Organization; Definitions; Eligibility Criteria for Outside Directors, 42807-42810 [2018-18312]
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Federal Register / Vol. 83, No. 165 / Friday, August 24, 2018 / Proposed Rules
that the average grower price for the
2018–19 season should be
approximately $9.50 per 7/10-bushel
carton or equivalent of oranges and
grapefruit. Therefore, the estimated
assessment revenue for the 2018–19
crop year as a percentage of total grower
revenue would be about 0.1 percent.
This proposed rule would decrease
the assessment obligation imposed on
handlers. Assessments are applied
uniformly on all handlers, and some of
the costs may be passed on to
producers. However, decreasing the
assessment rate reduces the burden on
handlers and may also reduce the
burden on producers.
The Committee’s meeting was widely
publicized throughout the Texas citrus
industry. All interested persons were
invited to attend the meeting and
participate in Committee deliberations
on all issues. Like all Committee
meetings, the May 23, 2018, meeting
was a public meeting, and all entities,
both large and small, were able to
express views on this issue. Finally,
interested persons are invited to submit
comments on this proposed rule,
including the regulatory and
information collection 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 OMB and
assigned OMB No. 0581–0189, Fruit
Crops. No changes in those
requirements would be necessary as a
result of this proposed rule. Should any
changes become necessary, they would
be submitted to OMB for approval.
This proposed rule would not impose
any additional reporting or
recordkeeping requirements on either
small or large Texas orange and
grapefruit 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 proposed rule.
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/
rules-regulations/moa/small-businesses.
Any questions about the compliance
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guide should be sent to Richard Lower
at the previously mentioned address in
the FOR FURTHER INFORMATION CONTACT
section.
List of Subjects in 7 CFR Part 906
Grapefruit, Marketing agreements,
Oranges, Reporting and recordkeeping
requirements.
For the reasons set forth in the
preamble, 7 CFR part 906 is proposed to
be amended as follows:
PART 906—ORANGES AND
GRAPEFRUIT GROWN IN LOWER RIO
GRANDE VALLEY IN TEXAS
1. The authority citation for 7 CFR
part 906 continues to read as follows:
■
Authority: 7 U.S.C. 601–674.
2. Section 906.235 is revised to read
as follows:
■
§ 906.235
Assessment rate.
On and after August 1, 2018, an
assessment rate of $0.01 per 7/10-bushel
carton or equivalent is established for
oranges and grapefruit grown in the
Lower Rio Grande Valley in Texas.
Dated: August 21, 2018.
Bruce Summers,
Administrator, Agricultural Marketing
Service.
[FR Doc. 2018–18363 Filed 8–23–18; 8:45 am]
BILLING CODE 3410–02–P
FARM CREDIT ADMINISTRATION
12 CFR Parts 611 and 619
RIN 3052–AC97
Farm Credit Administration.
Proposed rule.
AGENCY:
The Farm Credit
Administration (FCA, we, or our) is
proposing to amend its regulations
affecting the governance of Farm Credit
System (System) institutions. The
proposed rule would modify the
existing outside director eligibility
criteria by expanding the list of persons
who would be excluded from
nomination for an outside director’s seat
to ensure the independence of outside
directors.
SUMMARY:
You may send comments on or
before October 23, 2018.
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
DATES:
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the FCA’s website. As facsimiles (fax)
are difficult for us to process and
achieve compliance with section 508 of
the Rehabilitation Act of 1973, as
amended, we do not accept comments
submitted by 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 regcomm@fca.gov.
• FCA website: 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 all comments
we receive at our office in McLean,
Virginia, or from our website at https://
www.fca.gov. Once you are in the
website, 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 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:
Organization; Definitions; Eligibility
Criteria for Outside Directors
ACTION:
42807
Sfmt 4702
Darius Hale, Senior Policy Analyst,
Office of Regulatory Policy, (703) 883–
4165, TTY (703) 883–4056, Haled@
fca.gov, or
Nancy Tunis, Senior Counsel, Office
of General Counsel, (703) 883–4061,
TTY (703) 883–4056, Tunisn@fca.gov.
SUPPLEMENTARY INFORMATION:
I. Objectives
The objectives of this proposed rule
are to:
• Amend the eligibility criteria for
outside director in § 611.220(a);
• Remove the definition of outside
director in § 619.9235;
• Strengthen the safety and
soundness of System institutions;
• Strengthen the independence of
System institution boards; and
• Incorporate many of the best
corporate governance practices for
System institutions.
