Organization; Institution Stockholder Voting Procedures, 62058-62060 [2014-24643]

Agencies

• Farm Credit Administration

[Federal Register Volume 79, Number 200 (Thursday, October 16, 2014)]
[Proposed Rules]
[Pages 62058-62060]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-24643]


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FARM CREDIT ADMINISTRATION

12 CFR Part 611

RIN 3052-AC85


Organization; Institution Stockholder Voting Procedures

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: The Farm Credit Administration (FCA, we or our) proposes to 
amend its existing rules related to Farm Credit System (Farm Credit or 
System) bank and association stockholder voting policies and procedures 
so as to continue to address confidentiality and security in voting. 
This rulemaking would amend FCA's regulations to clarify and enhance 
voting procedures for tabulating votes, the use of tellers committees, 
and other items as identified.

DATES: Comments on this proposed rule must be submitted on or before 
December 15, 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 (faxes) are difficult for us to process and achieve 
compliance with section 508 of the Rehabilitation Act, we no longer 
accept comments submitted via fax. Regardless of the method you use, 
please do not submit your comment 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: Barry F. Mardock, Deputy Director, Office of 
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, 
McLean, VA 22102-5090.
    You may review copies of 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, 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:
Thomas R. Risdal, Senior Policy Analyst, Office of Regulatory Policy, 
Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA, (703) 
883-4257, TTY (703) 883-4056; or
Nancy Tunis, Senior Attorney, Office of General Counsel, Farm Credit 
Administration, McLean, VA 22102-5090, (703) 883-4061, TTY (703) 883-
4056.

SUPPLEMENTARY INFORMATION:

I. Objectives

    The primary objective of this proposed rule is to clarify Sec.  
611.340 of our regulations regarding confidentiality and security in 
stockholder voting procedures and facilitate their safe and sound 
implementation by System institutions. Specifically, this proposed rule 
would clarify that:
     A System bank or association may use a tellers committee 
\1\ to tabulate ballots and still maintain confidentiality and security 
of the voting process; and
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    \1\ Section 611.340(a)(4) requires that a tellers committee only 
consist of voting stockholders who are not directors, director-
nominees, or members of that election cycle's nominating committee.
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     A small number of administrative employees of a bank or 
association may assist a tellers committee in verifying a stockholder's 
eligibility to vote.

II. Background

    The Farm Credit Act of 1971, as amended (Act) \2\, authorizes the 
FCA to issue regulations implementing the Act's provisions.\3\ Our 
regulations are intended to ensure the safe and sound operations of 
System institutions. In order to fulfill our responsibility to maintain 
the safety and soundness of System institutions, the FCA's regulations 
provide that banks and associations must ensure the confidentiality and 
security of stockholder voting, while maintaining cooperative 
principles.\4\
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    \2\ Public Law 92-181, 85 Stat. 583 (1971), 12 U.S.C. 2001 et 
seq.
    \3\ Section 5.17(a)(9) of the Act authorizes the FCA to 
prescribe rules and regulations necessary or appropriate for 
carrying out {the{time}  Act.
    \4\ Section 4.20 of the Act requires that ``[i]n any election or 
merger vote, or other proceeding subject to a vote of the 
stockholders . . . the institution (1) may not use signed ballots; 
and (2) shall implement measures to safeguard the voting process for 
the protection of the right of stockholders . . . to a secret 
ballot.''
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    Section 611.340 of the FCA's regulations requires that the board of 
directors of each System bank and association adopt policies and 
procedures to ensure the confidentiality and security of all records 
and materials related to a stockholder vote including, but not limited 
to, ballots, proxy ballots, and other related materials. Also, this 
section requires that System bank and association policies and 
procedures ensure that ballots and proxy ballots are provided only to 
stockholders who are eligible to vote as of the record date set for the 
stockholder vote. Banks and associations must ensure the 
confidentiality of all information and materials regarding how or 
whether an individual stockholder has voted, including protecting the 
information from disclosure to anyone except vote tabulators and the 
FCA.

