credit bank remarked that stockholder participation at annual meetings 
is overrated, especially when mail ballots are used. This bank also 
stated that this participation is not as important as regular 
communication between institutions and stockholders and a sound 
patronage program. One commenter also remarked that the farming needs 
of stockholders also play an important role in attendance at annual 
meetings. Still another commenter asked us to approach member 
involvement more broadly, instead of focusing on annual meetings. The 
FCC commented that the proposed provision was arbitrary and asked FCA 
to allow institutions to determine the best methods for enhancing 
stockholder participation. The FCC also commented that this provision 
partially conflicts with the provision to use the Annual Meeting 
Information Statement (AMIS) for communicating other stockholder 
participation opportunities. One commenter objected to using the AMIS 
as a vehicle to enhance stockholder participation, indicating that the 
AMIS is already filled with information, and more data may dissuade 
stockholders from reading the AMIS. A few commenters stated that it 
would be more appropriate for FCA to require institutions to adopt 
policies encouraging stockholder participation in the management, 
ownership, and control of their respective institutions. One 
association remarked that making encouragement of stockholder 
participation a requirement would not be beneficial or effective to the 
stated objective.
    We agree with comments that the proposed requirement in Sec.  
611.110(d), which would have required Farm Credit banks and 
associations to actively encourage stockholder attendance at the annual 
meeting, would be difficult to implement and are withdrawing it. 
However, we do not agree with the comments that encouraging stockholder 
attendance at stockholder meetings is not necessary and is overrated 
since there are other means of communication that take place between 
the institution and members. Stockholder participation and involvement 
in annual meetings reinforce communications between the institution and 
members and may suggest a need to improve communications. In response 
to the comment that FCA should require institutions to adopt policies 
that encourage stockholder participation in the management, ownership, 
and control of their institution, we believe that institution boards 
should undertake this on their own initiative. FCA encourages System 
institutions to be creative in finding ways to reach out to member-
stockholders beyond the lending relationship, provision of related 
services, and the distribution of annual and quarterly reports and 
other required disclosures.
d. Quorums
    The proposed rule would have clarified, in part, that a quorum 
count may not include mail ballots. We received 72 comments on this 
provision, most objecting to preventing institutions from including 
mail ballots in a quorum count. A minority of commenters either 
supported the provision or understood its objective. The FCC expressed 
strong objections to removing mail ballots from quorum counts, arguing 
that using mail ballots in a quorum count is as logical as allowing 
proxy ballots in quorum counts. The FCC further contested that 
including mail ballots in quorum counts is in keeping with cooperative 
principles because it results in larger stockholder participation. 
Several commenters also remarked that including mail ballots in quorum 
counts increases stockholder participation, giving examples whereby 
participation at annual meetings increased from 3.66 to 12.76 percent 
when the institution began counting mail ballots in the quorum 
requirement or that using mail balloting instead of in-person voting 
tripled stockholder participation. Other commenters argued that 
eliminating mail ballots from quorum counts will result in lower 
stockholder participation, lower quorum requirements, and increased 
annual meeting costs. Commenters also asked for confirmation that 
quorums be determined by the institutions. An association remarked that 
online meetings do not justify removing mail ballots from quorum 
counts. A couple of commenters also observed that the premise that mail 
balloting occurs after a meeting is convened does not take into 
consideration that the ballot itself is approved by the institution's 
board before the meeting. Another commenter explained its institution 
requires mail ballots to be returned before the annual meeting so voter 
participation is verified

[[Page 18731]]

by the start of the meeting. Still another commenter remarked that in-
person quorums are difficult to achieve through regional meetings, so 
mail ballots are necessary to the count.
    Commenters supporting the proposed rule on quorums remarked that 
while proxy ballots may be used for quorums, mail ballots are used to 
tally voting results. However, these same commenters suggested it is 
better left to each institution to decide the matter. In a separate 
comment, AgriBank commented that it recognized the legal issue involved 
in using mail ballots in a quorum count, as discussed in the proposed 
rule preamble, but suggested FCA could overcome that by issuing a rule 
allowing for the practice. AgriBank offered the perspective that 
stockholder participation encompasses the entire meeting and election 
process, from the start of the meeting to the announcement of election 
results, so including mail ballots in quorum counts is justifiable.
    A quorum is the minimum number of voting stockholders needed for a 
meeting to begin and business conducted. Stockholder participation is 
separate and distinct from a quorum count. In response to comments on 
ballot approval, we note that the board's approval of the ballot format 
in advance of the meeting has no bearing on the quorum requirement. In 
response to the commenter who noted that his institution requires mail 
ballots to be returned before the annual meeting so its voter 
participation is verified by the start of the meeting, our regulations 
do not permit mail ballots to be distributed prior to the end of an 
annual meeting.
    After considering the comments, we are not finalizing Sec.  611.120 
in this rulemaking. As suggested by commenters, this provision of the 
proposed rule may be better suited to the continued discretion of each 
institution's business judgment. We continue to expect institutions to 
establish sound quorum requirements for director elections. We are 
retaining the requirement that each institution's bylaws identify 
quorum requirements. Due to other changes in this rulemaking, we are 
moving this requirement to Sec.  611.110(a).
2. Eligibility for Membership on Board of Directors [Sec.  611.310]
    We received four comments on new paragraph (e), which clarifies 
that a person is not eligible to be a director if that person is 
elected to serve on the institution's nominating committee and attends 
a meeting of the nominating committee. We received related comments on 
the companion provision in Sec.  611.325(c) and address those comments 
here as well. One commenter expressed no objection to the rule. Another 
commenter suggested relaxing the rule to allow attendance at an 
organizational meeting if no director nominees are discussed. Still 
another commenter asked that the existing rule be left alone, 
explaining that it is understandable, removes the appearance of being 
self-serving, and is well received by the nominating committee. One 
commenter argued that committee members should be allowed to recuse 
themselves from discussions or decisions and then be nominated to run 
for the board as long as the nominating committee still has a quorum 
after that person leaves the committee. The FCC raised a concern that 
nominating committee members may become floor nominees after presenting 
the nominating committee report and believes that such a person should 
not be eligible to be nominated as a director candidate from the floor. 
One commenter asked for clarification on when the prohibition attaches.
    While we appreciate the comments supporting our existing rule, we 
believe it is important to clarify that the existing rule addresses a 
change in a person's status after election to, but before service on, a 
nominating committee. The rule provides that individuals elected to the 
nominating committee are permitted to resign from the committee and run 
for election to the board only if they did not attend any meetings of 
the nominating committee. We encourage institutions to elect alternate 
members so the committee can function without interruption if one of 
its members were to resign. In this rule, nominating committees will be 
required to keep minutes of their meetings, including meeting 
attendance, which will enable the institution to verify that the 
resigning member did not attend any committee meetings. As we explained 
in the proposed rule, attending a meeting of the nominating committee 
could give a committee member the ability to access information that 
would allow that person to judge the likelihood of a successful run for 
the board, thus creating a potential conflict of interest that the 
rules in Sec.  611.310 seek to avoid. As long as a nominating committee 
member does not attend any nominating committee meeting, the person may 
resign from the committee to run for election to the board in the same 
election cycle. Thus, we are finalizing this provision in Sec.  
611.310(e), and the related provision at Sec.  611.325(c), as proposed.
    We received comments from the FCC, a Farm Credit Bank, and two 
associations on new paragraph (f) in Sec.  611.310, requiring 
associations to inform out-of-territory borrowers as to the borrower's 
eligibility to serve as a director. We received related comments on the 
companion provision in Sec.  611.325(a) and address those comments here 
as well. The FCC and one association asked that we revise the 
requirement on giving notice of eligibility, remarking that 
associations should not have to make extraordinary disclosures to out-
of-territory borrowers for this purpose. They instead suggested that 
disclosures on out-of-territory borrowers' eligibility to serve as 
directors be part of other communications to all stockholders on 
director qualifications. The FCC then asked that if FCA finalizes the 
provision for special disclosures to out-of-territory borrowers, the 
disclosure only be required if an association's bylaws do not prohibit 
such borrowers from serving as directors. One association asked that 
the disclosure be limited to those associations prohibiting out-of-
territory borrowers from serving as directors. The bank raised no 
objection to allowing out-of-territory borrowers to serve as directors 
and suggested that this type of disclosure should be provided to all 
borrowers because a borrower within the territory may later move 
outside the territory. One association objected to the entire provision 
due to the difficulty in knowing whether borrowers are stockholders in 
multiple associations.
    We agree with those commenters who suggested that notice should 
only be provided to out-of-territory borrowers holding voting stock in 
those associations that prohibit such borrowers from running for 
election. Voting stockholders have an assumed right to run for 
election, so notice is not necessary. However, because the rule allows 
associations to limit this right in the case of out-of-territory 
borrowers, those borrowers should be notified of such. Thus, we revise 
our proposal in both Sec.  611.310(f) and Sec.  611.325(a) to only 
require disclosure when an association's bylaws prohibit out-of-
territory borrowers who hold voting stock in the association from 
serving as a director or on the nominating committee.
    The FCC and one association remarked that section 4.15 of the Act 
directs association nominating committees to only consider director 
candidates from the institution's territory. We disagree because these 
commenters fail to recognize that any voting stockholder in an 
association is potentially eligible to be elected as a director of that 
institution, whether

