[Federal Register Volume 77, Number 84 (Tuesday, May 1, 2012)]
[Rules and Regulations]
[Pages 25577-25587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-10356]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 77, No. 84 / Tuesday, May 1, 2012 / Rules and
Regulations
[[Page 25577]]
FARM CREDIT ADMINISTRATION
12 CFR Part 618
RIN 3052-AC66
General Provisions; Operating and Strategic Business Planning
AGENCY: Farm Credit Administration.
ACTION: Final rule.
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SUMMARY: The Farm Credit Administration (FCA, we, or our) amends its
regulation requiring the board of directors of each Farm Credit System
(FCS or System) institution to adopt an operational and strategic
business plan (business plan or plan) to include, among other things,
outreach toward diversity and inclusion. Each business plan must
contain a human capital plan that describes the institution's workforce
and management and assesses their strengths and weaknesses; describes
succession programs; and includes strategies and actions to strive for
diversity and inclusion within the institution's workforce and
management. In addition, the business plan of each direct lender
institution must include a marketing plan that discusses how the
institution will further the objective that the FCS be responsive to
the credit needs of all eligible and creditworthy agricultural
producers and other eligible persons, with specific outreach toward
diversity and inclusion. Further, the regulation requires including
skills and diversity as part of the required assessment of the needs of
the board of directors and establishes annual reporting requirements to
the board.
DATES: Effective Date: This regulation will be effective 30 days after
publication in the Federal Register during which either or both Houses
of Congress are in session. We will publish a notice of the effective
date in the Federal Register.
Compliance Date: System institutions must comply with this
regulation no later than January 30, 2013.
FOR FURTHER INFORMATION CONTACT:
Jacqueline R. Melvin, Policy Analyst, Office of Regulatory Policy, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4498, TTY (703)
883-4434, or
Jennifer A. Cohn, Senior Counsel, Office of General Counsel, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703)
883-4020.
SUPPLEMENTARY INFORMATION:
I. Objectives
The objectives of this amendment are to ensure that:
Each System institution promotes diversity and inclusion
as critical to its success in the long term and incorporates diversity
and inclusion as a vital component of its corporate culture;
Skills and diversity are explicitly included in the
assessment of the needs of the board of directors;
Each System institution assesses the strengths and
weaknesses of its current workforce and management; addresses
succession planning; and develops strategies and actions to strive for
diversity and inclusion within its workforce and management;
Each System institution considers how it will further the
objective of being responsive to the credit needs of all eligible and
creditworthy agricultural producers and other eligible persons with
specific outreach toward diversity and inclusion; and
Each System institution's board of directors receives
reports on the institution's progress in accomplishing the strategies
and actions in its human capital and marketing plans, which will help
the board establish accountability and plan new strategies and actions.
II. Background and Overview of Comments
On May 25, 2011, the FCA published a proposed rule to amend Sec.
618.8440, which requires the board of directors of each System
institution to adopt a business plan.\1\ The proposed rule required,
among other things, human capital and marketing plans that include
outreach toward diversity and inclusion.
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\1\ See 76 FR 30280.
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We received approximately 75 comment letters from 48 System
institutions. We also received two letters from the Farm Credit Council
(Council), the trade association for the System.\2\ Of the System
letters, approximately eight opposed our proposed rule entirely and
requested complete withdrawal of the proposal. Most of the remainder of
the System commenters supported the premise of the proposed rule to
consider human capital and marketing outreach, including diversity and
inclusion, in the business plan, but they requested extensive revisions
to the final rule or to the explanatory preamble to reduce what they
viewed as undue burden. As discussed below, we are making a number of
changes in the final rule in response to many of these comments. Many
System commenters appeared to misunderstand some of the intended
requirements of the proposed rule, because they opposed requirements
that the rule would not have imposed. Throughout this preamble, we
clarify the requirements of the final rule.
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\2\ One Council letter was submitted on behalf of its
membership, after soliciting input from all System institutions. The
other Council letter was submitted on behalf of its President and
CEO, with the endorsement and support of the Council Board of
Directors.
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We received approximately 325 comments from non-System commenters,
including sustainable agriculture advocacy and assistance groups,
academics in the field of sustainable agriculture, small farmers,
consumers, and others. The vast majority of these commenters supported
the proposed rule. Many of these commenters requested that FCA include
a number of specific requirements in the marketing plan provision that
would, among other things, require institutions to train potential
customers in business planning and financing; develop infrastructure
such as cooperatives and farmers' markets; partner with governmental
and non-governmental entities and investors for funding local and
regional food systems (LRFS); set numerical investment goals for
lending to LRFS; and make their marketing goals and progress
assessments public.
We also received approximately 40 electronically submitted comment
letters that contained the names and
[[Page 25578]]
addresses of the commenters but were otherwise blank.
III. Requirements of the Final Rule
The final rule requires each institution to:
Determine the skills and diversity needs of its board of
directors;
Study and know its workforce, labor market, and management
succession plans;
Reach out to potential employees within its labor market
who may not have previously been considered for reasons other than
merit;
Study and know its marketplace, as applicable;
Reach out to potential borrowers who may not have
previously been considered for reasons other than eligibility or
creditworthiness; and
Report annually to its board of directors on the progress
the institution has made in accomplishing planned outreach strategies
and actions, as applicable.
The rule does not require an institution to:
Establish quotas--it does not require specific outcomes in
employment or lending;
Complete redundant plans or actions--an institution may
use existing documents to satisfy these new planning requirements,
provided the existing documents are approved annually by the board;
Disclose confidential or sensitive information in public
documents;
Hire persons who are not the best qualified for the
position for which they are applying;
Extend credit to any persons who are not eligible,
creditworthy, or within the scope of financing rules;
Favor any type or group of agricultural producers in its
underwriting of credit;
Gather or record data on customer or employee
characteristics not currently legally gathered or recorded;
Implement strategies or actions that extend beyond its
marketplace and labor market;
Develop marketing plans unless it is exercising title III
lending authorities or is a direct lender association; or
Implement strategies or actions inconsistent with existing
lending and employment laws and rules or with safety and soundness
standards.
IV. What is diversity and inclusion?
For purposes of this rule, we consider diversity and inclusion in
employment to mean seeking out and using the talents of people of
different backgrounds, experiences, and perspectives to improve the
workforce environment and productivity. These differences have a strong
influence on how individuals approach challenges and solve problems,
make decisions, and identify opportunities.
For purposes of this rule, we consider diversity and inclusion in
lending to mean looking beyond the traditional customer base to ensure
that all eligible and creditworthy persons have access to credit and
related financial services. Where a particular institution needs to
focus its outreach depends on the nature of its territory and what
groups have traditionally been underrepresented or underserved.
A diverse workforce could aid the System in gaining new customers.
A diverse range of employees may more effectively reach a broader and
more diverse base of producers, thereby widening the pool of potential
customers. Moreover, diverse employees bring different perspectives to
an organization and may influence the development of more creative and
innovative products and services, which can also increase the customer
base.
V. Why Outreach Toward Diversity and Inclusion Is Necessary
As discussed in the preamble to the proposed rule, agriculture in
America is becoming increasingly diverse. However, some non-System
commenters believe that the System is not serving diverse agricultural
producers. For example, the Rural Coalition, an alliance of more than
70 rural community-based organizations of African-American, Asian-
American, American-Indian, Euro-American, Latino and women farmers,
farmworkers and rural communities in the United States, commented that
among its members who were contacted, ``there exists a universal
perception that the Farm Credit System institutions are not accessible
to the underserved farmer and have failed to conduct outreach to these
communities to educate them regarding the institutions' programs and
services.''
