[Federal Register Volume 62, Number 185 (Wednesday, September 24, 1997)]
[Rules and Regulations]
[Pages 49907-49908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25262]


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FARM CREDIT ADMINISTRATION

12 CFR Part 615

RIN 3052-AB75


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

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA), through the FCA Board 
(Board), issues a final rule amending Sec. 615.5230 of its regulations 
to provide that a Farm Credit Bank (FCB or bank) may eliminate 
cumulative voting in director elections with the consent of 75 percent 
of the bank's association shareholders. This rule is necessary because 
the existing requirement of unanimous consent was unduly burdensome, 
complicated, and provided questionable benefits. The effect of this 
rule is to ease the unanimous consent requirement while maintaining 
significant protection for the minority interests.

DATES: This regulation shall become effective October 24, 1997, during 
which either or both houses of Congress are in session. Notice of the 
effective date will be published in the Federal Register.

FOR FURTHER INFORMATION CONTACT:

Gaylon J. Dykstra, Policy Analyst, Office of Policy Development and 
Risk Control, Farm Credit Administration, McLean, VA 22102-5090, (703) 
883-4498;
    or
Rebecca S. Orlich, Senior Attorney, Office of General Counsel, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 
883-4444.

SUPPLEMENTARY INFORMATION: The FCA proposed to amend Sec. 615.5230 of 
its regulations on April 25, 1997 (62 FR 20131), to provide that an FCB 
may eliminate the cumulative voting requirement for the election of 
directors by a vote of 75 percent of the bank's association 
shareholders.<SUP>1</SUP> The proposed rule was in response to 
petitions from several Farm Credit System (System) institutions 
requesting that the FCA revise the existing unanimous consent 
requirement for eliminating cumulative voting. The 30-day comment 
period expired on May 27, 1997.
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    \1\ Farm Credit System associations that are shareholders of an 
FCB include Federal land bank associations, Federal land credit 
associations, production credit associations, and agricultural 
credit associations.
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    The FCA received a total of eight comment letters. Five of the 
letters represented seven associations (some commented jointly). The 
other three were from the FCB of Wichita (transmitting comments of 10 
of its affiliated associations); the FCB of Texas; and the Tenth 
District Federation of Production Credit Associations (Federation), 
whose members are affiliated with the FCB of Texas.
    Nine associations and the Federation supported the proposed 
amendment; seven associations opposed the proposed amendment. One 
association requested that the FCA reconsider the recommendation of a 
two-thirds majority made by several petitioners but supported the 
proposed amendment if the FCA could not support the two-thirds 
majority. The FCB of Texas stated that it believed that a simple 
majority vote of all associations should control cumulative voting, but 
that alternatively, the supermajority requirement should be based on 
the number of associations that actually vote. Two institutions 
specifically endorsed the proposal to accord each association one vote 
in a vote to eliminate cumulative voting.
    The associations that supported the proposed amendment generally 
commented that the existing regulation was unduly burdensome, 
complicated, and provided questionable benefits. One commenter stated 
that the current regulation ``allows only one vote to void the wishes 
of the remainder of the District who support a less restrictive consent 
for change.''
    Four associations that opposed the proposed amendment supported the 
continuation of the existing regulation. They commented that the 
original intent of the regulation was to provide smaller associations a 
meaningful vote by allowing them to cumulate their votes in elections 
and that this is now even more paramount because of the mergers, 
consolidations, and proposed joint management agreements at the 
district level. They further stated that it was important for all 
stockholders in the district banks to have the maximum opportunity to 
voice their respective votes and that there was ``no valid reason for 
an association located in a smaller geographic size to forfeit this 
right.''
    After careful consideration of the comments, the FCA adopts the 
rule as proposed. The FCA continues to believe that cumulative voting 
provides important protection to minority interests and, consequently, 
should not be subject to elimination by a two-thirds majority. The 75-
percent supermajority provides the proper balance among the differing 
opinions by easing the unanimous requirement for eliminating cumulative 
voting while maintaining significant protection for the minority 
interests.
    As noted above, one commenter stated that a supermajority 
requirement should be a percentage of only the shareholders that 
participate in the vote, rather than the total number of voting 
shareholders. The effect of such a change would be the possibility that 
a smaller number of shareholders would be able to eliminate cumulative 
voting if some shareholders abstain. The FCA is not persuaded that such 
a change is appropriate.

[[Page 49908]]

    One respondent requested that the FCA clarify whether a 75-percent 
vote is needed to reinstate cumulative voting. The FCA does not require 
a supermajority to reinstate cumulative voting. The FCA believes that 
such a vote should be subject to the amendment procedures established 
by the FCB's bylaws.

List of Subjects in 12 CFR Part 615

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

    For the reasons stated in the preamble, part 615 of chapter VI, 
title 12 of the Code of Federal Regulations is amended as follows:

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

    1. The authority citation for part 615 continues to read as 
follows:

    Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5, 
2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17, 
6.20, 6.26, 8.0, 8.3, 8.4, 8.6, 8.7, 8.8, 8.10, 8.12 of the Farm 
Credit Act (12 U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 
2075, 2076, 2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 
2211, 2243, 2252, 2278b, 2278b-6, 2279aa, 2279aa-3, 2279aa-4, 
2279aa-6, 2279aa-7, 2279aa-8, 2279aa-10, 2279aa-12); sec. 301(a) of 
Pub. L. 100-233, 101 Stat. 1568, 1608.

Subpart I--Issuance of Equities

    2. Section 615.5230 is amended by revising paragraph (a)(2)(ii) to 
read as follows:


Sec. 615.5230  Implementation of cooperative principles.

    (a) * * *
    (2) * * *
    (ii) Have the right to vote in the election of each director and be 
allowed to cumulate such votes and distribute them among the candidates 
in the shareholder's discretion, except that cumulative voting for 
directors may be eliminated if 75 percent of the associations that are 
shareholders of the Farm Credit Bank vote in favor of elimination. In a 
vote to eliminate cumulative voting, each association shall be accorded 
one vote.
* * * * *
    Dated: September 16, 1997.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 97-25262 Filed 9-23-97; 8:45 am]
BILLING CODE 6705-01-P