[[Page 18732]]

nominated by the nominating committee or through a floor nomination. 
While the language of section 4.15 directs the nominating committee to 
consider all territories of the institution when identifying nominees, 
it does not prevent the committee from also considering other eligible 
voting stockholders, such as out-of-territory borrowers that hold 
voting stock. In addition, the legislative history behind section 4.15 
indicated Congress' intent to make sure the nominating committee gave 
due consideration to all aspects of the institution's borrower base in 
order to have a board of directors that is knowledgeable of the 
agriculture financed by the institution.
    We received no comments on the other provisions of Sec.  611.310 
and finalize those as proposed.
3. Impartiality in the Election of Directors [Sec.  611.320]
a. Institution Resources [Sec.  611.320(c)]
    We received seven comments on the proposed clarifications to Sec.  
611.320(c), including one from the FCC. Two commenters agreed with the 
proposed change to recognize associations' standing as stockholders in 
their funding banks, thereby allowing stockholder-associations to use 
their resources in support of a candidate to the bank board. The FCC 
agreed that each institution should adopt procedures equitable to all 
candidates, including floor nominees, and emphasized that use of 
institution resources should be a choice. The FCC and one other 
commenter, however, objected to limiting use of institution resources 
for election activities to Farm Credit Banks. The System's only 
agricultural credit bank (CoBank) commented that this provision would 
not be ``workable'' for agricultural credit banks due to the mixed 
stockholder structure of affiliated associations and retail borrowers.
    We clarify in the final rule text that we are not requiring any 
bank, including CoBank, to permit its stockholder-associations to 
campaign for bank director candidates. This type of activity can only 
occur to the extent permitted by the bank's own policies and 
procedures. We explained in the proposed rule that the bank must 
authorize this activity because it is the bank's director election 
process and the bank should have the authority to determine the 
allowable activities of its stockholders in this process, subject to 
our regulations. In the event a bank does not choose to allow its 
stockholder-associations to use associations' property, facilities, and 
resources in support of bank director candidates, no stockholder-
association in that district would be authorized to do so in any 
manner. On the other hand, if a bank has permitted its stockholder-
associations to engage in this activity in the past and intends to 
allow the activity to continue, it must now adopt policies and 
procedures that comply with the regulatory requirements of Sec.  
611.320(c).
    The FCC and a couple of associations suggested extending the use of 
institution resources to the associations for campaign activities in 
their own elections, as long as it is done in an equitable and prudent 
manner. The FCC explained that voter access to candidate campaign 
information is essential to an informed voting public and that many 
candidates are unable to finance distribution costs, especially in 
larger territories. The FCC also argued that young, beginning, and 
small farmers who might run for a director position are most 
disadvantaged in the current restrictions on an association's ability 
to pay distribution costs for candidates. The FCC stated that an 
association could not express or imply an endorsement of any candidate. 
The FCC further remarked that existing rules and FCA guidance on this 
issue unduly hamper voting stockholders' access to meaningful 
information.
    Our rule in Sec.  611.320(c) allows candidates for directors to 
make use of an institution's property, facilities, and resources 
provided the property, facilities, and resources are simultaneously 
available and it is made known that they are available for use by all 
declared candidates. As we explained in the proposed rule, our rules 
are designed to ensure fairness and equal access to the reimbursement 
opportunity. Use of an institution's financial resources must be 
reasonable, prudent, and consistent with supporting an election that is 
fair and unbiased. We do not, however, agree with the comments that 
associations should be able to distribute campaign material for or on 
behalf of candidates running for election to the association's board of 
directors and, therefore, we are not changing Sec.  611.320(e).
    We recognize that the larger geographic territories of some System 
institutions make it unrealistic to expect stockholders to have 
meaningful knowledge of most director candidates without some 
supplemental information beyond the required disclosures. We also 
acknowledge that the large number of stockholders in many associations 
also makes it impractical or cost-prohibitive for candidates to mail or 
distribute information themselves. In an FCA bookletter, ``Distribution 
of Director Candidate Information'' (BL-056), dated September 11, 2008, 
we clarified the meaning of ``campaign material'' for purposes of Sec.  
611.320(e) by differentiating campaign material from educational 
material. The bookletter explained that System institutions may 
provide, to stockholders, supplemental material on director candidates 
without violating the prohibition on distributing campaign material 
when that material is educational in nature and all candidates have a 
fair and equal opportunity to provide educational material. In 
providing this clarification, we wanted to ensure that the 
interpretation of ``campaign material'' did not limit the distribution 
of appropriate information on director candidates to stockholders.
    We received one comment seeking clarification on whether non-
incumbent candidates must be provided reimbursement for travel if an 
incumbent director travels at the institution's expense to a regional 
meeting before being named by the nominating committee as a director-
nominee. We direct the commenter to our frequently asked questions 
(FAQs) on the governance rule, specifically FAQ 36, posted on FCA's Web 
site under ``FCS Information.''
    We received no comments on the other provisions of Sec.  611.320(c) 
and finalize those as proposed.
b. Involvement of Directors in Board Elections [New Sec.  611.320(f)]
    We received a comment from the FCC and 78 other commenters, 
including multiple letters from members of individual associations, on 
adding a new paragraph (f) to address the involvement of directors in 
board elections. The FCC and several other commenters stated strong 
objection to prohibiting director activity in board elections, citing 
fundamental free speech. One commenter expressed no objection to the 
rule and another stated strong support of it. A third of the commenters 
asked that the provision be eliminated entirely, arguing directors 
should be allowed to offer an opinion on fellow board members and that 
doing so presents no conflict.
    Many commenters argued that the requirement is an infringement on 
free speech and unduly undermines the notion of cooperative, open 
elections. Several of these commenters further stated that good 
governance encourages communication. One Farm Credit bank and a few 
associations stated that stockholder-elected directors should be 
permitted to make such statements, but only in the director's capacity 
as a

[[Page 18733]]

stockholder. The FCC and several other commenters expressed concern 
about the message such a restriction would send to stockholders and 
questioned the need for the rule, stating an unawareness of any 
problems in this area. A few associations commented that the 
prohibition would make finding willing and qualified candidates more 
difficult, while directors from a couple of associations argued that 
the provision would limit their ability to be effective directors. 
Others asserted that directors have a duty to relate information on 
candidates if the directors believe the candidate holds views that may 
cause harm to the institution. Another commenter remarked that the 
prohibition could have unintended consequences, such as being 
misinterpreted by stockholders or preventing the board or board 
chairman from providing guidance to the nominating committee on 
desirable director qualifications.
    Some commenters explained that the views of incumbent directors are 
important to voting stockholders, many arguing that corporate elections 
do not have similar restrictions. Commenters also expressed the view 
that limiting director speech might be difficult to monitor, especially 
oral communication. Others considered the limitation on making 
statements for other director candidates an extreme measure that is 
better addressed through standards of conduct policies.
    We understand and have thoroughly considered the sentiments of the 
commenters, and, as a result, we are modifying the provision to limit 
the prohibition to active campaigning as a ``director'' of an 
institution. We are mindful of the dual role that elected directors 
play (as both stockholders and directors) in the cooperative, and we do 
not want to prohibit a stockholder's right to support a candidate. At 
the same time, we continue to believe a director's active support of a 
candidate creates a potential for conflicts of interest. We also 
clarify that our rule does not prevent board members from offering 
guidance to nominating committees on desirable director qualifications. 
This type of guidance is not specific to any one person, but rather 
addresses the board's overall needs. We do not believe the final 
language will, as suggested, adversely affect either the ability of 
directors to do their jobs or recruitment efforts for open board 
positions.
    The final provision, as modified, prevents a director from using 
his or her official authority as a director to influence or otherwise 
affect the result of an election on another's behalf. Examples of 
active campaigning for a director candidate (except one's self) that 
would be prohibited include writing and delivering speeches on behalf 
of a candidate, organizing and officially appearing at campaign events 
on another's behalf (attendance as an audience member is permissible if 
the director is not receiving compensation, or reimbursement, from the 
institution for the time or travel to the event), preparing and 
distributing campaign literature for a candidate, and using official 
institution stationery or titles accorded the director for board 
positions (such as audit committee chairman or board chairman) for 
personal endorsements or recommendations. Likewise, a director would 
not be allowed to use any authority associated with his or her official 
``director'' title in a manner that could reasonably be construed to 
imply that the institution either sanctions or endorses the director's 
activities on another's behalf for nomination or election. With this 
modification, we want to be sure that any activity undertaken by a 
director on another's behalf remains personal in his role as a 
stockholder and is not presented in a manner that represents the 
director in his or her official capacity or implies official sanction 
by the institution of a candidate. We believe this modification 
addresses commenter concerns and provides an appropriate balance 
between a stockholder-elected director's responsibilities to remain 
officially neutral in institution elections, while still preserving the 
director's personal rights as a stockholder.
    We appreciate comments concerning difficulties in monitoring oral 
communications between directors and the membership and encourage 
institutions to address this matter through the institution's standards 
of conduct policy and procedures.
4. Nominating Committees [Existing Sec.  611.325]
    We received comment letters from the FCC and 47 other commenters, 
including multiple letters from members of individual associations, on 
the proposed changes to this section, only one of which supported all 
the proposed changes. Of the other 47 comments, seven were directed at 
the introductory paragraph of Sec.  611.325. In this paragraph, we 
clarified that each institution may have only one nominating committee 
in any one election cycle. The FCC and another commenter stated that 
multiple committees are more efficient for those institutions holding 
regional elections. The FCC then requested FCA to clarify whether 
subcommittees may be used if the rule is finalized as proposed. If so, 
the FCC recommended that only final actions on nominees require full 
committee vote. One commenter asked why subcommittees are appropriate 
but multiple nominating committees are not. Two commenters suggested 
permitting nominating committees to be formed on a state or regional 
basis instead of just one committee for the institution's entire 
territory.
    We are not changing the rule to allow for multiple nominating 
committees within a single institution because we do not believe 
multiple nominating committees were intended by the Act. Section 4.15 
of the Act states that each year the voting stockholders will elect a 
nominating committee at the annual meeting. Congress used the singular, 
and we are not persuaded that a different interpretation is 
appropriate. As a committee of voting stockholders, the nominating 
committee has the significant task of identifying qualified voting 
stockholders to stand for election to the entire board of directors and 
not a portion of the board. A single nominating committee working in 
concert makes the best possible selections for director nominees. 
However, we believe there is value in using subcommittees to aid the 
full committee in its task, especially in institutions with large 
territories. Our rule permits institutions' nominating committees to 
work in subcommittees for the express purpose of identifying possible 
director-nominees in director nomination regions for the nominating 
committee's review and consideration. The rule is clear that the 
nominating committee as a whole must decide on the director-nominees 
for the recommended slate of candidates.
    Four Farm Credit banks expressed concern with the requirement that 
banks have nominating committees. The commenter explained that the 
nominating committee is a group of individuals who are not stockholders 
in the bank and have no investment in the bank, and thereby lack an 
incentive for locating good candidates. The commenter also asserted 
that Congress recognized the distinction between associations and banks 
when crafting section 4.15 of the Act, which is why the Act does not 
require nominating committees for banks. The commenter requested that 
FCA remove the bank nominating committee requirement to allow 
stockholder-associations to nominate their own candidates to the bank 
board or, in the alternative, make bank nominating committees an 
optional requirement.