III. Analysis

    We request any interested person to submit comments on this 
proposed rule and ask that you support your comments with relevant data 
or examples. The FCA proposes the following changes to Sec.  611.340:

A. Section 611.340(a)

    In order to facilitate stockholders participation in their bank's 
or association's voting process and potentially reduce the cost of 
tabulating votes, the FCA seeks to clarify the language of Sec.  
611.340(a)(3) and Sec.  611.340(a)(4) regarding the use of a tellers 
committee. Existing

[[Page 62059]]

Sec.  611.340(a)(3) requires that each System bank and association 
ensure that all information and materials regarding how or whether an 
individual stockholder has voted remain confidential, including 
protecting the information from disclosure to the institution's 
directors, stockholders, or employees, or any other person. However, 
the information may be disclosed to an independent third party 
tabulating the vote or the FCA.
    The use of a tellers committee, consisting of voting stockholders 
as provided for in Sec.  611.340(a)(4), could be interpreted to be in 
conflict with the confidentiality provision in Sec.  611.340(a)(3) that 
information and materials regarding how or whether an individual 
stockholder voted be protected from other bank or association 
stockholders. One means of reconciling the language in the related 
provisions would be to require that stockholder votes at System banks 
and associations be tabulated only by an independent third party.
    Based on questions to the FCA regarding this regulation, we 
considered whether System banks and associations should be required to 
use only independent third party tabulators for System elections. That 
approach would accomplish the result of maintaining confidentiality and 
security in voting, but the cost of using an independent third party in 
all situations could be burdensome, particularly to small associations. 
We considered whether using a tellers committee to tabulate votes could 
be a confidential and secure method. A tellers committee could be 
significantly more cost effective and could enhance participation of 
stockholders in the affairs of their institution, which is one of the 
guiding cooperative principles.
    After considering the alternatives, the FCA proposes this rule 
amendment to clarify and affirm the ability of System banks and 
associations to utilize a tellers committee for tabulating votes. 
Accordingly, we propose adding the tellers committee as an additional 
exception in Sec.  611.340(a)(3) to the vote tabulating process. If a 
tellers committee is added, the current requirements of Sec.  
611.340(a)(3) related to bank and association policies and procedures 
on confidentiality of the vote and protecting voting information from 
disclosure would apply equally to each member of the tellers committee 
as it does to an independent third party tabulator. Policies and 
procedures would need to ensure that information shared with a tellers 
committee remains confidential, similar to confidentiality clauses 
contained in an independent third party contract. If a tellers 
committee is used, the FCA proposes that only a small number of 
specifically authorized administrative employees of the bank or 
association be allowed to assist in the verification of stockholder 
eligibility to vote. Such employees could not be part of management or 
principally involved in the loan making, pricing or servicing 
functions. Such employees would also be subject to the policies and 
procedures on confidentiality in the same manner as the independent 
third party and members of the tellers committee.
    The FCA proposes the following revisions to Sec.  611.340(a):
    1. Make existing paragraph (a)(4) paragraph (a)(3) and revise it to 
add ``employees'' in the list of stockholders prohibited from serving 
on a tellers committee. While in some instances, an institution 
employee may also be a stockholder, the FCA does not believe that it 
would be appropriate in any instance for an employee to serve on a 
tellers committee.
    2. Add a new paragraph (a)(4) to:
     Require that a list of eligible voting stockholders as of 
the voting record date be provided to the vote tabulation group, either 
a tellers committee or an independent third party, to ensure the 
validity of votes cast; and
     Allow for a small number of specifically authorized 
administrative employees of the institution to assist the tellers 
committee solely in the verification of eligible ballots cast. In order 
to preserve confidentiality and security in voting when using a tellers 
committee, the FCA would require that verifying eligibility of votes 
cast be conducted separately from tabulating the votes. Therefore, in 
the event of ballots received by mail, if stockholder eligibility is 
verified by the tellers committee members, such verification would be 
required to occur separate and apart from vote tabulation.
    3. Re-designate existing paragraph (a)(3) as paragraph (a)(5) and 
add paragraph (a)(5)(i) to provide that the information could be 
disclosed to a duly appointed tellers committee and add paragraph 
(a)(5)(ii) to provide that the information could be disclosed to a 
small number of administrative staff supporting the tellers committee 
solely for the purpose of validating voter eligibility. Existing 
paragraphs (a)(3)(i) and (ii) would become (a)(5)(iii) and (iv), 
respectively.