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Federal Register / Vol. 83, No. 165 / Friday, August 24, 2018 / Proposed Rules
II. Background
The Farm Credit Act of 1971, as
amended (Act),1 establishes that System
banks and associations must elect a
board of directors with such
qualifications as may be required by the
institution’s bylaws. Additionally, the
Act specifies that at least one member
must be appointed by the stockholderelected directors and that such member
must not be a director, officer,
employee, agent, or stockholder of a
System institution.2
Outside directors are appointed by
stockholder-elected directors to provide
independent perspective and expertise
in appropriate areas. Outside directors
achieve this by broadening the board’s
collective knowledge, enhancing the
board’s independence, and improving
the board’s ability to carry out its
fiduciary duties to the System
institution, stockholders and investors.
Current FCA regulations, however, do
not specify how far removed from the
statutory prohibited relationships the
outside director candidate must be to
adequately fulfill the intended
independent role of an outside director.
This proposed rule seeks to clarify the
eligibility requirements of an outside
director to achieve the independence
intended by the statutory requirements.
sradovich on DSK3GMQ082PROD with PROPOSALS
III. Section-by-Section Analysis of
Proposed Regulatory Changes
A. Definitions [New § 611.220(a)]
As a result of the proposed changes in
eligibility criteria for outside directors
in § 611.220, discussed below, we are
proposing to add a new definition
section in § 611.220 that would only
apply to that section. The newly defined
terms are meant to provide clarity on
the meaning of the new outside director
eligibility criteria.
The proposed rule would add
affiliated organizations to the
definitions in § 611.220. The new term
affiliated organization is defined to
mean an entity that is legally distinct
from any System institution, but is
organized and operated for the benefit
of, and in support of, an institution and
conducts activities that advance the
mission of an institution.
The proposed rule would add
borrowers to the list of persons excluded
from consideration for an outside
director position under § 611.220.
Accordingly, the new term borrower is
added to the definitions in § 611.220
and is defined to mean an individual,
sole proprietorship, partnership, joint
1 Pub.
L. 92–181, 85 Stat. 583.
1.4, 2.1, 2.11, 3.2, 3.21(b)(1)(C) and
7.12(c)(3)(A) of the Act.
2 Sections
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venture, trust, corporation, or other
business entity to which an institution
has made a loan or a commitment to
make a loan or purchased a loan or
participation interest in a loan. The new
term borrower would also include any
person or entity to whom an institution
has made a lease or a commitment to
make a lease, or who guarantees
repayment of a loan.
The proposed rule would add
controlling interest to the definitions in
§ 611.220. The new term controlling
interest is defined to mean an individual
that, directly or indirectly, or acting
through or in concert with one or more
persons:
(1) Owns 5 percent or more of the
equity in an entity;
(2) Owns, controls, or has the power
to vote 5 percent or more of any class
of voting securities of an entity; or
(3) Has the power to exercise a
controlling influence over the
management of policies of such entity.
The new term controlling interest is
consistent with the definition of
controlled entity found in § 612.2130(c).
The proposed rule would add the new
term entity to the definitions in
§ 611.220. The new term entity means a
corporation, company, association, firm,
joint venture, partnership (general or
limited), society, joint stock company,
trust (business or otherwise), fund, or
other organization or institution. This is
consistent with the definition of entity
found in § 612.2130(e).
The proposed rule would add the new
term immediate family member to the
definitions in § 611.220. The new term
immediate family member is defined to
mean spouse, parent(s), sibling(s),
children, mother(s)- and father(s)-inlaw, brother(s)- and sister(s)-in-law, and
son(s)- and daughter(s)-in-law. This is
consistent with the definition of
immediate family member found in
§ 620.1(e).
As a result of the proposed changes in
eligibility criteria for an outside director
in § 611.220, we are proposing to delete
the definition of outside director in
§ 619.9235. The current definition in
§ 619.9235 is not consistent with the
changes proposed in § 611.220, and it is
unnecessary to duplicate the same
language as is proposed in that section.
Deleting § 619.9235 will provide clarity
in who may serve as an outside director
and will avoid redundancy.