Section 1.1(b) of the Farm Credit Act of 1971, as amended (Act),
requires the System to be inclusionary in its lending. Section 1.1(b)
provides that the System was established as a ``permanent system of
credit for agriculture which will be responsive to the credit needs of
all types of agricultural producers having a basis for credit. * * *''
If some producers, including those who would bring diversity to an
institution's customer base, have a perception that the System is not
available to serve them, then greater outreach is needed. While not
every farmer is creditworthy (under any reasonable standard), has
credit needs that are within FCA's scope of financing regulations, or
is interested in financing his or her operations with debt, unless
System institutions reach out to underserved farmers there is no way to
know whether they might become customers.
As strong and vibrant supporters of agriculture in America, System
direct lender institutions must develop specific marketing plans to
reach all potential customers, including those in diverse market
segments that may currently be underserved. Institutions must ensure
that there are no unnecessary barriers in place, such as lack of
employee training, lack of appropriate loan products, or lack of
appropriate creditworthiness standards. They must consider programs
such as grassroots outreach activities and education efforts that
market to diverse and underserved populations regarding business and
financial planning and leadership and loan programs for persons who are
eligible and creditworthy. In addition, to more effectively reach and
serve these potential customers, institutions must continue to strive
for diversity and inclusion among their employees, management, and
boards of directors, because diverse perspectives within institutions
can help increase diversity among customers. Unless System institutions
commit to embracing diversity and inclusion in lending, employment, and
governance, they may not be able, or understand how, to provide
sufficient access to the System's products for all potential eligible
and creditworthy customers, and they may risk losing market share and
relevance in the marketplace in the long run.
VI. Comments on Proposed Rule and FCA's Responses
A. Premise of Rule
The Council, as well as many System institutions that submitted
their own comments, generally endorsed the premise of the proposed
rule. Specifically, they recognized that human capital and marketplace
outreach, along with diversity and inclusion, are important and
appropriate topics to address in business plans.
Several System institutions, as well as one non-System commenter,
disagreed with our premise that diversity and inclusion are beneficial
for the System and the nation as a whole. These commenters stated that
mandating diversity will inevitably result in decisions based on race,
sex, and other inappropriate characteristics and toward quotas or
measurable results, which the
[[Page 25579]]
commenters state are illegal, divisive, unfair, and inefficient; these
commenters state that the System's focus should simply be on
``nondiscriminatory inclusion''--that is, on equal opportunity and on
decision-making unbiased by race, sex, or other inappropriate
characteristics; that favoring certain groups over other groups is
discriminatory and will make the former feel entitled and the latter
feel aggrieved; and that demographic imbalances often result from
factors other than overt or covert discrimination.
As discussed throughout this preamble and as evident in the
regulation language itself, this rule does not mandate particular
hiring or lending decisions or specific results. We do not require
institutions to make employment or lending decisions based on any
factors other than qualifications and creditworthiness. We will not
examine for quotas or specific results in employment or lending, and we
do not require institutions to establish quotas. We do not require
institutions to favor any groups over any other groups. We recognize
that to do so would be illegal.
We agree with the commenters that demographic imbalances often
result from factors other than overt or covert discrimination. A lack
of diversity in a System institution could occur for a whole host of
non-discriminatory reasons, many of which are beyond the control of the
institution. We do want to be sure, however, that institutions do not
have barriers in place that could contribute to such imbalances, even
if these barriers are in place for non-discriminatory reasons. Such
barriers could include, for example, a lack of employee training, lack
of appropriate loan products, lack of appropriate creditworthiness
standards, or lack of outreach toward certain populations.
For this reason, we disagree that it is sufficient for System
institutions to focus only on ``nondiscriminatory inclusion'' and equal
opportunity. This rule requires institutions to reach out to potential
employees within their labor markets who may not have previously been
aware of the opportunities to work for the System or whom institutions
may not have considered for reasons other than merit. It also requires
institutions to reach out to potential customers who may not have been
previously aware of the System's services or whom institutions may not
have considered for reasons other than eligibility and
creditworthiness. This outreach is necessary even if an institution's
previous failure to consider these potential customers is not due to
discrimination.
B. FCA Authority, Burden, and Relationship With Other Legal
Requirements
A number of System commenters questioned the legal authority of FCA
to impose human capital and marketing plan requirements. Some stated
that FCA has authority only over safety and soundness matters. Some
stated that the regulation is inconsistent with a 1996 congressional
mandate that FCA must eliminate regulations that are ``unnecessary,
unduly burdensome or costly, or not based on law.'' And some stated
that because Congress has imposed diversity requirements on the housing
Government-sponsored enterprises (GSEs) but not on the System, there is
no authority for FCA to impose such requirements on the System.
FCA is not limited to regulating safety and soundness matters. FCA
has broad authority over all matters relating to the System and the
Act. As part of implementing the Act and for safety and soundness
reasons, FCA has authority to adopt regulations governing the business
planning of System institutions. Moreover, section 1.1(b) of the Act
states that the FCS was established as a ``permanent System of credit
for agriculture which will be responsive to the credit needs of all
types of agricultural producers having a basis for credit. * * *''
While this provision does not expressly mention diversity and
inclusion, it does state Congress' desire that the FCS be responsive to
all types of creditworthy agricultural producers. Moreover, the passage
of a law imposing diversity requirements on the housing GSEs does not
limit FCA's authority to impose business planning requirements,
including in the area of diversity and inclusion, on System
institutions.
Regarding the 1996 congressional mandate to review and eliminate
unnecessary regulations, we have discussed above why this regulation is
necessary. With the clarifications we have made to the regulation text
and throughout this preamble, we believe compliance with the rule will
not be unduly burdensome or costly.
Several System commenters requested that we modify proposed Sec.
618.8440(b)(7) and (b)(8) to each be one-sentence requirements. They
suggested that Sec. 618.8440(b)(7) should simply require that the
business plan include a summary of the human capital plan that
addresses diversity, inclusion, affirmative action, and management
succession. And they suggested that Sec. 618.8440(b)(8) should simply
require that the business plan include a summary of the marketing plan
that addresses diversity, inclusion, and marketplace outreach.
We believe, in order to fulfill the objectives of this rule, the
human capital and marketing plans must include all the items that we
have required. We do not believe a requirement that the human capital
plan simply address diversity, inclusion, affirmative action, and
management succession, or that the marketing plan simply address
diversity, inclusion, and marketplace outreach, is sufficient.
To eliminate unnecessary burden, we have revised Sec.
618.8440(b)(7) and (b)(8) to provide that items required to be included
in the human capital plan and marketing plan may be contained in other
documents that are approved by the board and adopted annually, as long
as those items are summarized in, and incorporated by reference into,
the human capital plan and marketing plan, respectively.
Accordingly, if an institution has separate documents (such as
section 4.38 affirmative action program (AAP) plans or Young,
Beginning, and Small (YBS) farmer and rancher program documents) that
contain the items that are required to be included in the human capital
plan or marketing plan component of the business plan, the institution
can use those other documents to satisfy the business plan
requirements, as long as the other documents are approved by the board
annually (as the business plan itself is) and the items are summarized
in, and incorporated by reference into, the human capital plan or
marketing plan components of the business plan. If the separate
documents do not include these items, however, or if the board does not
approve these separate documents, then the board will have to include
the required items in the human capital plan and marketing plan
components of the business plan.