[[Page 18734]]

    We addressed similar comments on bank nominating committees in the 
initial rulemaking for nominating committees and have not changed our 
position on this issue.\2\ As a clarification, our rule requires bank 
nominating committees to be elected by voting stockholders who, at the 
bank level, are stockholder-associations, and the candidates for 
service on a nominating committee also come from the stockholder-
associations. Further, each bank may allow floor nominations for 
director candidates. Therefore, stockholder-associations are not 
prohibited from participating in the nomination process.
---------------------------------------------------------------------------

    \2\ See preamble to final governance rule, 71 FR 5762 (February 
2, 2006).
---------------------------------------------------------------------------

    We received no comments opposed to the reorganization of Sec.  
611.325 and finalize it as proposed.
a. Nominating Committee Composition [Existing Sec.  611.325(a)]
    We received four comments on requiring associations to inform out-
of-territory borrowers as to the borrower's eligibility to serve on an 
institution's nominating committee and addressed these comments in the 
companion provision of Sec.  611.310(f) and discussed in section 
III.B.2. of this preamble. Consistent with changes made on the 
companion provision, we are modifying the language in 611.325(a) to 
require notice to out-of-territory borrowers only when the 
institution's bylaws prohibit out-of-territory borrowers who hold 
voting stock from being eligible to serve on the nominating committee.
b. Nominating Committee Election [New Sec.  611.325(b)]
    We received 26 comments, including multiple letters from members of 
individual associations, on adding new paragraph (b) on nominating 
committee elections. Of these, 19 comments were on the provision that 
an institution may use ballots that would allow stockholders to vote 
for nominating committee members as a slate, as long as stockholders 
also retain the ability and right to elect members individually. Four 
commenters asked for clarification on how such a ballot would be 
structured and votes tabulated. Other commenters expressed support for 
only having a vote on the committee as a slate, but some of these 
questioned the need for the matter to be included in the regulation. A 
Farm Credit bank remarked that individual votes enable larger 
stockholder-associations to control the committee composition and asked 
that the provision be removed from the rule. One commenter supported 
the proposed rule provision on nominating committee elections. One 
commenter asked if we favor the use of floor nominations for nominating 
committees. Another commenter objected to the slate vote provision, 
explaining that voting for individual committee members facilitates 
identifying alternates.
    We agree with commenters that our proposed language in Sec.  
611.325(b)(1) was unclear on how the ballot would be structured and how 
votes would be tabulated, which might have created confusion for the 
voting stockholders in casting such a vote. In reviewing the issue, we 
believe that discussion on the manner of achieving the ``opportunity'' 
for stockholders to vote either on a slate of candidates or individuals 
is better suited to informal guidance. Consequently, we have modified 
this provision to state only that institutions must provide 
stockholders the opportunity to vote on candidates for each nominating 
committee position, simultaneously clarifying that the vote is for 
candidates running for each position on the committee. As to the 
comment on allowing write-in candidates for nominating committees, 
institutions may choose to use that method in addition to others. 
However, while write-in candidates on a ballot for election to the 
nominating committee are not likely to garner the number of votes 
needed for election, we remind institutions that they may permit 
nominations from the floor for nominating committee candidates. In this 
manner, a floor nominee's name can be added to the ballot before the 
vote occurs, thus significantly increasing the floor nominee's chances 
for election.
    We received comments from the FCC on Sec.  611.325(b) that 
association nominating committee members may only be elected to serve a 
1-year term. The FCC asked us to clarify that nominating committee 
members may serve consecutive terms. A few other commenters asked us to 
clarify that nominating committee members may serve on the following 
year's committee.
    We agree with commenters and for that reason did not propose limits 
on the number of consecutive 1-year terms association nominating 
committee members may serve. However, individual members of an 
association nominating committee must stand for and be reelected in 
order to serve another 1-year term, and we have clarified this 
requirement in the rule. We do not set the term that a bank nominating 
committee member serves because there is no statutory provision 
specifying the term of a bank nominating committee member. We encourage 
institutions to establish safeguards against self-perpetuation of the 
nominating committee's membership.
    We received no comments on the provision regarding the use of in-
person (including use of an online medium) or mail balloting procedures 
to elect a nominating committee, but we clarify that using proxy 
ballots to elect a nominating committee is also permitted. We also 
received no comments on the provision in Sec.  611.325(b)(2) that Farm 
Credit banks must use weighted voting with no cumulative voting 
permitted when electing members to serve on a nominating committee and 
we finalize this portion of the rule as proposed.
c. Nominating Committee Conflicts of Interest [New Sec.  611.325(c)]
    We received two comments regarding when a nominating committee 
member may resign from the committee and run for election to the board 
of directors. These comments are addressed in section III.B.2. of this 
preamble, where we discuss eligibility to serve as a director in the 
companion Sec.  611.310(e).
d. Nominating Committee Duties [Redesignated Sec.  611.325(d)]
    We received 44 comments, including one from the FCC and letters 
from multiple members of individual associations, on clarifying that 
nominating committees may not be used for other institution business. 
The FCC and many other commenters agreed that nominating committee 
duties should be limited to the business of the nominating committee, 
but strongly objected to preventing the nominating committee from 
identifying candidates for the following year's nominating committee. 
These commenters asked to use the current nominating committee as a 
vehicle for identifying members for the following year. Several 
commenters said that often nominating committee members come across 
future potential committee members in the search for director 
candidates. A few commenters questioned who would perform the task of 
finding new committee members if the sitting nominating committee were 
prevented from doing so. These commenters expressed potential conflicts 
with other FCA regulations if management has to step in and perform the 
task. One association commented that the Act does not prohibit using 
the nominating committee for other duties. Still others commented that 
allowing other types of committees to identify potential future 
nominating committee members does not support cooperative principles 
nor is it cost-effective. One commenter suggested FCA regulate

[[Page 18735]]

terms, providing for nominating committee term limits to prevent self-
perpetuation, while others suggested institutions use their nominating 
committee policies to control self-perpetuation matters. One commenter 
suggested the listed duties in the rule be the minimum, not the only, 
duties the committee may perform. Another stated that the existing rule 
is sufficient and needs no change.
    We agree with commenters that nominating committees are well suited 
to aid in the identification of candidates for the next nominating 
committee, and we are amending the rule to reflect that it is 
permissible. We do not, however, believe that the nominating committee 
should perform other duties. We believe that having other duties 
diverts the nominating committee from its significant role in the 
director election process. Further, a nominating committee may not be 
given the task of verifying the eligibility or credentials of a floor 
nominee.
    One commenter asked that we clarify whether the nominating 
committee must nominate all eligible candidates for open director 
seats. This commenter stated that prohibiting such an action would be 
objectionable. Yet another commenter stated that it wanted to limit the 
nominating committee to only naming two candidates for each open 
director seat.
    The nominating committee's responsibilities are to identify, 
evaluate, and nominate candidates for open director positions. The 
committee must evaluate their qualifications and nominate at least two 
candidates for each open director position, while also endeavoring to 
ensure representation from all areas of the territory and, as nearly as 
possible, all types of agriculture practiced within the territory. An 
evaluative process must occur, and it is within the discretion of the 
nominating committee to select those candidates who it believes are the 
best qualified to serve as directors. It rests with the nominating 
committee to decide which director nominees will be on the slate of 
recommended candidates. Thus, we want to clarify that the nominating 
committee is not limited to providing just two names for each open 
director position.
    The FCC and two other commenters asked for clarification on how 
votes are tallied when the stockholders are presented with more than 
two nominees for one director position. The FCC used the example of the 
nominating committee identifying two nominees for a position and then 
also getting a floor nomination, which may result in there not being a 
majority of votes for any one candidate.
    We have no regulatory provision that requires a winning candidate 
for a director position to receive a majority of the votes cast. In the 
situation the FCC describes, the winning candidate could receive a 
``plurality'' of votes. An institution's policies and procedures on 
impartiality in director elections should recognize that a winning 
director candidate may receive less than a majority of the votes cast 
when there are more than two candidates for one director position. 
Should a contest result in a tie vote between two candidates, most 
institution bylaws have provisions for dealing with it.
    A bank asked for confirmation that Sec.  611.325(d)(1), regarding 
representation from the institution's territory, is a guide and not a 
requirement. In response, we clarify that this aspect of the rule is a 
guide based on the legislative history of the Act, and it is not a 
requirement.
e. Nominating Committee Resources [Redesignated Sec.  611.325(e)]
    We received one comment on adding a requirement that institutions 
provide their nominating committees with FCA rules and other FCA-issued 
guidance on the operation of nominating committees. The commenter asks 
us to instead require institutions to provide nominating committees a 
comprehensive listing of resources available, indicating those that 
must be provided. The commenter explained that presenting all the 
material listed in the rule would be counterproductive and might 
overwhelm the committee.
    We disagree with the commenter and believe this requirement is 
necessary to ensure that the nominating committee is aware of FCA's 
rules and guidance regarding the nominating committee's role in 
representing the institution's stockholders in the director elections 
process and understands how it must operate in accordance with those 
rules. We are hesitant to require instead a comprehensive listing of 
resources as suggested because it might actually discourage the 
nominating committee from asking for all the material that it should 
have access to without delay. Consequently, we finalize this provision 
as proposed.
    We also note that the final rule requires nominating committees to 
maintain records of its meetings. We believe it is appropriate that the 
nominating committee record, within its meeting minutes, whether it 
obtained the resources it requested from the institution. We further 
encourage nominating committees to record in their meeting minutes 
whether they were satisfied with the resources provided or if the 
resources were insufficient for the nominating committee to fulfill its 
duties.
5. Floor Nominations [New Sec.  611.326]
    We received, from the FCC and 10 others, comments on incorporating 
into our rules previous guidance provided to System institutions in FCA 
bookletter, ``Floor Nomination Procedures for System Associations and 
Banks'' (BL-055), dated February 14, 2008, and other floor nomination 
procedural requirements. In addition to comments specific to this 
section, many comment letters included statements affirming that floor 
nominations are an express right of association stockholders.
    The FCC and four other commenters asked that the manner of 
conducting floor nominations be left to each association. The FCC and 
one association further remarked that floor nominations should not be 
used to circumvent the nominating committee's efforts and that 
institutions should be allowed to balance election procedures to 
provide equal and fair treatment to all nominees. One commenter 
explained that the procedure for making floor nominations varies by the 
size of the institution. The FCC and an association also suggested that 
the number of individuals needed to support a floor nomination be equal 
to the number of people serving on the nominating committee or the 
number of votes given by nominating committee members to those on the 
nominating committee slate, rather than just a second to the 
nomination.
    Voting stockholders of every association have the express right of 
making nominations from the floor. We reaffirm that this right may not 
be unduly restricted in a way that effectively weakens it, nor can the 
procedures for making floor nominations be unduly burdensome. We 
believe that asking for more than one voice in support of a floor 
nomination weakens the process. Further, permitting variations in the 
procedures for making floor nominations based solely on the size of the 
institution is not appropriate because floor nominations are an express 
right of the voting stockholders and are not dependent on institution 
size. To ensure the right to make floor nominations is not unduly 
inhibited, this rulemaking sets minimum procedural limits for the level 
of voting stockholder support that can be required by the institution 
before accepting a floor nomination. We do not believe that floor 
nominations are easier than being