B. Eligibility Criteria of Outside
Directors [New § 611.220(b)]
We propose modifying the existing
outside director eligibility criteria in
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§ 611.220(a) 3 by expanding the list of
persons who would be excluded from
nomination for an outside director’s
seat. The proposed rule would add the
following to the list of persons excluded
from consideration for an outside
director position:
(1) Borrowers of the institution;
(2) Immediate family members of any
director, officer, employee, agent,
stockholder or borrower of a System
institution; and
(3) Anyone who has a controlling
interest in:
(i) An entity that borrows from a
System institution; or
(ii) An affiliated organization of a
System institution.
The purpose of expanding those
individuals ineligible to serve in the
outside director’s role is to further
strengthen the independence
perspective on each System institution’s
board. Congress’ intent on establishing
the outside director role was to ensure
an independent voice was brought to
the boards of System institutions. As
such, outside directors are only
permitted to serve on the board of
directors of one System institution or
affiliated organization at a time.4
To maintain that independent voice,
current FCA regulations specify that a
candidate for outside director should
not be a stockholder of a System
institution. However, the regulations do
not specifically exclude a borrower from
serving as an outside director.
Borrowers may not necessarily be
stockholders in a System institution. We
believe that to be truly independent of
a System institution when being vetted
for an outside director’s seat, all
borrowers should be specifically
excluded from consideration. This
addition would capture those
individuals who have signed a
promissory note in a joint capacity (i.e.,
co-applicant, guarantor), but do not own
System stock.
To further ensure independence from
System institutions, we propose
excluding individuals from serving as
an outside director if they have an
immediate family member who is a
director, officer, employee, agent,
stockholder, or a borrower of a System
institution. This would provide
additional clarity to our existing rule as
3 Due to the addition of a new Definitions
paragraph in § 611.220, we will re-designate the
current § 611.220(a) as § 611.220(b) for Eligibility,
Number, and Term.
4 An agricultural credit association and its wholly
owned subsidiary associations are treated as a
single entity for examination and regulatory
purposes. Therefore, there is no conflict with a
director sitting on the board of an ACA and its
wholly owned subsidiary associations.
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to which individuals would be
ineligible to serve as an outside director.
We also propose that a person who
has a controlling interest in an entity
that borrows from a System institution
or an affiliated organization of a System
institution should not be eligible to
serve as an outside director. Those
persons who have a controlling stake in,
or influence the decisions of, an entity
should not be considered to serve as an
outside director if that entity is a
borrower of a System institution. A
person who maintains a controlling
interest in an entity who borrows from
the System or in an affiliated
organization does not have the
independence meant to fill the outside
director’s role. The proposed rule would
not limit employees of entity borrowers
or affiliated organizations from
consideration as an outside director.
Instead, it aims to clarify that those
persons who control or advance the
financial or policy decisions of an
entity, borrower, or affiliated
organization must not be considered as
an outside director because their
controlling stake or position in the
entity or affiliated organization could
lessen their independence.
We believe that expanding the list of
those excluded from outside director
consideration will further improve the
board’s ability to carry out its fiduciary
responsibilities to the System institution
and its stockholders and investors. We
do not believe that including additional
eligibility criteria would adversely affect
the board’s ability to select a qualified
candidate for an outside director seat.
IV. Compliance Date
System institutions would be required
to comply with the changes in the
eligibility criteria of outside directors at
the next appointment of an outside
director candidate after the effective
date of the final rule. We invite your
specific comments on the compliance
timeframe if this rule becomes a final
rule. If a later compliance date is
suggested, please provide a specific
burden that would be alleviated with
any later compliance date.
sradovich on DSK3GMQ082PROD with PROPOSALS
V. Regulatory Flexibility Act
Pursuant to section 605(b) of the
Regulatory Flexibility Act (5 U.S.C. 601
et seq.), FCA hereby certifies that the
proposed rule will not have a significant
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, System institutions
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are not ‘‘small entities’’ as defined in the
Regulatory Flexibility Act.
List of Subjects
12 CFR Part 611
Agriculture, Banks, banking, Conflict
of interests, Crime, Investigations, Rural
areas.
12 CFR Part 619
Agriculture, Banks, banking, Rural
areas.
For the reasons stated in the
preamble, parts 611 and 619 of chapter
VI, title 12 of the Code of Federal
Regulations are proposed to be amended
as follows:
PART 611—ORGANIZATION
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.
2. Section 611.220 is revised to read
as follows:
■
§ 611.220
Outside directors.
