June 20, 2014
Mr. Barry F. Mardock
Office of Regulatory Policy
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090
Re: Proposed Rule – RIN 3052-AC44
Standards of Conduct and Referral of Known or Suspected Criminal Violations
Dear Mr. Mardock:
Thank you for the opportunity to comment on FCA's recent proposed rule regarding Standards of Conduct. As a director, I take the Farm Credit System’s reputation for ethical conduct seriously, and set high expectations for my fellow directors and our employees. I support the comments submitted by 1st Farm Credit Services and the Farm Credit Council, and offer these added suggestions:
While I am committed to an effective Standards of Conduct process, I find the new disclosure requirements in this rule unnecessary and burdensome. In my operation, I conduct business every day with numerous local businesses, professionals, and other farmers. I buy farm equipment, insurance, legal services, rent land to and from others. Any of these people or businesses could be association clients. For most of them, I do not know whether they are clients, and I do not have a role in approving individual loans or transactions, so there is no chance of a conflict. It is unreasonable for me to need approval every time I sell grain at the local elevator or buy a piece of equipment from a local dealer. I should not have to ask all my local merchants, or any businesses I deal with over the internet, whether they do business with our association. I should be able to conduct business normally, at a fair price reached on an arms-length basis, without having to ask permission. As drafted, this rule threatens to trap us in a maze of minutia that provides no benefit to our cooperative owners.
To fulfill our mission, we seek the best candidates to serve on our board. I am concerned that this regulation will make it harder to find high quality stockholders to serve. Successful farmers will shy away from serving if it could negatively impact their business relationships or they feel the disclosure requirements are unreasonable.
As our board reviewed this proposed regulation with management, we concluded that we would need to hire additional staff to support the increased reporting and monitoring. This added operating cost, estimated at an additional $100,000 annually over what we currently spend on Standards of Conduct compliance, puts pressure on our efficiency and slows down service to clients, which will be for no reason in most cases. In our board’s view, these rules will be difficult to justify to our stockholders, who will pay the costs but receive no added benefit.
The proposed rules related to agents are also unrealistic. A large international bank acting as Administrative Agent for a syndicated capital markets loan will not sign our Code of Ethics as a condition of doing business with us. Likewise, many large accounting firms, technology companies or other service providers will not agree to be bound by the rules in this proposal. We simply don’t have the market clout to force compliance with these vendors. This puts us at a disadvantage in being able to select the best companies for our services.
I urge FCA to consider withdrawing the proposed rule and address Standards of Conduct concerns by recommending periodic training for directors and staff and providing guidance on minimum qualifications for Standards of Conduct officials. If there have been Standards of Conduct violations elsewhere in the Farm Credit System, FCA has authority to address them under existing regulations.
Thank you for considering my comments.
1st FCS director, Chairman of Governance and Compensation Committees