B. Section 611.340(b)

    Existing Sec.  611.340(b) discusses balloting procedures, such as 
the use of an identity code ``on the ballot.'' However, in common 
practice, when identity codes are used in the vote validation and 
tabulation process, the codes are not ``on the ballot.'' The identity 
code is usually printed on a sealed envelope containing the ballot, 
thereby identifying that a valid ballot has been cast, but not linking 
a specific ballot with an identifiable identity code. Accordingly, we 
propose to delete the terms ``on the ballot'' and ``how or'' from the 
second sentence of Sec.  611.340(b).
    To maintain consistency with the proposed changes to Sec.  
611.340(a) discussed above regarding the use of tellers committees, we 
propose to delete the phrase ``has voted only if the votes are 
tabulated by an independent third party'' from the second sentence of 
paragraph (b). The requirement for use of an independent third party 
tabulator for ``weighted voting'' would be retained.
    In addition, we propose to move the last sentence of paragraph (b) 
to a new Sec.  611.340(c) and include ``or each member of the tellers 
committee'' after ``[a]n independent third party'' as well as adding 
``and any administrative employees assisting the tellers committee in 
verifying eligibility to vote'' to reflect the addition of a duly 
appointed tellers committee and small number of administrative staff as 
an exception at new Sec.  611.340(a)(5)(i) and (ii).
    The proposed new Sec.  611.340(c) would emphasize that anyone 
involved in the tabulation of votes or verification of voter 
eligibility must acknowledge the importance of maintaining secrecy by 
signing a written certification declaring that the individual will 
protect the confidentiality of the voting process.

C. Sections 611.340(c)-(e)

    Existing Sec. Sec.  611.340(c)-(e) would be redesignated as Sec.  
611.340(d)-(f), respectively, without change to content.

IV. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), the FCA hereby certifies that the proposed rule 
would not have a significant economic impact on a substantial number of 
small entities. Each of the banks in the Farm Credit System, considered 
together with its affiliated associations, has assets and annual income 
in excess of the amounts that would qualify them as small entities. 
Therefore, Farm Credit System institutions are not ``small entities'' 
as defined in the Regulatory Flexibility Act.

[[Page 62060]]

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 
as follows:

PART 611--ORGANIZATION

0
1. The authority citation for part 611 continues to read as follows:

    Authority:  Secs. 1.2, 1.3, 1.4, 1.5, 1.12, 1.13, 2.0, 2.1, 2.2, 
2.10, 2.11, 2.12, 3.0, 3.1, 3.2, 3.3, 3.7, 3.8, 3.9, 3.21, 4.3A, 
4.12, 4.12A, 4.15, 4.20, 4.21, 4.25, 4.26, 4.27, 4.28A, 5.9, 5.17, 
5.25, 7.0-7.13, 8.5(e) of the Farm Credit Act (12 U.S.C. 2002, 2011, 
2012, 2013, 2020, 2021, 2071, 2072, 2073, 2091, 2092, 2093, 2121, 
2122, 2123, 2124, 2128, 2129, 2130, 2142, 2154a, 2183, 2184, 2203, 
2208, 2209, 2211, 2212, 2213, 2214, 2243, 2252, 2261, 2279a-2279f-1, 
2279aa-5(e)); secs. 411 and 412 of Pub. L. 100-233, 101 Stat. 1568, 
1638; sec. 414 of Pub. L. 100-399, 102 Stat. 989, 1004.
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2. Section 611.340 is revised to read as follows:

Sec.  611.340  Confidentiality and security in voting.