(a) Definitions. For purposes of this
section, the following definitions apply:
(1) Affiliated organization means an
entity that is legally distinct from any
Farm Credit System institution, but is
organized and operated for the benefit
of, and in support of, an institution and
conducts activities that advance the
mission of an institution.
(2) Borrower means an individual,
sole proprietorship, partnership, joint
venture, trust, corporation, or other
business entity to which an institution
has made a loan or a commitment to
make a loan or purchased a loan or
participation interest in a loan. The term
borrower also includes any person or
entity to whom an institution has made
a lease or a commitment to make a lease,
or who guarantees repayment of a loan.
(3) Controlling interest means an
individual that, directly or indirectly, or
acting through or in concert with one or
more persons:
(i) Owns 5 percent or more of the
equity in an entity;
(ii) Owns, controls, or has the power
to vote 5 percent or more of any class
of voting securities of an entity; or
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42809
(iii) Has the power to exercise a
controlling influence over the
management of policies of such entity.
(4) Entity means a corporation,
company, association, firm, joint
venture, partnership (general or
limited), society, joint stock company,
trust (business or otherwise), fund, or
other organization or institution.
(5) Immediate family member means
spouse, parent(s), sibling(s), children,
mother(s)- and father(s)-in-law,
brother(s)- and sister(s)-in-law, and
son(s)- and daughter(s)-in-law.
(b) Eligibility, number and term—(1)
Eligibility. Eligibility to serve, and
continue serving, as an outside director
requires independence from affiliations
with the Farm Credit System. Farm
Credit banks and associations must
make a reasonable effort to select
outside directors possessing some or all
of the desired director qualifications
identified pursuant to § 611.210(a).
(i) No candidate for an outside
director position may be a director,
officer, employee, agent, stockholder, or
borrower of an institution in the Farm
Credit System or be an immediate
family member of any of the above. An
outside director candidate or an
immediate family member of such
candidate must not have a controlling
interest in:
(A) An entity that borrows from a
System institution; or
(B) An affiliated organization of a
System institution.
(ii) At any given time, an outside
director is eligible to serve on the board
of directors of only one Farm Credit
System institution or affiliated
organization.
(2) Number. Stockholder-elected
directors must constitute at least 60
percent of the members of each
institution’s board.
(i) Each Farm Credit bank must have
at least two outside directors.
(ii) Associations with total assets
exceeding $500 million as of January 1
of each year must have no fewer than
two outside directors on the board.
However, this requirement does not
apply if it causes the percent of
stockholder-elected directors to be less
than 75 percent of the board.
(iii) Associations with $500 million or
less in total assets as of January 1 of
each year must have at least one outside
director.
(3) Terms of office. Banks and
associations may not establish a
different term of office for outside
directors than that established for
stockholder-elected directors.
(c) Removal. Each institution must
establish and maintain procedures for
removal of outside directors. When the
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removal of an outside director is sought
before the expiration of the outside
director’s term, the reason for removal
must be documented. An institution’s
director removal procedures must allow
for removal of an outside director by a
majority vote of all voting stockholders
voting, in person or by proxy, or by a
two-thirds majority vote of the full
board of directors. The outside director
subject to the removal action is
prohibited from voting in his or her own
removal action.
Dated: August 21, 2018.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
We must receive comments on
this proposed AD by October 9, 2018.
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 NPRM, contact Aviation Partners,
Inc., 7299 Perimeter Road South,
Seattle, WA 98108–3812; phone: 206–
762–1171; email: mwilliams@
winglets.com; internet: https://
www.aviationpartners.com. You may
view this service information at the
FAA, Transport Standards Branch, 2200
South 216th St., Des Moines, WA. For
information on the availability of this
material at the FAA, call 206–231–3195.
[FR Doc. 2018–18312 Filed 8–23–18; 8:45 am]
Examining the AD Docket
BILLING CODE 6705–01–P
You may examine the AD docket on
the internet at https://
www.regulations.gov by searching for
and locating Docket No. FAA–2018–
0760; or in person at Docket Operations
between 9 a.m. and 5 p.m., Monday
through Friday, except Federal holidays.
The AD docket contains this NPRM, the
regulatory evaluation, any comments
received, and other information. The
street address for Docket Operations
(phone: 800–647–5527) is in the
ADDRESSES section. Comments will be
available in the AD docket shortly after
receipt.
