COMMISSION REPORT - World Banksiteresources.worldbank.org/NEWS/Resources/WB... · Report of the...

RepoweringtheWorldBankforthe21stCentury

ReportoftheHighLevelCommissiononModernizationofWorldBankGroupGovernance

October2009

iii

CommissionMembersMontekSinghAhluwaliaDeputyChairmanofthePlanningCommission,IndiaArminioFragaFormerPresidentoftheCentralBankofBrazilRimaKhalafFormerU.N.AssistantSecretaryGeneral,formerDirectoroftheRegionalBureauforArabStatesattheUNDP,andformerDeputyPrimeMinisterofJordanJohnKufuorFormerPresidentofGhanaPascalLamyDirector‐GeneraloftheWorldTradeOrganizationSadakoOgataPresidentoftheJapanInternationalCooperationAgencyandformerUnitedNationsHighCommissionerforRefugeesJohnF.W.RogersSecretarytotheBoard,GoldmanSachsShritiVaderaMinisterforEconomicCompetitivenessandSmallBusinessandformerParliamentaryUnder‐SecretaryofStateintheDepartmentforInternationalDevelopment,UnitedKingdomHermanWijffelsFormerWorldBankExecutiveDirectorandformerChairmanoftheBoardofRabobankZhouXiaochuanGovernorofthePeople’sBankofChinaErnestoZedillo(Chair)DirectoroftheYaleCenterfortheStudyofGlobalizationandformerPresidentofMexico

v

AcronymsandabbreviationsDC DevelopmentCommitteeEVP ExecutiveVice‐PresidentGNI grossnationalincomeGPG globalpublicgoodHIPC heavilyindebtedpoorcountriesIBRD InternationalBankforReconstructionandDevelopmentICSID InternationalCenterfortheSettlementofInvestmentDisputesIDA InternationalDevelopmentAssociationIEG IndependentEvaluationGroupIFC InternationalFinanceCorporationMDB multilateraldevelopmentbankMDGs MillenniumDevelopmentGoalsMDRI MultilateralDebtReductionInitiativeMIC middle‐incomecountryMIGA MultilateralInvestmentGuaranteeAgencyOECD OrganizationforEconomicCooperationandDevelopmentWTO WorldTradeOrganizationUNDP UnitedNationsDevelopmentProgramTheCommissionwishestothankLeonardoMartinez‐DiazwhoservedwithexcellenceasExecutiveDirectoroftheproject.TheCommissionersalsoexpresstheirappreciationtotheothermembersoftheSecretariat,includingPaulMcCulloch,NataliaDanilova,SeanSinger,andJadePilanun,aswellastoHaynieWheeleroftheYaleCenterfortheStudyofGlobalization,fortheirassistance.ManythanksgoalsotoNatalieLichtenstein,whoservedasSeniorAdvisortotheCommission.AlthoughitsmembersjoinedtheCommissionattherequestofthePresidentoftheWorldBank,thisCommissionisfullyindependent.ThereportreflectsstrictlypersonalviewsofthemembersoftheCommissionandisinnowayanexpressionoftheirviewsintheirofficialcapacitynoroftheviewsofanygovernmentororganizationwithwhichtheyareaffiliated.EachmemberoftheCommissionendorsesthereportasawholebutdoesnotnecessarilysubscribetoeverystatementandrecommendationinthetext.

vii

ContentsEXECUTIVESUMMARY ................................................................................................................................ IX

I. INTRODUCTION...................................................................................................................................1 Theimperativeofenhancedglobalcooperation.....................................................................................1 TheWorldBankGroup’scontribution.........................................................................................................1 Whygovernancematters...................................................................................................................................4 Awindowofopportunity...................................................................................................................................5

II. THEWORLDBANK’SMISSIONINTHEEARLY21STCENTURY ............................................................7 Focusingonthecoremission:growth,development,andpovertyreduction ...........................7 Advancinganoriginalmandate:assistingconflict‐affectedcountries ..........................................9 Rethinkingatraditionalmission:lendingtomiddle‐incomecountries........................................9 Strengtheningacorecompetency:knowledge ..................................................................................... 11 Preparingforthefuture:globalpublicgoods........................................................................................ 12 Preparingforthefuture:preventingandmitigatingshocks........................................................... 14 Preparingforthefuture:securingadequateresources .................................................................... 15

III. ASSESSMENTOFWORLDBANKGROUPGOVERNANCE.................................................................... 16 Principlesofgoodgovernance ..................................................................................................................... 16 Existingstructure............................................................................................................................................... 17 TheDevelopmentCommittee ................................................................................................................. 19 TheExecutiveBoard................................................................................................................................... 19 Management................................................................................................................................................... 20

Strategyformulation......................................................................................................................................... 20 A“strategygap”............................................................................................................................................. 21

Voiceandparticipation.................................................................................................................................... 23 Votingpowerallocationanddecision‐makingarrangements ................................................. 24 ExecutiveBoardcomposition................................................................................................................. 29

Accountability...................................................................................................................................................... 30 Divisionoflaborandresponsibilities ................................................................................................. 30 DualdutyofExecutiveDirectors........................................................................................................... 31 AccountabilityofthePresidentandseniorManagement .......................................................... 33 Independenceofevaluationandoversightbodies........................................................................ 35

IV. RECOMMENDATIONS ....................................................................................................................... 36 Recommendation1.Enhancevoiceandparticipation....................................................................... 37 Boardcomposition ...................................................................................................................................... 37 Votingpowerallocation ............................................................................................................................ 38

Recommendation2.RestructuretheWBG’sgoverningbodies ..................................................... 39 ElevatingandreorientingtheBoardofDirectors.......................................................................... 39 CouncilofRepresentatives ...................................................................................................................... 41

Recommendation3.Reformtheleadershipselectionprocess ...................................................... 42 Recommendation4.StrengthenManagementaccountability........................................................ 43 Presidentialperformancereview ......................................................................................................... 43 Strongersafetynetunits........................................................................................................................... 43 Accesstoexternalexpertise .................................................................................................................... 44

viii

Recommendation5.StrengthentheWBG’sresourcebase.............................................................. 45

V. CONCLUSION .................................................................................................................................... 46 BoxesBox1.TheWorldBankGrouptoday ................................................................................................................2 Box2.ParallelsinWorldBankandInternationalMonetaryFundgovernance .........................18 TableTable1.Votingpowersharesofthetoptwentyshareholders(2009)...........................................24

ix

ExecutivesummaryRecenteventshavehighlighted—againandpainfully—howimportantitisintheenlightenedself‐interestofcountriestocooperatewitheachother.Theimperativeofrealizingthefullbenefitsofglobalizationwhilemanagingitscostsandrisks—addedtotheneedtocloselong‐standinginternationaldevelopmentgaps—isapowerfulreasontobemoresupportiveofmultilateralinstitutions.Underpressurefromtheglobaleconomiccrisis,anewdialoguehasemergedinvariousforums,includingtheG20,wherethepursuitofmorecooperativeapproachestocommonchallengesisgainingsomeground.ReformingtheWorldBanksoitcanmeetthechallengesitislikelytoconfrontintheearly21stcenturyshouldbeakeypartofthatendeavor.Morethansixtyyearsafteritsfounding,theWorldBankGroup(“WBG,”“theGroup,”or“WorldBank”)occupiesacentralplaceintheglobalmultilateralarchitecture.Thankstokeystrengthsthatcompriseitscomparativeadvantage—amongthem,itscapacitytoraiseandchannelresourcesfordevelopment,itsstockofcross‐countrydevelopmentknowledge,anditshighlytrainedstaff—theorganizationhasmadevitalcontributionstohumanwelfare.Asaresult,theWorldBankGroupiswidelyseenasrelevanttodayandasapotentiallyhighlyvaluableinstrumentforaddressingglobaldevelopmentchallengesincomingdecades.TheworldwillexpectmorefromtheWorldBankGroupinthefuture.Theinstitutionwilllikelybeaskedtotakeonamoreactiveroleinhelpingthemembershipaddresscrucialglobalchallenges,includingthoseinvolvingglobalpublicgoods.Someofthesechallengesarelikelytobeunprecedentedintheirurgencyandcomplexity.TheWorldBankGroupisstronglypositionedtohelpitsmembersmeetthesechallenges,tocatalyzecooperativeapproachestotacklethem,andtohelpdesignandfinancemultilateralsolutions.ButtheWorldBankwillnotbeabletoperformthisroleeffectivelyunlessitdealswithkeyinstitutionalweaknessesthatundercutitsmanystrengths.Currentmechanismsforstrategyformulationarenotadequateforsettingprioritiesandguidingoperations.Missioncreepisendemic,weakeningaccountabilityforresultsandincreasingtheriskthatresourceswillbemisallocatedorspreadtoothin,underminingtheinstitution’seffectiveness.TheGroup’sdecision‐makingprocessiswidelyseenastooexclusive,offeringmanymembercountriestoolittlevoiceandtoofewopportunitiesforparticipation.InsufficientinstitutionalaccountabilityforresultsweakenstheWorldBank’seffectivenessandlegitimacy.Andcertainconventionsandpracticeshavecontributedtotheperceptionthattheinstitutionisaccountableandresponsiveonlytoahandfulofshareholdersatbest.TheseweaknessesspringinlargemeasurefromthefactthattheWorldBank’sgovernance—forgedinthe1940s—hasnotkeptupwithhistoricalchangeandtodayisnotadequatetodealwithglobalproblemsthatrequireforward‐looking,flexible,inclusive,andlegitimatemultilateralinstitutions.EquippingtheWorldBankGrouptomeettheglobalchallengesofthe21stcenturyrequiresrethinkingtheinstitution’sgovernancearrangements.By“governance”wemeanthesetof

x

formalandinformalstructures,conventions,andrulesthatdeterminehowanorganizationissteeredandhowitsdecision‐makingprocesseswork.SummaryfindingsTheWorldBankGroup’sexistinggovernancestructurehasseveralstrengths.Theprincipleofrepresentingmembercountriesintheorganization’sgoverningbodiesthroughconstituenciesprovidesausefulmechanismforbalancingrepresentationanddecision‐makingefficiency;theuseofconstituencieshasallowedtheWorldBank’smembershiptoquadruplewithoutparalyzingdecisionmaking.Also,thelinkbetweenshareholdingandvotingprovides,atleastinprinciple,arelativelyflexiblesystemthatallowstheallocationofvotingpowertoadapttochangingconditions.However,theCommissionfoundimportantshortcomingsinthreeareasoftheGroup’sgovernance:strategyformulation,voiceandparticipation,andaccountability.StrategyformulationTheWorldBankGroup’scurrentgovernancearrangementsdonotsupportanadequatestrategyformulationprocess:

• ThoughtheGroupregularlyproducesaconstantstreamof“strategic”documents,theinstitutioncurrentlylackseffectivemeanstoformulateaclearstrategythatcanbeusedtosetpriorities,balancetradeoffs,andalignoperationsandresourceswithstrategicgoals.Inaddition,therearenomechanismsthroughwhichtheshareholderscanengagemeaningfullyinstrategyformulationattheappropriatelevelofseniority;theDevelopmentCommitteeandtheExecutiveBoard1,ascurrentlystructured,lackthecapacitytoplaythisroleeffectively.

• TheDevelopmentCommittee’sroleinstrategyformulationisconstrainedbyits

advisorynature,itslimitedtoolsformonitoringimplementationofitscommuniqués,andtheproformanatureofitsmeetings,whichreducesopportunitiesforfrankandopenexchangesamongtheCommitteemembers.ThelegitimacyoftheCommittee,likethatoftheExecutiveBoard,isunderminedbyimbalancesinvoiceandparticipation.

• TheExecutiveBoard’sroleinstrategyformulationislimitedbythefactthatneither

theBoardnorindividualDirectorsareformallyheldresponsiblefortheWorldBankGroup’soverallstrategicdirection.Also,giventheBoard’smanyotherresponsibilities,thebodyhasinsufficienttimetodevotetostrategicmatters.TherelativelackofpoliticalseniorityofmanyExecutiveDirectorsandtheinsufficientclarityastowherestrategy‐settingresponsibilityliesmayallowthePresidentto

1IBRD,IDA,IFC,andMIGAeachhavetheirownboards.Inpractice,however,theboardscomprisevirtuallythesamepeople,sothatthebodiesarebestunderstoodasasingleExecutiveBoardthatmeetsindifferentguises,dependingontheissuebeingdiscussed.

xi

sidelinetheBoardinmattersofstrategyformulation.Finally,with25chairs2,theBoardistoolargetoserveasaneffectivestrategy‐settinganddecision‐makingbody.

• StrategiesgeneratedbyManagementtendtobeoverlappingandall‐encompassing,

rarelyprovidingeffectiveoperationalguidanceoraframeworkformakingjudgmentsaboutpriorities.Instead,strategydocumentsaredesignedtofinddraftingsolutionsthataccommodateallinterests.DecisionsofstrategicsignificancearethenlefttoManagement,tobemadeaspartoftheorganization’sday‐to‐daybusiness.Thisreducesshareholderinvolvementinstrategicdecisionsandpreventsthetransparentmanagementoftradeoffs.

VoiceandparticipationTheCommissionidentifiedseveralconcernsregardingtheallocationofvotingpoweranddecision‐makingarrangementsinseveralarmsoftheGroup:

• IntheInternationalBankforReconstructionandDevelopment(IBRD),theshareofbasicvotesintotalvotingpowerhaserodedsignificantlysincetheBank’sinception,whenbasicvotesaccountedforalmost11percentoftotalvotes.ThishasprimarilyaffectedthevoiceandparticipationoftheBank’ssmallestandpoorestmembers.Despitearecentdecisiontoincreasebasicvotesfromthecurrent2.86percenttoafixedlevelof5.5percentoftotalvotingpower,thislevelremainslowbyhistoricalstandardsandrelativetothoseinothermultilateraldevelopmentbanks.ThesameconcernholdstruefortheInternationalFinanceCorporation(IFC),wheretheshareofbasicvoteshaserodedfrom12.28percenttojust1.82percenttoday.

• IntheIBRDandIFC,theshareholdingsandvotingpowerofsomecountriesappear

toosmallrelativetotheirweightintheglobaleconomy.ArelatedproblemisthehistoricallinkagebetweenIBRD(andIFC)shareholdingandInternationalMonetaryFund(IMF)quotas.CertainindicatorsthatareusedtocalculatequotasattheIMF—acountry’slevelofeconomicopenness,variabilityofcapitalflowsandthecurrentaccount,andlevelsofinternationalreserves,inparticular—areofquestionablerelevancetotheWorldBank,whosemandateandmissiondifferfromtheIMF’s.

• TherearecurrentlynoautomaticandperiodicreviewsofshareholdingintheIBRD.

ThisdeprivestheBankofadynamicmechanismtoensurethatshareholdingandvotingpowerallocationadaptrelativelysmoothlytochangingconditions.Thecurrentsysteminevitablyandperiodicallygivesriseto“voicegaps”thatmustthenbemitigatedthroughadhoc,highlypoliticized,andusuallydivisivenegotiations.

• IntheIBRDandIFC,asignificantgapremainsbetweenthevotingsharesofdevelopinganddevelopedcountriesasgroups,eventhoughtherearestronggroundstoarguethatabroadprincipleofequitybetweenbothgroupsofcountries

2TheBoardofGovernorshasapprovedtheadditionofa25thchairtotheExecutiveBoardin2010.

xii

oughttogoverntheallocationofsharesandvotingpower,asitdoesalreadyinotherarmsoftheGroup.

• Theallocationofvotingpowerandthespecialmajoritythatisrequiredfor

amendingtheArticlesofAgreementgiverisetotheso‐called“U.S.veto,”which,asidefromitspracticalimplications,contributestothewidespreadsensethattheinstitutionisdominatedbyitslargestshareholder.

• IntheInternationalDevelopmentAssociation(IDA),theexistingsystemof

allocatingvotingpowerbasedoncumulativecontributionsisproblematic.Currently,contributionsarenotdiscountedfortheirtimevalue,sothatcontributionsmade,forexample,in1960,andthosemadeinthelatestroundofIDAreplenishmentconferthesamedegreeofvoiceontheBoard.Yet,historicalcontributionsprovidelessfundingforIDAtodaybecausenominalreflowsonIDA'shighlyconcessionalloansaregradualandlosefinancialvalueovertheir40‐yearrepaymentperiod.Thearrangementfallsshortonfairnessgroundsanddoeslittletoencouragenewcontributions.

• ThearrangementwherebytheIDADeputieseffectivelyhaveafinalsayon

substantivedecisionsconcerningIDAandsometimesexertinfluenceonIBRDpolicyraisesgovernanceconcerns,asitreducestransparencyandaccountabilitybycircumventingtheWBG’sformalgovernancestructures.

SeveralconcernswereidentifiedregardingthecompositionoftheBoardofExecutiveDirectors:

• EuropeancountriesappeartobeconsiderablyoverrepresentedintermsofthenumberofchairstheyoccupyintheGroup’sExecutiveBoards.Dependingonrotationschemes,Europeancountriesoccupyeightorninechairsatanygiventime—32or36percentofthechairsinthe25‐chairBoard.Thelargenumberofchairsfromasingleregionisahistoricallegacythatnolongerseemsappropriateforaglobalinstitutionandatransformedglobaleconomy.WhilesomeEuropeancountriesremaingenerousdonorstoIDA,itisnotclearwhythisshouldtranslateintochairsintheIBRD,IFC,andMIGAboards.ThelargerproblemistheabsenceoftransparentandfairprinciplestogovernthedistributionofchairsontheBoard.