    (a) Each Farm Credit bank and association's board of directors must 
adopt policies and procedures that:
    (1) Ensure the security of all records and materials related to a 
stockholder vote including, but not limited to, ballots, proxy ballots, 
and other related materials.
    (2) Ensure that ballots and proxy ballots are provided only to 
stockholders who are eligible to vote as of the record date set for the 
stockholder vote.
    (3) Provide for the establishment of a tellers committee or an 
independent third party who will be responsible for validating ballots 
and proxies and tabulating voting results. A tellers committee may only 
consist of voting stockholders who are not employees, directors, 
director-nominees, or members of that election cycle's nominating 
committee.
    (4) Ensure that a list of eligible voting stockholders (or identity 
codes of eligible voting stockholders) as of the voting record date is 
provided to the tellers committee or independent third party that will 
be tabulating the vote to ensure the validity of the votes cast. A 
small number of specifically authorized administrative employees of the 
institution may assist the tellers committee in such verifications, 
provided the institution implements procedures to ensure the 
confidentiality and security of the information made available to the 
employees. If an institution is using a tellers committee, verification 
of voter eligibility must be done separate and apart from the opening 
and tabulating of the actual ballots.
    (5) Ensure that all information and materials regarding how or 
whether an individual stockholder has voted remain confidential, 
including protecting the information from disclosure to the 
institution's directors, stockholders, or employees, or any other 
person except:
    (i) A duly appointed tellers committee;
    (ii) A small number of specifically authorized administrative 
employees assisting the tellers committee by validating stockholders' 
eligibility to vote;
    (iii) An independent third party tabulating the vote; or
    (iv) The Farm Credit Administration.
    (b) No Farm Credit bank or association may use signed ballots in 
stockholder votes. A bank or association may use balloting procedures, 
such as an identity code, that can be used to identify whether an 
individual stockholder is eligible to vote or has previously submitted 
a vote. In weighted voting, the votes must be tabulated by an 
independent third party.
    (c) An independent third party or each member of the tellers 
committee that tabulates the votes, and any administrative employees 
assisting the tellers committee in verifying stockholder eligibility to 
vote, must sign a certificate declaring that such party, member, or 
employee will not disclose to any person (including the institution, 
its directors, stockholders, or employees) any information about how or 
whether an individual stockholder has voted, except that the 
information must be disclosed to the Farm Credit Administration, if 
requested.
    (d) Once a Farm Credit bank or association receives a ballot, the 
vote of that stockholder is final, except that a stockholder may 
withdraw a proxy ballot before balloting begins at a stockholders' 
meeting. A Farm Credit bank or association may give a stockholder 
voting by proxy an opportunity to give voting discretion to the proxy 
of the stockholder's choice, provided that the proxy is also a 
stockholder eligible to vote.
    (e) Ballots and proxy ballots must be safeguarded before the time 
of distribution or mailing to voting stockholders and after the time of 
receipt by the bank or association until disposal. When stockholder 
meetings are held for the purpose of conducting elections or other 
votes, only proxy ballots may be accepted prior to any or all sessions 
of the stockholders' meeting and mail ballots may only be distributed 
after the conclusion of the meeting. In an election of directors, 
ballots, proxy ballots, and election records must be retained at least 
until the end of the term of office of the director. In other 
stockholder votes, ballots, proxy ballots, and records must be retained 
for at least 3 years after the vote.
    (f) An institution and its officers, directors, and employees may 
not make any public announcement of the results of a stockholder vote 
before the tellers committee or independent third party has validated 
the results of the vote.

    Dated: October 10, 2014.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2014-24643 Filed 10-15-14; 8:45 am]
BILLING CODE 6705-01-P