Governance of FCS Institutions
As cooperatives, Farm Credit System institutions are governed by boards of directors elected from among their member-borrowers. FCA is responsible for establishing the requirements for FCS institution boards to follow.
Governance requirements are set forth in several of the regulations the Agency has established for the FCS. The requirements address such issues as
- how an institution nominates and elects its board members,
- what qualifications board members must have, and
- what constitutes a conflict of interest for board members.
FCA also provides the following resources to help FCS institutions govern themselves successfully and in accordance with regulatory requirements:
- The Director’s Role (PDF, 98 pages, 606 KB): A handbook to help directors of FCS institutions understand their authorities, responsibilities, and liabilities.
- Financial Expert Determination (PDF, 1 page, 27.676 KB): A “decision tree” to assist FCS boards in determining whether someone qualifies as a “financial expert” as defined in section 611.210(a)(2) of the FCA regulations.
- The Role of Farm Credit System Nominating Committees: A brochure describing the responsibilities of bank and association nominating committees in the board of director nomination process.
- Bookletter 009 Revised—Farm Credit Bank and Association Appointed Directors
- Bookletter 043 Revised—Guidance for Involvement by Employees, Agents, and Board Members in the Nominating Committee Process
- Bookletter 055—Floor Nomination Procedures for System Associations and Banks
- Bookletter 056—Distribution of Director Candidate Information
- Bookletter 060—Compensation Committees
Recent Changes to Governance Requirements
In early 2006, the FCA Board amended some of the governance requirements contained in its regulations. These amended requirements were published in the Federal Register on February 2, 2006. (See 71 FR 5740.) They became effective on April 5, 2006.
The rule amending the governance requirements
- enhances impartiality and disclosure in the election of directors,
- requires that FCS banks and associations establish policies identifying desirable qualifications for directors,
- requires each board to have a director or an advisor who is a financial expert,
- requires FCS institutions to establish training procedures for directors,
- ensures that boards conduct annual self-evaluations,
- addresses the term of service and removal of outside directors and requires all FCS banks and associations with assets of more than $500 million to have at least two outside directors,
- provides associations with small boards an exemption from having at least two outside directors,
- requires that FCS banks and associations have nominating committees and that all FCS institutions have audit and compensation committees, and
- clarifies the current rule on disclosure of conflicts of interest and compensation.
Note: None of these changes applied to Farmer Mac.
For an overview of these changes, see the PowerPoint presentation, Governance Final Rulemaking. For more detailed information, see FAQs About Governance Changes in 2006.