• CertainBoardconstituenciesareovercrowded:whileeightExecutiveDirectors

representonlyonecountryeach,Directorsattheotherendofthespectrumrepresentabout16countrieseach.Thisissignificantbecausethelargertheconstituencies,theweakerthevoiceofeachmemberandthefewertheopportunitiestoparticipateindecision‐making.Comparedtootherinternationalorganizationswithsimilarmemberships,theWorldBankhasalargeaverageconstituencysize.

xiii

Accountability

• ThedivisionoflaborbetweenBoardandManagementintheWBGisambiguous.Insomeinstances,disputesemergeoverwhetheraparticulardecisionisManagement’storecommendandtheBoard’stoapproveorturndown,orwhetheritfallsundertheBoard’sprerogativetodirectthePresident.Thisambiguitymakesitdifficulttoascertainwhoisresponsibleandwhoshouldbeheldaccountable.

• TheBoardsharesamanagerialrolewiththePresidentandthereforecannothold

himorheraccountableinmanyareaswithoutalsopassingjudgmentonitsownperformance.ThisgivesrisetoaconflictofinterestthatcompromisestheBoard’scapacitytocarryouteffectivelyitsoversightfunction.

• ThePresident’sroleaschairmanoftheExecutiveBoardcreatesaconflictofinterest,

absentpropermechanismstoensurethattheBoardcanactindependentlyandoverridethechairman,whennecessary.Theconflictofinterestisespeciallypronouncedwhen,inthePresident’sabsence,membersofseniorManagementchairBoarddiscussionsdealingwithissuesdirectlyundertheirresponsibility.

• TheleadershipselectionprocessattheWorldBankGroupisopaqueandexcludes

mostofthemembership.Thereisnoformal,transparentprocessforcandidatesearches.TheunwrittenconventionthatthePresidentoftheWorldBankmustbeaU.S.national(andtheManagingDirectoroftheIMFmustbeEuropean)persists.UnwrittennationalityrestrictionsalsopersistfortheExecutiveVice‐PresidentswhoheadtheIFCandtheMultilateralInvestmentGuaranteeAgency(MIGA).

• Theexistingframeworkforpresidentialaccountabilityneedsstrengthening.While

CodesofConductfortheBoardandforStaffandtheprovisionsofthePresident’sappointmentletterguardagainstcertaintypesofmisconductandethicsviolationsbythechiefexecutive,theydonotprovidestandardsforjudgingkeyaspectsofpresidentialperformance.SimilarconcernsapplytotheExecutiveVice‐PresidentswhoheadMIGAandtheIFC.

• ThoughExecutiveBoardworkrequiresaverydiversemixofcapabilitiesandskills

tooverseethecomplexactivitiesoftheGroup,thereiscurrentlynomechanismtoensurethattheindividualsappointedasExecutiveDirectorshaveappropriateprofessionalskillsandexperience,orthattheBoardasawholehastherequisitemixofskillsandcapabilities.TheproblembeginswiththeabsenceofstandardizedjobdescriptionsandqualificationsforDirectors.

• TheoperationaldemandscurrentlyplacedontheBoardleaveinsufficienttimefor

monitoring,evaluation,andotheroversightactivities.

xiv

• ThedelineationofresponsibilitiesamongtheGroup’ssafetynetunits3isnotalwaysclear,andtheirincompletecoveragegivesrisetoaccountabilitygaps,someofwhichcametolightduringtheWorldBank’sleadershipcrisisinthespringof2007.Also,certainpracticesreducetherealandperceivedindependenceofthesafetynetunits.

SummaryrecommendationsThefivemainmeasuresrecommendedinthereporthaveaunifyinglogic.Theyaremutually‐reinforcingandinterdependent—theywillonlyhavetheirintendedeffectiftheyareadoptedandimplementedasasinglepackage.Recommendation1.Enhancevoiceandparticipation

• Boardconsolidation.TheCommissionrecommendsadoptingaBoardofDirectorsthatisrelativelycompactandthereforemoreefficientandeffective.TheWorldBankGroup’sBoardshouldbereducedinsizeto20chairsfromthecurrent25.BoardconsolidationshouldbeachievedinpartbyreducingthenumberofEuropeanchairsbynolessthanfour.

• Electedchairs.TheBoardshouldeventuallybecomposedentirelyofelectedchairs

representingmulti‐countryconstituencies.Tothatend,thefivecurrentlyappointedchairsshouldbetransformedintoelectedchairs,andaceilingshouldbeplacedonthenumberofcountriesineachconstituency(forexample,tenperconstituency)toensureamoreevendistributionofmembersacrossthegroups.4

• Allocationofvotingpower.TheCommissionrecommendsthatthefollowing

principlesgoverntheallocationofvotingpowerattheIBRD,IFC,andIDA:

o Automaticshareholdingreviews(totakeplaceeveryfiveyears)shouldbeintroducedintheIBRDandIFCtoensurethattheshareholdingstructuresanddynamicandkeepupwithchangesintheglobaleconomyandinthecircumstancesofmembercountries.

o ThehistoricallinkbetweenIMFquotasandIBRDshareholdingandvotingpowerallocationshouldbeabandoned.Bank‐specificprinciplesandformulasforshareholdingshouldbedeveloped,alongwithatransitionalarrangementfortheirgradualimplementation.

3ThesearetheIndependentEvaluationGroup(IEG),theInspectionPanel(IP),theComplianceAdvisor/Ombudsman(CAO),theIndependentAuditDepartment(IAD),theexternalauditors,theQualityAssuranceGroup(QAG),andtheIntegrityVice‐Presidency(INT).4ConvertingappointedtoelectedchairswillrequireamendingtheArticlesofAgreement,anendeavorthatwilltakesometimetoaccomplishevenifthepoliticalwillexists.Therefore,intheshortterm,Boardconsolidationalongthelinesproposedaboveshouldbeaccompaniedbyaregroupingofconstituenciessothatall15electedchairsrepresentmulti‐countryconstituencies.

xv

o WithorwithouttheintroductionofaBank‐specificshareholdingformula,theshareofbasicvotesintotalvotingpowerattheIBRDandIFCshouldberaisedandfixedatalevelmuchclosertowhatitwaswhentheorganizationswerecreated—10.78percentattheIBRDand12.28percentattheIFC.

o Thebalanceinvotingpowerbetweendevelopedanddevelopingcountriesin

theIBRDandIFCshouldbere‐examined,withaviewtowardachievinganevensplitbetweenthetwogroupsofcountriesintheIBRDandIFC.Oncereached,thisprincipleforallocationshouldremainflexibleenoughtoadapttochangesintheglobaleconomyandtothemigrationofcountriesfromonecategorytoanother.

o InIDA,votingpowerallocationshouldmoveawayfromthepracticeof

weightingequallyallcontributionsregardlessofage.Anappropriatediscountfactorshouldbeintroducedsothatrelativelyrecentcontributionsreceivemoreweightthanoldoneswhenallocatingvotingpower.Thiswillmakethesystemfairerandencouragecontributions.

o ThemajorityrequiredforamendingtheIBRD’sArticlesofAgreementshould

beloweredfrom85to80percent.Recommendation2.RestructuretheWBG’sgoverningbodies

• ElevatingtheWorldBank’sBoard.ThepresentBoardofExecutiveDirectorsshouldbereconstitutedastheWorldBankBoard.DirectorsshouldbeministersandtheirAlternatesofficialsatthedeputyorvice‐ministeriallevel.TheresponsibilitiesofthereconstitutedWorldBankBoardwouldincludeselecting,appointing,and(ifrequired)dismissingthePresident;settingtheGroup’soverallstrategyanddirection,takingintoaccountproposalsfromthePresident;makingmajorpolicydecisions;andconductinggeneraloversightoftheinstitution,includingperiodicallyreviewingthePresident’sperformance.TheBoardwouldmeetafewtimesayear,ratherthantwiceaweek,asitcurrentlydoes.

• DelegationtoManagement.Approvalofallfinancingoperationsshouldbe

transferredtoManagement.Thiswillenhancetheinstitution’sflexibilityandefficiencybyreducingthenumberofstepsnecessaryforloanapprovals.ItwouldalsofreeupconsiderableBoardandstaffresourcescurrentlydevotedtotheBoardreviewandapprovalprocess.DelegationwouldalsoincreaseaccountabilitybyeliminatingtheconflictofinterestinherentintheBoard’sco‐managerialroleandbyplacingresponsibilityforfinancingoperationsunambiguouslyontheshouldersofManagement.

xvi

• AnadvisoryCouncilofRepresentatives.TosupporttheBoard,anadvisorygroupofofficialsshouldbeorganizedasaCouncilofRepresentatives.5Eachconstituencywouldselectarepresentativethroughaprocesstobedeterminedinternallybyeachconstituency.RepresentativesshouldfulfillprofessionalqualificationsagreedbytheBoard.Decision‐makingauthoritywouldremainexclusivelywiththeBoard.

o TheCouncil’sresponsibilitieswouldincludereviewingbriefingpapersand

relateddocumentationnecessaryformeetingsoftheBoardanditscommittees;advisingtheBoardonissuesofoversightandtheperformanceoftherisk‐managementunits;anddiscussingandadvisingtheBoardonissuesofdevelopmenteffectivenessandinstitutionalperformance.

o TheCommissionrecommendsthattheCouncilofRepresentativesbein

residenceattheBank’sheadquartersforatransitionperiodofuptofiveyears.6Iftheaccountabilityframeworkandprocessesforrigorousoversightoftheinstitution’sactivitiesareinplacebythen,theremaybenooverwhelmingreasonwhytheCouncilofRepresentativesshouldremaininresidencyindefinitelyattheBank’sheadquarters.

• ChairingtheBoard.TherestructuredWorldBankBoardwouldselectachairman

fromamongitsmembersonarotatingbasis.ToensurethattheBoardremainsappropriatelyconnectedtotheinstitution,thePresidentwouldremainanon‐votingmemberoftheBoard.

Recommendation3.ReformtheleadershipselectionprocessTheCommissioncallsforapresidentialselectionprocessthatisrules‐based,inclusiveofthemembership,andcompetitive.Inaddition:

• Nominationsfromallqualifiedcandidatesshouldbewelcomed,regardlessoftheirnationality.Candidatesshouldbesponsoredbythegovernmentofamembercountry,thoughnotnecessarilybythegovernmentofthecandidate’sowncountryofcitizenship.

• TheselectionoftheExecutiveVice‐PresidentsofbothIFCandMIGAshouldcontinue

tobeledbythePresident,buttheprocessshouldberules‐basedandcompetitive,withoutformalorinformalrestrictionsonthenationalityofthecandidates.DescriptionsandqualificationsforbothpositionsshouldbedevelopedandapprovedbytheBoard.

5TheCouncilcouldbeestablishedthroughthesameprovisionsthatcurrentlyallowtheExecutiveBoardtocreatecommittees,exceptthattheCouncilwouldbeauniquetypeofcommittee.TheWorldBankArticlesgivetheBoardwidelatitudeintermsofcommitteemembershipandtherulestoselectcommitteemembers.6OnememberoftheCommissionfeltthataresidentCouncilofRepresentativesshouldbeapermanentfeature,astheresponsibilitiesoftheCouncilwouldneedcontinuinginvolvement.Accordingtothisview,developing‐countryconstituencieswouldalsobenefitfromanarrangementinwhichtheirofficialshaveanopportunitytointeractwithvariousaspectsofWBGpolicymakingdirectly.

xvii

GiventhedualnatureoftheunwrittenagreementthatreservestheBankpresidencytoaU.S.citizenandtheIMFManagingDirectorpositiontoaEuropeannational,itisimportantthattheleadershipselectionprocessesinbothinstitutionsbereformedinparallel,facilitatingthepoliticalbargainthatwillsurelyberequired.Recommendation4.StrengthenManagementaccountabilityTheCommissionrecommendsthreemeasuresforstrengtheningaccountability:

• Presidentialperformancereview.TheBoardshouldintroduceaframeworkfortheannualperformancereviewofthePresident.Theframeworkshouldprovideclearperformancecriteria,outlinehowthereviewprocessistowork,andproposehowassessmentsshouldbetranslatedintoincentives.TheperformancereviewcriteriashouldfocusonthePresident’simplementationofBoard‐approvedstrategies,onhisorherconductoftheordinarybusinessoftheGroup,andonthequalityoftheGroup’soutputs.

• Strongersafetynetunits.Severalconcretemeasuresshouldbeadoptedto

strengthentheGroup’ssafetynetunits:

o Aninstitutionalreviewofthesafetynetunitstoassessoverlaps,gaps,andinconsistenciesshouldbeundertakenandconcludedin2010.

o TheBoardshouldrevisethetermsofreferenceoftheIndependent

EvaluationGroup(IEG)to(1)requirethatamajorityofIEGstaffberecruitedfromoutsidetheWorldBankGroup;(2)introducecoolingoffperiodsofappropriatelengthtoendthe“revolvingdoor”dynamicbetweenregularIEGstaffandWorldBankstaff;and(3)ensurethattheIEGDirectorGeneralnolongerfunctionsasamemberoftheGroup’sseniorManagement.

o AsecondexternalevaluationoftheInstitutionalIntegrityVice‐Presidency

shouldbeconductedwithintwoyearstoensurethattherecommendationsoftheIndependentPanelReviewoftheWorldBank’sDepartmentofInstitutionalIntegrity(the“VolckerPanel”)havebeenfullyandproperlyimplementedandareproducingtheresultsintendedbythePanel.

o Aspartoftheinstitutionalreviewofthesafetynetunits,theBoardshould

considerwhethertheIFC’sComplianceAdvisor/Ombudsman(CAO)shouldcontinuereportingtoManagementonly,ratherthantotheBoard.Inaddition,theBoardshouldconsiderhowbesttoensurethattheCAOhasappropriatemeanstoensurethatitsrecommendationsareadoptedandimplementedbyManagement.

• Accesstoexternalexpertise.TheBoardshouldmakemoreextensiveuseof

externalevaluationstoassesscriticalaspectsoftheGroup’sactivities,processes,

xviii

strategies,andperformance.Also,Boardcommitteesshouldhaveaccesstooutsidelegal,accounting,andotherexpertiseasappropriatetofulfilltheirfiduciaryduties.

Recommendation5.StrengthentheWBG’sresourcebase

• TheCommissionrecommendsstrengtheningthefinancialcapacityoftheWorldBankGroup.WhiletheWBGhasrespondedcommendablytothecrisisbyincreasingitslendinglevelstoUS$100billionoverathree‐yearperiod,itscurrentcapitalbasehasnotexpandedsubstantially.Thismeansthatafterthethree‐yearperiodisover,theBankwillneedtoloweritslendingtobelowthepre‐crisislevelforseveralyears.Shareholderswillhavetodecidehowbesttoachievearecapitalizationoftheinstitution,andwhichpartsoftheGrouptoprioritizeinthisendeavor.

ConclusionThestakesinreformingtheWorldBank’sgovernancearehigh.Someofthemostseriousandurgentchallengesfacinghumanitytodayhavenohopeofsolutionsavethroughmultilateralaction.Withacentralplaceintheglobalmultilateralsystem,theWorldBankGroupisstronglypositionedtocatalyzemultilateralapproachesandhelpdesignandfinancemultilateralsolutions.Butifitistoplaythispotentialrolesuccessfully,theinstitution’sgovernanceurgentlyneedstobemodernizedsothattheWorldBankGrouphasthecapabilitiesandlegitimacynecessarytoconfronttheglobalchallengesofourtime.FailuretobringtheWorldBank’sgovernanceintothe21stcenturywillundermineoneoftheinternationalcommunity’smostvaluableinstrumentsfortacklingthesechallenges.Thepackageofreformsofferedinthisreportisdesignedtoaddresstheseproblems,equippingtheBanktobeworthyofthefulltrustandconfidenceofallitsmembercountries.Implementingthesereformsrequiresacommitmentfromtheleadersofnationalgovernments,whowillneedtoacknowledgethepotentialpowerofinstrumentsofcollectivedecision‐makingandactionandrecognizetheurgencyoftheagenda.OnlynationalleaderscanbreakthegridlockonreformoftheWorldBankGroup:meaningfulreformsofmultilateralagencies,atleastintheirbroadoutline,areunlikelytobedecidedanywherebutatthelevelofheadsofstateandgovernment.ItisunlikelythattheWBG’sBoardofGovernorswillundertakethenecessaryreformswithoutcleardirectivesfromtheirnationalleaders.Norisitrealistictoexpectthatmajorstepstowardsimprovedgovernancewillbediscussedandagreedbytheinstitution’sExecutiveBoardactingalone.