FOR FURTHER INFORMATION CONTACT:
Michael Bumbaugh, Aerospace
Engineer, Airframe Section, FAA,
Seattle ACO Branch, 2200 South 216th
St., Des Moines, WA 98198; phone and
fax: 206–231–3522; email:
Michael.Bumbaugh@faa.gov.
SUPPLEMENTARY INFORMATION:
PART 619—DEFINITIONS
3. The authority citation for part 619
continues to read as follows:
■
Authority: Secs. 1.4, 1.5, 1.7, 2.1, 2.2, 2.4,
2.11, 2.12, 3.1, 3.2, 3.21, 4.9, 5.9, 5.17, 5.19,
7.0, 7.1, 7.6, 7.8 and 7.12 of the Farm Credit
Act (12 U.S.C. 2012, 2013, 2015, 2072, 2073,
2075, 2092, 2093, 2122, 2123, 2142, 2160,
2243, 2252, 2254, 2279a, 2279a–1, 2279b,
2279c–1, 2279f); sec. 514 of Pub. L. 102–552,
106 Stat. 4102.
§ 619.9235
■
[Removed]
4. Remove § 619.9235.
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2018–0760; Product
Identifier 2018–NM–095–AD]
RIN 2120–AA64
Airworthiness Directives; Dassault
Aviation Airplanes
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice of proposed rulemaking
(NPRM).
AGENCY:
We propose to adopt a new
airworthiness directive (AD) for certain
Dassault Aviation Model MYSTERE–
FALCON 50, MYSTERE–FALCON 900,
and FALCON 900EX airplanes. This
proposed AD was prompted by reports
of cracked reinforcing straps (doublers)
on the ailerons of airplanes equipped
with blended winglets. This proposed
AD would require repetitive detailed
inspections for cracking of the upper
and lower reinforcing straps on the
ailerons, and replacement if necessary.
We are proposing this AD to address the
unsafe condition on these products.
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SUMMARY:
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DATES:
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–
2018–0760; Product Identifier 2018–
NM–095–AD’’ at the beginning of your
comments. We specifically invite
comments on the overall regulatory,
economic, environmental, and energy
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aspects of this NPRM. We will consider
all comments received by the closing
date and may amend this NPRM
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 NPRM.
Discussion
We have received a report indicating
that cracked reinforcing straps
(doublers) were found on the ailerons of
Dassault Aviation airplanes equipped
with blended winglets installed in
accordance with Supplemental Type
Certificate (STC) ST02188SE or STC
ST02241SE. This condition is the result
of hydrogen embrittlement in the
reinforcing strap manufacturing process.
If not addressed, this condition could
lead to fatigue cracking of the ailerons
and subsequent loss of control of the
airplane.
Related Service Information Under 1
CFR Part 51
We reviewed Aviation Partners, Inc.,
Falcon Service Bulletin SBF9–17–001,
Revision B, dated December 20, 2017.
This service information describes
procedures for detailed inspections for
any signs of cracking of the external
upper and lower reinforcing straps on
the left-hand (LH) and right-hand (RH)
ailerons.
We also reviewed Aviation Partners,
Inc., Falcon Service Bulletin SBF9–17–
002, Revision A, dated December 20,
2017. This service information describes
procedures for replacing the external
upper and lower reinforcing straps on
the LH and RH ailerons.
This service information is reasonably
available because the interested parties
have access to it through their normal
course of business or by the means
identified in the ADDRESSES section.
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
accomplishing the actions specified in
the service information described
previously, except as discussed under
‘‘Differences Between this Proposed AD
and the Service Information.’’
E:\FR\FM\24AUP1.SGM
24AUP1
]]>Agencies
[Federal Register Volume 83, Number 165 (Friday, August 24, 2018)]
[Proposed Rules]
[Pages 42807-42810]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-18312]
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FARM CREDIT ADMINISTRATION
12 CFR Parts 611 and 619
RIN 3052-AC97
Organization; Definitions; Eligibility Criteria for Outside
Directors
AGENCY: Farm Credit Administration.
ACTION: Proposed rule.
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SUMMARY: The Farm Credit Administration (FCA, we, or our) is proposing
to amend its regulations affecting the governance of Farm Credit System
(System) institutions. The proposed rule would modify the existing
outside director eligibility criteria by expanding the list of persons
who would be excluded from nomination for an outside director's seat to
ensure the independence of outside directors.
DATES: You may send comments on or before October 23, 2018.
