October 23, 2018
Mr. Barry F. Mardock
Office of Regulatory Policy
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia. 22102-5090
Re: Outside Directors Eligibility Criteria – RIN 3052-AC97/Federal Register 83, No. 165 (August 24, 2018)
Dear Mr. Mardock:
I am writing on as an outside director for both AgCountry Farm Credit Services (AgCountry) and FCC Services. I am also the father of a junior at Purdue University in West Lafayette, Indiana who is majoring in Agricultural Finance and may, or may not, seek employment in the Farm Credit System upon graduation in 2020. These comments are my own and should not be construed as either formally or informally representing the views of either AgCountry or FCC Services.
I appreciate the opportunity to comment on the Farm Credit Administration’s (FCA) proposed rule on outside director eligibility criteria as published in the August 24, 2018 Federal Register. As an outside director who is potentially impacted by the proposed rule, I thought it might be helpful to FCA to offer my perspective.
First, as an attorney and former General Counsel of the Minnesota Department of Agriculture, I am concerned the proposed rule is overly broad and goes beyond the Farm Credit Act (Act). The Act states in relevant part that association boards shall elect at least one member of the board who “shall not be a director, officer, employee, stockholder, or agent of a System institution.” See 12 USC Sections 2072 (Production Credit Associations) and 2092 (Federal Land Banks). The proposed rule would go beyond the law by placing new eligibility requirements on the appointment of outside directors, including prohibitions on such service if the outside director serves on the board of an affiliated organization or has an immediate family member who is employed by any system entity, regardless of whether or not there is a potential for a conflict of interest to arise.
I certainly support regulations designed to prohibit conflicts of interest with outside directors. I have had the role of enforcing similar conflict of interest laws and regulations on the state governmental level as Deputy Minnesota Agriculture Commissioner & Agency General Legal Counsel, as Wisconsin’s Trade & Consumer Protection Administrator, and as Wisconsin Emergency Preparedness and Emergency Health Care Director. I have also advised clients on conflict of interest issues as a private attorney with two large Midwestern law firms. Finally, in this respect, I have also served as chair of the board of a number of public companies and governmental bodies, including current service as chair of the board of trustees for Wisconsin’s $5.5 billion college fund. Given this extensive experience, I do not understand the potential conflict of interest nexus between serving as an FCC Services Director and as an AgCountry Director since the former is principally involved in providing educational programming to system directors and the broader cooperative business community in the United States and Canada. FCC Service’s Board does not govern the System’s Captive Insurance Fund since that is governed by a separate board of directors made up of system managers. Therefore, as a director on the board of FCCServices, I do not vote on issues that could impact the pricing of such System insurance, nor the coverage of such insurance. Moreover, to the extent AgCountry would discuss utilizing an FCC Services’ educational training program, I would disclose the potential conflict of interest and then remove myself from the board room during the entire discussion of the issue. This, I believe from the viewpoint of both boards and myself, resolve any potential appearances of a conflict of interest, as it would for any director serving on more than one board.
Second, I also do not understand the potential conflict of interest nexus between my service as an AgCounty outside director and potential Farm Credit association employment of my son if his employer is not AgCountry Farm Credit Services. While I do not yet know where my son may become employed upon graduation, I believe his employment by any other System institution would not impact my objectivity as an outside AgCountry board director. If the FCA desires to proceed with a modified proposed eligibility rule, I would offer that it might make more sense to tie the ineligibility requirement to a family member who is employed in a senior managerial capacity at either the Funding Corporation or a system bank in which the underlying association maintains an ownership interest.
Moreover, if this overly broad rule provision is put in place, this will inadvertently cause potential conflict among family members since the employment of one family member by a System institution would make another family member ineligible to serve as an outside director of a wholly separate association. This could lead to an unintended consequence of negatively impacting the ability of a Farm Credit System institution to hire highly trained and skilled future employees or retaining highly skilled outside directors since such positions, if considered in tandem, would be mutually exclusive. Put more plainly, I would regret an outcome where my son might decide to be employed by a commercial lending bank rather than a cooperatively-owned Farm Credit institution such as Arbor One Farm Credit in South Carolina because he does not want to jeopardize my continuing service as an outside AgCountry director in the Upper Midwest. Respectfully, this overly broad proposed rule provision would appear to create the potential for unnecessary family tension without the offsetting benefit of actually eliminating conflicts of interest.
Overall, outside director eligibility limitations beyond those contained within the Farm Credit Act would be more appropriately identified and prevented through Standards of Conduct (SOC) disclosures since SOC disclosures provide guidance to Farm Credit institutions on whether an outside director candidate has disabling family or affiliated organizational relationships that exclude the candidate from further consideration. I believe the SOC reporting system has worked well at AgCountry, and also worked effectively during my prior service as an outside director with GreenStone Farm Credit Services.
Thank you very much for considering my comments on the proposed outside director eligibility rule.
William L. Oemichen
Outside Director, AgCountry Farm Credit Services
Outside Director, FCC Services