1

I. IntroductionTheimperativeofenhancedglobalcooperation1. Recenteventshavehighlighted—againandpainfully—howimportantitisintheenlightenedself‐interestofcountriestocooperatewitheachother.Effectivemacroeconomicpolicycoordination,andsomepoolingandharmonizationoffinancialregulation,supervision,andenforcement,wouldhaveworkedwonderstopreventtheeconomiccrisisthatasubstantialpartoftheworld’spopulationnowendures.Itisalsoclearthatoncethecrisiserupted,evenamodicumofcooperationhelpedtheworldavoidanevenworsedisaster.2. Unfortunately,thefollyofuncoordinatedactionhasnotbeenlimitedtoeconomicissues.Othervitalquestionsofhumansecurityhavebeenleftunattended,withdireconsequences.Problemssuchasclimatechangearenotbeingproperlytackledalsoduetocountries’reluctancebothtogiveupasmallmeasureoftheirsovereignty,astraditionallyunderstood,andtopayarelativelysmallpriceintheexpectationthatotherswilljoinintheirefforts.Itisnotonlythatformanyyearscollectiveactionhasfallenshortofwhatisneededtoaddresschallengeswhosesolutionisintheinterestsofhumanityatlarge;itisalsothatchallengesthemselvesgavegrowninnumberandcomplexityastheworldhasbecomemoreinterdependent.3. Globalizationhasgeneratedenormousbenefitsforrichandmostpoorcountries.Butinterconnectednessandinterdependencehavealsoincreasedthespeedandintensitywithwhichsomeillsmayproliferateacrosstheglobe,asseeninthevirulenceofthefinancialcrisisandtherapidspreadoftheH1N1virus.Theimperativeofrealizingthefullbenefitsofglobalizationwhilemanagingitscostsandrisks—addedtotheneedtocloselong‐standinginternationaldevelopmentgaps—isapowerfulreasontobemoresupportiveofmultilateralinstitutions.Theseinstitutionsarechargedwithsteeringandimplementingsolutionstoproblemsthatcannotbetackledeffectivelybycountriesactingalone,butwhosesolutionwouldservetheself‐interestofallcountries.4. Thereareencouragingsigns,albeitstilltenuous,ofrenewedinterestinreinvigoratingthemultilateralorganizations.Underpressurefromtheglobaleconomiccrisis,anewdialoguehasemergedinvariousforums,includingtheG20,wherethepursuitofmorecooperativeapproachestocommonchallengesisgainingsomeground.Itisvitaltoinjectmomentumintothisincipienttrend.ReformingtheWorldBanksoitcanmeetthechallengesitislikelytoconfrontintheearly21stcentury,shouldbeakeypartofthatendeavor.TheWorldBankGroup’scontribution5. TheWorldBankGroup(“WBG,”“theGroup,”or“WorldBank”)wasestablishedin1944tohelprebuildaworldravagedbywarandpromoteinternationalinvestmenttoraise“productivity,thestandardofliving,andconditionsoflaborin[members’]territories.”The

2

WBGembodiessomeofhumanity’shighestaspirationsforinternationalcooperation.Itsfinancialmodel—basedonthepoolingofmembers’collectivecreditworthinesstoraiseresourcesfortheireconomicdevelopment—itselfembodiesthespiritofmultilateralism.

Box1.TheWorldBankGrouptoday

Today’s WBG is a development services organization with a staff of more than 10,000 and a netadministrative budget of about US$1.6 billion a year. The institution has five arms. Two of these—theInternational Bank for Reconstruction and Development (IBRD) and the International DevelopmentAssociation(IDA)—focustheirlendingonpublic‐sectorentities.TheIBRDprovidesnon‐concessionalfinancewith government guarantees primarily tomiddle‐income countries,while IDAprovides concessional loansandgrants to theworld’spoorest countries.Twootherarms—the InternationalFinanceCorporation (IFC)andtheMultilateralInvestmentGuaranteeAgency(MIGA)—providefinancingandservicestoprivate‐sectorentities. The IFC provides loans, equity investments, and financial services to private‐sector companies indevelopingcountries,whileMIGAprovidespolitical risk insurance to thoseseeking to invest indevelopingcountries. Finally, the International Center for the Settlement of Investment Disputes (ICSID) providesfacilitiesforconciliationandarbitrationofinternationalinvestmentdisputes.6. Morethan60yearsafteritsfounding,theWorldBankGroupoccupiesacentralplaceintheglobalmultilateralarchitecture.Itsmembershipincludesalmostalltheworld’scountries.7AsaspecializedagencyoftheUnitedNations,a“sister”organizationoftheIMF,apeerofregionaldevelopmentbanks,andapartnertomorethan180foundations,programs,andbilateralagencies,theWBGisakeynodeintheglobalnetworkofinstitutionsforinternationalcooperation.7. SeveralcorestrengthsmakeuptheWBG’scomparativeadvantage.Theseincludeastrongcreditrating,whichgivesitahighcapacitytointermediatefinancialresourcesfromworldmarkets.TheGroup’slargestockofcross‐countryknowledge,highlytrainedstaff,andglobalnetworkprovideaplatformthroughwhichmembercountriescanlearnfromoneanother’sdevelopmentexperiences.TheWorldBankalsoenjoyswidespreadtrustamongitsmembersasacompetentfiduciaryagent.And,withawidearrayofproductsandservices,theGrouphasatitsdisposaladiversesetofinstrumentstocombatpovertyandpromotedevelopment.8. Drawingonthesestrengths,theWBGhasmadeimportantcontributionstohumanwelfare.Ithaschanneleddevelopmentfinancetopoorandmiddle‐incomecountries,servedasanintellectualleaderindevelopmentthinking,andadvocatedvocallyfortheworld’spoor.Overall,ithasdirectedaboutUS$450billioninloansandguaranteestoitsmembers.WorldBank‐financedprojectsandprogramshavehelpedexpandagriculturalproductivityinAsia,financethefightagainstsomeoftheworld’smostdebilitatingdiseases,anddevelopcriticalinfrastructurearoundtheworld.

7AsofAugust2009,theIBRDhad186members,IDA169,theIFC182,MIGA175,andICSID,143.Forreference,theUnitedNationshas192members.

3

9. TheWorldBankGroupiswidelyperceivedasrelevanttodayandasapotentiallyveryusefulinstitutioninthefuture.Accordingtoarecentworldwidepoll,amajorityofopinionleadersinmostregionsoftheworldseetheBankasrelevanttotheireconomicandsocialdevelopmentefforts.8TheyalsoseetheWorldBank(theIBRDandIDA)asthedevelopmentorganizationthatwillbeofgreatestimportancetothemintheyearstocome.910. Inthecomingdecades,theworldwillcometoexpectmorefromtheWorldBankGroup.Theinstitutionwilllikelybeaskedtotakeonamoreactiveroleinhelpingitsmembershipaddresskeychallengesinvolvingglobalpublicgoods.11. Butaddressingthesechallengeswillbemoredifficultthaninthepast,forseveralreasons:

• First,managingthechallengeswillrequiremorespeedandflexibility.Becauseofthegreaterinterconnectednessoftoday’sworld,financialshocksandinfectiousdiseases,forexample,canspreadfartherandfasterthaneverbefore,makingswiftandcoordinatedresponsesimperative.

• Second,meetingtomorrow’schallengeswillrequirenotonlymoreeffectivebutalso

morecomplexformsofcooperationamonggovernmentsandpeoples.Thenumberanddiversityofactorsthatneedtobeinvolvedisgrowing,makingmoredifficultthecoordination,monitoring,anddistributionalproblemsthatmustbesolvedifinternationalcooperationistowork.

• Finally,thetechnologicalandfinancialdemandsofmeetingnewchallengeswill

likelybeunprecedentedinscale.Mitigatingandadaptingtoclimatechange—withitscomplexdynamics,globalimpact,anddifficultpoliticaltradeoffs—isemblematicofthechallengesthatlieahead.

12. TheWorldBankGroupiswellpositionedtohelptheworldmeetglobaldevelopmentchallenges,butcurrentlyitsstrengthsareundercutbyseveralinstitutionalweaknesses.Missioncreepisendemic,reducingaccountabilityforresultsandincreasingtheriskthatresourceswillbemisallocatedorspreadtoothin,underminingtheinstitution’seffectiveness.TheGroup’sdecision‐makingprocessiswidelyseenastooexclusive,offeringmanymembercountriestoolittlevoiceandtoofewopportunitiesforparticipation.InsufficientinstitutionalaccountabilityforresultsweakenstheWorldBank’s

8SeeTheGallupOrganization(2008),WorldBankGroupGlobalPoll,2008.ThisWorldBank‐commissionedsurveyinterviewedmorethan2,600opinionleadersin42countriesaroundtheworldandstakeholderswithintheEuropeanUnionandUnitedNationsconstituencies.Theopinionleaderswerefromgovernment,themedia,theprivatesector,NGOs,andacademia.Thesurveywasconductedinthespringof2008andcovered31developingand11developedcountries.RespondentssawtheWBGasmostrelevantinEastAsia/PacificandSub‐SaharanAfricaandleastrelevantinSouthAsiaandtheMiddleEast/NorthAfrica.9Onfutureimportance,thesurveycomparedtheWorldBank(IBRD‐IDA)withtheUNDP,otherUNagencies,IMF,privatefoundations,NGOs,andbilateralagencies.IFCandMIGAwerealsointhegroupbutwererankedsignificantlybelowIBRD‐IDA.

4

effectivenessandlegitimacy.Andcertainconventionsandpracticeshavecontributedtotheperceptionthattheinstitutionisaccountableandresponsiveonlytoahandfulofshareholdersatbest.13. Theseproblemsarenotnew.Theyhavelongbeenrecognizedinsideandoutsidetheinstitution,andsomeeffortshavebeenmadeovertimetoaddressthem.Yet,thesemeasureshavefallenshort,partlybecausetheproblemsarerootedinaspectsoftheWorldBank’sgovernancearrangementsthatarenoteasilyreformedbytheBoardofExecutiveDirectorsorManagementactingalone.14. TheproblemsspringinlargemeasurefromthefactthattheWorldBank’sgovernancestructuresandpracticesweredesignedforaverydifferentworld.IntheimmediateaftermathofWorldWarII,theworldwasmuchlessintegratedeconomically,andtheUnitedStatesaccountedformorethanhalfofglobaleconomicoutput.TheWorldBankoperatedasasingleentityratherthanamulti‐armgroup.Withonlyonequarterofitscurrentmembership,theBankhadhalfasmanyExecutiveDirectorsonitsBoardandonetwentiethasmanystaffonitspayrollasitdoestoday.Thiswasaninstitutionfitforpostwarrealitiesandobjectives,anditsgovernancearrangementsreflectedthoserealities.Theystilldo.15. Sixtyyearson,thisinstitutionallegacyhasbecomealiability.Intheearly21stcentury,theWorldBankGroupmustbecomeamoreforward‐looking,flexible,inclusive,andlegitimateinstitution.Thisdemandsgovernancearrangementsthatbettermatchtherealitiesandchallengesofourtime.Whygovernancematters16. Inpreparingthisreport,theCommissiontookasitsguidingvisionaWorldBankGroupthatworkseffectivelytohelptheinternationalcommunitymeetkeychallenges.ThatvisionisofaWorldBankGroupthat:

• ismoreinclusiveandbetteratengagingthosecountriesthatarecentraltoaddressingkeyglobalissues;

• servesnotonlyasaplatformformanagingproblemsarisingfromcompeting

nationalinterests,butalsoasacatalystformultilateralsolutions,functioningasmorethanthesumofitsparts;

• ismoreresults‐focusedandmoreaccountabletoitsshareholdersforresults;and• ismorestrategicaboutitsinterventions,morerigorousinevaluatingandlearning

fromitsperformance,andmoreopentocollaborationwithotherinstitutions.

17. Also,wewereguidedbyavisionofaWorldBankthatinspireshigherlevelsoftrustandenjoysgreaterlegitimacyamongitsmembers.“Trust”inthiscontextmeansconfidence

5

thattheinterestsoftherelativelypoormemberswillbelookedafteralongwiththoseofwealthiercountries.“Legitimacy”impliesaninstitutionalstructureinwhichmembersarerepresentedinsuchawaythattheycanexpectallcountries’intereststobebalancedinareasonablemanner.18. RealizingthisvisionoftheWorldBankGrouprequiresrethinkingtheinstitution’sgovernancearrangements.By“governance”wemeanthesetofformalandinformalstructures,conventions,andrulesthatdeterminehowanorganizationissteeredandhowitsdecision‐makingprocesseswork.ThecharacteristicstheWorldBankmustpossessinthe21stcentury—adaptability,accountability,legitimacy,astrongfocusonresults—arealldirectlyconnectedtotheinstitution’sgovernancestructuresandpractices.Changingtheinstitution’sperformancethereforerequiresengagingdirectlywithitsgovernance.19. PastdiscussionsaboutgovernancereformattheWorldBankhavetendedtofocusprimarilyonissuesof“chairsandshares”—onthedistributionofvotingpowerandthecompositionofthegoverningbodies.Butotherelementsofgovernancearealsoimportant.Theseinclude,forexample,thedivisionoflaborandresponsibilityamonggoverningbodiesandtheindependenceandrobustnessofevaluationandcontrolmechanisms.Theseshouldnotbeneglectedandshouldbeseenasessentialtoanygovernancereformpackage.20. TheCommissionfoundseveralgovernancegapsthatmustbeaddressed.AcentralprobleminvolvesthefusionofthreefunctionsintheExecutiveBoard:politicalrepresentationofthemembership,managementofoperations,andoversightandsupervision.Thisfusionoffunctionsdilutesaccountabilityandcreatesconflictsofinterest.Inturn,theseconditionspreventtheinstitutionfromundertakingcriticaltaskseffectively,especiallythatofoverseeingtheinstitution’sperformance.Also,itisnotclearwhoisresponsibleforformulatingandapprovingstrategies,whichunderminestheGroup’scapacitytoactcoherentlyandtomaximizeitsimpact.Leadershipselectionisultimatelytheprivilegeofjustonemember,whichhinderslegitimacyandaccountability.Andanimbalanceinthedistributionofvoiceandparticipationraisesconcernsaboutfairnessandtrust.Awindowofopportunity21. AwindowofopportunityiscurrentlyopenformodernizingtheWorldBankGroup’sgovernance.Theglobaleconomiccrisishashighlightedtheenduringneedforinternationalcollectiveaction,andinresponsetheworld’sleadershavesignaledtheirwillingnesstoundertakeboldactiontoconfrontthecrisisandtostrengthenthemultilateralsystem.OngoingdiscussionsabouttheneedtoaugmenttheWorldBankGroup’sresourcebasemayalsoservetostimulateadebateamongthemembershiponhowbesttostrengthentheinstitution’sgovernance.22. Thisreportcontributestowhatisalreadyarichongoingdebate.SeveralgroupshavemadeproposalsonreformingtheWorldBank’sgovernance,bringingtheissuetothe

6

attentionofseniorpolicymakers.10Theseproposalsreflectawiderpreoccupationwithstrengtheningthegovernanceofallinternationalorganizations,includingtheInternationalMonetaryFund,theUnitedNations,andtheWorldTradeOrganization.1123. OurrecommendationsseektopreserveandnurturetheWorldBankGroup’sstrengthswhileaddressingthoseaspectsofitsgovernancethatpreventitfrombecomingamoreaccountable,effective,andlegitimateinstitution.Theadoptionoftherecommendedreformswillrequiretheactiveinvolvementofmember‐countryauthoritiesatthehighestpoliticallevel.24. PrescribingwhichsectorsandissuestheWorldBankGroupshouldconcentrateonisbeyondtheremitofthisCommission.ItmakeslittlesenseforaCommissionstudyingthemedium‐andlong‐termfutureoftheinstitutiontoprescribeprioritiesandfocusareas,asthesewillinevitablyshiftalongwiththefrontiersofhumanknowledgeandtheimperativesforinternationalaction.Instead,theCommissionmadethereasonableassumptionthattheWorldBankGroupwillcontinuetoundertakeabroad,complex,anddynamicmixofactivitiesinthecomingdecades.ItthenfocusedonidentifyinggovernancearrangementsthatwouldbestenabletheWorldBank’sshareholderstosettheinstitution’smissionandstrategyandtobalancetradeoffs.25. ThereportbeginsbyconsideringsomeofthemostimportantchallengesthattheWorldBankfacestodayandislikelytofaceintheearly21stcentury.SectionIIalsohighlightstheimportanceofeffectiveWBGgovernanceinhelpingthemembershipmanagethesechallenges.SectionIIIassessestheorganization’sexistinggovernancearrangements,usingasareferencepointrelevantprinciplesofgoodgovernanceandthebestexistinganalysesoftheWorldBank’sperformancetodate.SectionIVpresentstheCommission’srecommendations,andSectionVoffersconclusions.

10See,forexample,WorldBank(2008),“ReportoftheWorkingGrouponInternalGovernance”(“FamiliarReport”),R2008‐0197(unpublished);UnitedNations(2009),“ReportoftheCommissionofExpertsofthePresidentoftheUnitedNationsGeneralAssemblyonReformsoftheInternationalMonetaryandFinancialSystem;”andtheG20CommuniquésfromLondon,April4,2009,andPittsburgh,October25,2009.11See,forexample,InternationalMonetaryFund,IndependentEvaluationOffice(2008),GovernanceoftheIMF:AnEvaluation;WorldTradeOrganization(2004),TheFutureoftheWTO:AddressingInstitutionalChallengesintheNewMillennium:ReportbytheConsultativeBoardtotheDirectorGeneralSupachaiPanitchpakdi;andIndependentSteeringCommitteefortheComprehensiveReviewofGovernanceandOversightwithintheUnitedNationsSystem(2006),ComprehensiveReviewofGovernanceandOversight.

