[Federal Register Volume 60, Number 78 (Monday, April 24, 1995)]
[Rules and Regulations]
[Pages 20011-20013]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10008]



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FARM CREDIT ADMINISTRATION
12 CFR Part 620

RIN 3052-AB37


Disclosure to Shareholders

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA), by the Farm Credit 
Administration Board, issues a final regulation amending its disclosure 
requirements for association annual meeting information statements 
including required disclosures for director candidates nominated from 
the floor. The amendments provide associations more flexibility in 
accepting floor nominations for director positions, clarify disclosure 
requirements when annual meetings are held in more than one session and 
shareholders vote by mail, and make other technical changes.

EFFECTIVE DATE: The regulations shall become effective upon expiration 
of 30 days after publication in the Federal Register during which 
either or both Houses of Congress are in session. Notice of the 
effective date will be published in the Federal Register.

FOR FURTHER INFORMATION CONTACT:

Laurie A. Rea, Policy Analyst, Office of Examination, Farm Credit 
Administration, McLean, VA 22102-5090, (703) 883-4498, or
James M. Morris, Senior Attorney, Office of General Counsel, Farm 
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TDD (703) 
883-4444.

SUPPLEMENTARY INFORMATION:

Background

    On September 13, 1993, the FCA issued a proposed regulation (58 FR 
47836) that would amend certain aspects of Sec. 620.21(d) pertaining to 
required disclosures in the association annual meeting information 
statement (Statement) concerning the nominating and balloting process 
for association directors. The FCA proposed changes to Sec. 620.21(d) 
after learning that the regulation may have inadvertently placed an 
undue burden on certain members. Section 620.21(d)(3) required the 
Statement to ``contain a notice that nominations from the floor must be 
made at the first sectional meeting'' when the association's annual 
meeting was held in consecutive sectional sessions. Consequently, 
certain members that would have otherwise attended a different session 
were required to travel to the first sectional session if they wished 
to participate in the floor nominating process. Sections 620.21(d)(5) 
and (d)(6) also required that persons nominated from the floor provide 
the necessary written disclosures ``in writing at the meeting(s) at 
which the nomination is considered.''
    The FCA proposed regulatory amendments to make it less burdensome 
for members to participate in the floor nominating process. If the 
association's members are voting by mail ballot at the conclusion of 
all sessions of the annual meeting, the proposed rule allowed floor 
nominations at any sectional session. The proposed rule also relaxed 
the disclosure requirement for floor nominees by allowing them to 
provide the mandated disclosures ``within 10 days of nominations'' 
instead of ``at the meeting(s) at which the nomination is considered.'' 
The FCA believed that these regulatory changes would afford members 
more opportunity to nominate candidates from the floor when voting by 
mail ballot after the annual meeting is concluded and make it easier 
for floor nominees to provide the required disclosures without any 
significant inconvenience to management or other nominees.
    The FCA received four comment letters on the proposed rule during 
the comment period that expired on October 13, 1993. One letter was 
submitted by a Farm Credit bank, two letters by associations, and one 
by the Farm Credit Council (Council) on behalf of its membership. 
Commenters were generally supportive of the proposed changes. The 
Council commented that its membership applauded the FCA's 
responsiveness to Farm Credit System institutions' concerns.
    The final regulation allows persons to be nominated from the floor 
at any sectional session when the director election is conducted by 
mail balloting following the final session of the annual meeting. 
However, in response to a comment from the Council, the FCA has changed 
the regulation so that associations can specify in their bylaws that 
nominations from the floor will be accepted only at the first session. 
The final rule requires persons nominated from the floor to provide 
associations with the written disclosure information for mailing with 
the ballot. The final rule also allows associations using mail 
balloting after the last session the latitude to prescribe in their 
bylaws the time period for floor nominees to submit the required 
disclosures. [[Page 20012]] 

