Federal Agricultural Mortgage Corporation Governance; Farmer Mac Corporate Governance and Standards of Conduct, 10426-10429 [2014-04057]
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Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Proposed Rules
regulatory and informational impacts of
this action on small businesses.
In accordance with the Paperwork
Reduction Act of 1995, (44 U.S.C.
Chapter 35), the order’s information
collection requirements have been
previously approved by the Office of
Management and Budget (OMB) and
assigned OMB No. 0581–0178 (Generic
Vegetable and Specialty Crops). No
changes in those requirements as a
result of this action are necessary.
Should any changes become necessary,
they would be submitted to OMB for
approval.
This proposed rule would impose no
additional reporting or recordkeeping
requirements on either small or large
Idaho-Eastern Oregon potato handlers.
As with all Federal marketing order
programs, reports and forms are
periodically reviewed to reduce
information requirements and
duplication by industry and public
sector agencies.
AMS is committed to complying with
the E-Government Act, to promote the
use of the internet and other
information technologies to provide
increased opportunities for citizen
access to Government information and
services, and for other purposes.
USDA has not identified any relevant
Federal rules that duplicate, overlap, or
conflict with this action.
A small business guide on complying
with fruit, vegetable, and specialty crop
marketing agreements and orders may
be viewed at: https://www.ams.usda.gov/
MarketingOrdersSmallBusinessGuide.
Any questions about the compliance
guide should be sent to Jeffrey Smutny
at the previously mentioned address in
the FOR FURTHER INFORMATION CONTACT
section.
A 30-day comment period is provided
to allow interested persons to respond
to this proposed rule. Thirty days is
deemed appropriate because: (1) The
2014–2015 fiscal period begins on
August 1, 2014, and the marketing order
requires that the rate of assessment for
each fiscal period apply to all assessable
potatoes handled during such fiscal
period; (2) the proposed rule would
decrease the assessment rate for
assessable potatoes beginning with the
2014–2015 fiscal period; and (3)
handlers are aware of this action which
was unanimously recommended by the
Committee at a public meeting and is
similar to other assessment rate actions
issued in past years.
List of Subjects in 7 CFR Part 945
Marketing agreements, Potatoes,
Reporting and recordkeeping
requirements.
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For the reasons set forth in the
preamble, 7 CFR part 945 is proposed to
be amended as follows:
PART 945—IRISH POTATOES GROWN
IN CERTAIN DESIGNATED COUNTIES
IN IDAHO, AND MALHEUR COUNTY,
OREGON
1. The authority citation for 7 CFR
part 945 continues to read as follows:
■
Authority: 7 U.S.C. 601–674.
2. Section 945.249 is revised to read
as follows:
■
§ 945.249
Assessment rate.
On and after August 1, 2014, an
assessment rate of $0.0025 per
hundredweight is established for IdahoEastern Oregon potatoes.
Dated: February 18, 2014.
Rex A. Barnes,
Associate Administrator, Agricultural
Marketing Service.
[FR Doc. 2014–03852 Filed 2–24–14; 8:45 am]
BILLING CODE 3410–02–P
FARM CREDIT ADMINISTRATION
12 CFR Part 651
RIN 3052–AC89
Federal Agricultural Mortgage
Corporation Governance; Farmer Mac
Corporate Governance and Standards
of Conduct
Farm Credit Administration.
Advance notice of proposed
rulemaking.
AGENCY:
ACTION:
The Farm Credit
Administration (FCA, we, or our) is
considering issuing new regulations, or
clarifying and enhancing existing
regulations, related to the Federal
Agricultural Mortgage Corporation
(Farmer Mac) board governance and
standards of conduct, including director
election procedures, conflicts of interest
and risk governance. We are requesting
comments on ways to address these
issues. In keeping with today’s financial
and economic environment, we believe
it prudent and timely to undertake a
review of our regulatory guidance on the
identified areas. We intend to use the
information and suggestions we receive
in response to this Advance Notice of
Proposed Rulemaking (ANPRM) for the
development of guidance on Farmer
Mac board governance and standards of
conduct.
DATES: You may send comments on or
before April 28, 2014.
ADDRESSES: We offer a variety of
methods for you to submit your
SUMMARY:
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comments. For accuracy and efficiency
reasons, commenters are encouraged to
submit comments by email or through
the FCA’s Web site. As facsimiles (fax)
are difficult for us to process and
achieve compliance with section 508 of
the Rehabilitation Act, we are no longer
accepting comments submitted by fax.
Regardless of the method you use,
please do not submit your comments
multiple times via different methods.
You may submit comments by any of
the following methods:
• Email: Send us an email at regcomm@fca.gov.
• FCA Web site: https://www.fca.gov.
Select ‘‘Public Commenters,’’ then
‘‘Public Comments,’’ and follow the
directions for ‘‘Submitting a Comment.’’
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail: Laurie A. Rea, Director, Office
of Secondary Market Oversight, Farm
Credit Administration, 1501 Farm
Credit Drive, McLean, VA 22102–5090.