7

II. TheWorldBank’smissionintheearly21stcentury26. Thissectionhighlights—withoutprescriptiveaspirations—thescopeandcomplexityoftheWorldBankGroup’scurrentactivities,aswellasthekeydilemmasandtradeoffstheypose.AwarenessofthiscontextmakeshelpsoneappreciatewhytheGroupurgentlyneedsmoreeffectivegovernancetohelpitsshareholdersmanagethetradeoffstheorganizationfacesnowandislikelytofaceinthefuture.27. ThediscussionbelowexaminessevenaspectsoftheGroup’swork:(1)promotinggrowthanddevelopmentwhilereducingpoverty;(2)assistingconflict‐affectedcountries;(3)lendingtomiddle‐incomecountries;(4)producing,aggregating,andtransferringknowledge;(5)fosteringglobalpublicgoods(GPGs);(6)preventingandmitigatingshocks;and(7)securingadequatefinancialresources.Focusingonthecoremission:growth,development,andpovertyreduction28. Promotingeconomicdevelopmentby“facilitatingtheinvestmentofcapitalforproductivepurposes”hasbeenthecoremissionoftheWorldBanksinceitsinception.AlongsidethereconstructionofEurope’swar‐torneconomies,theIBRD’sArticlesofAgreementcallfor“theencouragementofthedevelopmentofproductivefacilitiesandresourcesinlessdevelopedcountries.”ThoughthecoremissionoftheWorldBankhasnotchanged,themeansbywhicheconomicdevelopmenthasbeenpromotedhaveevolvedovertime.29. Sincetheearly1970s,theWorldBank’sgrowthanddevelopmentmandatehasbeencomplementedbyastrongcommitmenttohelpingreduceglobalpoverty.Today,theWBGpledges“Tofightpovertywithpassionandprofessionalismforlastingresults”and“Tohelppeoplehelpthemselvesandtheirenvironment…”12OutsidetheWorldBankGroup,too,povertyreductionisseenasacoreroleoftheorganization.AlargemajorityofopinionmakersinallregionsoftheworldbelievesthattheWBGshouldplayaleadingroleinsupportingthepoorestcountries.1330. AstheWorldBankpursuesthismission,itwillneedtoresolveseveraldilemmas:

• Lendingtothepoorest.Historically,WorldBankprogramshaveperformedwellincountries—manyofwhichhavenowachievedmiddle‐incomestatus—withrelativelygoodimplementationcapacity,butrelativelypoorlyincountrieswithweakimplementationcapacity.14Thisproducesincentivestolendlesstocountriesthatmayneeddevelopmentresourcesmost.Therefore,theWBGmustfindawaytoachievemoresignificantmeasurableresultsincountrieswherecapacityisweakest.

12See<www.worldbank.org>.13OftherespondentstotheWBGGlobalPoll,83percentthoughttheBankshouldplayaleadingroleinsupportingthepoorestcountries;thisprioritywasrankedhighestofnine.14SeeWorldBankIndependentEvaluationGroup(2006),2006AnnualReviewofDevelopmentEffectiveness(ARDE).

8

• Trustfunds.TherapidproliferationoftrustfundsraisesimportantquestionsfortheGroup.15InFY2008,trustfunddisbursements—atUS$6.73billion—wereequivalenttohalfofallIBRDdisbursements,oraboutaquarterofcombinedIBRDandIDAdisbursementsforthatyear.Withtheirseparategovernancestructuresandearmarkedresources,trustfundscanundermineseriouslythecoherenceofWorldBankactivitiesandmayposeathreattothecoordinationofdevelopmentassistancemoregenerally.Goingforward,theinstitution’smanagementandshareholderswillwanttoconsiderapplyingclearerandmoreconsistentpoliciestodeterminewhichtrustfundstheBankshouldaccept,howtheyshouldbegovernedandmanaged,andhowtheyshouldrelatetotheinstitution’songoingwork.

• Privatesectorfinancingoperations.TheWBGmaywanttocontinuesupporting

theprivatesectorthroughitsprivate‐sectorarms,theIFCandMIGA.TheeffectivenessofIFCasadevelopmentinstitutiondependsonwhetheritsfinancingtrulycomplementsprivatesectorresources,stimulatesnewprivate‐sectorinvestment,andhasasignificantimpactondevelopment.MechanismstotracksystematicallytheadditionalityanddevelopmentimpactofIFCfinancingoperationsarestillintheirinfancyandsufferfromnumerousshortcomings.16IFCshareholderswillhavetodecidewhethertocommitadditionalresourcestotheCorporationorwaituntilitsmonitoringandevaluationsystemsarestrengthened.RegardingMIGA,shareholdersmaywanttoconsiderthecontinuedviabilityofthisseparateagencyforinvestmentguarantees.

• Divisionoflabor.Regionalinstitutionshavebecomeincreasinglyimportantinthe

economicandpoliticallifeoftheWorldBank’smembercountries,servingascatalystsforregionalintegration,cooperation,anddevelopmentassistance.Amorestrategic,coordinated,andefficientdivisionoflaborisrequiredbetweentheWorldBankGroupandtheregionalandsub‐regionalmultilateraldevelopmentbanks.ThesamecanbesaidoftheWorldBank’sdivisionoflaborwithUNagencies.Thespiritofcooperationandharmonizationisalreadyembodiedinthe2005ParisDeclarationonAidEffectivenessandthe2008AccraAgendaforAction,butcontinuedleadershipfromtheWorldBank’sshareholdersandmanagementwillberequiredtokeepthisagendamovingforward.

15Atrustfundisafundestablishedwithcontributionsfromoneormoredonor(s)tosupportdevelopment‐relatedactivities.TheWorldBankGroupadministersanddisbursesthesefundsaccordingtoestablishedpoliciesandproceduresinagreementwithdonors.AsofJune30,2008,itadministered1,020trustfundsamountingtoUS$26.3billion,upby23percentfromUS$21.4billionayearearlier.Manyofthelargesttrustfundsaredevotedtoglobalpublicgoods‐relatedactivities,suchascontrollingthespreadofinfectiousdiseaseandmitigatingclimatechange.16WorldBankIndependentEvaluationGroup(2008),EnhancingMonitoringandEvaluationforBetterResults:BiennialReportonOperationsEvaluationinIFC,2008.

9

Advancinganoriginalmandate:assistingconflictaffectedcountries31. Supportingconflict‐affectedcountriesisoneoftheWorldBank’soriginalmandates.17Overtime,theWBG’sapproachtopost‐conflictreconstructionhasevolvedfromrebuildinginfrastructuretosupportingthesocialsector,buildinginstitutionalcapacity,investinginhumancapital,andintegratingex‐combatantsintothepeacetimeeconomy.In2007,theDevelopmentCommitteecalledfortheGroup’s“activeengagement”infragileandconflict‐affectedstates.1832. ChallengestheBankGroupwillfaceinpursuingthismandateinclude:

• Collaboration.Supportingconflict‐affectedcountriesposesmultidimensionalchallenges,andtheWBGhasacomparativeadvantageonlyinsomeareas.TheWorldBankrecentlyenteredintoagreementswiththeUnitedNationsandtheEuropeanCommission,acknowledgingtheinterdependentnatureoftheseinstitutions’effortsinpost‐conflictsituations.19Makingthesepartnershipsworkwillrequirepoliticalleadership,akeenunderstandingoftheWBG’scomparativeadvantage,andintensivecooperationontheground.

• Weakornocapacity.Statecapacityinconflict‐affectedcountriesisextremely

weak,andinso‐called“failed”states,itmaybenon‐existent.ThiscreatesauniquelyadverseenvironmentfordevelopmentinterventionsandraisesfundamentalconcernsfortheWBGaboutdesigningconditionality,monitoringandsafeguardingtheuseofresources,andmeasuringresults.Theinstitutionmayneedtorethinkitscountry‐basedparadigmtoaccountfortheuniquedifficultiesfacedinconflict‐affectedcountryoperations,aswellasconsideringwhetherandhowconflict‐affectedcountriesmaybetreateddifferentlyfromotherborrowers.

Rethinkingatraditionalmission:lendingtomiddleincomecountries33. Somemiddle‐incomecountrieshaveimprovedtheiraccesstointernationalcapitalmarketsinthepasttwodecades.20Asaresult,someobservershaveevencalledfortheBank’sgradualdisengagementfrommiddle‐incomecountries,leavingtheirfinancing

17TheWorldBankdefinesconflict‐affectedcountriesasthosethat(1)haveexperiencedviolentconflictinthepastfive‐to‐tenyearsor(2)arecurrentlyexperiencingviolentconflictor(3)areperceivedasbeingatriskofviolence. 18DevelopmentCommitteeCommuniqué,October21,2007.19TheseagreementsincludethePartnershipFrameworkforCrisisandPost‐CrisisSituations,signedbytheSecretary‐GeneraloftheUnitedNationsandthePresidentoftheWorldBankinOctober2008;thesupportingFiduciaryPrinciplesAccordnegotiatedwithelevenUNagenciestofacilitatethetimelytransferoffinancialresources;andtheJointDeclarationonPost‐CrisisAssessmentsandRecoveryPlanning,signedbytheWorldBank,theEuropeanCommission,andtheUnitedNationsinSeptember2008.20The“middle‐income”labelcurrentlyappliesto95countrieswithapercapitagrossnationalincomebetweenUS$935andUS$11,455.

10

strictlytointernationalfinancialmarketsandregionaldevelopmentinstitutions.21VoicesfordisengagementgrewlouderasdemandforIBRDfinancingfellsharplyinthelate1990sandearly2000s.34. TheCommissionbelievesthattheWorldBankGroupstillhasanimportantandconstructiveroletoplayinmiddle‐incomecountries.MICsarehometotwothirdsoftheworld’spopulationandthreequartersofallpeoplelivinginpoverty.Evenin2015and2030,thevastmajorityofpeoplelivingonUS$2adayareexpectedtoliveinChina,India,andotherMICs.Also,manymiddle‐incomecountrieshaveonlymodestaccesstointernationalcapitalmarkets;in2006,atthepeakoftheeconomicboom,only11ofthe95countriesthattheWorldBankclassifiesasMICsenjoyedinvestment‐graderatingsfromStandardandPoor’s.Finally,asperiodiccriseshaveshown,accesstocapitalmarketsisunreliable.Asaresultofthecurrentcrisis,IBRDlendingtripledinFY2009tomorethanUS$32billion,muchofitdrivenbydemandfromMICs.TheBank’sabilitytoincreaselendingatatimeofcapitalmarketfailurewasanimportantelementforstabilizingtheglobaleconomy.35. Middle‐incomecountriesarealsoimportanttotheWorldBank.Manyofthemaregraduallyshiftingtheirrolefromborrowersandaidrecipientstocreditorsanddonors.Forexample,China,Egypt,SouthKorea,andTurkey,oncerecipientsofIDAassistance,arenownetcontributorstoIDA.Atthesametime,theparticipationofsomeofthelargerMICsseemsindispensiblefortacklingeffectivelycertainglobalproblems,includingclimatechange.36. IftheWorldBankGroupistoremainproductivelyengagedinmiddle‐incomecountriesitwillneedtoresolvesomecomplexchallenges:

• Sustainedengagement.TheWBGwillneedtoprovideproductsandservicesthatarebettertailoredtothesecountries’developmentneeds.Thesecountriesrequireresourcestosupportcounter‐cyclicalpolicylendingduringshocks;concessionalfinancingforGPG‐relatedprojects;andfinancingfortheacquisitionofknowledge.Inaddition,therelationshipbetweennewservicesandtraditionallendingmayneedtobere‐examined.Forexample,ifthepracticeofchargingallIBRDcountriesthesameratesforloansisrevised,differentiationshouldapplytogroupsofcountriesonthebasisoftransparent,Board‐approvedindicators.AnotherquestioniswhetherincentivesshouldbeintroducedtoencouragericherMICstograduatefaster,aswasrecommendedin2001bytheGurría‐VolckerCommission.22

• Howmuchrisk?Beforethecurrentcrisis,MICsreducedtheirdemandforIBRD

loansinpartbecauseoftherelativelyhighfinancialandnon‐financialcostsofthese

21See,forexample,InternationalFinancialInstitutionAdvisoryCommission(2000),ReportoftheInternationalFinancialInstitutionAdvisoryCommission.Washington,DC.22JoséAngelGurríaandPaulVolcker(2001),“TheRoleoftheMultilateralDevelopmentBanksinEmergingMarketEconomies:FindingsoftheCommissionontheRoleoftheMDBsinEmergingMarkets.”CarnegieEndowmentforInternationalPeace.

11

loans(the“hasslefactor”).IftheBankseekstolendmoretoMICsinthefuture,thesecostswillhavetobecontainedandreduced.Thiswillraisesensitivequestions.IBRDshareholderswillhavetoconsiderhowfarpricingcanbeadjustedtoincreasetheattractivenessofWBGloansvis‐à‐viscommercialborrowing,withoutjeopardizingtheinstitution’sfinancialhealthandcreditrating.Theywillalsoneedtofindwaystomakethenon‐financialcostsofborrowingfromtheBanklessonerouswhileobservingenvironmentalandsocialstandards.

Strengtheningacorecompetency:knowledge37. Theproduction,aggregation,anddisseminationofdevelopmentknowledgeisoneoftheWBG’scoreactivities.TheGroup’sknowledgeproductsandservicesincluderesearch,advisoryandanalyticalservices,andtechnicalassistance.Theyaccountforsome60percentoftheinstitution’sallocableadministrativebudget.SpendingontheseitemsamountedtosomeUS$500millionin2008,oraboutaquarteroftheGroup’stotalbudgetplusBank‐executedtrustfunds.38. Tobeengagedinknowledgeproduction,andeveninaggregatingandsiftingavailableknowledgetoshapethedesignofitsloans,policyadvice,andtechnicalassistancetomembercountries,theWBGneedsresearchcapacityofitsown.TheWBGalsohasastrongadvantageincertainresearchactivitiescomparedtoacademiaandthinktanks.Forexample,itisuniquelypositionedtocollect,catalogue,disseminate,anddrawlessonsfromcross‐countrydataondevelopmenttrendsandtheoutcomesofpolicyinterventions.Itisalsowellplacedtocombinehigh‐poweredresearchcapacitywithon‐the‐groundknowledgetoproduceappliedresearchthatisdirectlyrelevanttomembers’practicaldevelopmentproblems.39. However,buildingthe“KnowledgeBank”willcontinuetoposeseveraldilemmasforshareholdersandmanagement:

• Researchrelevance.WBGresearchershavelongfacedatensionbetweenproducingresearchthatcaterstotheacademiccommunityandresearchthataddressesdirectlythedevelopmentneedsofmembercountries.ArecentexternalevaluationfoundthattheBank’sresearchoutputistooacademicandnotsufficientlypractical.23ShareholdersandmanagementwillneedtoensurethatBankresearchersfaceappropriateincentivestoproducerelevantandusefulresearch,andthateffectiveevaluationmechanismsareinplacetomonitorand,whennecessary,redirect,theinstitution’sresearchoutput.

• Openness.FortheWBG’sknowledge‐productionsystemtomaintainahighdegree

ofqualityitmustbeopentooutsideideas,externalevaluation,andcompetition.Open‐mindednessandguardingagainst“one‐size‐fits‐all”approachesisalsoessential.Managementandshareholderswillhavetofindwaystobringthesequality‐enhancingforcestobearinsidetheBank’sknowledge‐productioncomplex.

23SeeWorldBank(2006),AnEvaluationofWorldBankResearch,19982005.

12

• Advocacy.WhenBankmanagementandstaffadvocateinfavorofcertainpolicies,usingtheknowledgethattheWorldBankproducesbutwithoutpresentingabalancedviewoftheevidence,theyriskoversteppingtheboundsofpropriety.A2006externalevaluationofWorldBankresearchfoundevidencethatthislinewascrossedinimportantcases.24Iftheinstitutionistobeatrustedsupplierofideas,itwillhavetoensurethatitsprescriptionsarealwaysbasedonafairreadingoftheevidenceandsuitablyreflectthescopeforheterodoxy.

• Knowledgeproductionanddelivery.Managementandshareholdersmaywishto

consideralternativeformsofknowledgeproductionanddelivery.Manypromisingproposalshavebeentabled.De‐couplingknowledgefromfinancingisoneoption,asisexpandingtheWorldBank’sfee‐basedknowledgeofferings,perhapsusingastandardizedrateschedule.25However,ashifttomorefee‐basedknowledgeservicesshouldnotcomeattheexpenseofproducingknowledgethatisrelevanttolow‐incomemembers,whichmaynotbeabletoaffordsuchservices.

Underanotherproposal,theWBGmightfinancemembers’acquisitionofknowledge,evenifthatknowledgeisnotproducedwithintheinstitutionitself.Suchafinancingschemewouldcomplementmeasuresdesignedtobolsterindigenousresearchcapacityindevelopingcountries.Finally,theGroupmayneedtoreconsideritsownhumanresourcepolicies,whichhavetraditionallybeenaccusedofcontributingtobraindrain.Inthiscontext,itmaybesensibletolimitthetenureofitsprofessionalstaffmemberssothattheycometotheWorldBankwiththeexpectationofreturningtoserveintheirowncountries.AnalternativewouldbeasecondmentprogramthroughwhichBankemployeescouldworkintheirhomecountriesforcertainperiodswithoutlosingtheiraccumulatedBankbenefits.

Preparingforthefuture:globalpublicgoods40. Sincethe1990s,theWBGhassoughtamoreactiveroleinfosteringtheprovisionofglobalpublicgoods.26Infact,largemajoritiesofopinionleadersaroundtheworldseefosteringglobalpublicgoodsastheWorldBank’smostimportantmissionaftersupporting

24SeeWorldBank(2006),AnEvaluationofWorldBankResearch,19982005.25Sofar,onlyaverysmallfractionofknowledgeserviceshasbeenofferedonafeebasis.Offee‐basedknowledgeservices,87percentarefundedbytheseven‐countryGulfStatesTechnicalCooperationProgram(US$3.5millioninFY2006)andbyfiveotherprograms(Algeria,Kazakhstan,Mexico,SouthAfrica,andVenezuela,totalingUS$11.8million).OnlytheprogramswiththeGulfStatesandKazakhstanareongoingannualprograms;therestrespondtooccasionalrequeststhatmayormaynotberepeated.26Foradiscussionoftheconceptofglobalpublicgoodsandidentificationoftheonesthatshouldreceivepriorityattention,aswellaspracticalissuesfortheirprovision,seeInternationalTaskForceonGlobalPublicGoods(2006),FinalReport,MeetingGlobalChallenges:InternationalCooperationintheNationalInterest.