Additionally, to further address concerns about burden, we have
made a number of changes to the regulation in response to specific
requests made by commenters. For example, among other changes, we have
revised language that was viewed as requiring redundant plans or
actions. We have removed language that was viewed as requiring quotas
or quantifiable results. We have added language allowing confidential
or sensitive information to be contained in non-public documents. And
we have limited the marketing plan requirements to System institutions
in their exercise of title III lending authorities and to direct lender
associations.
In addition, we clarify in this preamble other areas where
commenters
[[Page 25580]]
were concerned about burden. For example, among other clarifications,
we have explained what we mean by the term ``diversity.'' We have made
clear that institutions are not required to: Hire persons who are not
considered the best qualified for the position for which they are
applying; extend credit to persons who are not eligible, creditworthy,
or within the scope of financing rules; favor any type or group of
agricultural producers in their credit underwriting; gather or record
data on customer or employee characteristics not currently legally
gathered or recorded; or implement strategies or actions inconsistent
with existing lending and employment rules and laws or with safety and
soundness standards.
A number of System commenters stated that they would be at legal
risk if they were required to ask potential job applicants or potential
customers about demographic information. Because the rule does not
require institutions to collect this information, the rule does not
create this legal risk.
A number of System commenters also questioned how the requirements
of this rule fit in with other requirements, including AAP planning,
YBS activities, the various equal employment laws, the Equal Credit
Opportunity Act (ECOA), and the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act).\3\ As we now explain, this
rule should not be interpreted to impose requirements that are
redundant or inconsistent with any other laws.
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\3\ Public Law 111-203.
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System commenters expressed concern that this rule imposes
requirements that are already included among AAP planning and YBS
program requirements. As we explained in the preamble to the proposed
rule,\4\ there may be some overlap between the information that is
contained in existing AAP plans and YBS programs and the information
that is required to be in the human capital and marketing plans.
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\4\ 76 FR 30282, May 25, 2011.
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To eliminate this redundancy, as discussed above, we have revised
Sec. 618.8440(b)(7) and (b)(8) to provide that items required to be
included in the human capital plan and marketing plan may be contained
in other documents that are approved by the board and adopted annually,
as long as those items are summarized in, and incorporated by reference
into, the human capital plan and marketing plan, respectively. These
other documents could include an AAP plan or YBS program documents.
System commenters also expressed concern that compliance with this
regulation would require violation of the equal employment laws and the
ECOA, and they pointed out that the Dodd-Frank Act does not yet have
implementing regulations authorizing activity they believe the proposed
rule would require. These commenters were primarily focused on what
they believed was a requirement to collect demographic data from job
applicants/employees and credit applicants/borrowers.
As discussed throughout this preamble, the rule does not require
institutions to collect any data on employee or customer
characteristics. Therefore, the rule does not conflict with any
prohibition on data gathering in the equal employment laws or the ECOA.
Moreover, these laws actually require the collection of data in some
situations. Consistent with these laws, an institution can choose to
use the data collected as required to assess its employment of diverse
employees, the diversity needs of its board of directors, and its
lending to diverse borrowers.
In addition, as discussed in the preamble to the proposed rule,
once the Consumer Financial Protection Bureau (CFPB) issues
implementing regulations,\5\ the Dodd-Frank Act will require financial
institutions to ask all business applicants applying for credit whether
they are women-owned, minority-owned, or small businesses. While
applicants may choose to withhold this information, institutions can
choose to use any information received to assess their lending to
diverse borrowers.
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\5\ The CFPB is an independent bureau in the Federal Reserve
System that regulates the offering and provision of consumer
financial products or services under the Federal consumer finance
laws. See section 1011(a) of the Dodd-Frank Act.
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C. Meaning of ``Diversity''
The proposed regulation itself did not define diversity. In the
preamble to the proposed rule, we stated that diversity is best thought
of as the inclusion of all individuals rather than as simply a list of
demographic criteria, and we listed several characteristics that might
indicate diversity.
We did not intend to limit diversity to these characteristics or to
suggest that these characteristics are more important than any others.
Instead, our intent was to demonstrate that diversity is all-inclusive
and is broader than the characteristics protected by the various equal
employment and fair lending laws.\6\
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\6\ Title VII of the Civil Rights Act of 1964, as amended,
prohibits employment discrimination because of race, color,
religion, national origin, or sex; the Age Discrimination in
Employment Act of 1967 prohibits employment discrimination because
of age; the Americans with Disabilities Act of 1990, as amended,
prohibits employment discrimination because of disability; and the
Genetic Information Nondiscrimination Act of 2008 prohibits
employment discrimination because of genetic information. The ECOA
prohibits discrimination in the extension of credit on the bases of
race, color, religion, national origin, sex, marital status, or age
(provided the applicant has the capacity to contract). The ECOA also
prohibits discrimination because all or part of an applicant's
income derives from a public assistance program or because an
applicant has in good faith exercised any right under the Consumer
Credit Protection Act.
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Many System commenters questioned this definition. They wondered
whether and how we expected them to determine the listed
characteristics and whether we expected them to make employment or
lending decisions on the basis of those characteristics. They stated
that asking this information of potential employees or borrowers or
making decisions on these bases is, in many cases, offensive or even
illegal.
As stated above, our intent was to show that diversity is broad and
all-inclusive, not to create a list of characteristics to be given
special focus. Also, the rule does not require the gathering or
recording of data on employee or borrower characteristics that are not
currently legally gathered or recorded and does not require specific
outcomes or the favoring of particular persons in employment or
lending. What the rule does require institutions to do, in pertinent
part, is to strive for diversity and inclusion within their workforce
and management and to market their products and services to all
eligible and creditworthy persons, with specific outreach toward
diversity and inclusion.
Like the proposed rule, the final rule itself does not define
diversity. As discussed above, for purposes of this rule, we consider
diversity and inclusion in employment to mean seeking out and using the
talents of people of different backgrounds, experiences, and
perspectives to improve the workforce environment and productivity. We
consider diversity and inclusion in lending, for purposes of this rule,
to mean looking beyond the existing customer base to ensure that all
eligible and creditworthy persons have access to System credit and
related financial services.
Accordingly, each institution must ensure that it has plans to
reach out to all potential employees and customers as is appropriate
for its territory. Institutions are not required to gather data that is
not legal to gather, favor persons in particular groups, or satisfy
quotas in employment or lending.
[[Page 25581]]
D. Flexibility in Implementation
A number of System commenters requested that FCA allow institutions
to exercise flexibility and discretion in how they implement the
requirements of the rule. Institutions differ in terms of size,
employment needs, demographics in their territory, and nature of
farming in their territory. Therefore, diversity will not look the same
across the System.
A number of System commenters were also concerned that FCA and its
examiners would impose requirements that are not found in the rule or
would use FCA's suggestions in the preamble to the proposed rule
regarding tools institutions could use to assist in complying with
their planning requirements as a checklist for determining compliance.
