This letter originally appeared in the Fall 2003 issue of Financial Partner (F.P.) magazine, Farm Credit of Maine's customer publication.

Since so much has been written in the national news recently about governance and accounting issues at selected American companies, we thought it might be helpful to review those aspects of our business with you again.

"In spite of our rigorous and time-tested practices, we expect to continue to make minor adjustments as industry practices and regulatory requirements change. ”

The board

Farm Credit has always operated with a clear separation between the board and management. Executives and senior managers cannot be board members under current bylaws. As many of you know, six of the seven directors are elected by the membership and must be eligible customer-members of the cooperative. An independent nominating committee selects candidates for these six elected positions.

The seventh director is the “outside” director, who is appointed by the six customer-elected directors. The outside director brings an important independent perspective to the board. Regulators now consider this type of nonowner independence as mandatory for certain regulated companies. In the future, we will consider if an additional outside director would add value to our current governance structure.

Regulatory practices

The customer-owned Farm Credit System is regulated by the Farm Credit Administration, an independent agency of the federal government. We operate within a strict set of guidelines and regulations for all financial reporting, both here at Farm Credit of Maine, within CoBank-affiliated institutions and within the national Farm Credit System.

Our steady financial performance, as detailed in our audited financial reports, is the basis for our strong position (low borrowing costs) in American and world financial markets.

In spite of our rigorous and time tested practices, we expect to continue to make minor adjustments as industry practices and regulatory requirements change. For example:

• The board’s executive committee recently spent a day with senior management, reviewing more than 40 policies, including policies directing board activities and internal controls. This committee work helps the board focus on core business and strategic issues at their regular board meetings. As defined in the bylaws, this committee is composed of the chair and vice chair, who are Bob Tetrault and Allaire Palmer, respectively.
• We are modestly expanding the charter for our board audit committee. In keeping with our tradition, we will ensure that our outside director is a member of that committee. The audit committee includes three directors: Dan Corey (chair), Bryan Bell and Rob Kuhn.
• All directors participate in training programs and other Farm Credit System activities. A few attended a governance retreat in November, and two directors recently served on speaker panels discussing good governance practices: Rob Kuhn at a CoBank customer meeting in St. Louis, Mo.; and Hank McPherson at the national Farm Credit directors conference in Lexington, Ky. Hank also serves on the public policy committee that coordinates public policy issues with Northeast Farm Credit associations and CoBank.
• Director and Chair Bob Tetrault remains very active around the Farm Credit System, serving on both the CoBank (Denver) and national Farm Credit Council (Washington D.C.) boards.
• The board is in the midst of a three year strategic planning cycle that involves an in-depth view of our strengths and weaknesses. The focus is on our competitiveness and continued ability to grow and remain profitable over the long term. Board members have engaged in discussions with our key strategic partners and analyzed our head-to-head competitiveness.

I have been very fortunate in my business career to have experiences with many board structures — some cooperative, some not. I have always believed that an underlying strength of Farm Credit, is our independent customer-driven and controlled board of directors. Never have I been more convinced of this than I am today.

Raymond J. Nowak
President and CEO
Farm Credit of Maine

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