You may review copies of all
comments we receive at our office in
McLean, Virginia, or on our Web site at
https://www.fca.gov. Once you are in the
Web site, select ‘‘Public Commenters,’’
then ‘‘Public Comments,’’ and follow
the directions for ‘‘Reading Submitted
Public Comments.’’ We will show your
comments as submitted, including any
supporting data provided, but for
technical reasons we may omit items
such as logos and special characters.
Identifying information that you
provide, such as phone numbers and
addresses, will be publicly available.
However, we will attempt to remove
email addresses to help reduce Internet
spam.
FOR FURTHER INFORMATION CONTACT: Joe
Connor, Associate Director for Policy
and Analysis, Office of Secondary
Market Oversight, Farm Credit
Administration, McLean, VA 22102–
5090, (703) 883–4364, TTY (703) 883–
4056, or Laura McFarland, Senior
Counsel, Office of General Counsel,
Farm Credit Administration, McLean,
VA 22102–5090, (703) 883–4020, TTY
(703) 883–4056.
SUPPLEMENTARY INFORMATION:
I. Objective
The purpose of this ANPRM is to
gather public input on how FCA might:
• Enhance risk governance at Farmer
Mac to further its long-term safety and
soundness and mission achievement;
• Clarify the roles of the board and
voting stockholders in the Farmer Mac
director nomination and election
process;
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• Enhance the usefulness,
transparency, and consistency of
conflicts of interest reporting;
• Clarify conflicts of interest
prohibitions; and
• Avoid repetitious disclosure and
reporting requirements given the dual
reporting responsibilities of Farmer Mac
to the FCA and the Securities and
Exchange Commission (SEC), while
maintaining effective and efficient FCA
oversight of Farmer Mac.
II. Background
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A. Structure and Operation of Farmer
Mac
Farmer Mac is a stockholder-owned,
federally chartered instrumentality that
is an institution of the Farm Credit
System and a Government-sponsored
enterprise (GSE). Farmer Mac was
established and chartered by the
Agricultural Credit Act of 1987 (1987
Act), which was enacted on January 6,
1988, to create a secondary market for
agricultural real estate mortgage loans,
rural housing mortgage loans, and rural
utilities loans.1 Farmer Mac also
facilitates the capital markets funding
for USDA-guaranteed farm program and
rural development loans. Title VIII of
the Farm Credit Act of 1971, as
amended, (Act) governs Farmer Mac.
As a GSE, Farmer Mac has a public
policy purpose embedded in its
corporate mission. One aspect of this
public policy mission includes financial
services to customer-stakeholders
(institutions that lend to farmers,
ranchers, rural homeowners, and rural
utility cooperatives) and the resulting
flow-through benefits to rural
borrowers. Another key aspect is the
protection of taxpayer-stakeholders
because the risk that Farmer Mac
accepts in the course of business
exposes both investors (debt and equity
purchasers) as well as taxpayers to
potential loss. The taxpayer’s exposure
arises in part from Farmer Mac’s
authority to issue debt to the
Department of the Treasury to cover
guarantee losses under certain adverse
circumstances.2 Thus, an appropriately
comprehensive approach to Board-level
risk governance would acknowledge
and consider all stakeholder groups.
Farmer Mac has two classes of voting
common stock: Class A and Class B.
Class A voting common stock is owned
by banks, insurance companies, and
1 See Agricultural Credit Act of 1987 (Pub. L.
100–233).
2 According to the 1987 Act, Farmer Mac, in
certain circumstances, may borrow up to $1.5
billion from the U.S. Treasury to guarantee timely
payment of any guarantee obligations of the
corporation. Public Law 100–233.
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other financial institutions. Class B
voting common stock is owned by Farm
Credit System (System) institutions. In
addition, Farmer Mac has nonvoting
common stock (Class C), the ownership
of which is not restricted and is a means
for Farmer Mac to raise capital. Farmer
Mac may also issue nonvoting preferred
stock.
As a GSE, the structure of Farmer
Mac’s board of directors was established
by Congress. The Farmer Mac board is,
by statute, composed of 15 directors
representing three segments: Class A
stockholders, Class B stockholders, and
the general public.3 Each segment has
five directors on the board. The Class A
and B segments each elect their
representatives (elected directors)—that
is, only Class A stockholders elect Class
A directors, and only Class B
stockholders elect Class B directors. The
directors representing the general public
are appointed by the President of the
United States (appointed directors). The
Act limits the terms of elected directors
to 1 year, while appointed directors
serve for an unlimited duration ‘‘at the
pleasure of the President’’ of the United
States of America.4
Although the Farmer Mac board is
representative in nature, Congress chose
a corporate structure to govern the
operations of Farmer Mac. Common law
corporate principles affirm the fiduciary
duty of directors to act in the best
interests of Farmer Mac and all of its
stockholders. However, this fiduciary
duty to stockholders must be
understood in the context of the duty of
the directors to further the statutory
purpose and public mission of Farmer
Mac.5
B. FCA Oversight and Rulemaking
Farmer Mac is regulated by FCA
through the FCA Office of Secondary
Market Oversight (OSMO). Section 8.11
of the Act specifies that FCA provides
oversight, regulation, examination, and
enforcement authority over Farmer Mac
to ensure it operates in a safe and sound
manner. In addition, the Act requires
3 Section 8.2(b) of the Act (12 U.S.C. 2279aa–
2(b)).