13

thepoorestcountries.27TheDevelopmentCommitteehasflaggedfiveGPGsaspriorities:(1)preservingtheenvironmentalcommons,(2)controllingthespreadofcommunicablediseases,(3)enhancingtheparticipationofdevelopingcountriesintheglobaltradingsystem,(4)strengtheningtheinternationalfinancialarchitecture,and(5)creatingandsharingknowledgerelevanttodevelopment.2841. TheWorldBankGroupcanpotentiallymakeaverysignificantcontributiontofosteringglobalpublicgoods.Itcanprovidefinancingtoimplementagreedpolicies.ItmayalsoproduceresearchtodevelopframeworksandpoliciesforgeneratingGPGsandofferexpertiseasafiduciaryagenttomanageGPG‐relatedfunds.Itsconveningandadvocacypowersmaybeusedtopromotecooperationamongthegovernmentalandnon‐governmentalactorsprovidingGPGs.42. Climatechange,inparticular,isanareawheretheWorldBankGroupcouldbeofgreatvalueincomplementingmultilateralefforts.29Climatechangewillaffectthevastmajorityoftheorganization’smembers,andindifferentways.Tobesure,theWorldBankGroupisnottheappropriatesettingfornegotiatingthecomplexdistributionalissuesinvolvedincontrollingcarbonemissions(theseissuesarebeingaddressedinongoingdiscussionsinthecontextoftheUnitedNationsFrameworkConventiononClimateChange).Butifadditionalfinancingisrequiredtoimplementelementsofinternationalagreementsonclimatechange,theWorldBankGroupcouldprovidefinancialproductsandrelatedmanagementskills.43. PromotingtheprovisionofglobalpublicgoodswillpresenttheWorldBankanditsmemberswithsomedifficultquestions:

• Strategicrole.Tocontributeeffectivelytothelong“productionchain”ofglobalpublicgoods,theWorldBankGroupwillneedtobestrategicaboutwhereandhowitcanhelp.Itsshareholderswillhavetodecidewhereitisbestequippedtoparticipateorevenlead.Further,theGroupwillneedtocollaboratecloselyandefficientlywithotherinstitutionsofthemultilateralsystem.

• Countrymodel.TheWBGremainscloselyweddedtoacountry‐basedparadigm,

butaspectsofthatmodelcouldbecomeahindranceastheinstitutionseekstopromoteGPGs.Forexample,arecentevaluationfoundthatWorldBankstaffcurrentlylacksufficientincentivestointegrateGPGcomponentsintocountry‐level

27TheGlobalSurveyfoundthatafter“supportingthepoorestcountries,”thetwomostpopularareasinwhichstakeholdersthoughttheWBGshouldplayarolewereas“climatechangeleader”(71percent)and“supportingglobalpublicgoods”(70percent).28DevelopmentCommitteeCommuniqué,April30,2001.SeealsoWorldBank(2007),“GlobalPublicGoods:AFrameworkfortheRoleoftheWorldBank,"DC2007‐0020,September28.29Giventheburdensharingacrosscountriesandgenerationsthatmitigationandadaptationwouldrequire,climatechangemayprovetobethemostcomplexchallengetheworldhaseverfaced.Foraconciseexplanationofwhythisisthecase,seevariouscontributionscontainedinErnestoZedillo,ed.(2008),GlobalWarming:LookingBeyondKyoto.BrookingsInstitutionPress.

14

strategies,programs,anddocuments.30Also,whiletheWorldBank’scountrystrategiestypicallycoverthreetofouryears,GPGstrategiesrequiremuchlongertimehorizons.Finally,inmanyIDAcountries,theinstitutionwillfaceatensionbetweendevotingresourcestopovertyalleviationandchannelingresourcesintoGPG‐relatedareasthatmaynothaveadirectimpactonpovertyreduction.

• Newinstruments.GiventhespecialcharacteristicsofGPGs,theWorldBankGroup

mayneedtointroducenewinstrumentsorbuildonexistingonestopromoteGPGsmoreeffectively.Oneexampleistoexpandtheuseofmulti‐countryloaninstrumentsacrosssmallgroupsofcountriesfacingcross‐borderexternalities,aswasfamouslydoneinthe1970stofightriverblindnessthroughtheOnchocerciasisControlProgram.AnotherpossibilityistouseWorldBankgrantinstrumentstosupportGPG‐relevantbasicresearchandtostrengthenregionalinstitutions,whichultimatelymaybebestsuitedtoprovideregionalpublicgoods.

Preparingforthefuture:preventingandmitigatingshocks44. Preventingandmitigatingshocks—bothnaturalandman‐made—couldproveanincreasinglyimportantmissionfortheWorldBankGroup.Membercountries—particularlylow‐incomecountries—willrequireWorldBankresourcesandfinancialproductstocopewithsuddenpriceshocks,extremeweatherevents,pandemics,andthevolatilityofinternationaldevelopmentassistanceitself.Already,theorganizationhashelpedtomitigatedisruptionsinglobaltradefinanceandspikesinfoodandenergyprices.Buttheseeffortshavebeenlargelyadhoc.Incomingyears,theWorldBankshouldconsiderhowtouseitscomparativeadvantagetoinstitutionalizeinstrumentsforshockpreventionandmitigation.45. Thisarearaisesatleasttwoimportantissuesforshareholdersandmanagement:

• Collaboration.CollaborationbetweentheWorldBankandotheractorsinthemultilateralsystem,includingotherUNagenciesandtheIMF,isessential.Bank‐Fundcollaborationhasalonghistorycharacterizedbyagreementsandconcordats,butthesysteminplaceremainsinadequate,asillustratedbyrecentreviews.31MoreeffectiveeffortswillbenecessarytoensurethattheemergencyfacilitiesofferedbytheIMFandtheWorldBankcomplementratherthanduplicateeachother.

• IBRDborrowing.ThemembershipmaywanttoconsiderwaystomakeIBRD

financingavailabletothepoorestcountriesduringshocks.Forexample,oneproposalentailsallowingIDAborrowerstoaccessIBRDfinancingduringcrises,butundertermssoftenedtoconcessionallevelsbycontributionsfrombilateraldonors

30SeeWorldBankIndependentEvaluationGroup(2008),2008AnnualReviewofDevelopmentEffectiveness(ARDE).31See,forexample,theReportoftheExternalReviewCommitteeonBankFundCollaboration(“MalanReport”)(2007),andWorldBankIndependentEvaluationGroup(2008),“LessonsfromWorldBankGroupResponsestoPastFinancialCrises,”EvaluationBriefNo.6,December.

15

andIBRDprofitcontributions.Thiswouldhelpprovidethepoorestcountrieswithshock‐mitigationfinancingwithoutcannibalizingIDA’sresourcesforlong‐termdevelopmentprograms.Tradeoffswillbeinvolved,becauseopeningIBRDfinancingtoIDAcountrieswouldrequiremorestringentloanprovisioning.

Preparingforthefuture:securingadequateresources46. SecuringenoughresourcestomeetitsobjectiveswillremainapersistentchallengefortheWorldBank,andthecurrentstateoftheworldeconomyandthepressingneedtolaunchGPG‐relatedinvestmentsmakesthisanurgentpriority.47. IDAfunding.Inrecentyears,somedonorshavescaledbacktheirsharesinIDAcontributions,withoutcompensatoryincreasesfromotherdonors.Also,whiledebtreliefhasliftedthefinancialburdenonmanypoorcountries,ithassimultaneouslyreducedthecreditreflowstoIDA,significantlyloweringIDA’sassets.TherearealsoconcernsthattrustfundscoulddisplaceIDAcontributions.48. Meetingcrisisneeds.Themostseriousglobaleconomiccrisisin80yearshassharplyreducedprivatecapitalflowstodevelopingcountries.Thedeclineshavebeenonlypartlyoffsetbyanincreaseinofficialflows.Duringthelengthyrecoveryperiod,countrieswilllooktotheWorldBankGroupandothermultilateralfinancialinstitutionstofillthefinancinggapandtohelpthemcopewiththesocialconsequencesoftheeconomiccrisis,includingpoverty,unemployment,andhumaninsecurity.Howlargethegapwillbeisuncertain,buttheresourcesneededtofillitareexpectedtobesubstantial.TheIBRD’sdecisiontoincreaseitslendingtoUS$100billionoverthreeyearsisawelcomeresponsetotheglobalcrisis,butitmeansthatunlesstheBank’scapitalisincreased,thevolumeofIBRDlendingwillhavetofallbelowthepre‐crisislevelattheendofthethree‐yearperiod.49. ResourcesforGPGs.AstheworldhopefullymovestowardaconsensusonhowtofostercertainGPGs,particularlyclimatechangemitigationandadaptation,thedemandsontheWBGwilllikelyincrease.ThevolumeofresourcesrequiredforfosteringGPGsarelikelytobeconsiderable.50. Asthissectionhasmadeclear,theWorldBank’smandateisbroadanditsportfoliocomplex.Adaptingtheinstitutiontoachangingglobalcontextwillrequireitsmembersandmanagementtograpplewithdifficulttradeoffs.Tobalanceconflictingprioritieseffectively,theinstitutionwillneedtoensurethatthemembershipstaysengagedattheappropriatepoliticallevel;thatmorerigorousmechanismsforstrategyformulationareinplace,alongwithclearframeworksforsettingprioritiesandaligningresourceswithstrategy;thatthemembershaveaccesstoreliableandobjectiveinformationabouttheorganization’sstrengthsandweaknesses;andthatallmembers—includingthosecountriesthatwillbecalledupontoplayaleadingroleinmanagingemergingchallenges—haveastrongsenseofownershipintheinstitution.ToenabletheWorldBanktomeettheseconditions,itsgovernancearrangementsmustberevisited.

16

III. AssessmentofWorldBankGroupgovernance51. ThissectionassessestheWorldBankGroup’sexistinggovernancestructuresandpractices.ItconcludesthattheWBG’sperformanceishinderedbyseveralkeyweaknesses.Currentmechanismsforstrategyformulationarenotadequateforsettingprioritiesandguidingoperations.Asaresult,theyunderminemembers’ownershipoftheGroup’sstrategy,fostermissioncreep,andincreasetheriskofmisallocatingresourcesorstretchingthemtoothin.Inaddition,theinstitution’sdecision‐makingprocessiswidelyseenasallowingmanymembercountriesinsufficientvoiceandopportunitiesforparticipation.Finally,thereisinsufficientinstitutionalaccountabilityforresults—aproblemthatultimatelyweakenstheeffectivenessandlegitimacyoftheWorldBank.52. ThesectionbeginsbyhighlightingsomeessentialprinciplesofgoodgovernancerelevanttotheWorldBankGroup.Itthenprovidesabriefsketchoftheexistinggovernancestructureandassessesthedegreetowhichcurrentgovernancearrangementssupportstrategyformulation,voiceandparticipation,andaccountability.Principlesofgoodgovernance53. Itisnoteasytoidentifykeyprinciplesofgoodgovernanceforaninternationalorganization.Simplecomparisonstoprivatesectorcorporations,whicharesubjecttothedisciplineofthemarket,ortopublicsectororganizations,whicharesubjecttocontrolbysovereignauthorities,arenotalwaysrelevant.However,onecanassertabroadprinciplethatanorganization’sgovernancestructureshouldprovidethepeoplewhocompriseitsgoverningbodieswithproperincentivestopursueobjectivesthatarealignedwiththeinterestsofshareholdersandstakeholders.InthecaseoftheWorldBank,goodgovernancemeansthattheseincentivesareembeddedintheinstitutionalstructureitselfandthereforeremaininplaceindependentlyofthepoliticalpreferencesofnationalgovernments,thepersonalidiosyncrasiesofWorldBankpresidents,andthequalitiesofBoarddirectors.54. TheCommissionsuggeststhatinternationalorganizationsaremorelikelytobewellgovernediftheyabideby,amongothers,thefollowingprinciples:

• Governancearrangementsshouldallowtheorganizationtoformulateastrategicvisionandtotranslateitintoefficientoperationalpolicies,takingintoaccounttheorganization’scomparativeadvantage,environment,andrisks.Thearrangementsshouldalsoprovideenoughflexibilitytoallowtheinstitutiontoadaptwithinareasonabletimetochangingconditions.

• Thedivisionoflaboramonggoverningbodiesshouldbeprecisetoavoidconfusion,duplication,andthedilutionofresponsibilityandaccountability.

• Conflictsofinterestmustbeavoidedasfaraspossibleandmadetransparentinallcases.Governancethatpermitsdecisionsthatbenefittheparticularinterestsofashareholderorindividualattheexpenseofthelargermembershipisnotacceptable.

17

• Theabilityofindependentevaluatorsandauditorstoprovideobjectiveanalysistotheshareholdersandtheirrepresentativesmustbestrictlysafeguardedthroughmeasuresthatpreservetheirindependence.

• Shareholdersshouldhaveadequatechannelstomaketheirvoiceheard,to

participatemeaningfullyindecisionmaking,andtoinfluencepolicyoutcomes;mechanismsshouldbeinplacetoprotecttheinterestsofminorityshareholdersandresourcerecipients,notjustthoseofresourceproviders.Sincemultipleshareholdersmaynotalwayssharethesameperspectiveandunanimitycannotbeassured,acentralgovernanceprincipleshouldbetransparency,sothatdifferencesarenotobscuredandhaveagreaterchanceofbeingreconciled.

• Leadershipselectionshouldbebasedonacompetitive,transparent,andrules‐basedprocesswithnorestrictionsonthenationalityofcandidates.

55. TheCommissionemphasizesthatwhiletherecanbebroadagreementongeneralprinciplesofgoodgovernance,nosinglegovernancemodelisappropriateforallinstitutions.TheWorldBankGroup’suniquemandateandmembershipshouldbetakenintoaccountinanyassessmentofitsgovernance.Existingstructure56. TheWorldBank’sgovernancestructurewasoriginallyconceivedatthe1944BrettonWoodsConference.Thedelegates—havingcompletedtalksontheInternationalMonetaryFundandhopingtoavoidanothersetofextensivenegotiations—appliedthegovernancestructureoriginallydesignedfortheFundtotheWorldBank.Sincethen,thegovernancearrangementsofbothinstitutionshavemirroredoneanotherdespiteimportantdifferencesintheirmandatesandpurpose(seeBox2).57. Despiteitsimperfectinception,theWBG’sgovernancestructurehasshownseveralstrengths.Theprincipleofrepresentingmembercountriesintheorganization’sgoverningbodiesthroughconstituenciesprovidesausefulmechanismtobalancerepresentationanddecision‐makingefficiency.TheuseofconstituencieshasallowedtheWorldBank’smembershiptoquadruplewithoutparalyzingdecisionmaking.Also,thelinkbetweenshareholdingandvotinghasprovided,atleastinprinciple,arelativelyflexiblesystemthatallowstheallocationofvotingpowertoadapttochangingconditions.

18

Box2.ParallelsinWorldBankandInternationalMonetaryFundgovernance

TheUnitedNationsMonetaryandFinancialConference,betterknownastheBrettonWoodsConference,tookplaceoverthreeweeksinNewHampshire,USA,inJuly1944.Convening730delegatesfrom44nations,theconferenceproducedaninstitutionalframeworkforpostwarinternationalmonetaryandfinancialrelations.The governance of the International Monetary Fund was considered first and took up most of the initialweek’sdiscussions.Forreasonsoftimeandconvenience,thedelegatesappliedtotheWorldBankthesamegovernancestructuretheyhaddesignedfortheIMF.Asaresult,ArticleVoftheBank’scharter(“Organizationand Management”) was nearly an exact copy of the Fund’s Articles XII and XIII. (Fund governancearrangementshavesincebeenmodified throughamendments to the IMFArticlesofAgreement,notably tointroduce aministerial‐level Council and to revise votingmajorities.) Subscriptions to IBRD capital,whichdeterminedtheallocationofvotingpower,werelinkedtoFundquotas.MembershipintheIMFwasmadeaprerequisiteforIBRDmembership.Despitetheirsimilargovernancearrangements,theIMFandWorldBankGroupdifferinimportantrespects,startingwiththeirmandates.TheFundfocusesonthemacroeconomicstabilityofmembercountriesandoftheinternationalfinancialsystemasawhole,whiletheWorldBank’smandatecentersonfinancingmembers’long‐term economic development. The IMF has important regulatory powers—members have acceptedtreatyobligations toprovide theFundwithvery specifickindsofmonetaryand financial informationonaregularbasisaspartofFundsurveillance.TheBank,ontheotherhand,doesnothavethisregulatoryrole—itcanrequireinformationonlyinthecontextofspecificloans.Also,theinstitutions’financingmodelsaredifferent.TheIMFfinancesitsoperationsprimarilybycollectingquota subscriptions from itsmembers,while the IBRD raises the bulk of its resources by selling bonds ininternationalmarkets.Timehorizonsvaryaswell.Asthe“firefighter”oftheglobaleconomy,theIMFmustactquickly,providingresourcesinamatterofweeksorevendays,andthedurationofitsprogramstypicallyrangesfromonetothreeyears.Incontrast,WBGloanstakemonthstoprepare,andBank‐financedprojectsmaytakemanyyearstobearfruit.Finally,theFundisconsiderablymorecentralizedthantheWBG.TheFundisnotamulti‐armconglomerate,andmost of its policy decisions, especially those related to surveillance, apply to all 186 countries. At theWorld Bank Group, policy decisions often affect only certain segments of the membership, depending onwhetherthedecisionismadebytheIBRD,IDA,IFC,orMIGABoard.The founding fathers at Bretton Woods recognized that equipping both organizations with the samegovernancearrangementswasaflawintheBank’sinstitutionaldesign.AtopU.S.delegateatBrettonWoodsadmitted after the conference: “We spent very little time on organization [of the IBRD] in the BankCommittee. As a consequence, no serious attempt was made to structure the organization in a differentfashion,possiblymoreappropriatetoitspurpose.”3258. Overthedecades,thecoreelementsoftheWorldBank’sgovernancemodelhaveremainedunchanged:(1)aBoardofGovernorsthatmeetsonceayearandinwhicheverymemberhasaseatandvotes;(2)aresidentBoardofExecutiveDirectorstowhichtheGovernorsdelegatepowerandwhichiscloselyinvolvedintheoperationalaspectsoftheorganization’sbusiness;and(3)aPresidentwhoissimultaneouslychairmanoftheExecutiveBoard(s)andchiefexecutiveofficeroftheinstitution.32EdwardS.MasonandRobertE.Asher(1973),TheWorldBankSinceBrettonWoods.WashingtonD.C.:BrookingsInstitution,p.29.