Moreover, a number of commenters stated that some of FCA's
suggestions are not relevant to the System or are too rigid. Commenters
stated, for example, that data from the Census of Agriculture, which
FCA had suggested as a possible source of information about potential
customers, does not accurately represent the System's relevant markets
because it includes data pertaining to ineligible persons, non-
creditworthy persons, persons who would be disqualified based on scope
of financing regulations, and persons who do not use debt to finance
their operations.
As another example, several System commenters objected to some of
FCA's specific suggestions for how to overcome barriers for advancing
diversity and inclusion within the corporate culture, such as including
diversity and inclusion in the mission statement.
FCA recognizes that System institutions vary widely in their size,
needs, and demographics, among other areas of difference. A one-size-
fits-all approach to compliance with this rule is not appropriate
either for System institutions or for FCA.\7\ The rule requires
institutions to engage in business planning in the specified areas.
Accordingly, FCA examiners will determine whether institutions have
engaged in this planning and will evaluate institutions' good faith
efforts in implementing the strategies and actions identified in the
plans. Nevertheless, the rule permits institutions to engage in the
required business planning in any reasonable manner, and we will not
examine for specific outcomes or results in employment or lending.
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\7\ For example, we recognize that approximately 10 percent of
associations have fewer than 20 employees and, therefore, are not
required to engage in the AAP planning requirements of section 4.38
of the Act. While, as discussed above, an institution that is
subject to section 4.38 may be able to use its AAP plan to satisfy
the human capital plan requirement, institutions can also satisfy
this requirement without relying on section 4.38-compliant plans.
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In addition, our suggestions in the preamble to the proposed rule
regarding tools institutions can use to assist with their compliance
are not requirements. We included them in our preamble to the proposed
rule to provide ideas and to share actions that other institutions have
taken. We encourage institutions to use the suggestions that are
appropriate, to set aside the suggestions that are not, and to come up
with their own approaches to fit their own characteristics.
Finally, as discussed throughout this preamble, it is important to
keep in mind that this rule does not require specific goals or
quantifiable results, and our compliance examination will be
qualitative rather than quantitative. We suggested the use of the
Census of Agriculture data not so institutions could compare their
lending against that data but so they could know and would be able to
describe the characteristics of their chartered territories by market
segment, including the characteristics of demography, geography, and
types of agriculture practiced, as the regulation requires. With this
information, institutions can determine whether there may be potential
eligible customers who may be better reached with a different type of
marketing strategy. If institutions believe other reliable data would
better provide this information, they may use that data instead.
E. Local Food Systems
In the preamble to our proposed rule, we noted that the pool of
potential eligible and creditworthy FCS customers is becoming
increasingly diverse. We observed that agriculture today consists of
men and women, the old and the young, and a variety of racial and
ethnic backgrounds. We urged institutions to look to all kinds of
farming operations--from large farmers, to small farmers, to farmers
who operate within local food systems--to find potential eligible and
creditworthy borrowers who may not be part of the institution's
customer base and who may be underserved.
We received a number of comments responding specifically to our
reference to local food systems, from both System and non-System
commenters. Commenters identified four major areas of concern.
First, many System commenters were concerned that the term ``local
food systems'' was undefined. A number of non-System commenters
suggested that we should adopt the definition of ``local and regional
food producers'' from the 2008 Farm Bill. In the preamble to the
proposed rule, we stated that local food systems typically involve
small farmers producing heterogeneous organic or specialty crops, and
short supply chains in which farmers also perform marketing functions,
including storage, packaging, transportation, distribution, and
advertising.\8\ In the context of this rule, however, it is unnecessary
to specifically define ``local food systems,'' because this rule does
not require specific marketing targeted toward local food systems.
Rather, the rule requires strategies and actions to market to all
eligible and creditworthy persons, with specific outreach toward
diversity and inclusion. Our reference to local food systems was to
provide an example of a potentially underserved market segment where
diversity in farming may be found. Reaching out to persons who operate
in local food systems is one of many potential approaches to finding
new eligible and creditworthy customers. Consistent with this effort,
FCA's regulatory performance plan specifically includes a project to
consider changes to our policy guidance for providing credit and
related services to all eligible and creditworthy agricultural
producers, including identifying any barriers to efficiently and cost-
effectively providing credit for newer products or marketing systems
such as local foods and organic agriculture.\9\
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\8\ 76 FR 30281, May 25, 2011.
\9\ FCA's Spring 2012 Regulatory Performance Plan, approved
February 9, 2012 (available on FCA's Web site at www.fca.gov/law/perf_plan.html).
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Second, many System commenters stated that FCA should not favor a
particular type of agriculture and should not suggest that lending to a
particular type of agricultural practice increases diversity. They
commented that FCA should not distinguish between types of crops
produced or the methods or location of production. As just discussed,
the rule requires institutions to develop plans as to how they reach
out to and serve all eligible and creditworthy persons in their
territories. This means outreach and service to all market segments and
to all persons within those segments, looking at characteristics that
include demography, geography, and types of agriculture practiced. Our
use of the term ``local food systems'' was meant to
[[Page 25582]]
illustrate an example of a potentially underserved market segment where
diversity in farming may be found. There may be diverse, eligible, and
creditworthy persons operating within local food systems--as well as
within other types of agricultural operations--who are not currently
being served.
Third, many System commenters stated that many persons who are
involved in local food systems may not be eligible for System credit,
or that much of their credit needs may not be within FCA's scope of
financing regulations, because they may not be full-time, bona fide
agricultural producers. Farmers who produce agricultural products for
sale directly to consumers or local intermediaries (restaurants,
schools, hospitals, etc.) comply with the definition of bona fide
farmer in Sec. 613.3000(a)(1) by virtue of growing an agricultural
product, and they need not be full-time producers to be considered bona
fide.\10\ System institutions are authorized to serve only persons who
are eligible, and this rule does not require marketing plans to address
service toward persons who are not eligible.
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\10\ Section 613.3000(a)(1) of our regulations defines a bona
fide farmer or rancher as ``a person owning agricultural land or
engaged in the production of agricultural products, including
aquatic products under controlled conditions.''
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The scope of financing that a System institution can provide to a
particular borrower is governed by Sec. 613.3005. Under that
provision, all bona fide farmers and ranchers may receive full credit,
to the extent of creditworthiness, for agricultural needs. The degree
of a borrower's involvement in agricultural production determines the
amount of non-agricultural credit (also referred to as ``other credit
needs'') that a System institution may extend to the borrower. FCA has
previously addressed the issue of scope of financing in Examination
Bulletin: FCA 2006-2 \11\ and Revised Bookletter BL-040 (interpreting
``sound and constructive credit'' for YBS farmers).\12\ We encourage
System institutions to review these documents for guidance in
determining the scope of financing for all types of agricultural
producers.
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\11\ ``Lending Programs for Farmers' Other Credit Needs,'' dated
October 2006. This document is available on FCA's Web site. From our
home page at www.fca.gov, click on the Exam Guidance tab; then click
on Examination Bulletins.
\12\ ``Providing Sound and Constructive Credit to Young,
Beginning, and Small Farmers, Ranchers, and Producers or Harvesters
of Aquatic Products,'' dated August 10, 2007. This document is
available on FCA's Web site. From our home page at www.fca.gov,
click on Bookletters from the Quick Links menu.
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There may be loans that an institution cannot practically make
because of FCA's scope of lending regulations. Institutions should,
however, evaluate their lending practices to ensure that there are no
unnecessary barriers in place, such as lack of employee training or
lack of appropriate loan products. As discussed above, FCA's regulatory
performance plan specifically includes a project to consider changes to
our policy guidance for providing credit and related services to all
eligible and creditworthy agricultural producers, including identifying
any barriers to efficiently and cost-effectively providing credit for
newer products or marketing systems such as local foods.