4 Section 8.2(b)(6) of the Act (12 U.S.C. 2279aa–
2(b)(6)).
5 Farmer Mac was created to provide a secondary
market in agricultural real estate and rural home
loans originated by System institutions and other
lenders. Its statutory purpose is to: increase the
availability of long-term credit to farmers and
ranchers at stable interest rates; provide greater
liquidity and lending capacity for lenders extending
credit to farmers and ranchers; facilitate capital
market investments in providing long-term
agricultural funding, including funds at fixed rates
of interest; and to enhance the ability of individuals
in small rural communities to obtain financing for
moderate-priced homes. See section 701 of the 1987
Act.
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Farmer Mac to register its equities with
the SEC and be subject to SEC
disclosure regulations under section 14
of the Securities and Exchange Act of
1934.6 Also, Farmer Mac’s Class A and
Class C stocks are publicly traded on the
New York Stock Exchange (NYSE).
Thus, Farmer Mac must comply with
both FCA and SEC disclosure and
reporting requirements.
Notwithstanding the shared regulation
of Farmer Mac’s reports and disclosures
to stockholders, FCA, acting through
OSMO, is the safety and soundness and
mission regulator of Farmer Mac. As
such, FCA has the authority to regulate
how Farmer Mac performs its powers,
functions, and duties in furtherance of
its public policy purposes.
When issuing regulations for Farmer
Mac, the Act requires FCA to consider:
• The purpose of Farmer Mac’s
mission;
• If Farmer Mac’s activities and
practices are appropriate for an
agricultural secondary market; and
• The reduced levels of risks
associated with appropriately structured
secondary market transactions.7
We last issued regulations on Farmer
Mac board governance and standards of
conduct on March 1, 1994 (59 FR 9622).
In that rulemaking, we implemented the
requirements of section 514 of the Farm
Credit Banks and Associations Safety
and Soundness Act of 1992 (1992 Act) 8
by requiring Farmer Mac to adopt a
conflict-of-interest policy that defines
the types of relationships, transactions,
or activities that might reasonably be
expected to give rise to potential
conflicts of interest.
III. Areas of Consideration
Corporate governance can be defined
as the set of processes, customs,
policies, laws and institutions affecting
the way a company is directed,
administered or controlled. Corporate
governance is about building credibility,
ensuring transparency and
accountability as well as maintaining an
effective channel of information
disclosure that fosters good corporate
performance. The essence of corporate
governance is to ensure good
performance by the entity, provide
proper accountability to all
stakeholders, and mitigate conflicts of
interest. As part of this, it is essential
that corporations practice strong risk
management.
Risk management is the identification,
assessment and prioritization of risks in
6 See section 8.12 of the Act (12 U.S.C. 2279aa–
12).
7 Section 8.11(a)(1) and (2) of the Act (12 U.S.C.
2279aa–11).
8 Public Law 102–552, 106 Stat. 4131.
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an effort to minimize the impact of
unfortunate events while maximizing
opportunities. In financial institutions,
risk can be categorized into three
categories: credit risk, market risk, and
operational risk. Usually, it is the board
of directors who approve the overall
risk-appetite of the company and
monitor internal controls by ensuring
necessary actions are taken. A strong
board uses both risk management and
corporate governance to steer the
corporation towards policies supporting
long-term sustainable growth in
shareholder value, but not in a manner
that promotes excessive risk-taking,
particularly for short-term increases in
stock price performance.9
Congress charged us to issue
regulations to ensure mission
compliance and the safety and
soundness of Farmer Mac. With the
recent events in the financial industry,
increased sophistication in financial
markets, and on-going scrutiny of public
and agency financial activities and
related reporting practices, we believe it
is prudent to review our current
regulatory standards related to Farmer
Mac’s board governance and standards
of conduct reporting and disclosures,
contained in part 651 of our rules, to
ensure the continuing mission
compliance and safety and soundness of
Farmer Mac. We also believe using an
ANPRM to solicit opinions and
suggestions from investors,
stockholders, and other interested
parties will facilitate the planned
rulemaking in this area.10
We have identified the following
areas to address in this ANPRM:
• Conflicts of interest for directors,
officers and employees;
• Director nominations and elections;
• Director representational and
fiduciary duties;
• Board responsibilities in setting
appropriate risk tolerance levels and
overseeing risk management; and
• General board governance.
We encourage comments and
suggestions on how to enhance
regulations in the above-identified
areas, emphasizing how those programs
affect the safety and soundness of
Farmer Mac, as well as comments on
how to further facilitate transparent and
comprehensive disclosure of Farmer
Mac’s standards of conduct policies and
practices.
In particular, we are interested in
what ways Farmer Mac’s risk
9 See ‘‘Incorporating Risk Management into
Corporate Governance,’’ Enterprise Risk
Management Initiative Staff (Sept. 23, 2010).
10 See www.reginfo.gov, FCA Spring 2013 Unified
Agenda, ‘‘Farmer Mac—Corporate Governance and
Standards of Conduct’’, dated April 24, 2013.
