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

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.1 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