[[Page 18736]]

nominated through the nominating committee. A floor nominee must meet 
the same eligibility and disclosure requirements as all other nominees 
and must gain the support of the voting stockholders in order to be 
elected. The voting stockholders make the final decision on who is 
elected to the board of directors, and the manner of nomination may or 
may not influence the stockholders' vote.
    The rule also seeks to address the concern that allowing 
nominations from the floor may create delays and inefficiencies at 
stockholders' meetings because the institution first has to verify that 
the nominee is eligible for the position for which he or she has been 
nominated before the meeting can proceed. Floor nominations are public 
nominations of candidates that are not previously vetted by any person 
or committee. In the interest of running an efficient stockholders' 
meeting, it is the responsibility of the association to have ready 
access to a current stockholders' list and any other needed 
documentation that would allow the association to verify that the 
nominee from the floor meets the eligibility requirements to run as a 
candidate for a director position, particularly if the voting 
stockholders are casting their ballots at the meeting and are not 
voting solely by mail ballot after the stockholders' meeting is 
concluded.
    One commenter supported the floor nomination process, but stated 
that director eligibility should be the same regardless of the manner 
in which a person is nominated. Another commenter stated that 
nominating committee members should not be eligible to be floor 
nominated director candidates until one election cycle has passed. We 
agree, and while Sec.  611.326(a) does not specifically address 
eligibility to serve as a floor nominated director, our other rules do. 
Our rules in Sec. Sec.  611.310(e) and 611.325(c) specifically address 
the commenter's concern. Both provisions make it clear that an 
individual cannot be a candidate for a bank or an association board of 
directors in the same election cycle during which that individual was a 
member of the institution's nominating committee and attended any 
meetings of the nominating committee. Regardless of how the individual 
may be nominated, including a nomination from the floor, his or her 
membership on the nominating committee makes the individual ineligible 
to run as a director-nominee for the duration of that election cycle.
    One commenter asked if FCA favors the use of floor nominations for 
service on the nominating committee. The FCA takes no position on 
whether nominations from the floor should be permitted for the 
nominating committee. This is a decision that the board of directors 
should make and include in the association's bylaws so that voting 
stockholders know whether floor nominations for the nominating 
committee are accepted.
    A bank commented that if banks do not hold meetings for elections, 
it cannot offer floor nominations. The bank asserted that, given this 
and the fact that there is no prohibition in the Act against other 
forms of nomination, the bank has allowed its stockholder-associations 
to name nominees for vacant director seats outside the nominating 
committee process. In response, we expect the bank to let the 
nominating committee complete its duties before allowing any other type 
of nominations. We do not require or prohibit Farm Credit banks from 
using floor nominations. The use of floor nominations in bank elections 
is at the discretion of each bank; however, banks choosing to allow 
floor nominations must follow the provisions of Sec.  611.326, and we 
have modified this provision to make that clear.
    We received no comments on other provisions of new Sec.  611.326 
and finalize them as proposed.
6. Director-Nominee Disclosures [New Sec.  611.330]
    We received three comments on Sec.  611.330(a) objecting to 
disclosing family relationships that would be reportable under part 612 
because the disclosure unduly infringes on privacy rights of nominees 
and nominees' family members. We address this issue in our Governance 
FAQ 39.
    The FCC and three associations commented on Sec.  611.330(c)(1), 
stating that including candidate disclosures as part of the AMIS 
complicates the election process. The FCC explained that the inability 
to obtain disclosure statements from floor nominees until after the 
annual meeting has led to an increase in the use of mail ballots, 
resulting in reduced stockholder attendance at annual meetings. 
Commenters asked that we allow institutions to set the process for 
director candidate disclosures and only address the process to ensure 
equitable treatment. The commenters further asked that floor nominee 
disclosures be reconciled with other disclosure procedures. Two 
associations commented that floor nominee disclosures should be left to 
the institution's policies as the rule is favorable to floor 
nominations. One of these associations specifically asked that floor 
nomination disclosures be obtainable in advance of a meeting.
    We decline the suggestion that disclosure statements from floor 
nominees be obtained before the start of the stockholders' meeting. 
Floor nominations, by their very nature, occur during the meeting. It 
is therefore impossible to obtain disclosures in advance of a floor 
nomination. While we understand the commenters' concerns regarding 
potential delays in the meeting process to obtain these disclosures, 
doing as the commenters suggest would deny stockholders the express 
right to make floor nominations. We recognize that those institutions 
using only mail ballots encounter no such difficulties because floor 
nominees provide their disclosures to the institution before the mail 
ballots are prepared. We received no comments on the other provisions 
of Sec.  611.330 and finalize those as proposed.
7. Regional Voting in Director Elections [New Sec.  611.335 and 
Existing Sec.  615.5230]
    We received three comments on our proposal to consolidate the 
regional election provisions in new Sec.  611.335. We had proposed 
moving the existing requirements on regional elections of directors 
from existing Sec. Sec.  615.5230(a)(3) and 620.21(d)(4)(ii) to a new 
Sec.  611.335 called ``Regional voting in director elections.'' One 
commenter questioned whether the proposed rule changed the provisions 
for regional voting. Another commenter asked us to clarify that 
regional voting rules only address voting and not eligibility 
requirements for directors or nominating committee members.
    We did not intend our proposed reorganization of the regional 
election rules to change any provisions or cause confusion on its 
applicability. We intended no change in our rules on this topic and, 
therefore, to avoid any such confusion, we are not finalizing the 
movement of the regional election provisions from Sec.  615.5230 into a 
new Sec.  611.335. The regional election provisions will remain in 
Sec.  615.5230, but in a new paragraph (b) due to the effect of other 
reorganization efforts. We received no comments on the proposed 
grammatical corrections to the regional election provisions and 
finalize those as proposed at Sec.  615.5230. We are also finalizing 
the deletion of those regional voting provisions from Sec.  
620.21(d)(4)(ii) because existing Sec.  620.21 is an interim report to 
stockholders (AMIS) and the regional election provisions from that 
section address the distribution of ballots in regional elections, 
which is addressed elsewhere in the rule. As a

[[Page 18737]]

conforming technical change, we are changing the reference to Sec.  
615.5230 in Sec.  611.1210(f) to reflect this organizational change and 
adding a cross-citation to Sec.  611.350 in Sec.  615.5230.
8. Confidentiality and Security in Voting [new Sec.  611.340]
    We received no comments on adding language to paragraph (d) to 
explain that only proxy ballots may be accepted before stockholders' 
meetings are convened for election or other voting purposes. However, a 
few comments on other areas of our rule discuss the value of proxy 
ballots and we address those comments here. A bank and a few 
associations commented on the difficulty of using proxy ballots with 
floor nominations, explaining that there is no advance knowledge of 
floor nominations for stockholders to provide voting guidance to proxy 
holders. Three commenters remarked that having to use proxy ballots 
instead of mail ballots creates a disadvantage to floor nominees. 
Commenters also stated proxy ballots are more confusing for 
stockholders. A few commenters asked us to explain why proxy ballots 
are better than mail ballots for quorum counts, arguing that proxy 
ballots are harmful to the floor nomination process and reliance on 
them for quorum counts would be unfair to floor nominees.
    Proxy ballots should not be problematic for floor nominations. 
Proxy ballots must be returned to the institution by the date of the 
stockholders' meeting and before balloting begins. The stockholder 
voting by proxy may withdraw the proxy authorization and vote in person 
at the meeting. Thus, a nominee from the floor could conceivably uphold 
a viable candidacy with sufficient stockholder support from those 
voting at the meeting as well as those that decide to revoke their 
proxy ballots and vote in person at the meeting. In addition, the bank 
or association may give a stockholder voting by proxy an opportunity to 
give voting discretion to the designated proxy provided the proxy is 
also a voting stockholder. In such a case, the designated proxy would 
have the discretion to vote for a floor nominee. Proxy ballots are 
counted towards the quorum requirement because a proxy is an 
authorization for a named agent to act for a voting stockholder at a 
meeting, including casting the vote of the stockholder, and are treated 
as ``present'' and voting members when determining if a quorum is 
present.
    As discussed earlier in section III.B.1.a. of this preamble, we are 
modifying paragraph (d) of this section to clarify that when a 
stockholders' meeting is held to conduct elections, mail ballots may 
not be issued before the conclusion of that meeting. Revisions to Sec.  
611.340(d) explain that only proxy ballots may be accepted before 
stockholders' meetings are convened for election or other voting 
purposes. Distributing and accepting mail ballots before an annual 
meeting results in those stockholders being unable to consider any 
candidate nominated from the floor since mail ballots cannot be revoked 
once received by the institution.
    We received a comment from a bank asking us to clarify that 
confidentiality in voting does not prevent institution staff from 
assisting the independent tabulator, such as reminding stockholders of 
voting deadlines or providing replacement ballots when asked. Our rule 
does not prevent institution staff from providing administrative 
assistance when that assistance is limited to the type of tasks 
described by the commenter. Institution staff may not provide 
assistance to either the tellers committee or the independent third-
party tabulator if that assistance compromises the security or the 
confidentiality of the ballots or the balloting process. We received no 
comments on other changes to revised Sec.  611.340 and finalize them as 
proposed.
9. Cooperative Principles in Elections [existing Sec. Sec.  611.350 and 
615.5230]
    We received one comment on moving the existing requirement to 
disclose the types of agriculture in which directors of an institution 
engage to the AMIS and address that comment in section III.B.10. of 
this preamble. We received a comment from CoBank, asking for 
clarification on whether the language in Sec. Sec.  611.350(a) and 
615.5230(a)(3), regarding FCA approval of a voting scheme, included 
past FCA approvals. The language regarding exceptions to voting 
provisions approved by FCA was intended to include existing exceptions. 
Thus, CoBank's existing voting provisions, approved by FCA several 
years ago, would stand without requiring further approval. For 
clarity's sake, this language in both sections has been modified to 
make clear that any FCA-approved voting structure, whether past or 
present, satisfies the rule.
    We received no comments on other changes to Sec.  611.350, but have 
made conforming changes to this section to restore the location of rule 
text on regional voting to Sec.  615.5230, as discussed in section 
III.B.7. of this preamble, and to address the comment of CoBank, also 
discussed in that section of this preamble. We finalize all other 
language as proposed.
    We did receive a few comments, including one from the FCC, asking 
that each System institution be allowed to adopt its own election 
policies and procedures without the FCA's imposing additional 
regulatory requirements. They suggested that FCA establish a governance 
policy that addresses delineated areas and then examine each 
institution on its implementation of the policy in light of the 
institution's own circumstances. Given the absence of any problems with 
the election of bank directors, the commenters believe that FCA would 
not be burdened by examining the institution's compliance with a 
governance policy. The commenters further suggest that, like an 
existing regulatory provision that allows the bank to eliminate 
cumulative voting in director elections upon an affirmative vote of 75 
percent of the bank's voting stockholders, the same concept should be 
adopted for the balance of the bank's election procedures.
    We addressed the general comments on rulemaking versus informal 
guidance in section III.A.1. of this preamble, but believe the 
specifics of these comments should be further responded to in this 
section. The FCA's final rule on governance for Farm Credit banks and 
associations, adopted in April 2006, had the stated objective of 
identifying a set of standards for banks and associations to follow in 
their director elections.\3\ Nearly 4 years have passed since the 
governance rule was put into place, and our examination of the 
implementation of the governance rule demonstrates that having these 
standards in place has not only allowed for an orderly process in 
examining an institution's compliance with the governance rules, but 
has helped minimize the amount of time examiners must spend in this 
area for those institutions with a strong governance structure. For 
institutions whose governance needs strengthening, the rules enable the 
examiners to focus on weaknesses that need to be eliminated through 
corrective action by the board. Providing a regulatory option that 
would allow the bank's stockholders to vote to overturn the bank's 
director elections procedures as prescribed by regulation in favor of 
the bank's own unique governance policy would not move FCA in the 
direction it has taken in building a strong governance framework for 
banks and associations.
---------------------------------------------------------------------------