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governance oversight at the board
committee level can be enhanced. We
are also seeking suggestions on how we
might amend our regulations to address
the director nomination and election
process to ensure compliance with the
plain meaning of the Act as well as
whether we should address director
removal and prohibited conduct in the
planned rulemaking. Suggestions on
how we might amend our regulations to
address the interaction of
representational duties, conflicts of
interest, and corporate director fiduciary
duties to ensure compliance with the
Act are also sought.
IV. Request for Comments
We request and encourage any
interested person(s) to submit comments
on the following questions and ask that
you support any comments you submit
with relevant data and/or examples. We
remind commenters that comments, and
data submitted in support of a comment,
are available to the public through our
rulemaking files. We also invite
comments and suggestions on any of the
identified areas under consideration,
regardless of whether specific questions
have been asked.
Conflicts of Interests for Directors,
Officers and Employees:
(1) What, if any, recusal process
should FCA require when there is an
actual or potential conflict of interest?
(2) Should FCA regulations authorize
bylaw provisions for the automatic
removal of an elected director found to
have violated conflicts of interest
prohibitions? If so, what types of
prohibited actions related to conflicts of
interest should warrant removal?
(3) Should bylaw provisions
addressing disciplinary actions for
prohibited actions related to conflicts of
interest be regulated, such as reduced
pay, loss of committee memberships,
etc.? If so, please explain why and to
what extent.
Director Nominations and Elections:
(4) How should the Farmer Mac
nominating committee be structured
and what duties should it have?
(5) To what extent, if any, should
appointed directors be involved in the
elected director nomination process?
Please provide the reason(s) supporting
your response.
(6) What, if any, additional process
besides the nominating committee
should there be for shareholders to add
director-candidates to the ballot (e.g.
floor nominations, petition)?
(7) What other director nomination
guidelines should be considered to
preserve the representational election of
Class A and B directors on the Farmer
Mac board?
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Director Representational and
Fiduciary Duties:
(8) Should the FCA amend its
regulations to identify certain fiduciary
responsibilities associated with serving
as a director of a GSE? If so, how?
(9) How might FCA clarify existing
Farmer Mac board responsibilities and
authorities to improve the board’s
ability to carry out its fiduciary and
oversight responsibilities?
(10) How might FCA facilitate
maintaining a transparent
representational relationship between
elected directors and Class A and B
stockholders while ensuring the
protection of Farmer Mac’s proprietary
business information?
Board Responsibilities in Risk
Governance:
(11) To what extend should Farmer
Mac’s risk tolerance consider its public
policy purpose? How might that be
measured?
(12) How might the FCA ensure that
the Farmer Mac board establishes an
effective risk governance framework,
including risk measurements (e.g. data
collection), risk controls and reporting,
and clearly articulated statements of risk
tolerance?
(13) If FCA requires the Farmer Mac
board to have a risk committee, what
guidelines should FCA provide
regarding the formation and duties of
the committee? What qualifications
should risk committee members
possess? What resources should be
available to the committee? Should the
committee have direct access to all
members of the Farmer Mac
management team?
General Farmer Mac Board
Governance:
(14) To what extent should FCA issue
regulations to address difficulties
Farmer Mac may have as a GSE in
complying with modern governance
standards because of statutory and
regulatory requirements regarding the
structure, selection, and composition of
its board?
(15) How should FCA regulations
require Farmer Mac to foster diversity in
the selection of directors, officers and
employees?
(16) What other Farmer Mac board
governance and standards of conduct
issues should FCA consider addressing
through regulation?
With the benefit of information gained
through this ANPRM and our internal
analysis, we will consider changes to
the regulations to enhance their
fundamental objective—to ensure the
safety and soundness of Farmer Mac’s
operations and the furtherance of
Farmer Mac’s mission.
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Federal Register / Vol. 79, No. 37 / Tuesday, February 25, 2014 / Proposed Rules
Date: February 19, 2014.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2014–04057 Filed 2–24–14; 8:45 am]
BILLING CODE 6705–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2014–0057; Directorate
Identifier 2013–NM–210–AD]
RIN 2120–AA64
Airworthiness Directives; The Boeing
Company Airplanes
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking
(NPRM).
AGENCY:
We propose to adopt a new
airworthiness directive (AD) for certain
The Boeing Company Model 737–100,
–200, –200C, –300, –400, and –500
series airplanes. This proposed AD was
prompted by reports from multiple
operators that have found fatigue
cracking in the corners of the forward
galley service doorway. This proposed
AD would require repetitive inspections
for any cracking of the skin and bear
strap doublers in the corners of the
forward galley service doorway, and
corrective action if necessary. This
proposed AD would also provide
optional terminating actions for certain
repetitive inspections. We are proposing
this AD to detect and correct fatigue
cracking, which could result in rapid
loss of cabin pressure.
DATES: We must receive comments on
this proposed AD by April 11, 2014.
ADDRESSES: You may send comments,
using the procedures found in 14 CFR
11.43 and 11.45, by any of the following
methods:
• Federal eRulemaking Portal: Go to
https://www.regulations.gov. Follow the
instructions for submitting comments.
