[Federal Register: March 20, 1998 (Volume 63, Number 54)]
[Proposed Rules]               
[Page 13564-13566]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20mr98-35]

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FARM CREDIT ADMINISTRATION

12 CFR Part 611

RIN 3052-AB71

 
Organization; Balloting and Stockholder Reconsideration Issues

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: The Farm Credit Administration (FCA or Agency), through the 
FCA Board (Board), proposes to amend its regulations concerning Farm 
Credit System (System or FCS) voting ballots and the effective dates 
for mergers, consolidations, or transfers of direct lending authority 
from a Farm Credit Bank (FCB) or agricultural credit bank (ACB) to a 
Federal land bank association (FLBA). The proposed amendments would 
allow the use of identity codes on ballots, as long as the votes are 
tabulated by an independent third party, and would conform the scope of 
the regulation to statutory requirements. The amendments would also 
reduce the earliest effective date of a merger, consolidation, or 
transfer of lending authority from 50 days to 35 days after stockholder 
notification, or 15 days after submission of documents to the FCA for 
final approval, whichever occurs later. The effects of the amendments 
are to provide more flexibility to institutions regarding the conduct 
of stockholder votes, to extend security and confidentiality 
requirements to all stockholder votes, and to accelerate the effective 
date of the above-described corporate actions.

DATES: Written comments must be received on or before April 20, 1998.

ADDRESSES: Comments may be mailed or delivered to Patricia W. DiMuzio, 
Director, Regulation and Policy Division, Office of Policy and 
Analysis, 1501 Farm Credit Drive, McLean, VA, 22102-5090 or sent by 
facsimile transmission to (703) 734-5784. Comments may also be 
submitted via electronic mail to ``reg-comm@fca.gov''. Copies of all 
communications received will be available for review by interested 
parties in the Office of Policy and Analysis, Farm Credit 
Administration.

FOR FURTHER INFORMATION CONTACT:
Alan Markowitz, Senior Policy Analyst, Office of Policy and Analysis, 
Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4479;
      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:

I. Background

    The FCA is continuing its efforts to reduce regulatory burdens on 
System institutions and to retain only regulations that: (1) Implement 
or interpret the Farm Credit Act of 1971, as amended (Act); or (2) 
protect the safety and soundness of the System. See 58 FR 34003 (June 
23, 1993); 60 FR 57913 (November 24, 1995). The FCA has previously 
deleted a number of unnecessary or obsolete regulations and has 
modified others to reduce the burden of compliance. This rule is 
proposed in response to requests by several System institutions to 
revise the secret ballot procedures and to accelerate the effective 
date of certain corporate actions, as more fully described below.

II. Maintaining Secrecy of Ballots

    Three institutions have requested that the FCA amend Sec. 611.330 
to allow FCS institutions to use identity codes on election ballots. 
The commenters stated that, in some elections, many stockholders who 
were confused by the procedures for voting by mail or proxy sent back 
incomplete or improperly completed ballots or proxies. As a result, 
their votes were not counted. The associations stated that, if the 
forms had contained identity codes, the stockholders in question could 
have been contacted before the stockholders' meeting and permitted to 
submit properly completed ballots or proxies. The commenters asserted 
their belief that identity codes, printed names on ballots, or other 
means of identification would not violate a voter's right to a secret 
ballot under section 4.20(2) of the Act, if an FCS institution: (1) 
Ensures that members of an independent tellers' committee abide by 
confidentiality restrictions; and (2) establishes ballot custody 
requirements.
    Section 4.20 of the Act, which was amended by the Agricultural 
Credit Act of 1987 (1987 Act), prohibits the use of signed ballots in 
connection with any election or merger vote or other proceeding subject 
to a stockholder vote. Section 4.20 also requires FCS institutions to 
implement measures to protect voters' rights to a secret ballot 
process. In 1988, the FCA published a final rule that, among other 
provisions, established standards for the election of directors to 
comply with section 4.20. See 53 FR 50381 (December 15, 1988). Section 
611.330 of that rule requires System institutions to adopt policies and 
procedures that assure confidentiality in the election of board members 
and prohibits the use of ballots

[[Page 13565]]