Finally, many System commenters stated that certain potential
customers, including some involved in local food systems, are not
creditworthy and that loans to them could create safety and soundness
concerns. FCA recognizes that, as with farmers practicing other types
of agriculture, some farmers involved in the local food system may not
be creditworthy. The rule does not impose any lending requirements, and
institutions are not required to make loans that pose safety and
soundness risks. Other farmers in the local food system may well be
creditworthy based on their background and experience. Institutions
should ensure that their credit standards are appropriate and do not
impose unnecessary barriers to producers in the local food system.
Some farmers who operate within the local food system are also YBS
farmers. The methods suggested in Sec. 614.4165(c)(4), as further
explained in BL-040, to ensure that credit and services offered to YBS
farmers are provided in a safe and sound manner and within an
institution's risk-bearing capacity could benefit YBS borrowers within
the local food system.
We received hundreds of comments from non-System commenters
supporting small- and mid-sized farmers and ranchers producing for
local and regional food markets, farmers' markets, organic markets, and
community-supported agriculture. These commenters stated that these
farmers--many of whom are socially disadvantaged, are nontraditional
producers, or are from non-farming backgrounds--promote healthy farming
and eating and environmental responsibility. These commenters stated
that these producers are crucial for both public health and national
security. Traditional lending models may not fit these producers,
however, and limited access to capital is a crucial barrier to their
success.
These commenters suggested that FCA include a number of specific
requirements in our marketing plan regulation that would require
institutions to do the following:
Train potential borrowers on how to obtain funding;
Develop and refer potential borrowers to programs to
assist them with business planning;
Develop infrastructure such as cooperatives, farmers'
markets, and training programs;
Increase their knowledge of sustainable agriculture and
LRFS;
Partner with governmental and non-governmental entities
and investors to fund LRFS;
Examine their policies to identify areas where rules may
be unnecessarily shutting out potential borrowers;
Analyze the characteristics of current borrowers to
provide baseline data for assessments of achieving diversity and
inclusion of LRFS and socially disadvantaged producers;
Set minimum investment goals for LRFS;
Make marketing goals and progress assessments public; and
Add LRFS producers to their boards.
We are not imposing these specific requirements in our regulation.
Consideration of requirements such as these is beyond the scope of this
regulation project. System institutions may choose to implement these
measures as appropriate for the types of agriculture in their
territories. Moreover, as discussed above, we are committed to studying
these ideas further and to considering future guidance for System
institutions.
F. Outreach Efforts or Quotas and Quantifiable Results
Many System commenters urged FCA to clarify the final rule to
ensure it promotes efforts toward outreach rather than requiring quotas
or quantifiable results in employment and lending. On the other hand,
many non-System commenters urged FCA to require institutions to collect
and quantify baseline data and, among other things, to evaluate to what
extent their borrower base reflects their marketplace and to set
minimum investment goals for lending to certain groups. As discussed
throughout this preamble, this final rule does not contemplate quotas
or quantifiable results in either employment or lending. We agree with
the System commenters that this is inappropriate because it is legally
problematic and may be difficult both to achieve and to measure.\13\
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\13\ We note, however, that section 4.38 of the Act requires all
System institutions with more than 20 employees to establish and
maintain an AAP plan that applies the affirmative action standards
otherwise applied to contractors of the Federal government. These
standards, which are established by the U.S. Department of Labor
(DOL), are always changing and may impose hiring goals. For example,
in December 2011, the DOL proposed a rule that would require
Government contractors to establish a 7-percent utilization goal for
hiring employees with disabilities. See 76 FR 77056 (Dec. 7, 2011).
Because the Act requires compliance with applicable affirmative
action standards, FCA examines for compliance with these standards.
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[[Page 25583]]
What the final rule does require, in pertinent part, is outreach to
potential employees who may not have previously been aware of the
opportunities or considered for reasons other than merit, and to
potential customers who may not have previously been aware of the
System's services or considered for reasons other than eligibility and
creditworthiness. We are revising the language in the final rule to
clarify what it does and does not require.
Proposed Sec. 618.8440(b)(7)(i) would have required the human
capital plan to include, in relevant part, ``strategies and actions to
achieve diversity and inclusion within the institution's workforce
[and] management and an assessment of the progress the institution has
made in accomplishing these strategies and actions. * * *'' A number of
System institutions requested that we replace ``achieve'' with ``strive
for.'' They expressed concern that the word ``achieve'' implies quotas
or quantifiable results. They stated that a requirement that they
``strive for'' diversity and inclusion is more appropriate, because it
would require institutions to seek qualified, diverse candidates for
employment through appropriate recruiting and communications driven by
market conditions and current hiring needs but would not require them
to achieve specific, quantifiable results in hiring.
We agree with this comment and make the requested change. The
relevant provision (which we have renumbered as Sec.
618.8440(b)(7)(iii)) requires human capital plans to include
``strategies and actions to strive for diversity and inclusion within
the institution's workforce and management.''
A number of System commenters also expressed concern that the word
``assessment'' in proposed Sec. 618.8440(b)(7)(i), which would have
required the human capital plan to include ``an assessment of the
progress the institution has made in accomplishing these strategies and
actions,'' also implied that the rule contemplated data-driven results.
We did not mean data-driven results with our use of the word
``assessment''. Nevertheless, to avoid confusion, the final rule does
not use that word. Instead, Sec. 618.8440(c) requires a report on the
progress the institution has made in accomplishing the required
strategies and actions.\14\
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\14\ As discussed in the section-by-section analysis, the final
rule requires that the institution report to its board on its
progress rather than requiring the human capital plan to include an
assessment of its progress, as the proposed rule would have
provided.
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Section 618.8440(b)(8)(ii) of the proposed rule would have required
the marketing plan to include, in relevant part, ``strategies and
actions to provide the institution's products and services to all
eligible and creditworthy persons with specific attention toward
diversity and inclusion within each market segment, and an assessment
of the progress the institution has made in accomplishing these
strategies and actions.'' A number of System commenters stated that
this requirement could lead to quotas or quantifiable expectations on
the lending side.
First, System commenters questioned the requirement to have
strategies and actions to ``provide'' the institution's products and
services to all eligible and creditworthy persons. They stated that
requiring them to have strategies and actions to ``provide'' their
products and services, combined with the requirement that they must
assess their progress in accomplishing these strategies and actions,
suggests that they must quantify their progress in providing their
products and services. To clarify this requirement, we replace
``provide'' with ``market,'' thus requiring institutions to have
strategies and actions to market their products and services and, to
ensure accountability, to report on their marketing progress.
Second, System commenters expressed concern with requiring
``specific attention'' toward diversity and inclusion. To reflect that
this rule is intended to address outreach, these commenters suggested
that we require ``specific outreach'' rather than ``specific
attention'' toward diversity and inclusion. We agree with this comment
and make this change in the final rule.