• Fax: 202–493–2251.
• Mail: U.S. Department of
Transportation, Docket Operations, M–
30, West Building Ground Floor, Room
W12–140, 1200 New Jersey Avenue SE.,
Washington, DC 20590.
• Hand Delivery: Deliver to Mail
address above between 9 a.m. and 5
p.m., Monday through Friday, except
Federal holidays.
For service information identified in
this proposed AD, contact Boeing
Commercial Airplanes, Attention: Data
& Services Management, P.O. Box 3707,
MC 2H–65, Seattle, WA 98124–2207;
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SUMMARY:
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telephone 206–544–5000, extension 1;
fax 206–766–5680; Internet https://
www.myboeingfleet.com. You may view
this referenced service information at
the FAA, Transport Airplane
Directorate, 1601 Lind Avenue SW.,
Renton, WA. For information on the
availability of this material at the FAA,
call 425–227–1221.
modified as specified in previous
revisions of Boeing Alert Service
Bulletin 737–53A1116. Some airplanes
were found to have multiple cracks in
the corner areas. This condition, if not
corrected, could result in rapid loss of
cabin pressure.
Examining the AD Docket
You may examine the AD docket on
the Internet at https://
www.regulations.gov by searching for
and locating Docket No. FAA–2014–
0057; or in person at the Docket
Management Facility between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal holidays. The AD docket
contains this proposed AD, the
regulatory evaluation, any comments
received, and other information. The
street address for the Docket Office
(phone: 800–647–5527) is in the
ADDRESSES section. Comments will be
available in the AD docket shortly after
receipt.
FOR FURTHER INFORMATION CONTACT:
Alan Pohl, Aerospace Engineer,
Airframe Branch, ANM–120S, FAA,
Seattle Aircraft Certification Office,
1601 Lind Avenue SW., Renton, WA
98057–3356; phone: (425) 917–6450;
fax: (425) 917–6590; email: alan.pohl@
faa.gov.
SUPPLEMENTARY INFORMATION:
AD 90–06–02, Amendment 39–6489
(Docket No. 89–NM–67–AD; 55 FR
8372, March 7, 1990); AD 98–11–04 R1,
Amendment 39–10984 (64 FR 987,
January 7, 1999); AD 2008–08–23,
Amendment 39–15477 (73 FR 21237,
April 21, 2008); and AD 2008–09–13,
Amendment 39–15494 (73 FR 24164,
May 2, 2008); are supplemental
structural inspection (SSI) program ADs
that contain inspection requirements
that are near or overlap the inspection
areas that this proposed AD would
require. The inspections mandated by
those exploratory SSI ADs are not
sufficient to address the unsafe
condition identified in this proposed
AD.
Comments Invited
We invite you to send any written
relevant data, views, or arguments about
this proposal. Send your comments to
an address listed under the ADDRESSES
section. Include ‘‘Docket No. FAA–
2014–0057; Directorate Identifier 2013–
NM–210–AD’’ at the beginning of your
comments. We specifically invite
comments on the overall regulatory,
economic, environmental, and energy
aspects of this proposed AD. We will
consider all comments received by the
closing date and may amend this
proposed AD because of those
comments.
We will post all comments we
receive, without change, to https://
www.regulations.gov, including any
personal information you provide. We
will also post a report summarizing each
substantive verbal contact we receive
about this proposed AD.
Discussion
We received reports from multiple
operators that have found fatigue
cracking of the skin and bear strap in
the corners of the forward galley service
doorway. Some of the reported cracks
were found outside of areas of directed
or recommended inspections, or in areas
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Related Rulemaking
Relevant Service Information
We reviewed Boeing Alert Service
Bulletin 737–53A1116, Revision 4,
dated September 30, 2013. For
information on the procedures and
compliance times, see this service
information at https://
www.regulations.gov by searching for
Docket No. FAA–2014–0057.
FAA’s Determination
We are proposing this AD because we
evaluated all the relevant information
and determined the unsafe condition
described previously is likely to exist or
develop in other products of the same
type design.
Proposed AD Requirements
This proposed AD would require
repetitive inspections for certain The
Boeing Company Model 737–100, –200,
–200C, –300, –400, and –500 series
airplanes for any cracking of the skin
and bear strap doublers in the corners
of the forward galley service doorway,
and corrective action if necessary. This
proposed AD would also provide
optional terminating actions for certain
repetitive inspections.
The phrase ‘‘corrective actions’’ is
used in this proposed AD. ‘‘Corrective
actions’’ are actions that correct or
address any condition found. Corrective
actions in an AD could include, for
example, repairs.
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]]>Agencies
[Federal Register Volume 79, Number 37 (Tuesday, February 25, 2014)]
[Proposed Rules]
[Pages 10426-10429]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-04057]
=======================================================================
-----------------------------------------------------------------------
FARM CREDIT ADMINISTRATION
12 CFR Part 651
RIN 3052-AC89
Federal Agricultural Mortgage Corporation Governance; Farmer Mac
Corporate Governance and Standards of Conduct
AGENCY: Farm Credit Administration.