Response to Comments

    The Council asserted that some associations interpreted the 
proposed regulation to require a change in their current method of 
nominating and electing directors because their stockholders have the 
option of voting by mail or in person at each association's annual 
meeting. Therefore, the Council requested that the proposed regulation 
be modified to permit associations that hold annual meetings in 
sectional sessions and conduct elections by mail ballot after the final 
sectional session to require in their bylaws that all floor nominations 
be made at the first sectional session. Section 4.15 of the Farm Credit 
Act of 1971 (Act), concerning the nomination of association directors, 
states ``Nominations shall also be accepted from the floor.'' To comply 
with Sec. 4.15 of the Act, associations must continue to afford a full, 
fair, and meaningful opportunity for members to make viable nominations 
from the floor. Section 620.21(d)(3) has been revised to emphasize this 
requirement.
    The FCA believes allowing nominations at any session of an 
association annual meeting when mail balloting occurs after those 
sessions is the best method of ensuring members an opportunity to 
nominate candidates from the floor. Nevertheless, the FCA is aware that 
some associations may wish to retain bylaw provisions that provide for 
the acceptance of floor nominations only at the first session. The FCA 
is engaged in a continuing effort to reduce regulatory burden by 
eliminating regulations that prescribe specific operational or 
managerial practices<SUP>1 and amending regulations to provide 
flexibility, so long as the requirements of the Act are satisfied. 
Accordingly, the FCA has revised the final Sec. 620.21(d)(3) to allow 
associations to prescribe that nominations from the floor will be 
accepted only at the first session. Further, the FCA notes that, if an 
association uses a combination of voting in person and voting by mail 
ballot, nominations from the floor can only be made at the first 
session so that every stockholder has the opportunity to vote on floor 
nominees.

    \1\The FCA Board's Policy Statement on Regulatory Philosophy (59 
FR 32189, June 22, 1994).
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    One commenter suggested that the regulations be modified to 
expressly accommodate a pre-annual meeting mail balloting process. The 
commenter argued that it is impossible for associations employing a 
pre-annual meeting mail balloting process to comply with the floor 
nomination and disclosure requirements of the proposed regulations 
because many stockholders have already voted by mail at the time a 
floor nomination is made. The commenter suggested that the FCA allow 
associations to accept nominations by mail. The suggestions were not 
incorporated in the final regulation for several reasons.
    The FCA does not believe the use of mail ballots prior to an 
association's annual meeting is legally permissible. In addition to the 
slate of eligible candidates presented by the nominating committee, 
Sec. 4.15 of the Act expressly requires associations to accept 
nominations ``from the floor.'' A stockholder voting by mail prior to 
the annual meeting would not be able to vote for floor nominees because 
their candidacy would not be known until the meeting. In addition, a 
stockholder who has voted by mail prior to the annual meeting would not 
be able to revoke his or her mail ballot and vote in person at the 
meeting. Consequently, stockholders who vote by mail ballot prior to 
the annual meeting relinquish their rights to vote for candidates 
nominated from the floor at the meeting.
    The FCA believes that accepting nominations solely by mail would 
discourage the borrowers' active participation in the management and 
control of System institutions. Mail nominations do not foster 
borrowers' active involvement in the director nomination and election 
process but rather may minimize the stockholders' role. Nominations by 
mail restrict stockholders' opportunity to discuss potential candidates 
for director positions. If nominations by mail were employed, the 
absence of consideration and discussion by members at the annual 
meeting would also inhibit the origination of viable nominations from 
the floor. Accordingly, the FCA has not modified the regulation to 
include a procedure to accept floor nominations by mail so that 
associations may conduct mail balloting prior to the annual meeting. 
The FCA notes that proxy voting in director elections is a permissible 
alternative voting method, although it is not specifically mandated by 
the Act.<SUP>2 A secret proxy ballot allows a stockholder who will be 
absent from the meeting to designate another person to cast his vote. 
Although proxies must be returned to the association prior to the start 
of the annual meeting, a stockholder attending the meeting can revoke 
his or her proxy prior to the balloting at the annual meeting and vote 
in person for a floor nominee.