Finally, as on the human capital side, a number of System
commenters expressed concern that the word ``assessment'' in proposed
Sec. 618.8440(b)(8)(ii), which would have required the marketing plan
to include ``an assessment of the progress the institution has made in
accomplishing these strategies and actions,'' implied that the rule
contemplated data-driven results. We did not mean data-driven results
with our use of the word assessment. Nevertheless, to avoid confusion,
the final rule does not use that term. Instead, Sec. 618.8440(c)
requires a report on the progress the institution has made in
accomplishing the required strategies and actions to ensure
accountability.\15\
---------------------------------------------------------------------------
\15\ As discussed in the section-by-section analysis, the final
rule requires that the institution report to its board on its
progress rather than requiring the marketing plan to include an
assessment of its progress, as the proposed rule would have
provided.
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G. Governance
The proposed rule would have required the human capital plan to
include strategies and actions to achieve diversity and inclusion
within the institution's workforce, management, and governance
structure, and an assessment of the progress the institution has made
in accomplishing these strategies and actions. It would also have
required the human capital plan to include a description of the
institution's current workforce, management, and governance structure
and an assessment of their strengths and weaknesses.
In the preamble to the proposed rule, we noted that FCA Revised
Bookletter BL-009 \16\ states that bank and association boards of
directors may appoint directors--both outside directors and ``other
appointed directors'' (stockholders who are appointed)--for specific
public policy purposes, such as facilitating diversity, and we
encouraged all institutions to consider appointing directors for this
purpose when feasible.\17\ We also noted that Sec. 611.325(d)(1) of
FCA regulations, which implements a specific requirement of section
4.15 of the Act, directs institution nominating committees, which
submit slates of eligible borrowers wishing to run for stockholder-
elected director positions, to ``endeavor to ensure representation from
all areas of [an institution's territory] and as nearly as possible,
all types of agriculture practiced within the territory.'' As an
institution's borrower base becomes more diverse, we encouraged
nominating committees to consider seeking out qualified and
representative borrowers of diverse backgrounds.
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\16\ ``Farm Credit Bank and Association Appointed Directors,''
dated December 15, 2006. This document is available on FCA's Web
site. From our home page at www.fca.gov, click on Bookletters under
the Quick Links menu.
\17\ 76 FR 30284, May 25, 2011.
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Some System commenters objected to including governance
requirements in their human capital planning. They stated that board
diversity and inclusion is a different issue than diversity and
inclusion within their workforce. They
[[Page 25584]]
stated that boards of directors are responsible for governance and
therefore should ``own'' the issue, which should not be integrated into
a human capital plan that focuses on the workforce and is developed by
the institution's leadership. These commenters urged FCA to remove the
governance references from human capital planning and instead
incorporate these references into existing Sec. 618.8440(b)(2)(ii), as
part of the existing requirement that the board's business plan must
include an assessment of the needs of the board, based on the annual
self-evaluation of the board's performance.
We agree with this comment and suggestion. Accordingly, we are
removing all references to governance in the human capital plan
requirements in new Sec. 618.8440(b)(7), and we are revising existing
Sec. 618.8440(b)(2)(ii) to require that the board specifically must
assess whether its needs include improved diversity, as well as the
addition of particular skills. This revision clarifies the existing
requirement that the board must assess its needs to specifically
include diversity as one of its potential needs.
Some System commenters stated that the Act gives nominating
committees the responsibility for determining the candidates for
director elections and that it would be challenging to provide the
nominating committee with information on potential candidates in an
attempt to make the board more diverse. System commenters were also
concerned that the rule would require institutions to improperly
influence the nominating committee in violation of the existing
requirement that management must remain impartial in governance
matters.
If a board determines, based on its assessment, that it needs to
increase its diversity, it may do so directly, without involving the
nominating committee, by appointing diverse directors--either outside
directors or other appointed (stockholder) directors. Moreover, FCA
regulations permit directors or other institution personnel to provide
the names of qualified, diverse persons for consideration by the
nominating committee. FCA Revised Bookletter BL-043 \18\ contains
substantial discussion of the extensive assistance institution boards,
officers, employees, and agents may provide to nominating committees
without violating FCA regulations. This assistance includes, but is not
limited to, providing lists of qualified persons from which nominating
committees may identify potential candidates.\19\ Assistance of this
nature does not constitute improper interference with the work of the
nominating committee.
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\18\ ``Farm Credit Bank and Association Nominating Committees,''
issued March 8, 2007. This document is available on FCA's Web site.
From our home page at www.fca.gov, click on Bookletters from the
Quick Links menu.
\19\ Directors, officers, employees, and agents must avoid any
activity that could be construed as influencing the nominating
committee's vote on its slate of candidates.
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Some System commenters stated that there is little diversity in
their territory \20\ or that stockholders have not elected diverse
boards even when candidates were nominated who would have contributed
to diversity. We understand that some institution boards may find it
difficult to increase diversity among their elected board members.
However, if a board determines that it needs additional diversity, and
diverse members are not being elected, it should consider appointing
qualified directors, either as outside directors or as other appointed
(stockholder) directors.
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\20\ We note that large numbers of women are present even in
areas that may lack other characteristics of diversity.
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Some System commenters stated that FCA should not suggest that
boards should appoint additional directors, whether or not they are
qualified, only to achieve board diversity. We are not suggesting this.
We note that BL-009 states that institution boards may appoint
directors for specific public policy purposes, such as facilitating
diversity or acquiring needed skills. This regulation complements that
Bookletter by requiring boards to assess whether their needs include
additional skills or increased diversity.
A number of System commenters stated that FCA already has enough
regulations in the area of governance, that the process is working
well, and that any more regulation in this area would pose an undue
burden. System commenters also stated that FCA has no authority over
governance because the Act provides that board qualifications are set
forth in institution bylaws and FCA has no authority, whether direct or
indirect, to approve bylaws.
This rule does not specify board qualifications, nor does it impose
board composition requirements. The existing rule required boards to
assess their needs, and the new requirements specify that diversity is
among the needs that must be assessed. Requiring boards to assess a
need for diversity does not constitute approval of bylaws. And, since
boards are already required to assess all of their needs, whether or
not those needs are itemized, expressly identifying certain needs in
the regulation does not pose an extra burden.
A number of non-System commenters urged FCA to require System
boards to include members of historically underserved farming
communities, community-based organizations that serve socially
disadvantaged or limited resource farmers, and local and regional
farmers and producers. They stated that in order to bring about
transformative change toward diversity and inclusion in the corporate
culture of System institutions, boards must actively incorporate the
unique perspective of these markets.
Consideration of this requirement is beyond the scope of this
rulemaking. Institutions may choose to seek out such potential
directors, as appropriate.
H. Redundancy in Requirement To Assess Management Capabilities
A number of System commenters stated that the preamble to the
proposed rule specified that institutions must perform a SWOT analysis
(strengths, weaknesses, opportunities, threats) as part of their human
capital and marketing planning. They stated that this requirement was
redundant because they believe that existing Sec. 618.8440(b)(2),
which requires the business plan to include an annual review of the
internal and external factors likely to affect the institution, already
requires a SWOT analysis.\21\
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\21\ FCA regulations do not use the term ``SWOT analysis.''
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However, neither the preamble to the proposed rule nor the proposed
rule itself required an overall analysis in either the human capital or
marketing plans. The proposed rule, therefore, is not redundant in this
respect, and we make no change in the final rule in that regard.\22\
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\22\ In both Sec. 618.8440(b)(7) and (b)(8), however, we revise
the language in the final rule to provide that the items required in
the human capital plan and the marketing plan may be contained in
other board-approved documents that are adopted annually, provided
the items are summarized in, and incorporated by reference into, the
human capital plan and the marketing plan, respectively. Therefore,
if an institution believes that an analysis it is conducting under
the existing rule satisfies the requirements of the final rule, it
does not need to conduct another, redundant analysis, as long as the
analysis is approved by the board, adopted annually, and summarized
in and incorporated into the human capital plan and marketing plan,
as appropriate.