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 website. As
facsimiles (fax) are difficult for us to process and achieve compliance
with section 508 of the Rehabilitation Act of 1973, as amended, we do
not accept comments submitted by 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 [email protected].
FCA website: 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 all comments we receive at our office in
McLean, Virginia, or from our website at https://www.fca.gov. Once you
are in the website, 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 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:
Darius Hale, Senior Policy Analyst, Office of Regulatory Policy,
(703) 883-4165, TTY (703) 883-4056, [email protected], or
Nancy Tunis, Senior Counsel, Office of General Counsel, (703) 883-
4061, TTY (703) 883-4056, [email protected].
SUPPLEMENTARY INFORMATION:
I. Objectives
The objectives of this proposed rule are to:
Amend the eligibility criteria for outside director in
Sec. 611.220(a);
Remove the definition of outside director in Sec.
619.9235;
Strengthen the safety and soundness of System
institutions;
Strengthen the independence of System institution boards;
and
Incorporate many of the best corporate governance
practices for System institutions.
[[Page 42808]]
II. Background
The Farm Credit Act of 1971, as amended (Act),\1\ establishes that
System banks and associations must elect a board of directors with such
qualifications as may be required by the institution's bylaws.
Additionally, the Act specifies that at least one member must be
appointed by the stockholder-elected directors and that such member
must not be a director, officer, employee, agent, or stockholder of a
System institution.\2\
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\1\ Pub. L. 92-181, 85 Stat. 583.
\2\ Sections 1.4, 2.1, 2.11, 3.2, 3.21(b)(1)(C) and
7.12(c)(3)(A) of the Act.
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Outside directors are appointed by stockholder-elected directors to
provide independent perspective and expertise in appropriate areas.
Outside directors achieve this by broadening the board's collective
knowledge, enhancing the board's independence, and improving the
board's ability to carry out its fiduciary duties to the System
institution, stockholders and investors. Current FCA regulations,
however, do not specify how far removed from the statutory prohibited
relationships the outside director candidate must be to adequately
fulfill the intended independent role of an outside director. This
proposed rule seeks to clarify the eligibility requirements of an
outside director to achieve the independence intended by the statutory
requirements.
III. Section-by-Section Analysis of Proposed Regulatory Changes
A. Definitions [New Sec. 611.220(a)]
As a result of the proposed changes in eligibility criteria for
outside directors in Sec. 611.220, discussed below, we are proposing
to add a new definition section in Sec. 611.220 that would only apply
to that section. The newly defined terms are meant to provide clarity
on the meaning of the new outside director eligibility criteria.
The proposed rule would add affiliated organizations to the
definitions in Sec. 611.220. The new term affiliated organization is
defined to mean an entity that is legally distinct from any System
institution, but is organized and operated for the benefit of, and in
support of, an institution and conducts activities that advance the
mission of an institution.
The proposed rule would add borrowers to the list of persons
excluded from consideration for an outside director position under
Sec. 611.220. Accordingly, the new term borrower is added to the
definitions in Sec. 611.220 and is defined to mean an individual, sole
proprietorship, partnership, joint venture, trust, corporation, or
other business entity to which an institution has made a loan or a
commitment to make a loan or purchased a loan or participation interest
in a loan. The new term borrower would also include any person or
entity to whom an institution has made a lease or a commitment to make
a lease, or who guarantees repayment of a loan.
The proposed rule would add controlling interest to the definitions
in Sec. 611.220. The new term controlling interest is defined to mean
an individual that, directly or indirectly, or acting through or in
concert with one or more persons:
(1) Owns 5 percent or more of the equity in an entity;
(2) Owns, controls, or has the power to vote 5 percent or more of
any class of voting securities of an entity; or
(3) Has the power to exercise a controlling influence over the
management of policies of such entity. The new term controlling
interest is consistent with the definition of controlled entity found
in Sec. 612.2130(c). The proposed rule would add the new term entity
to the definitions in Sec. 611.220. The new term entity means a
corporation, company, association, firm, joint venture, partnership
(general or limited), society, joint stock company, trust (business or
otherwise), fund, or other organization or institution. This is
consistent with the definition of entity found in Sec. 612.2130(e).
The proposed rule would add the new term immediate family member to
the definitions in Sec. 611.220. The new term immediate family member
is defined to mean spouse, parent(s), sibling(s), children, mother(s)-
and father(s)-in-law, brother(s)- and sister(s)-in-law, and son(s)- and
daughter(s)-in-law. This is consistent with the definition of immediate
family member found in Sec. 620.1(e).