ACTION: Advance notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Farm Credit Administration (FCA, we, or our) is
considering issuing new regulations, or clarifying and enhancing
existing regulations, related to the Federal Agricultural Mortgage
Corporation (Farmer Mac) board governance and standards of conduct,
including director election procedures, conflicts of interest and risk
governance. We are requesting comments on ways to address these issues.
In keeping with today's financial and economic environment, we believe
it prudent and timely to undertake a review of our regulatory guidance
on the identified areas. We intend to use the information and
suggestions we receive in response to this Advance Notice of Proposed
Rulemaking (ANPRM) for the development of guidance on Farmer Mac board
governance and standards of conduct.
DATES: You may send comments on or before April 28, 2014.
ADDRESSES: We offer a variety of methods for you to submit your
comments. For accuracy and efficiency reasons, commenters are
encouraged to submit comments by email or through the FCA's Web site.
As facsimiles (fax) are difficult for us to process and achieve
compliance with section 508 of the Rehabilitation Act, we are no longer
accepting comments submitted by fax. Regardless of the method you use,
please do not submit your comments multiple times via different
methods. You may submit comments by any of the following methods:
Email: Send us an email at reg-comm@fca.gov.
FCA Web site: https://www.fca.gov. Select ``Public
Commenters,'' then ``Public Comments,'' and follow the directions for
``Submitting a Comment.''
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Laurie A. Rea, Director, Office of Secondary Market
Oversight, Farm Credit Administration, 1501 Farm Credit Drive, McLean,
VA 22102-5090.
You may review copies of all comments we receive at our office in
McLean, Virginia, or on our Web site at https://www.fca.gov. Once you
are in the Web site, select ``Public Commenters,'' then ``Public
Comments,'' and follow the directions for ``Reading Submitted Public
Comments.'' We will show your comments as submitted, including any
supporting data provided, but for technical reasons we may omit items
such as logos and special characters. Identifying information that you
provide, such as phone numbers and addresses, will be publicly
available. However, we will attempt to remove email addresses to help
reduce Internet spam.
FOR FURTHER INFORMATION CONTACT: Joe Connor, Associate Director for
Policy and Analysis, Office of Secondary Market Oversight, Farm Credit
Administration, McLean, VA 22102-5090, (703) 883-4364, TTY (703) 883-
4056, or Laura McFarland, Senior Counsel, Office of General Counsel,
Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY
(703) 883-4056.
SUPPLEMENTARY INFORMATION:
I. Objective
The purpose of this ANPRM is to gather public input on how FCA
might:
Enhance risk governance at Farmer Mac to further its long-
term safety and soundness and mission achievement;
Clarify the roles of the board and voting stockholders in
the Farmer Mac director nomination and election process;
[[Page 10427]]
Enhance the usefulness, transparency, and consistency of
conflicts of interest reporting;
Clarify conflicts of interest prohibitions; and
Avoid repetitious disclosure and reporting requirements
given the dual reporting responsibilities of Farmer Mac to the FCA and
the Securities and Exchange Commission (SEC), while maintaining
effective and efficient FCA oversight of Farmer Mac.
II. Background
A. Structure and Operation of Farmer Mac
Farmer Mac is a stockholder-owned, federally chartered
instrumentality that is an institution of the Farm Credit System and a
Government-sponsored enterprise (GSE). Farmer Mac was established and
chartered by the Agricultural Credit Act of 1987 (1987 Act), which was
enacted on January 6, 1988, to create a secondary market for
agricultural real estate mortgage loans, rural housing mortgage loans,
and rural utilities loans.\1\ Farmer Mac also facilitates the capital
markets funding for USDA-guaranteed farm program and rural development
loans. Title VIII of the Farm Credit Act of 1971, as amended, (Act)
governs Farmer Mac.
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\1\ See Agricultural Credit Act of 1987 (Pub. L. 100-233).
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As a GSE, Farmer Mac has a public policy purpose embedded in its
corporate mission. One aspect of this public policy mission includes
financial services to customer-stakeholders (institutions that lend to
farmers, ranchers, rural homeowners, and rural utility cooperatives)
and the resulting flow-through benefits to rural borrowers. Another key
aspect is the protection of taxpayer-stakeholders because the risk that
Farmer Mac accepts in the course of business exposes both investors
(debt and equity purchasers) as well as taxpayers to potential loss.
The taxpayer's exposure arises in part from Farmer Mac's authority to
issue debt to the Department of the Treasury to cover guarantee losses
under certain adverse circumstances.\2\ Thus, an appropriately
comprehensive approach to Board-level risk governance would acknowledge
and consider all stakeholder groups.
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\2\ According to the 1987 Act, Farmer Mac, in certain
circumstances, may borrow up to $1.5 billion from the U.S. Treasury
to guarantee timely payment of any guarantee obligations of the
corporation. Public Law 100-233.
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Farmer Mac has two classes of voting common stock: Class A and
Class B. Class A voting common stock is owned by banks, insurance
companies, and other financial institutions. Class B voting common
stock is owned by Farm Credit System (System) institutions. In
addition, Farmer Mac has nonvoting common stock (Class C), the
ownership of which is not restricted and is a means for Farmer Mac to
raise capital. Farmer Mac may also issue nonvoting preferred stock.