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We agree, however, that proposed Sec. 618.8440(b)(7)(ii), which
would have required the human capital plan to include a description of
the institution's workforce and management and an assessment of their
strengths and weaknesses, was redundant; existing Sec.
618.8440(b)(2)(i), which requires the business plan to include an
annual review of the internal and external
[[Page 25585]]
factors likely to affect the institution, already includes an
assessment of management capabilities.
We are finalizing the proposed human capital plan requirement,
which we are renumbering as Sec. 618.8440(b)(7)(i), without any
changes in the management assessment requirement.\23\ To eliminate the
redundancy, however, in the final rule we revise the existing business
plan requirement at Sec. 618.8440(b)(2)(i). The existing provision
requires the business plan to include an assessment of management
capabilities, while the revised provision requires the business plan to
incorporate the description and assessment of workforce and management
strengths and weaknesses required by Sec. 618.8440(b)(7)(i). The
existing business plan requirement as revised, therefore, no longer
requires an assessment of management capabilities; instead, it requires
incorporation of the description and assessment of workforce and
management strengths and weaknesses required by the human capital plan
requirement.
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\23\ We are making an unrelated change to this provision, which
we discuss elsewhere in this preamble.
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I. Confidentiality
A number of System commenters stated they should not be required to
include sensitive and confidential information pertaining to human
capital and marketing planning in their business plans, because
business plans are not privileged and may be disseminated to a broader
audience. These commenters requested that the regulation require that
business plans must incorporate a high-level summary of this
information. Many non-System commenters, on the other hand, suggested
that FCA should require institutions to make their marketing goals and
progress reports public.
The objectives of this rule are, in pertinent part, to ensure that
institution boards consider diversity and inclusion in their human
capital and marketing planning. These requirements are intended to
provide information for boards to consider candidly as they engage in
planning, not for public disclosure. Accordingly, both Sec.
618.8440(b)(7), governing human capital planning, and Sec.
618.8440(b)(8), governing marketing planning, provide that the items
that are to be included in the plans may be contained in other board-
approved documents that are adopted annually, provided the items are
summarized in, and incorporated by reference into, the plans. This will
enable boards to address sensitive and confidential information in more
confidential documents while still ensuring that summaries are included
in business plans.
J. Marketing Plan Requirements for Banks and Service Corporations
Several System commenters stated that requiring marketing outreach
is problematic for Farm Credit Banks (FCBs), which do not engage in
direct lending operations but instead provide loan funds to the direct
lender associations. Moreover, service corporations chartered under
section 4.25 of the Act typically also do not engage directly with
retail customers. We agree with these comments and revise Sec.
618.8440(b)(8) to apply to System institutions in their exercise of
title III lending authorities \24\ as well as to direct lender
associations.
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\24\ Currently, there is one agricultural credit bank, which has
the authority of an FCB and also the title III authority of a bank
for cooperatives; in addition to providing loan funds to direct
lender associations, it makes loans to agricultural, aquatic, and
public utility cooperatives.
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Although FCBs and service corporations are not subject to the
marketing plan requirements of Sec. 618.8440(b)(8), they should ensure
that they do not do anything to impede the objectives of this
regulation nor the ability of subject System institutions to comply
with the regulation.
K. Compliance Date for Requirements
Several System commenters requested that FCA not require compliance
with these requirements in the middle of the planning year. We agree
with this request. Accordingly, we will require compliance beginning
with the 2013 business plan.\25\
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\25\ Under Sec. 618.8440(a), each institution board must adopt
a business plan no later than 30 days after the commencement of each
calendar year.
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VII. Section-by-Section Analysis
A. Section 618.8440(a)
For clarity and ease of reference, we are adding a heading,
``Business Plan Requirement,'' to this paragraph. Also for clarity, we
are changing ``shall'' to ``must.''
B. Section 618.8440(b)
For clarity and ease of reference, we are adding a heading,
``Content of Business Plan,'' to this paragraph.
1. Section 618.8440(b)(2)
Existing Sec. 618.8440(b)(2) provides that the business plan must
include an annual review of the internal and external factors likely to
affect the institution during the planning period; this provision is
unchanged in the revised rule.
As discussed above in our response to comments, we revise Sec.
618.8440(b)(2)(i) to eliminate the redundancy created by the new human
capital plan provision. Existing Sec. 618.8440(b)(2)(i) provides that
the required review must include an assessment of management
capabilities. The new human capital plan provision (discussed below)
requires a description of the institution's workforce and management
and an assessment of their strengths and weaknesses. We revise Sec.
618.8440(b)(2)(i) to provide that the review must incorporate the
description and assessment of workforce and management strengths and
weaknesses required in the human capital plan.
Also, as discussed above in our response to comments, we revise
Sec. 618.8440(b)(2)(ii) to explicitly require that the assessment of
board needs included in the business plan must specifically include
skills and diversity. Existing Sec. 618.8440(b)(2)(ii) provides that
the required review must include an assessment of the needs of the
board, based on the annual self-evaluation of the board's performance.
This revision clarifies that the board's assessment must specifically
include diversity and skills as potential needs.
We are making several minor grammatical changes to this provision
that are necessary because of the revisions we have discussed.
2. Section 618.8440(b)(6)
We are correcting an erroneous citation in this section.
3. Section 618.8440(b)(7)
New Sec. 618.8440(b)(7) requires each institution to include a
human capital plan, which must include specified items, in its business
plan. As explained above, the specified items may be contained in other
board-approved documents that are adopted annually, provided the items
are summarized in, and incorporated by reference into, the human
capital plan. Accordingly, if an institution has a separate human
capital plan, AAP plan, or other document that contains the items that
are required to be included in the human capital plan component of the
business plan, the institution can use that other document to satisfy
the business plan requirement, as long as the other document is
approved by the board annually, as the business plan itself is, and the
items are summarized in, and incorporated by reference into, the human
capital plan component of the business plan. If the other document does
not include these items, however, or if the board does not approve the
other document, then the board will have to include the required
[[Page 25586]]
items in the human capital plan component of the business plan.
New Sec. 618.8440(b)(7)(i) requires the human capital plan to
include a description of the institution's workforce and management and
an assessment of their strengths and weaknesses. New Sec.
618.8440(b)(7)(ii) requires the human capital plan to include a
description of the institution's workforce and management succession
programs. New Sec. 618.8440(b)(7)(iii) requires the human capital plan
to include strategies and actions to strive for diversity and inclusion
within the institution's workforce and management. In consideration of
comments that we received, these provisions contain several changes
from what was proposed. We discuss the reasons for these changes above,
in our response to comments.
4. Section 618.8440(b)(8)
New Sec. 618.8440(b)(8) requires each institution in its exercise
of title III lending authorities \26\ and direct lender association to
include a marketing plan, which must include specified items, in its
business plan. The requirement does not apply to FCBs, which do not
engage in direct lending operations but instead provide loan funds to
the direct lender associations, or to service corporations chartered
under section 4.25 of the Act, which typically also do not engage
directly with retail customers. However, FCBs and service corporations
should ensure that they do not do anything to impede the objectives of
this regulation nor the ability of subject System institutions to
comply with this regulation.