    \3\ Id.
---------------------------------------------------------------------------

    The FCC also requested clarification on whether cumulative voting 
is required to be used by institutions if not

[[Page 18738]]

adopted by the institution's bylaws. As stated earlier, we proposed 
moving voting rights of each type of System institution from Sec.  
615.5230(a)(1)(iii) to Sec.  611.350(d). We intended no change in the 
application of the rules, and we did not intend for our proposed 
reorganization and consolidation of election rules to cause confusion 
on their interpretation. Stockholder-associations have the right to 
cumulate votes unless the Farm Credit Bank's bylaws provide otherwise. 
A Farm Credit Bank may eliminate cumulative voting only if 75 percent 
of its stockholder-associations vote to eliminate it. Each stockholder-
association has only one vote that is not a weighted vote in 
eliminating the provision. The provision has been in existence for many 
years.\4\ Similarly, voting stockholders of an association may vote on 
a proposition to eliminate cumulative voting in director elections if 
they approve a change in the association's capitalization bylaws to 
eliminate cumulative voting.
---------------------------------------------------------------------------

    \4\ The cumulative voting rule was last changed in 1997 to 
permit a less than unanimous consent to overturn cumulative voting 
in bank director elections. (See 62 FR 49907, September 24, 1997).
---------------------------------------------------------------------------

10. Annual Meeting Information Statement (AMIS)
    We received a comment from the FCC that Farm Credit banks should 
not have to comply with all AMIS provisions, as bank elections are 
conducted outside the framework of an annual meeting. The FCC suggested 
that an AMIS issued by a bank only has to have information for 
potential director candidates regarding resources available to the 
candidates.
    We disagree with the FCC's suggestion. We believe that the AMIS 
requirement remains relevant for the banks regardless of whether they 
choose to elect their directors in the context of an annual meeting or 
separate and apart from an annual meeting. It is important that the 
bank include in the AMIS the information identified in our rule. 
Stockholder-associations are entitled to updated financial information 
and information on current directors regardless of why the AMIS is 
being prepared. However, because Farm Credit banks are not required to 
hold annual meetings, we have modified Sec.  620.21(a)(1) to reflect 
that disclosure of meeting date, time, and location need not be part of 
a Farm Credit bank AMIS if no meeting is held. However, all other 
information identified in paragraph (a) must be part of a bank's AMIS.
    We received no comments on other organizational changes to this 
section of our rule, including renaming subpart E to clarify that an 
AMIS is used for more than an annual meeting, dividing the existing 
Sec.  620.21 into two sections, one to address preparation and 
distribution of an AMIS and the other to address the contents of an 
AMIS, and reorganizing existing Sec.  620.21 to clarify the minimum 
information that must be included in an AMIS and the additional 
information that must be included in any AMIS issued in connection with 
elections. We finalize these organizational changes as proposed.
a. Preparing and Distributing the AMIS [New Sec.  620.20]
    We received four comments on the proposed outside timeframe of 30 
business days for distributing the AMIS to stockholders. A System bank 
commented that the 30-day timeframe creates difficulties, as it allows 
stockholder-associations in its district to make director nominations 
for an extended period of time. This commenter also remarked that 
including the slate of nominees from the nominating committee in the 
AMIS causes scheduling difficulties based on the bank's director 
nomination process and questions the need for this time limit. We 
address the comment from the bank on its director nomination process in 
section III.B.4. of this preamble.
    The bank commented that the 45 calendar days it currently uses 
provide ample time for stockholder-associations to deliberate and vote. 
The bank acknowledges that its 45 calendar day timeframe is ``roughly 
equivalent'' to the proposed 30 business days, but notes that setting 
any timeframe removes flexibility. Another Farm Credit bank and one 
association asked that the timeframe be expanded from 30 business days 
to 45 days to assist larger institutions. These commenters did not 
specify if the suggestion was for calendar or business days. Another 
association suggested a 45 business day time limit to accommodate 
larger associations.
    The existing rule requires an AMIS be provided to stockholders at 
least 10 days before a meeting or election to ensure the stockholders' 
receipt before the meeting. We believe an outside timeframe is needed 
to ensure that the information in the AMIS is reasonably current at the 
time that the stockholders' meeting or director elections take place. 
We carefully considered the timeframes offered by the commenters, but 
decline to change the rule. The suggested 45 business days would allow 
the AMIS to be distributed 9 weeks in advance of the annual meeting or 
director elections versus the 6 weeks we proposed. We continue to 
believe that more than 6 weeks is too long for the AMIS to still 
provide current information. We also note that the suggested 45 
business days might coincide with a quarterly report issuance, causing 
confusion in the financial data that is being reported and or updated 
in the AMIS. We considered using the suggested 45 calendar days since 
it is essentially equivalent to 30 business days, but believe that 
mixing calendar days and business days would create confusion while 
only providing three additional days. Therefore, we are finalizing the 
timeframes as proposed.
    We received one comment from a bank on the overall procedural 
requirements for the AMIS, including the signature requirements, 
timeframes, Web site posting, and public access. The bank remarked that 
these requirements adversely affect the bank, since the requirement is 
designed to get information to stockholders before a meeting. 
Specifically, this bank objects to the signature and public 
availability requirements, stating these are not ``particularly 
meaningful'' for its stockholder-associations. We also received a 
comment from another bank that the signatures on an AMIS do not need to 
be the same as for annual and quarterly reports, stating that the AMIS 
is not as formal a report. This bank suggested that the AMIS be signed 
by one senior officer, instead of the chief executive officer, chief 
financial officer, and a board designee. We further received a comment 
from the FCC and an association on Sec.  620.20(a)(3), which permits an 
AMIS to be posted on an institution's Web site after the AMIS is mailed 
to stockholders. The commenters asked us to clarify that the posting of 
the AMIS on a Web site is optional. Both commenters explain that the 
AMIS should not be required to be on a Web site since it is not a 
public document, and institutions should not be required to make it 
one.
    We disagree with the commenter that the AMIS does not require the 
same signatures as the annual and quarterly reports. The AMIS is a 
supplement of those reports. Further, this is not a new requirement. 
Our existing rules in Sec.  620.3(b) apply for all reports, including 
the AMIS, which is why we are adding a reference in Sec.  620.20 to 
facilitate compliance with our rules. We are not requiring institutions 
to post the AMIS on their Web sites, but are establishing timeframes 
for keeping an AMIS on a Web site should an institution decide to do 
so. Also, the AMIS is a report that must be available for public 
inspection as required by Sec.  620.2(b).

[[Page 18739]]

    We received no comments on other provisions in Sec.  620.20 and 
finalize them as proposed.
b. Contents of the AMIS [existing Sec.  620.21]
i. Minimum Requirements for Each AMIS [Sec.  620.21(a)]
    We received one comment on the existing requirement to disclose the 
types of agriculture in which directors of an institution engage. The 
commenter stated that the information, already contained in the annual 
report, does not need to be restated in the AMIS. We proposed no change 
to this requirement. We only proposed moving the provision from 
existing Sec.  615.5230(b)(5) to paragraph (a)(4) of this section. 
Further, we remind the commenter that an AMIS provides pertinent 
information on directors and institution business in preparation for an 
annual meeting or election. As meetings and elections do not always 
coincide with the issuance of annual reports, we do not believe it is 
unduly burdensome to reference this information in the AMIS.
    We received no other comments on changes to this paragraph and, 
except for the modification to Sec.  620.21(a)(1) regarding meeting 
notice for banks mentioned earlier, we finalize those changes as 
proposed.
ii. Additional Information for Elections [new Sec.  620.21(b)]
    We received two comments on the provision in paragraph (b) 
requiring the names of the director candidates nominated by the 
nominating committee to be listed. A bank remarked that it customizes 
its AMIS based on regions within the territory, providing only that 
director candidate information applicable to a region. The commenter 
asked us whether the rule would prohibit this process and also stated 
that it sends out to all stockholders the nominating committee report 6 
weeks before the AMIS is issued.
    As stated earlier, the AMIS updates information contained in the 
annual and quarterly reports, which are available to all stockholders 
regardless of regional locations. The AMIS is also a tool that voting 
stockholders can use in the election process. We believe it is 
important for stockholders to have background information on all 
incumbent directors and director candidates for their institution. 
Restricting information on directors to regions inhibits the ability of 
stockholders to decide whether the composition of the board meets their 
needs since, once elected, a director represents the entire membership, 
not just the region from where he or she was nominated. For these 
reasons, we finalize changes to this paragraph as proposed. We received 
no other comments objecting to them. We did receive a few comments, 
including one from the FCC, agreeing with the requirement in Sec.  
620.21(b)(3) that procedures for making floor nominations be disclosed 
in the AMIS.
11. Other Miscellaneous Changes
a. Similar Entity Participation Lending Limit Voting [Sec.  613.3300]
    We received no comments on the proposed clarification to Sec.  
613.3300(c)(1)(i)(B) to explain that the stockholder vote for 
participation lending limits is based on the majority of voting 
stockholders voting. We finalize this change as proposed.
b. Equityholder Voting on Preferred Stock [Sec.  615.5230(b)]
    We received one comment on the proposed clarification to Sec.  
615.5230(b)(1) to explain that the equityholder vote on issuing 
preferred stock requires the approval of the majority of the shares 
voting of each class of equities adversely affected by the preference, 
voting as a class. The commenter expressed appreciation for the 
clarification. We finalize this change as proposed.
c. Definitions [New Sec.  619.9320]
    We received no comments on the proposed clarification that the 
terms ``stockholder'' and ``shareholder'' have the same meaning for 
purposes of our rules. We finalize this change as proposed.
d. Reorganization of Existing Rules
    We received three comments supporting the consolidation of our 
general director election rules, currently located throughout our 
rules, into subpart C of part 611, ``Election of Directors and Other 
Voting Procedures.'' We received no comments on other organizational 
changes to our rule. We finalize the changes associated with this 
consolidation and reorganization as proposed, except where noted (e.g., 
Sec.  615.5230).
e. Technical Corrections
    In the process of this rulemaking, we noted cross-citations that 
were not updated in prior rulemakings and make those corrections now. 
In a 2006 rulemaking, the paragraphs of Sec.  620.2 were renumbered; 
however, the cross-citation to Sec.  620.2 contained in Sec.  
620.5(i)(2) was not updated to reflect the renumbering of 
paragraphs.\5\ The cross-citation should read ``Sec.  620.2(b).'' 
Likewise, in the process of addressing a comment on cumulative voting 
in newly redesignated Sec.  615.5230(a)(3), we noted that the rule does 
not specify the bylaws involved are capitalization bylaws.\6\ The 
original rulemaking is clear that the bylaws involved are 
capitalization bylaws, but a 1995 rulemaking to this section mistakenly 
omitted the word ``capitalization'' from the sentence.\7\ Nothing in 
the 1995 rulemaking indicates this omission was intentional and FCA has 
consistently interpreted the provision to mean capitalization bylaws. 
We make that correction now.
---------------------------------------------------------------------------

    \5\ See 71 FR 76111, December 20, 2006.
    \6\ See 53 FR 40033, October 13, 1988.
    \7\ See 60 FR 57919, November 24, 1995.
---------------------------------------------------------------------------

    We are correcting a grammatical error in our rule at Sec.  
615.5330. Paragraph (a)(1) has an ``a'' when referring to the ratio 
needed instead of an ``at'' and paragraph (b)(1) has an ``a'' instead 
of an ``at'' when referring to the percentage needed. We also 
incorporate changes to Sec.  620.21(a)(3)(ii) made in a prior 
rulemaking regarding external auditors. These changes became final in 
July 2009, which was after publication of our proposed rule.