As a result of the proposed changes in eligibility criteria for an
outside director in Sec. 611.220, we are proposing to delete the
definition of outside director in Sec. 619.9235. The current
definition in Sec. 619.9235 is not consistent with the changes
proposed in Sec. 611.220, and it is unnecessary to duplicate the same
language as is proposed in that section. Deleting Sec. 619.9235 will
provide clarity in who may serve as an outside director and will avoid
redundancy.
B. Eligibility Criteria of Outside Directors [New Sec. 611.220(b)]
We propose modifying the existing outside director eligibility
criteria in Sec. 611.220(a) \3\ by expanding the list of persons who
would be excluded from nomination for an outside director's seat. The
proposed rule would add the following to the list of persons excluded
from consideration for an outside director position:
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\3\ Due to the addition of a new Definitions paragraph in Sec.
611.220, we will re-designate the current Sec. 611.220(a) as Sec.
611.220(b) for Eligibility, Number, and Term.
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(1) Borrowers of the institution;
(2) Immediate family members of any director, officer, employee,
agent, stockholder or borrower of a System institution; and
(3) Anyone who has a controlling interest in:
(i) An entity that borrows from a System institution; or
(ii) An affiliated organization of a System institution.
The purpose of expanding those individuals ineligible to serve in
the outside director's role is to further strengthen the independence
perspective on each System institution's board. Congress' intent on
establishing the outside director role was to ensure an independent
voice was brought to the boards of System institutions. As such,
outside directors are only permitted to serve on the board of directors
of one System institution or affiliated organization at a time.\4\
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\4\ An agricultural credit association and its wholly owned
subsidiary associations are treated as a single entity for
examination and regulatory purposes. Therefore, there is no conflict
with a director sitting on the board of an ACA and its wholly owned
subsidiary associations.
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To maintain that independent voice, current FCA regulations specify
that a candidate for outside director should not be a stockholder of a
System institution. However, the regulations do not specifically
exclude a borrower from serving as an outside director. Borrowers may
not necessarily be stockholders in a System institution. We believe
that to be truly independent of a System institution when being vetted
for an outside director's seat, all borrowers should be specifically
excluded from consideration. This addition would capture those
individuals who have signed a promissory note in a joint capacity
(i.e., co-applicant, guarantor), but do not own System stock.
To further ensure independence from System institutions, we propose
excluding individuals from serving as an outside director if they have
an immediate family member who is a director, officer, employee, agent,
stockholder, or a borrower of a System institution. This would provide
additional clarity to our existing rule as
[[Page 42809]]
to which individuals would be ineligible to serve as an outside
director.
We also propose that a person who has a controlling interest in an
entity that borrows from a System institution or an affiliated
organization of a System institution should not be eligible to serve as
an outside director. Those persons who have a controlling stake in, or
influence the decisions of, an entity should not be considered to serve
as an outside director if that entity is a borrower of a System
institution. A person who maintains a controlling interest in an entity
who borrows from the System or in an affiliated organization does not
have the independence meant to fill the outside director's role. The
proposed rule would not limit employees of entity borrowers or
affiliated organizations from consideration as an outside director.
Instead, it aims to clarify that those persons who control or advance
the financial or policy decisions of an entity, borrower, or affiliated
organization must not be considered as an outside director because
their controlling stake or position in the entity or affiliated
organization could lessen their independence.
We believe that expanding the list of those excluded from outside
director consideration will further improve the board's ability to
carry out its fiduciary responsibilities to the System institution and
its stockholders and investors. We do not believe that including
additional eligibility criteria would adversely affect the board's
ability to select a qualified candidate for an outside director seat.
IV. Compliance Date
System institutions would be required to comply with the changes in
the eligibility criteria of outside directors at the next appointment
of an outside director candidate after the effective date of the final
rule. We invite your specific comments on the compliance timeframe if
this rule becomes a final rule. If a later compliance date is
suggested, please provide a specific burden that would be alleviated
with any later compliance date.
V. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), FCA hereby certifies that the proposed rule will
not have a significant 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, System institutions are not ``small entities'' as defined in
the Regulatory Flexibility Act.
List of Subjects
12 CFR Part 611
Agriculture, Banks, banking, Conflict of interests, Crime,
Investigations, Rural areas.
