Organization; Institution Stockholder Voting Procedures, 30333-30336 [2015-12823]

Agencies

• Farm Credit Administration

[Federal Register Volume 80, Number 102 (Thursday, May 28, 2015)]
[Rules and Regulations]
[Pages 30333-30336]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-12823]


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FARM CREDIT ADMINISTRATION

12 CFR Part 611

RIN 3052-AC85


Organization; Institution Stockholder Voting Procedures

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA, we, Agency or our) amends 
FCA's regulations to clarify and enhance Farm Credit System (Farm 
Credit or System) bank and association stockholder voting procedures 
for tabulating votes, the use of tellers committees, and other items as 
identified.

DATES: Effective Date: The regulation will be effective 30 days after 
publication in the Federal Register during which either one or both 
Houses of Congress are in session. We will publish a notice of the 
effective date in the Federal Register.
    Compliance Date: All provisions of this regulation require 
compliance on or before January 1, 2016.

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 Counsel, 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 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 final rule clarifies that:
     A System bank or association may use a tellers committee 
to tabulate ballots and still maintain confidentiality and security of 
the voting process; and
     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),\1\ authorizes the 
FCA to issue regulations implementing the Act's provisions.\2\ Our 
regulations are intended to ensure the safe and sound operation of 
System institutions. In order to fulfill our responsibility to maintain 
the safety and soundness of System institutions and safeguard 
stockholders' right to a secret ballot, the FCA's regulations provide 
that banks and associations must ensure the confidentiality and 
security of stockholder voting, while maintaining cooperative 
principles.\3\
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    \1\ Public Law 92-181, 85 Stat. 583 (1971), 12 U.S.C. 2001 et 
seq.
    \2\ Section 5.17(a)(9) of the Act authorizes the FCA to 
prescribe rules and regulations necessary or appropriate for 
carrying out the Act.
    \3\ 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

[[Page 30334]]

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. Comments and Our Responses

    The comment period for the proposed rule closed on December 15, 
2014. We received three comment letters on our proposed rule: One 
letter from the Farm Credit Council (Council) on behalf of its members; 
one letter from a Farm Credit bank; and one letter from a Farm Credit 
association. One commenter supported the proposed rule and two 
commenters supported the proposed rule with suggested changes and/or 
clarifications. After careful consideration of the comments, the 
proposed rule is finalized as proposed with the exception of a 
clarification in Sec.  611.340(a)(4), discussed below in Section B.

A. Persons Allowed To Perform Certain Roles

    The Farm Credit bank commented that because we had clearly 
prohibited employees, directors, director-nominees and nominating 
committee members from serving as members of the tellers committee, we 
should clarify that these same categories of people are prohibited from 
serving as members of an independent third party vote tabulator. While 
we agree that such categories of persons would not be allowed to 
participate as an independent third party vote tabulator, we do not 
believe that such language needs to be included in the regulation, as 
it is inherent in the generally understood concept of an 
``independent'' third party. We believe it is clear that under no 
circumstance could an employee, director, director-nominee or member of 
the nominating committee of an institution ever fall within a 
reasonable interpretation of ``independent.'' As an example, one 
dictionary definition defines ``independent,'' in part, as: ``(1) Not 
subject to control by others: Self-governing; (2) not affiliated with a 
larger controlling unit. . . .'' \4\ This definition is used as an 
illustrative example only, but confirms that categories of individuals 
such as those highlighted by the Farm Credit bank would not, under any 
reasonable interpretation, fall within the commonly understood meaning 
of ``independent.'' So, while we do not believe it is necessary to 
specifically include this in the regulation text, we invite any System 
bank or association with questions regarding whether an independent 
third party vote tabulator is truly independent to contact the Agency 
to discuss any specific instance on which the institution seeks 
guidance.
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    \4\ https://www.merriam-webster.com/dictionary/independent.
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    The Farm Credit bank also commented that it was unclear whether the 
administrative employees who may assist the tellers committee are 
allowed to be stockholders as well. We agree that an employee who 
happens to also be a stockholder could effectively perform the 
administrative duties of voter eligibility verification so long as 
there is no particular conflict of interest in that employee's ability 
to serve in that role.
    In the proposed rule preamble, we clarified certain limitations on 
these employees such as that they could not be part of management or 
principally involved in the loan-making, pricing or servicing functions 
of the institution. We did not state that the administrative employees 
could not be stockholders and, since the tellers committee is made up 
entirely of stockholders, it would seem counter-intuitive that there 
would be such a prohibition on the administrative support staff of the 
tellers committee. We agree with the commenter that there is no reason 
to prohibit employee-stockholders from serving as the administrative 
support for the tellers committee, but have concluded clarifying 
language is not needed in the regulation text since no such prohibition 
exists in the current language.
    The Farm Credit association commenter took issue with the 
limitation imposed on the administrative employees assisting the 
tellers committee in that they cannot be part of the institution's 
management. The association stated that ``[t]his language would 
prohibit the Association's corporate secretary (who in some 
institutions is a member of the Association's leadership team) from 
being involved in and insuring that the duties and responsibilities of 
the tellers committee are accurately performed.'' The association asked 
that we amend the regulation text to specifically carve out an 
exception for the corporate secretary to serve as one of the 
administrative employees allowed to assist the tellers committee with 
voter eligibility verification.
    The function of the corporate secretary contemplated by the 
commenter, such as ``insuring that the duties and responsibilities of 
the tellers committee are accurately performed'' is not the intended 
purpose behind allowing a small number of administrative staff to 
assist the tellers committee with voter eligibility verification. The 
assistance provided by the limited number of administrative employees 
is to perform certain ministerial tasks involved in voter eligibility 
verification, such as checking the name or identity code of a voter on 
an outer envelope of a ballot to confirm that the voter is an eligible 
voting stockholder. However, the institution could include in its 
policies and procedures that the corporate secretary, for example, is 
responsible for training the tellers committee's members and designated 
administrative staff on their appropriate roles. Alternatively, the 
corporate secretary could be responsible for reviewing the 
institution's policies and procedures for compliance with the 
regulation. In order to promote the goal of a confidential voting 
process free of undue influence, we believe that the administrative 
employees assisting the tellers committee with voter eligibility 
verification should not be members of an institution's management or 
leadership team. As such, we did not make the requested change to carve 
out an exception for the corporate secretary to perform this role.