    \2\The rights of stockholders to vote by proxy is mandated by 
the Act in certain situations. See Secs. 4.3A(c)(2), 7.8(a)(3), and 
7.13(a)(3) of the Act.
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    Commenters raised concerns about the appropriateness of the 10-day 
timeframe prescribed in proposed Sec. 620.21(d)(5) for floor nominees 
to provide written disclosure information. Three commenters suggested 
that the 10-day period be shortened to 5 business days. Commenters 
argued that this would give floor nominees sufficient time to prepare 
and submit the required disclosure information without unduly delaying 
the mailing of ballots after the last sectional session. The Council 
stated that its members suggested a time period of 3 days or no more 
than 5 days, and it recommended that associations be allowed to set an 
appropriate timeframe in their bylaws. Consistent with its role as an 
arm's-length regulator, the FCA has revised the regulation to allow 
associations the latitude to prescribe in their bylaws the time period 
for floor nominees to submit the required disclosure. Associations 
should provide a sufficient time for floor nominees to compile the 
information necessary to comply with the regulatory requirements and 
ensure that the election process is completed expeditiously. Therefore, 
the time period for floor nominees to submit the required disclosure 
information was changed in the final rule from ``within 10 days of 
nomination'' to ``within the time period prescribed by the 
association's bylaws.'' If the bylaws do not address this issue, the 
regulation requires that this information be submitted within 5 
business days.
    The Council also requested that the regulation, as proposed, be 
changed by adding the words ``upon conclusion of all sessions'' after 
``mail ballot'' in Sec. 620.21(d)(5). The FCA agrees that the suggested 
change clarifies the meaning of paragraph (d)(5) and modified the 
regulation accordingly.
    The final regulation makes a technical correction to 
Sec. 620.21(c)(3). (See 51 FR 8644, March 13, 1986). The technical 
correction deletes the words ``during the last year fiscal year to 
date'' and inserts the words ``since the last annual meeting'' to 
clarify that associations are required to disclose in the Statement any 
resignations by directors that stem from disagreements with the board 
that occurred during the time period between annual meetings.

List of Subjects in 12 CFR Part 620

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

    For the reasons stated in the preamble, part 620 of chapter VI, 
title 12 [[Page 20013]] of the Code of Federal Regulations is amended 
to read as follows:

PART 620--DISCLOSURE TO SHAREHOLDERS

    1. The authority citation for part 620 continues to read as 
follows:

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

Subpart D--Association Annual Meeting Information Statement

    2. Section 620.21 is amended by revising the heading and paragraphs 
(c)(3), (d)(1), (d)(3), (d)(5), and (d)(6) to read as follows:


Sec. 620.21  Contents of the information statement and other 
information to be furnished in connection with the annual meeting.

* * * * *
    (c) * * *
    (3) If any director resigned or declined to stand for reelection 
since the last annual meeting because of a policy disagreement with the 
board, and if the director has furnished a letter requesting disclosure 
of the nature of the disagreement, state the date of the director's 
resignation and summarize the director's description of the 
disagreement contained in the letter. If the institution holds a 
different view of the disagreement, the institution's view may be 
summarized.
* * * * *
    (d) * * *
    (1) If directors are nominated by region, describe the regions and 
state the number of voting shareholders entitled to vote in each 
region. Any nominee from the floor must be an eligible candidate for 
the director position for which the person has been nominated.
* * * * *
    (3) State that nominations shall be accepted from the floor.
    (i) If the annual meeting is to be held in more than one session 
and mail balloting will be conducted upon the conclusion of all 
sessions, state that nominations from the floor may be made at any 
session or, if the association's bylaws so provide, state that 
nominations from the floor shall be accepted only at the first session.
    (ii) If shareholders will not vote solely by mail ballot upon 
conclusion of all sessions, state that nominations from the floor may 
be made only at the first session.
* * * * *
    (5) For each nominee who is not an incumbent director, except a 
nominee from the floor, provide the information referred to in 
Sec. 620.5 (j) and (k) and Sec. 620.21(d)(4). If shareholders will vote 
by mail ballot upon conclusion of all sessions, each floor nominee must 
provide the information referred to in Sec. 620.5 (j) and (k) and 
Sec. 620.21(d)(4) in writing to the association within the time period 
prescribed by the association's bylaws. If the association's bylaws do 
not prescribe a time period, state that each floor nominee must provide 
the written disclosure to the association within 5 business days of the 
nomination. The association shall ensure that the information is 
distributed to the voting shareholders with the mailing of the ballots 
for the election of directors in the same format as the comparable 
information contained in the association's annual meeting information 
statement. If shareholders will not vote by mail ballot upon conclusion 
of all sessions, each floor nominee must provide the information 
referred to in Sec. 620.5 (j) and (k) and Sec. 620.21(d)(4) in writing 
at the first session at which voting is held.
    (6) No person may be a nominee for director who does not make the 
disclosures required by this subpart.
* * * * *
    Dated: April 13, 1995.
Floyd Fithian,
Secretary, Farm Credit Administration Board.
[FR Doc. 95-10008 Filed 4-21-95; 8:45 am]
BILLING CODE 6705-01-P