As a GSE, the structure of Farmer Mac's board of directors was
established by Congress. The Farmer Mac board is, by statute, composed
of 15 directors representing three segments: Class A stockholders,
Class B stockholders, and the general public.\3\ Each segment has five
directors on the board. The Class A and B segments each elect their
representatives (elected directors)--that is, only Class A stockholders
elect Class A directors, and only Class B stockholders elect Class B
directors. The directors representing the general public are appointed
by the President of the United States (appointed directors). The Act
limits the terms of elected directors to 1 year, while appointed
directors serve for an unlimited duration ``at the pleasure of the
President'' of the United States of America.\4\
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\3\ Section 8.2(b) of the Act (12 U.S.C. 2279aa-2(b)).
\4\ Section 8.2(b)(6) of the Act (12 U.S.C. 2279aa-2(b)(6)).
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Although the Farmer Mac board is representative in nature, Congress
chose a corporate structure to govern the operations of Farmer Mac.
Common law corporate principles affirm the fiduciary duty of directors
to act in the best interests of Farmer Mac and all of its stockholders.
However, this fiduciary duty to stockholders must be understood in the
context of the duty of the directors to further the statutory purpose
and public mission of Farmer Mac.\5\
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\5\ Farmer Mac was created to provide a secondary market in
agricultural real estate and rural home loans originated by System
institutions and other lenders. Its statutory purpose is to:
increase the availability of long-term credit to farmers and
ranchers at stable interest rates; provide greater liquidity and
lending capacity for lenders extending credit to farmers and
ranchers; facilitate capital market investments in providing long-
term agricultural funding, including funds at fixed rates of
interest; and to enhance the ability of individuals in small rural
communities to obtain financing for moderate-priced homes. See
section 701 of the 1987 Act.
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B. FCA Oversight and Rulemaking
Farmer Mac is regulated by FCA through the FCA Office of Secondary
Market Oversight (OSMO). Section 8.11 of the Act specifies that FCA
provides oversight, regulation, examination, and enforcement authority
over Farmer Mac to ensure it operates in a safe and sound manner. In
addition, the Act requires Farmer Mac to register its equities with the
SEC and be subject to SEC disclosure regulations under section 14 of
the Securities and Exchange Act of 1934.\6\ Also, Farmer Mac's Class A
and Class C stocks are publicly traded on the New York Stock Exchange
(NYSE). Thus, Farmer Mac must comply with both FCA and SEC disclosure
and reporting requirements. Notwithstanding the shared regulation of
Farmer Mac's reports and disclosures to stockholders, FCA, acting
through OSMO, is the safety and soundness and mission regulator of
Farmer Mac. As such, FCA has the authority to regulate how Farmer Mac
performs its powers, functions, and duties in furtherance of its public
policy purposes.
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\6\ See section 8.12 of the Act (12 U.S.C. 2279aa-12).
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When issuing regulations for Farmer Mac, the Act requires FCA to
consider:
The purpose of Farmer Mac's mission;
If Farmer Mac's activities and practices are appropriate
for an agricultural secondary market; and
The reduced levels of risks associated with appropriately
structured secondary market transactions.\7\
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\7\ Section 8.11(a)(1) and (2) of the Act (12 U.S.C. 2279aa-11).
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We last issued regulations on Farmer Mac board governance and
standards of conduct on March 1, 1994 (59 FR 9622). In that rulemaking,
we implemented the requirements of section 514 of the Farm Credit Banks
and Associations Safety and Soundness Act of 1992 (1992 Act) \8\ by
requiring Farmer Mac to adopt a conflict-of-interest policy that
defines the types of relationships, transactions, or activities that
might reasonably be expected to give rise to potential conflicts of
interest.
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\8\ Public Law 102-552, 106 Stat. 4131.
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III. Areas of Consideration
Corporate governance can be defined as the set of processes,
customs, policies, laws and institutions affecting the way a company is
directed, administered or controlled. Corporate governance is about
building credibility, ensuring transparency and accountability as well
as maintaining an effective channel of information disclosure that
fosters good corporate performance. The essence of corporate governance
is to ensure good performance by the entity, provide proper
accountability to all stakeholders, and mitigate conflicts of interest.
As part of this, it is essential that corporations practice strong risk
management.
Risk management is the identification, assessment and
prioritization of risks in
[[Page 10428]]
an effort to minimize the impact of unfortunate events while maximizing
opportunities. In financial institutions, risk can be categorized into
three categories: credit risk, market risk, and operational risk.
Usually, it is the board of directors who approve the overall risk-
appetite of the company and monitor internal controls by ensuring
necessary actions are taken. A strong board uses both risk management
and corporate governance to steer the corporation towards policies
supporting long-term sustainable growth in shareholder value, but not
in a manner that promotes excessive risk-taking, particularly for
short-term increases in stock price performance.\9\
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\9\ See ``Incorporating Risk Management into Corporate
Governance,'' Enterprise Risk Management Initiative Staff (Sept. 23,
2010).
