Pub. 7 2012-2013 Issue 4

November | December 2012 31 Extraordinary Service for Extraordinary Members. Bert Ely’s FARM CREDIT WATCH ® Shedding Light on the Farm Credit System, America’s Least Known GSE © 2012 Bert Ely FCSA’s Black Hills “Cabin” Sells for $2.1 Million O N OCT. 11, AN AUCTION WAS held on a 6,500-square-foot “cabin” in the Black Hills of South Dakota that had been foreclosed on by Farm Credit Services of America (FCSA), the FCS’ second- largest association. The “cabin” had been built for aHollywood TV producer and financed by FCSA, hardly the type of loan Congress envisioned when it created the FCS to provide credit to farmers and ranchers unable to obtain credit from other sources. The auc- tioneer divided the 55-acre property into two parcels: the “cabin” on one parcel and other buildings, including a 2,100-square-foot “guest house,” on the other parcel. Given the amount of land involved, the luxurious design of the main cabin, and all the fancy facili- ties including a Barnmaster Equestrian barn, a Morton shop building, and much, much more, a $2.1 million sell- ing price almost certainly does not cover what FCSA lent on this “farm.” It will be interesting to see what FCSA has to say about the size of its loss on this loan in its third-quarter report to its member-borrower-shareholders. FCA Orders Greater Transparency on FCS Pay On Sept. 13, the Farm Credit Ad- ministration (FCA), the FCS’ regulator, issued a final regulation on senior officer compensation disclosures and related topics. To say that FCS insiders (officers and directors) do not like the proposed regulation is an understatement. According to the FCA, it received 458 comments from individuals and entities associated with the FCS. In reviewing the list of those who commented, I did not spot a single letter coming from out- side the FCS. The letter writers were overwhelmingly opposed (if not uni- versally opposed, although I did not read every letter) to the FCS’ many common-sense proposals that would increase the transparency of the compensation and benefits, including retirement plans and severance pay, of FCS officers and directors. Even more controversial than the increased compensation disclosures is a required “say on pay” vote on executive compensation. The rule gives an FCS institution’s “share- holders the opportunity to cast a non-binding, advisory vote on senior officer compensation. The vote would be required if either the CEO’s or the aggregate of all other senior officers’ compensation . . . increased or decreased by 15 percent or more from the previous reporting period. . . association shareholders [also could] petition for a vote at any time.” As the FCA reported, “All commentators strongly objected to the non-binding advisory vote and asked that it be withdrawn.” FCA further reported that “most com- mentators expressed a view that advisory votes do not further coop- erative principles or promote the safety and soundness of the [FCS] and would have a negative impact on the cooperative business model . . . [and] would result in undermining the discretion and decision-making authority of the board and the com- pensation committee.” Still other commentators stated that “say on pay” is “an unfair expectation of the [FCS] membership.” Fortunately, the FCA ignored this nonsense when finalizing its rule. Under federal rules governing new regulations, a regulation “made final” by an agency such as the FCA does not take effect until “30 days after publication in the Federal Register during which either or both Houses of Congress are in session.” Congress is now in recess for the elections and will not return to Washington for a “lame duck” session until Tuesday, Nov. 13. Therefore, the earliest this regulation can take effect would be in mid-December, and possibly not until early January. Given overwhelm- ing opposition from within the FCS to greater compensation disclosure and “say on pay,” FCS insiders quite likely are expressing their objections to members of Congress, and espe- cially to members of the Agriculture Committees, while they are campaign- ing. It will be interesting to see if an Ag Committee holds a hearing on this regulation during the lame duck ses- sion, signaling to the FCA that it needs to reconsider the regulation. Congress might go even further and block the regulation through the Farm Bill or a Farm Bill extension it will likely enact during the lame duck session. Q FCW — continued on page 32