or proxy ballots that must be signed or that contain an identifying 
character or mark that can be used to identify how an individual 
stockholder's vote is cast.
    The FCA proposes to amend Sec. 611.330(b) to allow System 
institutions to use identity codes on ballots, provided that an 
independent third party tabulates the votes. The proposed regulation 
would also require that, in all votes in which an independent third 
party tabulates the votes, the independent third party must certify in 
writing that no information regarding how or whether a particular 
stockholder has voted will be disclosed to any person. However, the 
independent third party would be required to disclose such information 
to the FCA, if requested, in the event a vote is contested or 
otherwise.
    The Agency agrees with the commenters that the use of an 
independent third party to review and count the votes will carry out 
the purpose of section 4.20 of the Act to preserve the secrecy of 
stockholder votes in relation to the institution, its directors, 
employees, and other stockholders. Examples of such third parties are 
outside auditors, accounting firms, or outside counsel. Tellers' 
committees that include stockholders or employees would not qualify as 
independent third parties. This proposed change will provide 
institutions with the opportunity to address the problem of incorrect 
ballots.
    The FCA also proposes to modify Secs. 611.330 and 611.340 to extend 
the confidentiality and security requirements to all stockholder votes, 
not just director elections. These changes will conform the scope of 
the regulations to section 4.20 of the Act, as described above. A 
provision is added requiring a 5-year retention period for records 
related to a vote other than a director election. The existing 
regulation provides for the retention of director election records 
until the end of the term of office of the director.
    In addition, the FCA proposes nonsubstantive changes to 
Sec. 611.330 regarding the confidentiality of mail or proxy ballots. 
These changes would clarify that, in mail or proxy balloting, 
institution procedures must provide for a marked mail ballot or proxy 
ballot to be returned to the institution in a separate sealed envelope 
that is placed inside of another envelope for mailing. In proxy voting, 
the stockholder must return the proxy authorization form along with the 
sealed envelope containing the proxy ballot. In mail balloting, 
institutions may, but are not required to, provide for stockholders to 
verify their eligibility to vote, as long as such verification is not 
on the ballot or on the sealed envelope containing the ballot. The 
verification could, for example, be on a separate piece of paper placed 
in the outside envelope or could be on the outside envelope itself.

III. Change of Effective Date for Merger, Consolidation, or 
Transfer of Lending Authority

    Two institutions suggested that the FCA amend Sec. 611.1122, which 
establishes timing and disclosure requirements for mergers of FCS 
institutions. One of the institutions asserted that the regulation 
mandates excessive periods for review and unnecessarily delays the 
effective date of such mergers beyond the required stockholder 
reconsideration period. This institution suggested that the FCA develop 
new procedures to expedite effective dates of mergers of FCS 
institutions.
    Section 7.9 of the Act, as amended by the 1987 Act, provides for 
stockholder reconsideration of mergers or consolidations, the transfer 
of direct lending authority from a bank to an FLBA, and terminations of 
FCS status. The statute provides that, if the FCA receives a 
stockholder petition from at least 15 percent of the stockholders for 
reconsideration of a vote in favor of any such action within 30 days of 
the date on which stockholders are notified of the results of the vote, 
the institution in question must call a special stockholders' meeting 
to vote again on the proposed action. If a petition that meets the 
statutory requirements is filed, the proposed action (if approved in 
the second vote) cannot take effect until the expiration of 60 days 
after the date on which stockholders were notified of the result of the 
first vote.
    Sections 611.505(e) and 611.1122(k), promulgated in 1988 pursuant 
to section 7.9 of the Act, provide that, in the case of an association 
merger or a transfer of direct lending authority, the effective date of 
the merger or transfer must be at least 50 days after the date of 
mailing of the notification to stockholders of the first vote. In the 
preamble to those regulations, the FCA explained that the period of 50 
days was specified to allow for: (1) A 5-day period for delivery of the 
notice to stockholders; (2) a 30-day period during which stockholders 
may file a petition for reconsideration; and (3) fifteen (15) days 
after the end of the reconsideration period for the FCA to receive and 
review the institution's documents for final approval. See 53 FR 50389 
(December 15, 1988).
    At the time of the promulgation of the regulation, the FCA was of 
the view that a 50-day period was necessary to ensure that the Agency 
had adequate time to process final approval documents. However, the 
FCA's experience in processing the final approval documents is that its 
review and approval can occur during the 30-day reconsideration period 
if the institutions timely submit such documents to the FCA. Therefore, 
the FCA proposes to eliminate the additional 15 days intended for 
Agency review following the end of the reconsideration period and to 
provide that the effective date of an association merger or a transfer 
of lending authority may be 35 days after stockholder notification, or 
15 days after submission of final documents to the FCA, whichever 
occurs later.
    The FCA also proposes, for purposes of clarification, to restate in 
Secs. 611.505(e) and 611.1122(k) the provision in section 7.9(b)(3)(A) 
of the Act that, if a valid petition for reconsideration is timely 
filed with the FCA, the merger or transfer of lending authority cannot 
take effect until the expiration of 60 days after the date on which 
stockholders were notified of the final result of the first vote.

List of Subjects in 12 CFR Part 611

    Agriculture, Banks, banking, Rural areas.

    For the reasons stated in the preamble, part 611 of chapter VI, 
title 12 of the Code of Federal Regulations is proposed to be amended 
to read as follows:

PART 611--ORGANIZATION

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

    Authority: Secs. 1.3, 1.13, 2.0, 2.10, 3.0, 3.21, 4.12, 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, 2021, 2071, 2091, 2121, 2142, 2183, 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.