IV. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), FCA hereby certifies that the final rule will not 
have a significant economic impact on a substantial number of small 
entities. Each of the banks in the Farm Credit System, considered 
together with its affiliated associations, has assets and annual income 
in excess of the amounts that would qualify them as small entities. 
Therefore, Farm Credit System institutions are not ``small entities'' 
as defined in the Regulatory Flexibility Act.

List of Subjects

12 CFR Part 611

    Agriculture, Banks, banking, Rural areas.

12 CFR Part 613

    Agriculture, Banks, banking, Credit, Rural areas.

12 CFR Part 615

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

12 CFR Part 619

    Agriculture, Banks, banking, Rural areas.

[[Page 18740]]

12 CFR Part 620

    Accounting, Agriculture, Banks, banking, Reporting and 
recordkeeping requirements, Rural areas.

0
For the reasons stated in the preamble, parts 611, 613, 615, 619, and 
620 of chapter VI, title 12 of the Code of Federal Regulations are 
amended as follows:

PART 611--ORGANIZATION

0
1. The authority citation for part 611 is revised to read as follows:

    Authority:  Secs. 1.3, 1.4, 1.13, 2.0, 2.1, 2.10, 2.11, 3.0, 
3.2, 3.3, 3.7, 3.8, 3.9, 3.21, 4.3A, 4.12, 4.12A, 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, 2012, 2021, 2071, 2072, 2091, 2092, 2121, 2123, 2124, 2128, 
2129, 2130, 2142, 2154a, 2183, 2184, 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.


0
2. Add a new subpart A, consisting of Sec. Sec.  611.100 through 
611.110, to read as follows:
Subpart A--General
Sec.
611.100 Definitions.
611.110 Meetings of stockholders.

Subpart A--General


Sec.  611.100  Definitions.

    The following definitions apply for the purpose of this part:
    (a) Mail ballot means a ballot cast by regular or electronic mail.
    (b) Online meeting means a meeting that is conducted over the 
Internet through the use of mediating technologies, such as online 
services, computer hardware and software, etc., where technology is 
used to generate objects and environments that are presented to users 
through a number of senses (e.g., vision and hearing). The mediating 
technologies allow people or objects at remote locations to appear 
locally present or at least allow them to be treated that way during 
the course of the meeting.
    (c) Online meeting space means an online environment where Farm 
Credit institutions can hold stockholder meetings that allow 
stockholders to communicate, collaborate, and share information. Any 
stockholder with the necessary technology requirements and access 
(e.g., password-protected meetings) must be allowed to connect to his 
or her institution's online meeting space.
    (d) Regional election means the apportionment of a Farm Credit 
institution's territory into regions in which a director or directors 
from a region are elected only by those voting stockholders who reside 
or conduct agricultural or aquatic operations in that same region.
    (e) Stockholder-association means an association within a Farm 
Credit bank district holding voting stock in that bank.
    (f) Stockholder-elected director means a director who is elected by 
the majority vote of the voting stockholders voting to serve as a 
member of a Farm Credit institution's board of directors.


Sec.  611.110  Meetings of stockholders.

    (a) Requirement. Associations must have annual meetings of 
stockholders for the purpose of conducting annual director elections. 
Farm Credit banks are encouraged to hold annual or periodic meetings of 
stockholders. The bylaws of each Farm Credit bank and association must 
specify the quorum requirements for stockholder meetings. Associations 
must elect at least one director at each annual meeting, but the vote 
on the election of a director or directors by mail ballot may only 
occur in the period following an annual meeting. An online meeting 
space may be used in addition to a physical meeting space to conduct a 
stockholders' meeting or director election. A physical meeting space 
must always exist for association meetings involving director elections 
and other stockholders' votes.
    (b) Notice. Each association, and those Farm Credit banks holding 
annual meetings, must issue an Annual Meeting Information Statement in 
accordance with the requirements of Sec. Sec.  620.20 and 620.21 of 
this chapter.
    (c) Online meeting. Each Farm Credit bank and association using an 
online meeting space as part of a meeting or election must have 
policies and procedures in place addressing how the online meeting 
space will be accessed and used by participants. The policies and 
procedures must specifically identify any technological adaptations 
necessary to address the confidentiality and security in voting 
requirements of Sec.  611.340.

Subpart C--Election of Directors and Other Voting Procedures


0
3. Amend Sec.  611.310 by revising paragraph (b) and adding new 
paragraphs (e) and (f) to read as follows:


Sec.  611.310  Eligibility for membership on bank and association 
boards and subsequent employment.

* * * * *
    (b) No bank or association director shall be eligible to continue 
to serve in that capacity and his or her office shall become vacant if 
after election as a member of the board, he or she becomes legally 
incompetent or is convicted of any criminal offense involving 
dishonesty or breach of trust or held liable in damages for fraud.
* * * * *
    (e) No person shall be eligible for membership on a Farm Credit 
bank or association board of directors in the same election cycle for 
which the Farm Credit institution's nominating committee is identifying 
candidates if that person was elected to serve on that institution's 
nominating committee and attended any meeting called by the nominating 
committee.
    (f) Out-of-territory borrowers who hold voting stock in the 
association may serve as association directors unless prohibited by the 
association's bylaws. If an association's bylaws prohibit it, that 
association must inform, in writing and at the time of loanmaking, each 
out-of-territory borrower that out-of-territory borrowers may not serve 
as directors.


0
4. Amend Sec.  611.320 by:
0
a. Removing the word ``System'' and adding the words ``Farm Credit'' 
each place it appears in paragraphs (a) and (d);
0
b. Revising paragraphs (c) and (e); and
0
c. Adding a new paragraph (f) to read as follows:


Sec.  611.320  Impartiality in the election of directors.

* * * * *
    (c) No property, facilities, or resources, including information 
technology and human or financial resources, of any Farm Credit 
institution shall be used by any candidate for nomination or election 
or by any other person for the benefit of any candidate for nomination 
or election, unless the same property, facilities, or resources are 
simultaneously available and made known to be available for use by all 
declared candidates, including floor nominees. For the limited purpose 
of Farm Credit bank board elections, each Farm Credit bank may allow 
its stockholder-associations to use stockholder-association property, 
facilities, or resources in support of bank director candidates. Any 
Farm Credit bank permitting this activity by its stockholder-
associations must have a policy in place approved by its board of 
directors establishing reasonable standards that stockholder-
associations must follow, and those standards must give appropriate 
consideration to the various sizes of stockholder-associations within a 
bank's district and include a maximum amount that a stockholder-

[[Page 18741]]

association may expend in support of a bank director candidate.
* * * * *
    (e) No Farm Credit institution may in any way distribute or mail, 
whether at the expense of the institution or another, any campaign 
materials for director candidates. Institutions may request 
biographical information, as well as the disclosure information 
required under Sec.  611.330, from all declared candidates who certify 
that they are eligible, restate such information in a standard format, 
and distribute or mail it with ballots or proxy ballots.
    (f) No director of a Farm Credit institution shall, in his or her 
capacity as a director, make any statement, either orally or in 
writing, which may be construed as intending to influence any vote in 
that institution's director nominations or elections. This paragraph 
shall not prohibit director candidates from engaging in campaign 
activities on their own behalf.


0
5. Revise Sec.  611.325 to read as follows:


Sec.  611.325  Bank and association nominating committees.

    Each Farm Credit bank and association may have only one nominating 
committee in any one election cycle. Each Farm Credit bank and 
association's board of directors must establish and maintain policies 
and procedures on its nominating committee, describing the formation, 
composition, operation, resources, and duties of the committee, 
consistent with current laws and regulations. Each nominating committee 
must conduct itself in the impartial manner prescribed by the policies 
and procedures adopted by its institution under Sec.  611.320 and this 
section.
    (a) Composition. The voting stockholders of each bank and 
association must elect a nominating committee of no fewer than three 
members. Unless prohibited by association bylaws, out-of-territory 
borrowers who hold voting stock may serve as members of an 
association's nominating committee. If an association's bylaws prohibit 
it, that association must inform, in writing and at the time of 
loanmaking, each out-of-territory borrower that out-of-territory 
borrowers may not serve on the association's nominating committee.
    (b) Election. Farm Credit banks and associations may use in-person 
(including use of an online medium and proxy ballots) or mail balloting 
procedures to elect a nominating committee.
    (1) Farm Credit banks and associations must provide voting 
stockholders the opportunity to vote on the candidates for each 
nominating committee position.
    (2) Association nominating committee members may only be elected to 
a 1-year term. Farm Credit Banks must use weighted voting, with no 
cumulative voting permitted, when electing members to serve on a 
nominating committee. Farm Credit banks and associations may permit 
nominating committee members to be re-nominated and stand for re-
election to serve successive terms.
    (c) Conflicts of interest. No individual may serve on a nominating 
committee who, at the time of election to, or during service on, a 
nominating committee, is an employee, director, or agent of that bank 
or association. A nominating committee member may not be a candidate 
for election to the board in the same election for which the committee 
is identifying nominees. A nominating committee member may resign from 
the committee to run for election to the board only if the individual 
did not attend any nominating committee meeting.
    (d) Responsibilities. It is the responsibility of each nominating 
committee to identify, evaluate, and nominate candidates for 
stockholder election to a Farm Credit bank or association board of 
directors. A nominating committee's responsibilities are limited to the 
following:
    (1) Nominate individuals who the committee determines meet the 
eligibility requirements to run for open director positions. The 
committee must endeavor to ensure representation from all areas of the 
Farm Credit bank's or association's territory and, as nearly as 
possible, all types of agriculture practiced within the territory.
    (2) Evaluate the qualifications of the director candidates. The 
evaluation process must consider whether there are any known obstacles 
preventing a candidate from performing the duties of the position.
    (3) Nominate at least two candidates for each director position 
being voted on by stockholders. If two nominees cannot be identified, 
the nominating committee must provide written explanation to the 
existing board of the efforts to locate candidates or the reasons for 
disqualifying any other candidate that resulted in fewer than two 
nominees.
    (4) Maintain records of its meetings, including a record of 
attendance at meetings.
    (5) Identify, evaluate, and nominate eligible individuals for 
service on the next nominating committee, if permitted by the 
institution.
    (e) Resources. Each Farm Credit bank and association must provide 
its nominating committee reasonable access to administrative resources 
in order for the committee to perform its duties. Each Farm Credit bank 
and association must, at a minimum, provide its nominating committee 
with FCA regulations and guidance on nominating committees, a current 
list of stockholders, the most recent bylaws, the current director 
qualifications policy, and a copy of the policies and procedures that 
the bank or the association has adopted pursuant to Sec.  611.320(a) 
ensuring impartial elections. On the request of the nominating 
committee, the institution must also provide a summary of the current 
board self-evaluation. The bank or association may require a pledge of 
confidentiality by committee members prior to releasing evaluation 
documents.