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Congress charged us to issue regulations to ensure mission
compliance and the safety and soundness of Farmer Mac. With the recent
events in the financial industry, increased sophistication in financial
markets, and on-going scrutiny of public and agency financial
activities and related reporting practices, we believe it is prudent to
review our current regulatory standards related to Farmer Mac's board
governance and standards of conduct reporting and disclosures,
contained in part 651 of our rules, to ensure the continuing mission
compliance and safety and soundness of Farmer Mac. We also believe
using an ANPRM to solicit opinions and suggestions from investors,
stockholders, and other interested parties will facilitate the planned
rulemaking in this area.\10\
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\10\ See www.reginfo.gov, FCA Spring 2013 Unified Agenda,
``Farmer Mac--Corporate Governance and Standards of Conduct'', dated
April 24, 2013.
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We have identified the following areas to address in this ANPRM:
Conflicts of interest for directors, officers and
employees;
Director nominations and elections;
Director representational and fiduciary duties;
Board responsibilities in setting appropriate risk
tolerance levels and overseeing risk management; and
General board governance.
We encourage comments and suggestions on how to enhance regulations
in the above-identified areas, emphasizing how those programs affect
the safety and soundness of Farmer Mac, as well as comments on how to
further facilitate transparent and comprehensive disclosure of Farmer
Mac's standards of conduct policies and practices.
In particular, we are interested in what ways Farmer Mac's risk
governance oversight at the board committee level can be enhanced. We
are also seeking suggestions on how we might amend our regulations to
address the director nomination and election process to ensure
compliance with the plain meaning of the Act as well as whether we
should address director removal and prohibited conduct in the planned
rulemaking. Suggestions on how we might amend our regulations to
address the interaction of representational duties, conflicts of
interest, and corporate director fiduciary duties to ensure compliance
with the Act are also sought.
IV. Request for Comments
We request and encourage any interested person(s) to submit
comments on the following questions and ask that you support any
comments you submit with relevant data and/or examples. We remind
commenters that comments, and data submitted in support of a comment,
are available to the public through our rulemaking files. We also
invite comments and suggestions on any of the identified areas under
consideration, regardless of whether specific questions have been
asked.
Conflicts of Interests for Directors, Officers and Employees:
(1) What, if any, recusal process should FCA require when there is
an actual or potential conflict of interest?
(2) Should FCA regulations authorize bylaw provisions for the
automatic removal of an elected director found to have violated
conflicts of interest prohibitions? If so, what types of prohibited
actions related to conflicts of interest should warrant removal?
(3) Should bylaw provisions addressing disciplinary actions for
prohibited actions related to conflicts of interest be regulated, such
as reduced pay, loss of committee memberships, etc.? If so, please
explain why and to what extent.
Director Nominations and Elections:
(4) How should the Farmer Mac nominating committee be structured
and what duties should it have?
(5) To what extent, if any, should appointed directors be involved
in the elected director nomination process? Please provide the
reason(s) supporting your response.
(6) What, if any, additional process besides the nominating
committee should there be for shareholders to add director-candidates
to the ballot (e.g. floor nominations, petition)?
(7) What other director nomination guidelines should be considered
to preserve the representational election of Class A and B directors on
the Farmer Mac board?
Director Representational and Fiduciary Duties:
(8) Should the FCA amend its regulations to identify certain
fiduciary responsibilities associated with serving as a director of a
GSE? If so, how?
(9) How might FCA clarify existing Farmer Mac board
responsibilities and authorities to improve the board's ability to
carry out its fiduciary and oversight responsibilities?
(10) How might FCA facilitate maintaining a transparent
representational relationship between elected directors and Class A and
B stockholders while ensuring the protection of Farmer Mac's
proprietary business information?
Board Responsibilities in Risk Governance:
(11) To what extend should Farmer Mac's risk tolerance consider its
public policy purpose? How might that be measured?
(12) How might the FCA ensure that the Farmer Mac board establishes
an effective risk governance framework, including risk measurements
(e.g. data collection), risk controls and reporting, and clearly
articulated statements of risk tolerance?
(13) If FCA requires the Farmer Mac board to have a risk committee,
what guidelines should FCA provide regarding the formation and duties
of the committee? What qualifications should risk committee members
possess? What resources should be available to the committee? Should
the committee have direct access to all members of the Farmer Mac
management team?
General Farmer Mac Board Governance:
(14) To what extent should FCA issue regulations to address
difficulties Farmer Mac may have as a GSE in complying with modern
governance standards because of statutory and regulatory requirements
regarding the structure, selection, and composition of its board?
(15) How should FCA regulations require Farmer Mac to foster
diversity in the selection of directors, officers and employees?
(16) What other Farmer Mac board governance and standards of
conduct issues should FCA consider addressing through regulation?
With the benefit of information gained through this ANPRM and our
internal analysis, we will consider changes to the regulations to
enhance their fundamental objective--to ensure the safety and soundness
of Farmer Mac's operations and the furtherance of Farmer Mac's mission.
[[Page 10429]]
Date: February 19, 2014.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2014-04057 Filed 2-24-14; 8:45 am]
BILLING CODE 6705-01-P