12 CFR Part 619
Agriculture, Banks, banking, Rural areas.
For the reasons stated in the preamble, parts 611 and 619 of
chapter VI, title 12 of the Code of Federal Regulations are 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.
0
2. Section 611.220 is revised to read as follows:
Sec. 611.220 Outside directors.
(a) Definitions. For purposes of this section, the following
definitions apply:
(1) Affiliated organization means an entity that is legally
distinct from any Farm Credit System institution, but is organized and
operated for the benefit of, and in support of, an institution and
conducts activities that advance the mission of an institution.
(2) Borrower means an individual, sole proprietorship, partnership,
joint venture, trust, corporation, or other business entity to which an
institution has made a loan or a commitment to make a loan or purchased
a loan or participation interest in a loan. The term borrower also
includes any person or entity to whom an institution has made a lease
or a commitment to make a lease, or who guarantees repayment of a loan.
(3) Controlling interest means an individual that, directly or
indirectly, or acting through or in concert with one or more persons:
(i) Owns 5 percent or more of the equity in an entity;
(ii) Owns, controls, or has the power to vote 5 percent or more of
any class of voting securities of an entity; or
(iii) Has the power to exercise a controlling influence over the
management of policies of such entity.
(4) Entity means a corporation, company, association, firm, joint
venture, partnership (general or limited), society, joint stock
company, trust (business or otherwise), fund, or other organization or
institution.
(5) Immediate family member means spouse, parent(s), sibling(s),
children, mother(s)- and father(s)-in-law, brother(s)- and sister(s)-
in-law, and son(s)- and daughter(s)-in-law.
(b) Eligibility, number and term--(1) Eligibility. Eligibility to
serve, and continue serving, as an outside director requires
independence from affiliations with the Farm Credit System. Farm Credit
banks and associations must make a reasonable effort to select outside
directors possessing some or all of the desired director qualifications
identified pursuant to Sec. 611.210(a).
(i) No candidate for an outside director position may be a
director, officer, employee, agent, stockholder, or borrower of an
institution in the Farm Credit System or be an immediate family member
of any of the above. An outside director candidate or an immediate
family member of such candidate must not have a controlling interest
in:
(A) An entity that borrows from a System institution; or
(B) An affiliated organization of a System institution.
(ii) At any given time, an outside director is eligible to serve on
the board of directors of only one Farm Credit System institution or
affiliated organization.
(2) Number. Stockholder-elected directors must constitute at least
60 percent of the members of each institution's board.
(i) Each Farm Credit bank must have at least two outside directors.
(ii) Associations with total assets exceeding $500 million as of
January 1 of each year must have no fewer than two outside directors on
the board. However, this requirement does not apply if it causes the
percent of stockholder-elected directors to be less than 75 percent of
the board.
(iii) Associations with $500 million or less in total assets as of
January 1 of each year must have at least one outside director.
(3) Terms of office. Banks and associations may not establish a
different term of office for outside directors than that established
for stockholder-elected directors.
(c) Removal. Each institution must establish and maintain
procedures for removal of outside directors. When the
[[Page 42810]]
removal of an outside director is sought before the expiration of the
outside director's term, the reason for removal must be documented. An
institution's director removal procedures must allow for removal of an
outside director by a majority vote of all voting stockholders voting,
in person or by proxy, or by a two-thirds majority vote of the full
board of directors. The outside director subject to the removal action
is prohibited from voting in his or her own removal action.
PART 619--DEFINITIONS
0
3. The authority citation for part 619 continues to read as follows:
Authority: Secs. 1.4, 1.5, 1.7, 2.1, 2.2, 2.4, 2.11, 2.12, 3.1,
3.2, 3.21, 4.9, 5.9, 5.17, 5.19, 7.0, 7.1, 7.6, 7.8 and 7.12 of the
Farm Credit Act (12 U.S.C. 2012, 2013, 2015, 2072, 2073, 2075, 2092,
2093, 2122, 2123, 2142, 2160, 2243, 2252, 2254, 2279a, 2279a-1,
2279b, 2279c-1, 2279f); sec. 514 of Pub. L. 102-552, 106 Stat. 4102.
Sec. 619.9235 [Removed]
0
4. Remove Sec. 619.9235.
Dated: August 21, 2018.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2018-18312 Filed 8-23-18; 8:45 am]
BILLING CODE 6705-01-P