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\26\ Currently, there is one agricultural credit bank which, in
pertinent part, exercises title III authority by making loans to
agricultural, aquatic, and public utility cooperatives.
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As explained above, the specified items that must be included in
the marketing plan may be contained in other board-approved documents
that are adopted annually, provided the items are summarized in, and
incorporated by reference into, the marketing plan. Accordingly, if an
institution has a separate marketing plan, YBS plan, or other document
that contains the items that are required to be included in the
marketing plan component of the business plan, the institution can use
that other document to satisfy the business plan requirement, as long
as the other document is approved by the board annually, as the
business plan itself is, and the items are summarized in, and
incorporated by reference into, the marketing plan component of the
business plan. If the other document does not include these items,
however, or if the board does not approve the other document, then the
board will have to include the required items in the marketing plan
component of the business plan.
The marketing plan must strategically address how the institution
will further the objective of the Act, set forth in section 1.1(b),
that the System be responsive to the credit needs of all types of
agricultural producers having a basis for credit. The marketing plan
must include, at a minimum, the following:
A description of the institution's chartered territory by
market segment, including the characteristics of demography, geography,
and types of agriculture practiced; and
Strategies and actions to market the institution's
products and services to all eligible persons, with specific outreach
toward diversity and inclusion within each market segment.
To be able to describe its chartered territory, and to understand
whom it should be striving to reach, an institution must know the
market segmentation of its territory. Market segmentation is the
identification of portions of the market that are different from one
another and can include, but is not limited to, characteristics such as
demography, geography, and types of agriculture practiced. Market
segmentation allows a business to better satisfy the needs of its
potential customers.
A vast amount of demographic information, down to the county level,
is available on the Web sites of the Census of Agriculture,\27\ the
U.S. Census Bureau,\28\ and the U.S. Department of Agriculture's
Economic Research Service.\29\ As discussed above, because this rule
does not require specific outcomes or quantifiable results, an
institution should not compare its lending against this demographic
data. Rather, the institution should use this data to gain knowledge of
the characteristics of its chartered territory. With this knowledge,
the institution can determine whether there may be potential eligible
borrowers it can reach out to through better marketing and outreach
methods. If an institution believes other reliable data would better
provide this information, it may use that data instead.
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\27\ www.agcensus.usda.gov.
\28\ www.census.gov.
\29\ www.ersusda.gov/data/ruralatlas.
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In consideration of comments we received on these provisions, the
revised rule contains several changes from what was proposed. We
discuss the reasons for these changes above in our response to
comments.
We are also making several minor, nonsubstantive changes to this
provision for clarity.
C. Section 618.8440(c)
Section 618.8440(c) is titled ``Board Reporting Requirements.''
This provision requires each institution to report annually to its
board of directors on the progress the institution has made in
accomplishing the strategies and actions in the human capital plan and,
as applicable, the marketing plan.
This provision was not in the proposed rule. Instead, the proposed
rule would have required the human capital and marketing plans to
include an assessment of the progress the institution had made in
accomplishing the strategies and actions in the plans. We made this
change for several reasons. First, as discussed above in our response
to comments, a number of System commenters were concerned that the word
``assessment'' implied data-driven results. We did not mean data-driven
results with our use of the term assessment; therefore, to avoid
confusion, we do not use that term here. Second, we believe it is more
appropriate for the institution to provide progress reports to the
board rather than for the board to include progress reports in its
human capital and marketing plans. Although it is not stated explicitly
in the rule, we expect that boards will use the information in the
progress reports they receive to establish accountability and to
formulate the strategies and actions contained in their human capital
and marketing plans for the following year.
VIII. 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 final rule will 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 618
Agriculture, Archives and records, Banks, banking, Insurance,
Reporting and recordkeeping requirements, Rural areas, Technical
assistance.
For the reasons stated in the preamble, part 618 of chapter VI,
title 12
[[Page 25587]]
of the Code of Federal Regulations is amended as follows:
PART 618--GENERAL PROVISIONS
0
1. The authority citation for part 618 continues to read as follows:
Authority: Secs. 1.5, 1.11, 1.12, 2.2, 2.4, 2.5, 2.12, 3.1,
3.7, 4.12, 4.13A, 4.25, 4.29, 5.9, 5.10, 5.17 of the Farm Credit Act
(12 U.S.C. 2013, 2019, 2020, 2073, 2075, 2076, 2093, 2122, 2128,
2183, 2200, 2211, 2218, 2243, 2244, and 2252).
Subpart J--Internal Controls
0
2. Section 618.8440 is revised to read as follows:
Sec. 618.8440 Planning.
(a) Business plan requirement. No later than 30 days after the
commencement of each calendar year, the board of directors of each Farm
Credit System institution must adopt an operational and strategic
business plan for at least the succeeding 3 years.
(b) Content of business plan. The plan must include, at a minimum,
the following:
(1) A mission statement.
(2) An annual review of the internal and external factors likely to
affect the institution during the planning period. The review must:
(i) Incorporate the description and assessment of workforce and
management strengths and weaknesses required by paragraph (b)(7)(i) of
this section;
(ii) Include an assessment of the needs of the board, including
skills and diversity, based on the annual self-evaluation of the
board's performance; and
(iii) Include strategies for correcting identified weaknesses.
(3) Quantifiable goals and objectives.
(4) Pro forma financial statements for each year of the plan.
(5) A detailed operating budget for the first year of the plan.
(6) The capital adequacy plan adopted pursuant to Sec. 615.5200(b)
of this chapter.
(7) A human capital plan that includes, at a minimum, the items
specified in this paragraph (b)(7). These items may be contained in
other board-approved documents that are adopted annually, provided the
items are summarized in, and incorporated by reference into, the human
capital plan.
(i) A description of the institution's workforce and management and
an assessment of their strengths and weaknesses;
(ii) A description of the institution's workforce and management
succession programs; and
(iii) Strategies and actions to strive for diversity and inclusion
within the institution's workforce and management.
(8) For each Farm Credit System institution in its exercise of
title III lending authorities and direct lender association, a
marketing plan that strategically addresses how the institution will
further the objective of the Act, set forth in section 1.1(b) of the
Act, that the System be responsive to the credit needs of all types of
agricultural producers having a basis for credit. The marketing plan
must include, at a minimum, the items specified in this paragraph
(b)(8). These items may be contained in other board-approved documents
that are adopted annually, provided the items are summarized in, and
incorporated by reference into, the marketing plan.
(i) A description of the institution's chartered territory by
market segment, including the characteristics of demography, geography,
and types of agriculture practiced; and
(ii) Strategies and actions to market the institution's products
and services to all eligible and creditworthy persons, with specific
outreach toward diversity and inclusion within each market segment.
(c) Board reporting requirements.
(1) Each institution must report annually to its board of directors
on the progress the institution has made in accomplishing the
strategies and actions required by paragraph (b)(7)(iii) of this
section.
(2) Each institution subject to paragraph (b)(8) of this section
must report annually to its board of directors on the progress the
institution has made in accomplishing the strategies and actions
required by paragraph (b)(8)(ii) of this section.
Dated: April 19, 2012.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2012-10356 Filed 4-30-12; 8:45 am]
BILLING CODE 6705-01-P