19

59. AstheWorldBankgrewinsizeandcomplexity,newelementsweregraftedontotheoriginalgovernancestructure.Threeadditionalboardsofgovernorsandexecutivedirectorswerecreated:oneeachforIDA,IFC,andMIGA.Inpractice,however,theexecutiveboardsconsistofvirtuallythesamepeople,sothatthebodiesarebestunderstoodasasingleBoardthatmeetsindifferentguises,dependingontheissuebeingdiscussed.Thenumberofexecutivedirectorsdoubledfrom12to24(andwillbe25asof2010),andthestaffsupportingtheBoardgrewfromahandfultosome250.33TheDevelopmentCommittee60. TheBoardofGovernorsistheWBG’shighestgoverningbodyandcontainsaseatforeverymemberoftheinstitution.Governorsareministers;aboutthree‐quartersareministersoffinanceandonequartercomefromothergovernmentministries,includinginternationaldevelopment,planning,andforeignaffairs.MostpowersoftheBoardofGovernorshavebeendelegatedtotheExecutiveBoard.TheGovernorsmeetannually,butwith186members,theirBoardistoolargetobeaneffectivesourceofministerial‐levelguidancefortheinstitution.61. TheroleofministerialguidancefallstotheDevelopmentCommittee(DC),anadvisorybodyof24ministerswhorepresentthemembershipattheannualandspringmeetingsoftheBrettonWoodsinstitutions.TheDevelopmentCommitteeisajointcommitteeoftheBoardsofGovernorsoftheWorldBankandtheIMF.ItsmandateistoadvisetheBoardsofGovernorsoftheFundandBankonallaspectsofthetransferofresourcestodevelopingcountries.TheDCconsidersawiderangeoftopicsatitssemi‐annualmeetings,basedonpaperspreparedbyWorldBank(andoccasionallyFund)staffandreviewedbytheExecutiveBoard.Attheconclusionofitssemi‐annualmeetings,theDCissuesacommuniquéprovidingguidancefortheBoardandstaff,thoughinpractice,theCommitteeiswidelyseenasdealingonlywithBank‐relatedissues.BecausetheDevelopmentCommitteeistechnicallyonlyanadvisorybody,itscommuniquésdonotconstituteformaldecisions.TheExecutiveBoard62. UndertheArticlesofAgreement,theBoardofExecutiveDirectorsisresponsibleforconductingthe“generaloperations”oftheWorldBankandprovidesdirectiontothePresident.TheBoardperformsseveralkeyfunctions:representationofthemembership,reviewandapprovaloffinancingoperations,andoversightoftheGroup’sstaffandmanagement.In1947,anagreementbetweentheBoardandPresidentdeterminedthatthe33OntheboardsoftheIBRD,IDA,andtheIFC,fiveExecutiveDirectorsareappointedbytheshareholdershavingthelargestshares(theUnitedStates,theUnitedKingdom,France,Germany,andJapan),and19areelectedbytherestofthemembers,organizedinconstituencies.Threecountries(China,Russia,andSaudiArabia)electtheirownDirectors.TheseDirectorsrepresentonlyonecountry,whiletheother16representmulti‐countryconstituencies.AppointedDirectorsserveatthediscretionoftheirgovernments,whileelectedDirectorsserverenewabletwo‐yearterms.OntheMIGAboard,aquarteroftheDirectorsareelectedseparately,oneeachbythemembershavingthelargestnumberofshares(sixatpresent),andtherestareelectedbyconstituencies.

20

ExecutiveDirectorsareresponsible“forthedecisionofallmattersofpolicyinconnectionwiththeoperationsoftheBank,includingtheapprovalofloans,”whileManagementischargedwithdevelopingrecommendationsonallpolicymattersrequiringdecisionbytheBoardandwithpresentingthemtotheBoard.3463. TheExecutiveBoardmeets“incontinuoussession,”whichincurrentpracticemeanstwiceaweek.Intotal,theBoardmeetsseveralhundredhoursayear.Inthe2000‐05period,timespentintheboardroomwasintherangeof500‐600hoursayear,thoughthenumberhasbeenclosertothe400‐hourmarkinthepastfouryears.Directorsalsospendbetween200to300hoursincommittees.TheannualcostofrunningtheofficesoftheDirectorsisaboutUS$60million(excludingthebudgetsoftheOfficeoftheCorporateSecretary,theIndependentEvaluationGroup,andtheInspectionPanel).TothisshouldbeaddedtheindirectcoststotherestoftheinstitutionofpreparingmaterialsforandinteractingwiththeBoard.Management64. ThePresidentisthecentralfigureinWBGgovernance.Heheadstheoperatingstaffandisformallychargedwithconductingthe“ordinarybusiness”oftheBankunderthedirectionoftheExecutiveDirectors.Aschiefoftheoperatingstaff,thePresidentisresponsiblefortheorganization,appointment,anddismissalofstaffandManagement.AstheheadoftheWorldBankGroup,thePresidentservesasheadoftheGroup’sfivearmsandchairmanofallofitsboardsofdirectors,aswellasoftheAdministrativeCounciloftheInternationalCenterfortheSettlementofInvestmentDisputes(ICSID).Hemayalsoexertinfluencethroughthepublicvisibilitythathisofficeprovides.Alongwiththepowertosettheagendaandasignificantinfluenceonloandecisions,thePresidentultimatelyhasconsiderablediscretioninshapingWorldBankpolicies.65. TheorganizationoftheGroup’sseniormanagementhasevolvedundereachPresident.CurrentlyitcomprisesthreeManagingDirectors,oneChiefFinancialOfficer,and31vice‐presidentsoccupying34vice‐presidencies(someVPsholdmorethanonevice‐presidency;thisnumberincludesthetwoExecutiveVice‐Presidents).Currently,thethreeManagingDirectorsareresponsibleforoverseeinganumberofregionalandfunctionalvice‐presidentialunits.Strategyformulation66. Asalargeandcomplexorganization,theWorldBankGrouprequiresastrategyandaneffectivestrategy‐formulationprocessifitistobesuccessful.Thatstrategyshouldenjoywidespreadsupportandownershipamongtheshareholders,andthereforeitneedstobediscussedandapprovedbytheshareholders’mostseniorrepresentatives.Thestrategyshouldalsobebasedonarealisticassessmentofrisks,resources,andcapabilities,andit34“InternationalBankforReconstructionandDevelopment:ReportbythePresidenttotheExecutiveDirectorswithRespecttoMattersofOrganizationandLoanProcedure."Doc.No.R‐206,May22,1947;lastamendedonSeptember11,1956.

21

shouldreflectacollectivedecisionbytheinstitution’sshareholdersregardingtheGroup’spriorities.Thestrategyshouldbepossibletotranslateintoanoperationalplan,onethatprovidesaframeworkforestablishingpriorities,managingtradeoffs,allocatingresources,andmeasuringperformance.Finally,thestrategyshouldreflectavisionoftheGroupasanintegratedcorporateentity,ratherthanasacollectionofseparatearmswithindependentmandatesandactivities.67. TheGroup’scurrentgovernancearrangementsdonotsupportastrategyformulationprocessalongtheselines.Theproblemisnotthatstrategy‐generatingprocessesareabsent—onthecontrary,theGroupregularlyproducesadiversestreamof“strategic”documents.Thekeyconcernisthattherearenomechanismsbywhichtheshareholderscanengagemeaningfullyinstrategyformulationattheappropriatelevelofseniority.TheDevelopmentCommitteeandtheExecutiveBoard,ascurrentlystructured,lackthecapacitytoplaythisroleeffectively.Atthesametime,strategiesgeneratedbyManagementtendtobeoverlappingandall‐encompassing,rarelyprovidingeffectiveoperationalguidance.A“strategygap”68. TheDevelopmentCommitteewouldseemtobetheobviousforumtodiscussandsetinstitutionalstrategy,giventheseniorityofitsmembersandthefactthatallWorldBankGroupmembersaredirectlyorindirectlyrepresentedthere.Butaspresentlystructured,theCommitteedoesnotserveastheBank’sstrategy‐settingbody.TheCommittee’sadvisorynaturemeansthatitcannotrequiretheimplementationofstrategyelementsthattheExecutiveBoardorManagementmightprefertoundermineormarginalize.TheCommitteeitselfcanfollowupthroughagendasandcommuniquésbuthasnootherinstrumentstoensurethatitsrecommendationsareimplemented.BecauseitscompositionmirrorsthatoftheExecutiveBoard,theCommitteeissubjecttothesamecriticismsaboutimbalancesinvoiceandrepresentation(coveredinthenextsection).Finally,atmostoftheDevelopmentCommitteemeetings,theproformanatureofthedialoguereducesopportunitiesforfrankandopenexchangesamongtheCommitteemembers.69. Attheendofeachofitstwosemi‐annualmeetings,eachtypicallylastingfourtofivehours,theCommitteeissuesacommuniqué.However,thisdocumentisnottrulyastrategydocument.PreparedprimarilybyExecutiveDirectors,itstimehorizonisshort,anditmostlyendorsesongoinginitiativesandsetstheagendaforworktobeundertakenforthenextmeetingormeetings.70. TheExecutiveBoardisnotcurrentlywellpositionedtobeaneffectiveforumforstrategy‐setting,either.NeithertheBoardasawholenorindividualDirectorsareformallyheldresponsiblefortheGroup’soverallstrategicdirection.Second,theBoard’smanyotherresponsibilitiesdonotleaveenoughtimetodevotetostrategicmatters.InFY2009,forexample,theBoardspentonlyabout12percentoftotalboardroomtimediscussingissuesthatcouldbetermedstrategic.35Third,therelativelackofpoliticalseniorityofmany35SecretariatcalculationsbasedondataprovidedbytheOfficeoftheCorporateSecretary.

22

ExecutiveDirectors,andinsufficientclarityastowherestrategy‐settingresponsibilitylies,mayallowthePresidenttosidelinetheBoardinmattersofstrategyformulation.Finally,with25chairs,theBoardistoolargeabodytoserveasaneffectivestrategy‐settinganddecision‐makingbody.3671. TheExecutiveBoard’sinvolvementwithstrategytakesplacemainlythroughthebudgetingprocess,inwhichtheBoardhasfourpointsofengagement.Amongthese,themostimportantistheBoard’sdiscussionofManagement’sMedium‐TermStrategyandFinance(MTSF)paper.ThedocumentintegratesadescriptionofManagement‐proposedBankstrategywithadiscussionoftheIBRD/IDA’sfinancialoutlookandadministrativebudget.However,theBoard’sdiscussionoftheMTSFpapertypicallyaddslittletoManagement’sproposals.AttheIFC,thestrategyprocessinplaceisprobablymorerobust,withadiscussionoftheIFC’sRoadmapprecedingthebudgetdiscussion.72. TheOfficeofthePresident,withthesupportoftheChiefEconomist,hasproposedinstitution‐widestrategiesfortheGroup.Forexample,aStrategicFrameworkwasproducedin2001andaLongTermStrategicExercisepaperin2007.37Numerousotherstrategydocumentsarealsoproducedregularly(e.g.,thePresident’sBrief,regionalandsectorstrategies,andcountrypartnershipstrategies).However,thesedocumentsusuallyprovidedirectionwithoutananalyticalframeworktobalancetradeoffsorguideoperations.Asaresult,theGrouphascometobeguidedbymultiple,overlappinglayersofstrategicpriorities,includingtheMillenniumDevelopmentGoals,six“strategicthemes,”anda“two‐pillar”frameworkforreducingpoverty.38Theseprovidelittleoperationalguidance,becausetheycovervastterritorywithoutclarifyingpriorities.73. Inpractice,strategyattheWorldBankGroup,particularlyintheIBRDandIDA,appearstoemergemostlyfromtheaggregationofindividualcountryandregionalprioritiesasinterpretedbythedirectorsofcountryprograms.Theseprioritiesarethenfoldedintoanall‐encompassing,thematically‐based“strategy”thatisprimarilydevelopedbythePresident.ItissensiblethatthePresidentplayaproactivebutcollaborativerole

36AcademicliteratureonBoardsizehasfoundthatboardsaremosteffectivewhentheyhaveatmosttwelvemembers.Boardsizeintheprivateandnon‐profitsectorappearstofollowthisprincipleclosely.Averageboardsizeintopprivatefirmsis13inJapan,10.8intheUnitedKingdom,and10.7inItalyandtheUnitedStates,forexample.Theaveragesizeofboardsinnon‐profitorganizationsintheUnitedStatesis15.See,forexample,ColinCarterandJ.WilliamLorsch,BacktotheDrawingBoard:DesigningCorporateBoardsforaComplexWorld,(Cambridge,Mass.:HarvardBusinessSchoolPress,2003).37SeeWorldBankGroupStrategicFramework(January24,2001),andMeetingtheChallengesofGlobalDevelopment:ALongtermStrategicExercisefortheWorldBankGroup(2007).38TheWBGhasmadeacommitmenttohelpingmembercountriesachievetheMillenniumDevelopmentGoals,whichcallforthereductionofabsolutepovertyandtheachievementofsustainabledevelopment,amongotherthings.ThesixstrategicthemesthatdriveWBGeffortsare(1)helpingovercomeextremepovertyinAfrica;(2)addressingtheproblemsofstatescomingoutofconflictorseekingtoavoidstatebreakdown;(3)helpingmiddle‐incomecountriesmeettheirdevelopmentchallenges;(4)fosteringregionalandglobalpublicgoods;(5)helpingtoadvancedevelopmentintheArabWorld;and(6)producinganddisseminatingknowledgeaboutdevelopment.Thetwo‐pillarframeworkforreducingpovertyisbasedonbuildingaclimateconducivetoinvestment,jobcreation,andsustainablegrowth,andoninvestinginpoorpeopleandempoweringthemtoparticipateindevelopment.

23

withtheBoardinstrategyformulation.Theproblemisthatunderthecurrentstructure,thePresidenttendstomaximizetheGroup’sportfolio,resources,andglobalvisibilitywhileavoidingtheuseofstrategicframeworksthatmaketradeoffstransparent.Instead,strategydocumentsaredesignedtofinddraftingsolutionsthataccommodateallinterests.DecisionsofstrategicsignificancearethenlefttoManagement,tobemadeaspartoftheorganization’sday‐to‐daybusiness.Thisreducesshareholderinvolvementinstrategicdecisionsandpreventsthetransparentmanagementoftradeoffs.74. Theresultisaninstitutionalcultureinwhichthehardchoicesthatarenecessaryonstrategicgroundsarenotclearlyspelledoutandarenotdeliberatedwithaviewtoforcinggenuinechoicesbasedonestablisheddecision‐makingrules.Withoutaclearframeworkforsettingprioritiesandbalancingtradeoffs,theinstitutionexpandscontinuouslyintonewareasandassumesnewmissionsinresponsetoexternaldemandsandpressures.Thisincreasestheprobabilitythatresourceswillbespreadtoothin,orthatresourceswillcontinuetobeallocatedtoactivitiesthatarenolongerdeliveringresults.Withoutaclearlydefinedinstitutionaldirection,italsobecomesmoredifficultforshareholderstoholdManagementaccountable.Finally,thecurrentstructurerisksproducingstrategiesthatdonotenjoywidespreadsupportamongthemembership,alienatingmembersandunderminingtheirtrustintheinstitution.Voiceandparticipation75. Asaninternationalinstitutioncollectivelyownedbyitsmembercountries,theWorldBank’sgovernanceshouldprovideallmemberswithafairmeasureofvoiceandparticipation.“Voiceandparticipation”referstothecapacityofeachmembertohaveitsviewsrepresentedintheinstitution’sgoverningbodies,tobeinvolvedmeaningfullyinthedecision‐makingprocess,andtoinfluencedecisionsandpolicies.76. Theconceptoffairnessiscentraltoanyanalysisofvoiceandparticipation.By“fair”wemeantwothings.First,thedistributionofvoiceandparticipationamongWorldBankGroupmembercountriesshouldbebroadlycommensuratewiththeircapacityandwillingnesstoshouldertheinstitution’sriskandcontributetoitsresources.Second,itshouldprovideastrongassurancethatthepolicyoutcomesitgenerateswillconstituteareasonablebalanceofthemembers’interests.Inacooperative‐typeinstitutionliketheWorldBank,thismeansrecognizingthatallmembercountrieshaveastakeregardlessoftheirwealthorsize,andthattheprocessofpromotingeconomicdevelopmentrequirestakingintoaccounttheviewsofthepartiesprovidingtheresourcesaswellasofthosewhomustlivewiththeconsequencesofdevelopmentinterventions.77. Inpracticalterms,voiceandparticipationintheWorldBankGrouparedeterminedby(1)theallocationofvotingpoweranddecision‐makingarrangementsintheBoardsofGovernorsandExecutiveDirectorsand(2)thesizeandcompositionoftheBoardofExecutiveDirectors.Weexamineeachinturn.