0
6. Add a new Sec.  611.326 to subpart C to read as follows:


Sec.  611.326  Floor nominations for open Farm Credit bank and 
association director positions.

    (a) Each floor nominee must be eligible for the director position 
for which the person has been nominated.
    (b)(1) Voting stockholders of associations must be allowed to make 
floor nominations for every open stockholder-elected director position. 
Associations using only mail ballots must allow nominations from the 
floor at every session of an annual meeting. Associations permitting 
stockholders to cast votes during annual meetings may only allow 
nominations from the floor at the first session of the annual meeting.
    (2) If floor nominations are permitted by a Farm Credit bank's 
election policies and procedures, voting stockholders must be allowed 
to make floor nominations for every open stockholder-elected director 
position and a physical meeting space must exist. Before every director 
election by a Farm Credit bank, the bank must inform voting 
stockholders whether floor nominations will be accepted.
    (c) Each association's board of directors must adopt policies and 
procedures for making and accepting floor nominations of candidates to 
stand for election to its board of directors. Each Farm Credit bank's 
board of directors allowing nominations from the floor must also adopt 
policies and procedures for making and accepting floor nominations. 
Policies and procedures for floor nominations must, at a minimum, 
provide that:

[[Page 18742]]

    (1) Floor nominations may only be made after the nominating 
committee has provided its list of director-nominees.
    (2) No more than a second by a voting stockholder to a nomination 
from the floor is required. After receiving a floor nomination, the 
floor nominee must state if he or she accepts the nomination.
    (3) Floor nominees must make the disclosures required by Sec.  
611.330 of this part.


0
7. Revise Sec. Sec.  611.330, 611.340, and 611.350 to read as follows:


Sec.  611.330  Disclosures of Farm Credit bank and association 
director-nominees.

    (a) Each Farm Credit bank and association's board of directors must 
adopt policies and procedures that ensure a disclosure statement is 
prepared by each director-nominee. At a minimum, each disclosure 
statement for each nominee must:
    (1) State the nominee's name, city and state of residence, business 
address if any, age, and business experience during the last 5 years, 
including each nominee's principal occupation and employment during the 
last 5 years.
    (2) List all business interests on whose board of directors the 
nominee serves or is otherwise employed in a position of authority and 
state the principal business in which the business interest is engaged.
    (3) Identify any family relationship of the nominee that would be 
reportable under part 612 of this chapter if elected to the 
institution's board.
    (b)(1) Floor nominees who are not incumbent directors must provide 
to the Farm Credit bank or association the information referred to in 
this section and in Sec.  620.5(j) and (k) of this chapter. The 
information must be provided in either paper or electronic form within 
the time period prescribed by the institution's bylaws or policies and 
procedures. If the institution does not have a prescribed time period, 
each floor nominee must provide this information to the institution 
within 5 business days of the nomination. If stockholders will not vote 
solely by mail ballot upon conclusion of the meeting, each floor 
nominee must provide the information at the first session at which 
voting is held.
    (2) For each nominee who is not an incumbent director or a nominee 
from the floor, the nominee must provide the information referred to in 
this section and in Sec.  620.5(j) and (k) of this chapter.
    (c) Each Farm Credit bank and association must distribute director-
nominee disclosure information to all stockholders eligible to vote in 
the election. Institutions may either restate such information in a 
standard format or provide complete copies of each nominee's disclosure 
statement.
    (1) Disclosure information for each director-nominee must be 
provided as part of the Annual Meeting Information Statement (AMIS) 
issued for director elections.
    (2) Disclosure information for each director-nominee must be 
distributed or mailed with ballots or proxy ballots. Farm Credit banks 
and associations must ensure that the disclosure information on floor 
nominees is provided to voting stockholders by delivering ballots for 
the election of directors in the same format as the comparable 
information contained in the AMIS.
    (d) No person may be a nominee for director who does not make the 
disclosures required by this section.


Sec.  611.340  Confidentiality and security in voting.

    (a) Each Farm Credit bank and association's board of directors must 
adopt policies and procedures that:
    (1) Ensure the security of all records and materials related to a 
stockholder vote including, but not limited to, ballots, proxy ballots, 
and other related materials.
    (2) Ensure that ballots and proxy ballots are provided only to 
stockholders who are eligible to vote as of the record date set for the 
stockholder vote.
    (3) Ensure that all information and materials regarding how or 
whether an individual stockholder has voted remain confidential, 
including protecting the information from disclosure to the 
institution's directors, stockholders, or employees, or any other 
person except:
    (i) An independent third party tabulating the vote; or
    (ii) The Farm Credit Administration.
    (4) Provide for the establishment of a tellers committee or an 
independent third party who will be responsible for validating ballots 
and proxies and tabulating voting results. A tellers committee may only 
consist of voting stockholders who are not directors, director-
nominees, or members of that election cycle's nominating committee.
    (b) No Farm Credit bank or association may use signed ballots in 
stockholder votes. A bank or association may use balloting procedures, 
such as an identity code on the ballot, that can be used to identify 
how or whether an individual stockholder has voted only if the votes 
are tabulated by an independent third party. In weighted voting, the 
votes must be tabulated by an independent third party. An independent 
third party that tabulates the votes must certify in writing that such 
party will not disclose to any person (including the institution, its 
directors, stockholders, or employees) any information about how or 
whether an individual stockholder has voted, except that the 
information must be disclosed to the Farm Credit Administration if 
requested.
    (c) Once a Farm Credit bank or association receives a ballot, the 
vote of that stockholder is final, except that a stockholder may 
withdraw a proxy ballot before balloting begins at a stockholders' 
meeting. A Farm Credit bank or association may give a stockholder 
voting by proxy an opportunity to give voting discretion to the proxy 
of the stockholder's choice, provided that the proxy is also a 
stockholder eligible to vote.
    (d) Ballots and proxy ballots must be safeguarded before the time 
of distribution or mailing to voting stockholders and after the time of 
receipt by the bank or association until disposal. When stockholder 
meetings are held for the purpose of conducting elections or other 
votes, only proxy ballots may be accepted prior to any or all sessions 
of the stockholders' meeting and mail ballots may only be distributed 
after the conclusion of the meeting. In an election of directors, 
ballots, proxy ballots, and election records must be retained at least 
until the end of the term of office of the director. In other 
stockholder votes, ballots, proxy ballots, and records must be retained 
for at least 3 years after the vote.
    (e) An institution and its officers, directors, and employees may 
not make any public announcement of the results of a stockholder vote 
before the tellers committee or independent third party has validated 
the results of the vote.


Sec.  611.350  Application of cooperative principles to the election of 
directors.

    In the election of directors, each Farm Credit institution shall 
comply with the following cooperative principles as well as those set 
forth in Sec.  615.5230 of this chapter, unless otherwise required by 
statute or regulation.
    (a) Each voting stockholder of an association or bank for 
cooperatives has only one vote, regardless of the number of shares 
owned or the number of loans outstanding. Each voting stockholder-
association of a Farm Credit Bank has only one vote that is assigned a 
weight proportional to the number of that association's voting 
stockholders. Each voting stockholder of an agricultural credit bank 
has only one vote, unless another voting scheme has been

[[Page 18743]]

approved by the Farm Credit Administration.
    (b) If an association apportions its territory into geographic 
regions for director nomination or election purposes, out-of-territory 
voting stockholders must be assigned to a geographic region.
    (c) All voting stockholders of a Farm Credit institution have the 
right to vote in any stockholder vote to remove any director.

Subpart P--Termination of System Institution Status


0
8. Amend Sec.  611.1210 by revising the first sentence of paragraph (f) 
to read as follows:


Sec.  611.1210  Advance notices--commencement resolution and notice to 
equity holders.

* * * * *
    (f) Special class of stock. Notwithstanding any requirements to the 
contrary in Sec.  615.5230(c) of this chapter, you may adopt bylaws 
providing for the issuance of a special class of stock and 
participation certificates between the date of adoption of a 
commencement resolution and the termination date. * * *


0
9. Revise Sec.  611.1240(e) to read as follows:


Sec.  611.1240  Voting record date and stockholder approval.

* * * * *
    (e) Voting procedures. The voting procedures must comply with Sec.  
611.340. You must have an independent third party count the ballots. If 
a voting stockholder notifies you of the stockholder's intent to 
exercise dissenters' rights, the tabulator must be able to verify to 
you that the stockholder voted against the termination. Otherwise, the 
votes of stockholders must remain confidential.
* * * * *

PART 613--ELIGIBILITY AND SCOPE OF FINANCING

0
10. The authority citation for part 613 continues to read as follows:

    Authority: Secs. 1.5, 1.7, 1.9, 1.10, 1.11, 2.2, 2.4, 2.12, 3.1, 
3.7, 3.8, 3.22, 4.18A, 4.25, 4.26, 4.27, 5.9, 5.17 of the Farm 
Credit Act (12 U.S.C. 2013, 2015, 2017, 2018, 2019, 2073, 2075, 
2093, 2122, 2128, 2129, 2143, 2206a, 2211, 2212, 2213, 2243, 2252).

Subpart C--Similar Entity Authority Under Sections 3.1(11)(B) and 
4.18A of the Act


Sec.  613.3300  [Amended]


0
11. Amend Sec.  613.3300(c)(1)(i)(B) by removing the words ``if a 
majority of the shareholders'' and adding in their place the words ``if 
a majority of voting stockholders voting''.

PART 615--FUNDING AND FISCAL AFFAIRS, LOAN POLICIES AND OPERATIONS, 
AND FUNDING OPERATIONS

0
12. The authority citation for part 615 is revised 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, 8.8, 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-8, 2279aa-10, 2279aa-12); sec. 301(a) of Pub. L. 
100-233, 101 Stat. 1568, 1608.

Subpart I--Issuance of Equities

0
13. Amend Sec.  615.5230 by:
0
a. Revising paragraph (a);
0
b. Redesignating existing paragraph (b) as paragraph (c);
0
c. Adding a new paragraph (b);
0
d. Revising newly redesignated paragraph (c)(1); and
0
e. Removing newly redesignated paragraph (c)(5) to read as follows:


Sec.  615.5230  Implementation of cooperative principles.