    2. Subpart C is amended by revising the heading to read as follows:

Subpart C--Election of Directors and Other Voting Procedures

    3. Section 611.330 is amended by removing the word ``election'' and 
adding in its place, the word ``voting'' in the first sentence of 
paragraph (a); by removing the words ``an election'' and adding in 
their place, the words ``a vote'' and by removing the comma after the 
word ``contested'' in the last sentence of paragraph (a); and by 
revising the section heading and paragraph (b) to read as follows:

[[Page 13566]]

Sec. 611.330  Confidentiality in voting.

* * * * *
    (b) Except as provided in this paragraph, System institutions shall 
not use ballots or proxy ballots that must be signed by the stockholder 
or that contain an identifying character or mark that can be used to 
identify how an individual stockholder's vote is cast.
    (1) Institutions may use a form of identity code on the ballot if 
they also provide for tabulation of the votes by an independent third 
party.
    (2) In mail balloting, institutions may adopt procedures that 
require the stockholders to sign or otherwise verify their eligibility 
to vote, so long as the marked ballot is in a separate sealed envelope 
that accompanies any document that identifies the stockholder.
    (3) In proxy voting, an institution's procedures shall provide that 
the proxy ballot be returned in a separate sealed envelope, which 
envelope is accompanied by a signed proxy authorization form.
    (4) Where the identity of the voting stockholders is necessary to 
determine the voting weight of ballots, the institution shall use a 
form of identity code on the ballot and shall require that the votes 
are tabulated by an independent third party.
    (5) In a vote in which identity codes are used on the ballots, the 
independent third party that tabulates the votes shall certify in 
writing that such party will not disclose to any person (including the 
institution, the directors, stockholders, or employees) any information 
regarding how or whether any stockholder has voted. However, the 
independent third party shall disclose such information to the Farm 
Credit Administration, if requested, in the event a vote is contested 
or otherwise.
* * * * *
    4. Section 611.340 is amended by removing the words ``the election 
of directors'' and adding in their place, the word ``voting'' in the 
heading; by removing the words ``the election of board members'' and 
adding in their place, the words ``a stockholder vote'' in paragraph 
(a); by removing the word ``election'' and adding in its place, the 
word ``voting'' the first and last place it appears in the first 
sentence of paragraph (d); by removing the words ``an election'' and 
adding in their place, the words ``a stockholder vote'' in the last 
sentence of paragraph (d); by removing the word ``election'' and adding 
in its place, the word ``vote'' the last place it appears in the last 
sentence of paragraph (d); and by revising paragraph (c) to read as 
follows:


Sec. 611.340  Security in voting.

* * * * *
    (c) Ballots and proxy ballots shall be physically safeguarded 
before the time of distribution or mailing to voting stockholders and 
after the time of receipt by the banks and associations until disposal. 
In an election of directors, ballots, proxy ballots and election 
records shall be retained until the end of the term of office of the 
director and promptly destroyed thereafter. In other stockholder votes, 
ballots, proxy ballots, and records shall be retained for at least 5 
years after the vote.
* * * * *

Subpart E--Transfer of Authorities

    5. Section 611.505 is amended by revising paragraph (e) to read as 
follows:


Sec. 611.505  Farm Credit Administration review.

* * * * *
    (e) The effective date of a transfer shall be not less than 35 days 
after mailing of the notification to stockholders of the results of the 
stockholder vote, or 15 days after the date of submission to the Farm 
Credit Administration of all required documents for the Agency's 
consideration of final approval, whichever occurs later. If a petition 
for reconsideration is filed within 35 days after the date of mailing 
of the notification of stockholder vote, the constituent institutions 
shall agree on a second effective date to be used in the event the 
transfer is approved on reconsideration. The second effective date 
shall be not less than 60 days after stockholder notification of the 
results of the first vote, or 15 days after the date of the 
reconsideration vote, whichever occurs later.

Subpart G--Mergers, Consolidations, and Charter Amendments of 
Associations

    6. Section 611.1122 is amended by revising paragraph (k) to read as 
follows:


Sec. 611.1122  Requirements for mergers or consolidations.

* * * * *
    (k) The effective date of a merger or consolidation shall be a date 
which is not less than 35 days after the date of mailing of the 
notification to stockholders of the results of the stockholder vote, or 
15 days after the date of submission to the Farm Credit Administration 
of all required documents for the Agency's consideration of final 
approval, whichever occurs later. If a petition for reconsideration is 
filed within 35 days after mailing of the notification to stockholders 
of the results of the stockholder vote, the constituent institutions 
shall agree on a second effective date to be used in the event the 
merger or consolidation is approved on reconsideration. The second 
effective date shall be not less than 60 days after stockholder 
notification of the results of the first vote, or 15 days after the 
date of the reconsideration vote, whichever occurs later.

    Dated: March 17, 1998.
Nan P. Mitchem,
Acting Secretary, Farm Credit Administration Board.
[FR Doc. 98-7342 Filed 3-19-98; 8:45 am]
BILLING CODE 6705-01-P