24

Votingpowerallocationanddecisionmakingarrangements78. VotingpowerallocationisbasedondifferentprinciplesineachoftheGroup’sfinancingarms.Forthisreason,thevotingstructureofeacharmisdifferent,asshowninTable1below.Wediscussvotingpowerallocationseparatelyforthethreelargestarms:IBRD,IDA,andIFC.

Table1.Votingpowersharesofthetoptwentyshareholders(2009)

IBRD IDA IFC MIGA

1 UnitedStates 16.36 UnitedStates 12.16 UnitedStates 23.59 UnitedStates 14.98

2 Japan 7.85 Japan 9.53 Japan 5.86 Japan 4.21

3 Germany 4.48 Germany 6.30 Germany 5.35 Germany 4.19

4 France 4.30 UnitedKingdom 5.37 France 5.02 France 4.02

5 UnitedKingdom 4.30 France 4.04 UnitedKingdom 5.02 UnitedKingdom 4.02

6 Canada 2.78 SaudiArabia 3.30 Canada 3.38 China 2.64

7 China 2.78 India 3.13 India 3.38 Russia 2.63

8 India 2.78 Canada 2.69 Italy 3.38 SaudiArabia 2.63

9 Italy 2.78 Italy 2.57 Russia 3.38 India 2.56

10 Russia 2.78 Poland 2.10 Netherlands 2.33 Canada 2.51

11 SaudiArabia 2.78 Netherlands 2.02 Belgium 2.11 Italy 2.38

12 Netherlands 2.21 Sweden 1.98 Australia 1.97 Netherlands 1.86

13 Brazil 2.07 China 1.88 Switzerland 1.73 Belgium 1.75

14 Belgium 1.80 Brazil 1.60 Brazil 1.65 Australia 1.50

15 Spain 1.74 Australia 1.23 Argentina 1.59 Switzerland 1.32

16 Switzerland 1.66 Switzerland 1.15 Spain 1.54 Brazil 1.30

17 Australia 1.52 Belgium 1.13 SaudiArabia 1.26 Spain 1.14

18 Iran 1.48 Norway 1.03 Indonesia 1.19 Argentina 1.12

19 Venezuela 1.27 Denmark 0.98 Mexico 1.15 Indonesia 0.95

20 Mexico 1.18 Pakistan 0.92 Venezuela 1.15 Sweden 0.95

TOTAL 68.90 65.11 76.03 58.66

Source:HLCSecretariatbasedoninformationfromAnnualReports.InternationalBankforReconstructionandDevelopment79. VotingpowerattheIBRDisconferredbytwokindsofvotes:basicvotesandsharevotes.WhentheIBRDwasfounded,allmemberswereallocated250basicvotes,sothateach,regardlessofpopulationoreconomicsize,wouldhaveastakeintheinstitution.Sharevotes,bycontrast,reflecttherelativeshareholdingsoftheIBRD’smembers.TheIBRDdoesnothaveitsownformulaforcalculatingshareholdingsbuthashistoricallyusedIMFquotasharesasabase.Inturn,IMFquotas(underthe2008formula)arecalculatedusingseveralvariables,includingmeasuresofthemember’sGDP,economicopenness,variabilityofthe

25

currentaccountandcapitalflows,andtheamountofinternationalreservesheld.80. FiveconcernsstandoutregardingthefairnessofcurrentvoiceandparticipationarrangementsattheIBRD:81. Erosionofbasicvotes.BasicvotesprimarilyaffectthevoiceandparticipationoftheBank’ssmallestandpoorestmembers.WhentheIBRDwasfounded,basicvotesrepresented10.78percentoftotalvotingpower.Overtime,thatshareerodedto2.86percent.In2008,theBoardofGovernorsagreedtoincreasebasicvotestoafixedlevelof5.5percentoftotalvotingpower,butthislevelremainslowbyhistoricalstandardsandrelativetothatinothermultilateraldevelopmentbanks.3982. LinktoIMFquotas.ThesecondissueconcernsthehistoricallinkagebetweenshareholdingattheWorldBankandIMFquotas.ThevariablesusedtocalculateFundquotaswerepurposefullydesignedforacooperative‐typeinstitutiontaskedwithhelpingmembersmanagecurrentaccountimbalances.Appropriately,thevariablescaptureIMFmembers’capacitytocontributetotheFund’sresourcesaswellastheirpotentialdemandforthoseresources;afterall,quotasdeterminenotonlyvotingpower,butalsohowmuchacountrymaydrawfromtheFund.(IntheBank,shareholdingdeterminesvotingpowerbuthasnoimpactonlendingvolumes.)However,someofthevariablesusedtocalculateFundquotasarenotappropriateforaninstitutionwhosemissionistofinanceeconomicdevelopmentandfightglobalpoverty.Inparticular,indicatorsofeconomicopenness,variabilityofcapitalflowsandthecurrentaccount,andinternational‐reservelevelsarepoorproxiesofthefunctionalandfinancialrelationshipthatexistsbetweentheWorldBankGroupanditsmembers.83. Noautomaticreview.TheIMFreviewsmemberquotaseveryfiveyears.IDA’schartercallsforanautomaticreviewofsubscriptionseveryfiveyears.Yet,therearecurrentlynoautomaticandperiodicreviewsofshareholdingintheIBRD.ThisdeprivestheBankofadynamicmechanismtoensurethatshareholdingandvotingpowerallocationadaptrelativelysmoothlytochangingconditions.Instead,thecurrentsysteminevitablyandperiodicallygivesriseto“voicegaps”thatmustthenbemitigatedthroughadhoc,highlypoliticized,andusuallydivisivenegotiations.84. Votingpowerimbalances.Forseveralcountries,IBRDshareholdingsdonotmatchtheirweightintheglobaleconomy.IfmeasuredbytheratiooftheirIBRDshareholdingstotheirshareofglobaloutput,countriesincludingChina,CostaRica,Germany,Greece,Lebanon,Mexico,Qatar,SouthKorea,theUnitedStates,andVietnamaresignificantlyunderrepresented.40Thefactthatsuchdiversecountriescouldclaimtobeunderrepresentedispartlyaproductofthelackofregularshareholdingreviews,whichallowsIBRDshareholdingandactualIMFquotastodiverge.However,whatmattersmost

39Forexample,intheAsianDevelopmentBanktheshareofbasicvotesisfixedat20percentoftotalvotingpower.40Theseresultsobtainregardlessofwhetheroutputismeasuredingrossdomesticproductatcurrentprices,inGDPatpurchasing‐power‐parity,oringrossnationalincomeatcurrentprices.

26

fromafairnessstandpointisaddressingtheclaimsofcountrieswhoseunderrepresentationismostsevereandhistoricallychronic.85. Moregenerally,therearestronggroundstoarguethatabroadprincipleofequitybetweendevelopedanddevelopingcountriesoughttogoverntheallocationofsharesandvotingpowerattheIBRD.Oneargumentforequityconcernsthecollaborativenatureoffosteringeconomicdevelopment.Today,itiswidelyunderstoodthatthereisnouniquetemplatefordevelopmentandthatnosinglepartyhasamonopolyontheknowledgenecessarytopromoteit.Indeed,thesuccessofdevelopmentinterventionsdependscruciallyonconstantandmeaningfulinteractionbetweenresourceprovidersandresourcerecipients.41Thisargumentappliesnotonlytospecificfinancingoperations,butalsototheGPG‐relatedactivitiesthatareagrowingpartoftheIBRD’sportfolioandtothesettingoftheBank’soveralldevelopmentframework,strategies,andpolicies.86. Also,someconsiderationshouldbegiventotheargumentthatsinceasubstantialpartoftheIBRD’sincomestemsfromprofitsitobtainsfromtheinterestpaidbyitsdeveloping‐countryborrowers,thismayentitleborrowerstoagreatersayinhowtheinstitutionshouldberun.4287. TheprincipleofequitybetweendevelopedanddevelopingcountriesisalreadyrecognizedintwooftheWBG’sarms.InIDA,52percentoftotalvotingpowerisearmarkedfordeveloped,or“PartI,”countriesand48percentfordeveloping,or“PartII,”countries.InMIGA,votingpowerissplit50‐50between“CategoryOne”and“CategoryTwo”countries(essentially,developedanddevelopingcountries).TheprinciplebehindtheparityinMIGA’svotingsystemisthat“countrieshaveanequalstakeinforeigninvestment”andthat“cooperationbetweenthemisessential.”43Incontrast,attheIBRD,developingandtransitioncountrieswillhaveashareof44percentafterthefirstphaseofongoingreformsiscomplete.88. Specialmajorities.ThefifthissueconcernstheIBRD’svotingstructure.TheWorldBankGroup’sBoardsofGovernorsandExecutiveDirectorsmakemostoftheirdecisionsbyasimplemajorityofthevotingpower.Votingiscommonplaceatthegovernors’level,wherespecialmajoritiesareneededforcertaindecisionsincludingamendmentoftheArticlesofAgreement(85percent),additionofelectedBoardseats(80percent),andcapitalincreases(75percent).IntheExecutiveBoard,bycontrast,votingisextremelyrare,anddecisionsaretakenby“consensus.”ABoarddecisionisreachedwhenthechairman,aftertakingstockofthe“senseofthemeeting,”declaresthatconsensushasbeenreached.

41See,forexample,WorldBank(1998),AssessingAid:WhatWorks,WhatDoesn’t,andWhy,Washington,D.C.42Forexample,inFY2008,incomefromtheIBRD’snetloanmarginamountedtoUS$624million,or25percentofIBRD’sgrossincomeforthatyear.43CommentaryontheConventionEstablishingtheMultilateralInvestmentGuaranteeAgency.SectionVI,Paragraph63.Paritybetweenbothgroupsisachievedthrougha“parityfactor.”Theparityfactoriscalculatedusingaformulathatresultsinassigninganadditionalnumberofvotes,calledparityvotes,toeverymember,sothattheaggregatenumberofvotesofCategoryOnemembersequalsthatofCategoryTwomembers.ThisParityFactorisautomaticallyadjustedwhenthereisanychangeinmembershiporinthenumberofsharessubscribedthataffectsparity.

27

Indecidingwhenconsensushasbeenachieved,thevotingweightsofthevariouschairsareakeyfactor.Therefore,evenifvotesarerarelytaken,theallocationofvotingpowerisactuallycentraltogovernanceanddecisionmaking.89. Theallocationofvotingpowertakesonmoreimportanceinthecontextoftheso‐called“U.S.veto.”Thisappliesonlytoonedecision:amendingtheArticlesofAgreement,whichrequiresan85percentmajorityofthevotingpower.SincetheUnitedStateshas16.38percentofthevotingpowerintheIBRD,U.S.unilateralconsentisaprerequisiteforamendingtheBank’scharter.ChangestotheArticlesofAgreementarerare,butthefactthattheUnitedStatescanvetothemunilaterallyhasimportantsymbolicimplications,contributingtothesensethattheinstitutionisdominatedbyitslargestshareholder.InternationalDevelopmentAssociation90. InIDA,votingpowerisconferredbymembershipvotesandsubscriptionvotes.Membershipvotes,likebasicvotesintheIBRD,areallocatedequallytoallmembers.IDA’smembersaredividedintotwocategories—PartIcountriesarethedevelopedcountriesthatoriginallycontributedmostofIDA’sresources.PartIIcountriesaremostlydevelopingcountries,includingthosethatoriginallyborrowedfromIDA.4491. ThevotingpowerofeachPartImemberreflectsitsshareoftotalcumulativefinancialcontributionstoIDA,plusitsoriginalmembershipvotes.PartIcountriespaytheircontributionsinfreely‐convertiblecurrencies.TheshareofvotingpowerthatPartIcountriesmayholdcollectivelyiscappedat52percentofthetotal.ThevotingpowerofeachPartIImemberalsoreflectsitscontributions,whichcanbepaidinitsnationalcurrency.TheshareofvotingpowerthatPartIIcountriesmayholdcollectivelyiscappedat48percent.Someofthis48percentremainsunsubscribed,becauseanumberofPartIIcountrieshavenotmadecontributions.TwofeaturesofIDA’svotingsystemareproblematic:92. Weightingofcumulativecontributions.VotingpowerintheIDAExecutiveBoardisbasedoncumulativecontributions.Thatis,contributionsarenotdiscountedfortheirtimevalue,sothatcontributionsmade,forexample,in1960,andthosemadeinthelatestroundofIDAreplenishmentconferthesamedegreeofvoiceintheBoard.Yet,relativelyolddonorcontributionstoIDAarelessvaluabletotheinstitutionthanrelativelyrecentones.HistoricalcontributionsprovidelessfundingforIDAtodaybecausenominalreflowsonIDA'shighlyconcessionalloansaregradualandlosefinancialvalueovertheir40‐yearrepaymentperiod.Therefore,ifwetakeseriouslytheprinciplethatvotingpowershouldbecommensuratewithmembers’capacityandwillingnesstocontributetoIDA’sresources,thenthecurrentarrangementisunfairbothtonewdonorsandtoolddonorswhowanttogivemoretoday.Thearrangementalsodoeslittletoencouragenewcontributions.

44Thisdistinctionhasbecomelessmeaningfulovertime,asPartIIcountriesincludingChina,Egypt,SouthKoreaandTurkeyhavebecomeIDAdonors,andasmanyformerlylow‐incomecountrieshavesteppedintotheranksofmiddle‐andevenhigh‐incomecountries.

28

93. RoleofIDADeputiesindecisionmaking.ThedebateaboutvotingpowerinIDAislargelysymbolicbecausethemostimportantdecisionsconcerningtheAssociationaretakennotbytheBoardofExecutiveDirectorsbutbytheIDADeputies.ThisinformalgroupiscomposedofseniorofficialsfromIDA’s(currently45)donorcountries.TheIDADeputies,whooftenhavetherankofdeputyministerordirectorgeneral,agreeonmajorissuesofpolicyandstrategy.Decisionsaretakenbyconsensus,andtherearenovotes,novotingpowerallocations,andnoconstituencies.45TheDeputieseffectivelyhavethelastwordonsubstantiveissues,although,legally,theIDAExecutiveBoardandBoardofGovernorsapprovereplenishmentreportsandresolutions.Insomeinstances,theIDADeputieshavealsoleveragedtheirIDAcontributionstoinfluenceIBRDpolicies.94. TheuseofDeputies’meetingsforsubstantivedecisionmakinginIDAraisesgovernanceconcerns.First,itreducestransparency;theidentitiesoftheDeputiesarenotpubliclydisclosedandthedecision‐makingprocessisopaque.Second,bybypassingtheformalgovernancestructuresofIDAandIBRD,thearrangementlackstheformalvoiceandparticipationmechanismsestablishedbythechartersofbothorganizations.TherecentattempttomakeDeputies’meetinglessexclusivebyinvitingselectedborrower‐countryrepresentativestoparticipateindiscussionsiswelcomebutdoesnotgofarenough.ThroughtheDeputies’arrangement,decision‐makingpowerhasbeenseparatedfromshareholding—whichnegatesabasicprincipleofIDA’soriginalgovernancestructure.Third,thedeputies’arrangementcreatesanaccountabilitygapbyde‐linkingpowerfromresponsibility—theIDAExecutiveBoardremainsaccountableforthedecisionsultimatelytakenbytheDeputies,eventhoughitplaysonlyanindirectroleinthosedecisions.InternationalFinanceCorporation95. IFCvotingpowerisconferredbybasicvotes,whicharefixedat250permember,plussharevotes,whichareallocatedonthebasisofstockheld.Originally,IFC’sfoundersagreedthattheinitialsubscriptionofeachmembercountryshouldbefixedinrelationtothemember’sstockintheIBRD.Overtime,however,thetwohavedivergedbecauseofIFCandIBRDcapitalincreases.96. VoiceandparticipationconcernsraisedbytheIFC’svotingstructurearesimilartothoseintheIBRD:

• Lackofautomaticshareholdingreviews.LiketheIBRD,theIFCalsolacksanautomaticandregularprocessforreviewingshareholdingandvotingpower.

• Erosionofbasicvotes.TheerosionofbasicvotesasashareoftotalvotingpowerhasdiminishedthevoiceoftheCorporation’ssmallerandpoorermembers.WhenIFCwasestablished,basicvotesaccountedfor12.28percentofthetotalvotes.Today,basicvotesaccountforonly1.82ofthetotal.

45RepresentativesofIDAborrowingcountrieshavebeeninvitedtojoindiscussionsinrecentyears;tenparticipatedinthemostrecentIDAreplenishment.

29

• Votingpowerimbalances.TheprincipleofequitybetweendevelopedanddevelopingcountriesdoesnotcurrentlyapplyintheIFC,inwhichdevelopingandtransitioncountriesholdonly33percentofthetotalvotingpower.Indeed,therelativesharesofdevelopedanddeveloping/transitioneconomiesintheIFCaremoreimbalancedthanattheIBRD.