    (a) Voting stockholders of Farm Credit banks and associations shall 
be accorded full voting rights in accordance with cooperative 
principles, including those set forth in Sec.  611.350 of this chapter. 
Except as otherwise required by statute or regulation, and except as 
modified by paragraphs (b) and (c) of this section, the voting rights 
of each voting shareholder are as follows:
    (1) Each voting stockholder of a Farm Credit Bank has only one vote 
that is assigned a weight proportional to the number of that 
association's voting stockholders and has the right to vote in the 
election of each stockholder-elected director and to cumulate such 
votes and distribute them among the candidates in the stockholder's 
discretion, except that cumulative voting for directors may be 
eliminated if 75 percent of the associations that are stockholders of 
the Farm Credit Bank vote in favor of elimination. In a vote to 
eliminate cumulative voting, each association shall be accorded one 
vote.
    (2) Each voting stockholder of an agricultural credit bank has only 
one vote, unless another voting scheme has been approved by the Farm 
Credit Administration.
    (3) Each voting stockholder of an association or bank for 
cooperatives has only one vote, regardless of the number of shares 
owned or the number of loans outstanding. Unless regional election of 
directors is provided for in the bylaws pursuant to Sec.  615.5230(b), 
each voting stockholder of an association or bank for cooperatives has 
the right to vote in the election of each stockholder-elected director. 
Unless otherwise provided in the capitalization bylaws, each voting 
stockholder of an association or bank for cooperatives is allowed to 
cumulate such votes and distribute them among the candidates in the 
stockholder's discretion. Cumulative voting is not allowed in the 
regional election of stockholder-elected directors.
    (b) The regional election of stockholder-elected directors is only 
permitted under the following conditions:
    (1) A bylaw establishing regional elections is approved by a 
majority of voting stockholders, voting in person or by proxy, prior to 
implementation.
    (2) The bylaw provides that the use of regional election of 
stockholder-elected directors does not prevent all voting stockholders 
of the institution, regardless of the region where they reside or 
conduct agricultural or aquatic operations, from voting in any 
stockholder vote to remove a director.
    (3) There are an approximately equal number of voting stockholders 
in each of the institution's voting regions. Regions will have an 
approximately equal number of voting stockholders if the number of 
voting stockholders in any one region does not exceed the number of 
voting stockholders in any other region by more than 25 percent. At 
least once every 3 years, the institution must count the number of 
voting stockholders in each region and, if the regions do not have an 
approximately equal number of stockholders, the regional boundaries 
must be adjusted to achieve such result.
    (4) An institution may provide for more than one director to 
represent a region. Institutions providing for more than one director 
to represent a region will determine the equitability of the regions by 
dividing the number of voting stockholders in that region by the number 
of director positions representing that region, and the resulting 
quotient shall be the number

[[Page 18744]]

that is compared to the number of voting stockholders in other regions.
    (5) Each voting stockholder is accorded the right to vote in the 
election of each stockholder-elected director for his or her region.
    (c) * * *
    (1) Each issuance of preferred stock (other than preferred stock 
outstanding on October 5, 1988, and stock into which such outstanding 
stock is converted that has substantially similar preferences) shall be 
approved by a majority of the shares voting of each class of equities 
adversely affected by the preference, voting as a class, whether or not 
such classes are otherwise authorized to vote;
* * * * *

Subpart K--Surplus and Collateral Requirements

Sec.  615.5330  [Amended]

0
14. Amend Sec.  615.5330 by removing the words, ``a least'' and adding 
in their place, the words ``at least'' in the first sentence of 
paragraphs (a)(1) and (b)(1).

PART 619--DEFINITIONS

0
15. The authority citation for part 619 continues to read as follows:

    Authority:  Secs. 1.4, 1.7, 2.1, 2.4, 2.11, 3.2, 3.21, 4.9, 5.9, 
5.17, 5.18, 5.19, 7.0, 7.1, 7.6, 7.8 and 7.12 of the Farm Credit Act 
(12 U.S.C. 2012, 2015, 2072, 2075, 2092, 2123, 2142, 2160, 2243, 
2252, 2253, 2254, 2279a, 2279a-1, 2279b, 2279c-1, 2279f).


0
16. Add a new Sec.  619.9320 to read as follows:


Sec.  619.9320  Shareholder or stockholder.

    A holder of any equity interest in a Farm Credit institution.

PART 620--DISCLOSURE TO SHAREHOLDERS

0
17. The authority citation for part 620 is revised to read as follows:

    Authority:  Secs. 4.19, 5.9, 5.17, 5.19, 8.11 of the Farm Credit 
Act (12 U.S.C. 2207, 2243, 2252, 2254, 2279aa-11); sec. 424 of Pub. 
L. 100-233, 101 Stat. 1568, 1656; sec. 514 of Pub. L. 102-552, 106 
Stat. 4102.

Subpart A--General


Sec.  620.1   [Amended]

0
18. Amend Sec.  620.1 by removing paragraph (p) and redesignating 
paragraphs (q) and (r) as paragraphs (p) and (q).

Subpart B--Annual Report to Shareholders

0
19. Amend Sec.  620.5 by revising the last sentence of paragraph (i)(2) 
introductory text as follows:


Sec.  620.5  Contents of the annual report to shareholders.

* * * * *
    (i) Compensation of directors and senior officers.
* * * * *
    (2) Senior officer compensation. * * * Associations exercising this 
option must include a reference in the annual report stating that the 
senior officer compensation information is included in the AMIS and 
that the AMIS is available for public inspection at the reporting 
association offices pursuant to Sec.  620.2(b).

* * * * *

Subpart E--Annual Meeting Information Statements and Other 
Information To Be Furnished in Connection with Annual Meetings and 
Director Elections

0
20. Revise the heading of subpart E to read as set forth above.
0
21. Amend subpart E by adding a new Sec.  620.20 to read as follows:


Sec.  620.20  Preparing and distributing the information statement.

    (a)(1) Each Farm Credit bank and association must prepare and 
provide an information statement (``statement'' or ``AMIS'') to its 
shareholders at least 10 business days, but not more than 30 business 
days, before any annual meeting or any director elections.
    (2) Each Farm Credit bank and association must provide the Farm 
Credit Administration an electronic copy of the AMIS when issued.
    (3) In addition to the mailed AMIS, each Farm Credit bank and 
association may post its AMIS on its Web site. Any AMIS posted on an 
institution's Web site must remain on the Web site for a reasonable 
period of time, but not less than 30 calendar days.
    (b) Every AMIS must be dated and signed in accordance with the 
requirements of Sec.  620.3(b) of this part.
    (c) Every AMIS must be available for public inspection at all 
offices of the issuing institution pursuant to Sec.  620.2(b) of this 
part.


0
22. Section 620.21 is revised to read as follows:


Sec.  620.21  Contents of the information statement.

    (a) An AMIS must, at a minimum, address the following items:
    (1) Date, time, and place of the meeting(s). Notice of the date, 
time, and meeting location(s) must be provided at least 10 business 
days, but no more than 30 business days, before the meeting. If the 
Farm Credit bank or association will use an online meeting space as 
part of its meeting, the notice must also specify the date, time, and 
means of accessing the online meeting space. This information does not 
need to be part of an AMIS issued by a Farm Credit bank if no meeting 
is held.
    (2) Voting shareholders. For each class of stock entitled to vote 
at the meeting, state the number of shareholders entitled to vote and, 
when shareholders are asked to vote on preferred stock, the number of 
shares entitled to vote. State the record date as of which the 
shareholders entitled to vote will be determined and the voting 
requirements for each matter to be voted upon. If association directors 
are nominated or elected by region, describe the regions and state the 
number of voting shareholders entitled to vote in each region.
    (3) Financial updates. Each AMIS must reference the most recently 
issued annual report required by subpart B of this part. The AMIS must 
also include such other information considered material and necessary 
to make the required contents of the AMIS, in light of the 
circumstances under which it is made, not misleading.
    (i) If any transactions between the institution and its senior 
officers and directors of the type required to be disclosed in the 
annual report to shareholders under Sec.  620.5(j), or any of the 
events required to be disclosed in the annual report to shareholders 
under Sec.  620.5(k) have occurred since the end of the last fiscal 
year and were not disclosed in the annual report to shareholders, the 
disclosures required by Sec.  620.5(j) and (k) shall be made with 
respect to such transactions or events in the information statement. If 
any material change in the matters disclosed in the annual report to 
shareholders pursuant to Sec.  620.5(j) and (k) has occurred since the 
annual report to shareholders was prepared, disclosure shall be made of 
such change in the information statement.
    (ii) If a Farm Credit institution has had a change or changes in 
its external auditor(s) since the last annual report to shareholders, 
or if a disagreement with an external auditor has occurred, the 
institution shall disclose the information required by Sec.  621.4(c) 
and (d) of this chapter.
    (4) Directors. State the names and ages of persons currently 
serving as directors of the institution, their terms of office,

[[Page 18745]]

and the periods during which such persons have served. Institutions 
must also state the type or types of agriculture or aquaculture engaged 
in by each director. No information need be given with respect to any 
director whose term of office as a director will not continue after any 
meeting to which the statement relates.
    (i) Identify by name any incumbent director who attended fewer than 
75 percent of the board meetings or any meetings of board committees on 
which he or she served during the last fiscal year.
    (ii) 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 provided a notice 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. If the institution holds a different view of the 
disagreement, the institution's view may be summarized as well.
    (b) An AMIS issued for director elections must also include the 
information required by this paragraph.
    (1) Provide the nominating committee's slate of director-nominees. 
If fewer than two director-nominees for each position are named, 
describe the efforts of the nominating committee to locate two willing 
nominees.
    (2) Provide, as part of the AMIS, the director-nominee disclosure 
information collected under Sec.  611.330 of this chapter. Institutions 
may either restate such information in a standard format or provide 
complete copies of each nominee's disclosure statement.
    (3) State whether nominations will be accepted from the floor and 
explain the procedures for making floor nominations.
    (c) When the nominating committee will be elected during director 
elections, notice to voting shareholders of this event must be included 
in the AMIS. The AMIS must describe the balloting procedures that will 
be used to elect the nominating committee, including whether floor 
nominations for committee members will be permitted. The AMIS must 
state the number of committee positions to be filled and the names of 
the nominees for the committee.
    (d) If shareholders are asked to vote on matters not normally 
required to be submitted to shareholders for approval, the AMIS must 
describe fully the material circumstances surrounding the matter, the 
reason shareholders are asked to vote, and the vote required for 
approval of the proposition. The AMIS must describe any other matter 
that will be discussed at the meeting upon which shareholder vote is 
not required.

    Dated: March 31, 2010.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. 2010-7755 Filed 4-9-10; 8:45 am]
BILLING CODE 6705-01-P