B. List of Eligible Voting Stockholders

    The Farm Credit bank commented that the proposed rule may result in 
the list of eligible voting stockholders as of the voting record date 
to be submitted multiple times to different individuals or groups 
during the election process. The proposed rule stated that a list of 
eligible voting stockholders as of the voting record date must be 
provided to either the tellers committee or the independent third 
party, whichever group will be tabulating the vote, in order for the 
group to determine the validity of the votes cast. In the event that a 
tellers committee tabulates the votes and decides to utilize the 
services of a small number of administrative employees to assist with 
voter eligibility verification, it would be the tellers committee's 
responsibility to provide the list to those administrative employees. 
The proposed regulation did not contemplate that the list would be 
given by the institution directly to the administrative employees. The 
proposed rule simply gave the tellers committee the option to use a 
small number of administrative employees from the institution to assist 
the members in performing their duties.
    The commenter further suggested that we clarify that the voter 
eligibility verification process can be performed in advance of the 
tellers committee's

[[Page 30335]]

tabulation and certification. The proposed regulation text provided 
that if a tellers committee is used, verification of voter eligibility 
must be done separate and apart from the opening and tabulating of the 
actual ballots. However, we agree with the commenter that we should 
clarify that the separate verification can be performed in advance of 
the actual vote tabulation. As such, we have added language to the 
regulation text at Sec.  611.340(a)(4) to clarify that verification of 
voter eligibility may be done in advance of the vote tabulation any 
time after the list of eligible voting stockholders has been provided 
to the tellers committee.

C. Signatures

    The Farm Credit bank suggested that the regulation be modified to 
specifically state that, like identity codes, signatures can be used as 
part of the authentication process, as long as the signatures are 
separate from the ballot to maintain voter confidentiality. It is our 
understanding that this is a common practice amongst institutions. 
However, there is no need for this to be specifically stated in the 
regulation text because the regulation has always required, and 
continues to require, System institutions to adopt policies and 
procedures that ensure ``that all information and materials regarding 
how or whether an individual stockholder has voted remain[s] 
confidential . . .'' and the regulation has also always prohibited the 
use of signed ballots. If institutions wish to adopt policies and 
procedures regarding the use of signatures on outer envelopes (not the 
ballot itself), so that the prohibition on signed ballots is not 
violated, it is certainly within an institution's prerogative to do so. 
However, we believe it is best left to each individual institution to 
create its own policies and procedures that meet all of the 
requirements of this regulation regarding confidentiality and security 
in voting.

D. Confidentiality Certification

    The Farm Credit bank expressed support for the confidentiality 
certification contained in new Sec.  611.340(c). However, the bank 
commented that the certification may prohibit communication with 
stockholders about their own ballot or voting process. The 
certification requirement previously applied only to independent third 
party vote tabulators. We concluded that this requirement should be 
extended to any individual involved in tabulating votes or verification 
of voter eligibility. The certification reinforces the significance of 
the regulation, which requires that all information regarding how or 
whether an individual stockholder has voted remains confidential. The 
importance of the confidentiality provision and accompanying 
certification is to ensure that members of the tellers committee and 
employees assisting the tellers committee do not disclose how or 
whether a stockholder has voted in order to preserve the stockholder's 
secret ballot. If a stockholder initiated contact with a tellers 
committee member, or administrative employee assisting the tellers 
committee, the confidentiality certification would not prohibit that 
individual from responding to the stockholder on a question about that 
stockholder's own ballot. It would, however, prohibit responding to a 
question from the stockholder about any other stockholder's ballot.

E. General Support

    The Council supported the proposed changes to the regulation. 
Specifically, the Council commented that the changes would clarify a 
System institution's option to utilize a tellers committee in the 
tabulation of votes. The Council also commented that appropriate 
safeguards were included in the regulation to allow for administrative 
employees to assist the tellers committee.

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 final 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.

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 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 Public Law 100-233, 101 Stat. 
1568, 1638; sec. 414 of Public Law 100-399, 102 Stat. 989, 1004.

0
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 and may be done in advance of the 
vote tabulation, any time after the list of eligible voting 
stockholders has been provided to the tellers committee.
    (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:

[[Page 30336]]

    (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: May 21, 2015.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2015-12823 Filed 5-27-15; 8:45 am]
 BILLING CODE 6705-01-P