ExecutiveBoardcomposition97. ThecompositionoftheWorldBankGroup’sExecutiveBoardisatleastasimportantastheallocationofvotingpowerintheGroup’svariousarms.CountriesthatparticipatedirectlyinBoarddiscussionshavebetteraccesstoinformationthanthosethatdonot,andtheyarebetterabletoinfluencetheircolleaguesandshapetheGroup’sdecisions,sometimestoagreaterdegerethantheirvotingpoweralonewouldsuggest.98. TwogovernanceconcernsstandoutregardingBoardcomposition:

• OverrepresentationofEuropeancountries.Europeancountries(EuropeanUnionmembersplusNorwayandSwitzerland)appeartobeconsiderablyoverrepresentedintermsofthenumberofchairstheyoccupyintheGroup’sExecutiveBoards.Dependingonrotationschemes,Europeancountriesoccupyeightorninechairsatanygiventime—32or36percentofthechairsinthe25‐chairBoard.Thelargenumberofchairsfromasingleregionisahistoricallegacythatnolongerseemsappropriateforaglobalinstitutionandatransformedglobaleconomy.ThisnumberofEuropeanchairsisnotinline,forexample,witheconomicweightorpopulation.

WhilesomeEuropeancountriesaregenerousdonorstoIDA(EUcountriesprovidedabout60percentofthedonorcontributionstoIDA15),itisnotclearwhythisshouldtranslateintochairsintheIBRD,IFC,andMIGAboards.ThelargerproblemistheabsenceoftransparentandfairprinciplestogovernthedistributionofchairsontheBoard.IfIDAcontributionsaretodeterminetheallocationofchairsontheIDAExecutiveBoard,thisprincipleshouldbemadeexplicit.

• Overcrowdinginsomeconstituencies.Thesecondconcernhastodowiththe“overcrowding”ofcountriesincertainconstituenciesontheBoard.WhileeightExecutiveDirectorsrepresentonlyonecountryeach,otherdirectorsmustrepresentupto16countries(goingforward,theprecisenumberwilldependonhowtheWBG’sconstituenciesareregroupedaftertheplannedadditionofachairforSub‐SaharanAfrica).Comparedtootherinternationalorganizationswithsimilarmemberships,theWorldBankhasalargeaverageconstituencysize.46Thisissignificantbecausethelargertheconstituencies,theweakerthevoiceofeachmemberandthefewertheopportunitiestoparticipateindecision‐making.

46Theaveragesizeofmulti‐countryconstituenciesattheWorldBankis10.9countriesperconstituency.Forreference,thefiguresfortheWHOandUNDPare5.6and5.3countriesperconstituency,respectively.

30

Accountability99. FosteringaccountabilityintheWBGisnotastraightforwardmatter.ItisnoteasytomeasurethedevelopmentimpactoftheGroup’soperations,andthankstoitspreferredlenderstatustheWorldBankalmostalwaysgetsrepaid,regardlessofthequalityofitsloans,programs,orpolicyadvice.Thus,thereisnopriceforfailure—theorganizationdoesnotsufferconsequencesforerrorsofjudgment,policy,orimplementation.Thosecostsareborneonlybytheborrowersthemselvesandtheircitizens.100. Overtime,anextensiveinstitutionalmachineryhasbeenputinplacetogenerateaccountability.Sevenbodies,knownas“safetynetunits,”areresponsibleforperformanceevaluation,riskmanagement,audit,andqualitycontrol.47MorethanUS$50millionisspentonthesefunctionseveryyear.About3,000keyperformanceindicatorsareusedacrossvice‐presidentialunitstomeasureinputs,deliverables,outputs,andoutcomes.TheExecutiveBoardhasanAuditCommitteetoprovideoversightofexternalfinancialstatementauditsandinternalcontrols.101. However,theseaccountabilitymechanismsatbestcanhaveonlyalimitedimpact,fortworeasons.First,themultiplicityofindicatorsandreportsisaslikelytoobscureproblemsasitistoclarifythem.Italsooverwhelmsthepeopleultimatelyresponsibleforholdingtheinstitutionaccountable.Second,evenwhenperformancemeasuresandreportsarerelevantanduseful,theyriskhavingalimitedimpactbecausetheGroup’sgovernancestructureisnotdesignedtopromoteaccountabilityatthetop—attheleveloftheExecutiveBoardandseniorManagement.102. AttheheartoftheBankGroup’saccountabilityproblemisthefusionofthreefunctionsintheExecutiveBoard:politicalrepresentation,management,andoversight.Thisfusiongivesrisetoseveralconflictsofinterestthatunderminetheinstitution’scapacitytoperformsomeofthosefunctionsoptimally.Severalaspectsofthecurrentgovernancestructuremustbeexamined:thedelineationofresponsibilitiesamonggoverningbodies,the“dualduty”ofExecutiveDirectors,theselectionandaccountabilityofthePresidentandseniorManagement,andthegovernanceoftheGroup’ssafetynetunits.Divisionoflaborandresponsibilities103. ThedelineationofresponsibilitiesbetweenBoardandManagementhasbeenidentifiedasacentralissueofaccountabilityintheWorldBankGroup,includingbytheExecutiveBoard’sownWorkingGrouponInternalGovernance.Threeconcernsemergeregardingthecurrentdivisionofresponsibilities.

• Ambiguousdivisionoflabor.ThedivisionoflaborbetweenBoardandManagementisambiguous.Insomeinstances,disputeshaveemergedonwhethera

47ThesearetheIndependentEvaluationGroup(IEG),theInspectionPanel(IP),theComplianceAdvisor/Ombudsman(CAO),theIndependentAuditDepartment(IAD),theexternalauditors,theQualityAssuranceGroup(QAG),andtheIntegrityVice‐Presidency(INT).

31

particulardecisionisforManagementtorecommendandfortheBoardtoapproveorturndown,orwhetheritfallsundertheBoard’sprerogativetodirectthePresident.(ThePresidentcarriesouttheordinarybusinessoftheBank“underthedirection”oftheExecutiveDirectors.)Thisambiguitymakesitdifficulttoascertainwhoisresponsibleandwhoshouldbeheldaccountable.48

• ExecutiveroleofBoard.Thesecond,moreserious,problemrelatestothe

“executive”roleoftheBoard.BecauseunderthecurrentdivisionoflabortheBoardreviewsanddecidesonallfinancingoperations,includingloansandguarantees,theBoardsharesamanagerialrolewiththePresidentandthereforeinmanycasesitcannotholdthePresidentaccountablewithoutalsopassingjudgmentonitsownperformance.ThisgivesrisetoaconflictofinterestthatreducestheBoard’sincentivestocarryoutitsoversightfunctioneffectively.Ifthingsgowrong,ManagementcanconceivablyhidebehindtheBoard’sco‐responsibility,whiletheBoardcanplacetheblamewithManagement.Witheveryoneresponsibleinprinciple,nooneisaccountableinpractice.

• DualroleofPresident.ThePresidentalsoactsaschairmanoftheExecutiveBoard.

Thisisnotinherentlyproblematic,aslongastherearepropermechanismstoensurethattheBoardcanactindependentlyandoverridethechairman,ifnecessary.Butthisisnotthecaseunderpresentarrangements.Aschairman,thePresident(oramemberofseniorManagementdesignatedbyhimtochairtheBoard)exertssignificantinfluenceovertheBoard’sagendaanditssubtleprocessofconsensus‐baseddecision‐making.Whenchairing,seniorManagementhasastrongincentivetoensurethattheBoardapprovesManagementproposalsquicklyandwithfewchanges,andthismayconflictwiththeinterestoftheBoardinthoroughlyvettingallManagement’sproposals.TheconflictofinterestisespeciallypronouncedwhenamemberofseniorManagementchairsBoarddiscussionsdealingwithissuesdirectlyunderhisorherresponsibility.49

DualdutyofExecutiveDirectors104. Undercurrentgovernancearrangements,ExecutiveDirectorsattheWorldBankGrouphaveanambiguousstatus.Theyarenot“ambassadors”or“permanentrepresentatives”ofgovernments,asaretheircounterpartsattheOECD,WTO,ormostUnitedNationsagencies,butneitheraretheyBankstaffaccountableonlytotheinstitution.Becauseoftheirhybridstatus,Directorshavetwosetsofduties—theirrepresentationaldutiestotheirgovernmentsandtheirfiduciarydutiestothemembershipasawhole.48ThisissuewasraisedbytheWorkingGrouponInternalGovernancein2008andbytheAdHocGroupthatinvestigatedstaffruleviolationsbythePresidentinMay2007.See“SecondReportoftheAdHocGroup,”R2007‐0089,May14,2007.49ThechartersoftheBank’stwoprivate‐sectorarms,IFCandMIGA,providefortheseparationbetweenthePresidentandthechairmanoftheExecutiveBoard:thechairmanmustalwaysbetheIBRD’sPresident,buttheIFCandMIGApresidentscanbedifferentindividuals.Inpractice,however,theIBRDPresidenthasalmostinvariablyoccupiedbothpositions.Inturn,theIBRDPresidenthasthenappointedanExecutiveVice‐President(EVP)toheadeachofIFCandMIGA.

32

Fiduciarydutiesincludeinstitutionaloversightandthemanagementoffinancialandreputationalrisk.105. ExecutiveDirectors’representationalandfiduciarydutiesconflictatleastoccasionally,andDirectorsarecompelledtobalancethem.50TheproblemisthatcurrentgovernancearrangementscreatestrongincentivesforDirectorstoprioritizeonlytheirdutiesastherepresentativesofgovernments.Directorsareroutinelyevaluatedbytheirnationalauthoritiesonhowwelltheyaredefendingthenationalinterest,andfacesanctionsiftheyunder‐perform.AppointedDirectorsmayberecalledatanytime,whileelectedDirectorscanbedeniedre‐electionattheendoftheirtwo‐yeartermorbepressuredtoresign.EvenDirectorswhodonotservelongenoughtoseekre‐electionaremotivatedbytheprospectsofpromotionordemotionintheirhomegovernmentuponreturn.Meanwhile,Directorshavefewincentivestoobservetheirfiduciaryduties.Withnostandardsorprocessesinplaceforevaluatingtheirperformanceinthisarea,neitherDirectorsnortheBoardasawholefaceconsequencesforfailingtoobservetheirfiduciaryduties.51106. Ofthevariousaccountabilityconcernsraisedinthisreport,the“dualduty”issuemaybethemostdifficultofalltoaddressconclusively.Atoneextreme,governmentswouldbeloathtosupportanorganizationrunbyBoardofficialsoverwhomtheyhavenopoliticalauthority.Attheotherextreme,apurelypoliticalBoardwithoutaccesstoprofessional,independentoversightbodiescouldmiretheinstitutioninpoliticalposturingandconflict.Thecurrentsystem—Directorswithtwosetsofdutiesbutfewincentivestoobserveboth—isfarfromanidealmiddleground.InSectionIV,weproposeadifferentsolution,onethatexplicitlyrecognizesthepoliticalnatureofWorldBankDirectorsbutgivesthemaccesstoprofessionaladvisors,independentoversightbodies,andexternalcounsel.SelectionofthePresidentandseniorManagement107. TheaccountabilityofthePresidenttothemembershipbeginswiththepresidentialselectionprocess.Asmostcodesofgoodgovernancesuggest,atransparent,inclusive,meritocratic,andrules‐basedprocessguidedbyclearqualificationsismorelikelytofosterpresidentialaccountabilitythananopaqueandnon‐inclusiveone.Inaninternationalorganization,ifthePresidentiseffectivelychosenbyacountryorahandfulofcountries,heorshemayfeelprimarilyaccountabletothatgovernmentorgovernments,ratherthantothemembershipasawhole.

50SurveyshavenotbeenconductedonthisquestionattheWorldBank,butarecentsurveyofcurrentandformerExecutiveDirectorsintheIMF—wheregovernancearrangementsmirrorthoseoftheWorldBank—foundthat68percentofthosesurveyedbelievethattheirdualrolesconflict“occasionally”(54percent)or“frequently”(14percent).SeetheIMFIndependentEvaluationOfficesurveyundertakenforthereportGovernanceoftheIMF:AnEvaluation,April2008.51TheBoardrecentlystartedexploringaBoardself‐evaluationprocess,whichwouldpresumablycoverthebody’sfiduciaryduties.Yet,inlightofrecentexperienceintheprivatesector,whereBoardself‐evaluationhasbeenacommonpracticeforyears,itseemsunlikelythatself‐evaluation,byitself,willbeenoughtosignificantlystrengthenBoardaccountability.

33

108. Currently,theleadershipselectionprocessattheWorldBankGroupisopaqueandexcludesmostofthemembership.Thereisnoformal,transparentprocessforcandidatesearches.ThoughtheArticlesstipulatethattheExecutiveBoardappointsthePresident,inpracticetheselectionprocessisadhocandtakesplacewithintheU.S.government,withsomeconsultationwithothermajorshareholders.IneverypresidentialselectionprocesssincetheIBRD’sfounding,therehasonlybeenonenominee—theoneputforwardbytheU.S.ExecutiveDirector.ThisreflectsanunwrittenconventionthatthePresidentoftheWorldBankmustbeaU.S.national,whiletheManagingDirectoroftheIMFmustbeEuropean.109. NationalityrestrictionsapplynotonlytotheIBRD’sPresident.Bytradition,theExecutiveVice‐PresidentoftheIFChasusuallybeenaEuropean‐countrynational,andhiscounterpartatMIGAhasalwaysbeenJapanese.52Thesenationalityrestrictionsnarrowthepoolofcandidates,damagetheinstitutions’legitimacyamongthemembers,andundermineaccountability.110. ReformoftheWBG’sleadershipselectionprocesshasbeendiscussedseveraltimes,withlittleprogressmade.In2001,aworkinggroupreviewedtheprocessesforselectingtheWorldBank’sPresidentandtheIMF’sManagingDirectorandissuedrecommendationsforimprovingthem.53Thatgroupdidnotcallforanendtoinformalnationalityrestrictions.Evenso,itsrecommendationswerenotformallyadopted.InitsOctober2008communiqué,theDevelopmentCommitteestatedthat“thereisconsiderableagreementontheimportanceofaselectionprocessforthePresidentoftheBankthatismerit‐basedandtransparent,withnominationsopentoallBoardmembersandtransparentBoardconsiderationofallcandidates.”54AccountabilityofthePresidentandseniorManagement111. OntheaccountabilityoftheWorldBank’sleadership,therearefourareasofconcern:

• Arrangementsforpresidentialoversightneedstrengthening.Underthecurrentstructure,noWBGgoverningbodycanregularlyandcrediblypassjudgmentonthePresident’sperformance.TheBoardofGovernorsistoolargetoconductthistask,whiletheDevelopmentCommittee,asanadvisorybody,lacksthelegalstatustodoso.Asdiscussedabove,theExecutiveBoard,asaco‐manageroftheinstitution,facesaconflictofinterestwhenassessingmanyaspectsofpresidentialperformance.Also,individualBoardmembersmaylackthesenioritywithintheirnationalpoliticalhierarchiestheywouldneedtoholdthePresidentaccountable.

52Withoneexceptionfrom1977‐81,everyIFCEVPsince1974hasbeenaEuropean‐countrynational.Theselectionprocessforthemostrecently‐appointedMIGAEVPdivergedfromthepastpracticeofdesignationbyJapan’sMinistryofFinance:aTokyo‐basedprofessionalsearchfirmwasused,andshort‐listedcandidates,allJapanese,weresubjecttoanintensiveinterviewprocess.53See“BankandFundWorkingGroupstoReviewtheProcessforSelectionofthePresidentandManagingDirector,JointReport,”April25,2001.54DevelopmentCommitteeCommuniqué,Washington,D.C.,October12,2008.

34

• NoperformancestandardsforthePresident.TheCodesofConductfortheBoardandforStaffandtheprovisionsofthePresident’sappointmentletterguardagainstcertaintypesofmisconductandethicsviolationsbythechiefexecutive.However,theydonotprovidestandardsforjudgingkeyaspectsofpresidentialperformance,suchashisorhermanagementoftheinstitution,implementationofBoard‐approvedpoliciesandstrategies,andthequalityoftheGroup’soutputs.Otherthantheflawedprocessforre‐selecting(ornotre‐selecting)incumbentseveryfiveyears,thereisnoformalprocessfortheBoardtoevaluatepresidentialperformance.SimilarconcernsapplytotheExecutiveVice‐PresidentswhoheadMIGAandtheIFC.

Theseissueshavebeenrecognizedbefore;theBoard’sWorkingGrouponInternalGovernancecalledforthedevelopmentofaframeworkforanannualperformancereviewfortopmanagement,includingthePresident.ThefullBoardhasalsorecognizedthatBoardevaluationsshouldincludethePresidentandBankofficerswhoregularlyengagewiththeBoard.55However,thismeasurehasnotbeenimplemented.

• NogeneralizedprofessionalstandardsforExecutiveDirectors.Thethirdissue

concernstherequiredskillsandexpertiseofExecutiveBoardmembersandoftheBoardasawhole.Tocarryouttheiroversightresponsibilitieseffectively,Boardmembersshouldhaveexpertiseinpolicylending,developmenteconomics,andtheenvironmentalandsocialimpactofcertainkindsofprojects.Theyshouldhaveabackgroundinfinance,riskanalysis,andsomeofthetechnicalaspectsofsectorsinwhichIFCandMIGAoperate.DirectorsshouldhaveaccountingandauditingexpertisetoengagemeaningfullywiththeWBG’sinternalandexternalauditorsandtoscrutinizethebudget,andtheyshouldhaveexperiencereviewingpersonnelandadministrativematters.Ofcourse,notallDirectorscouldhaveexpertiseinallareas,buttheyeachshouldhaveexpertiseinseveralofthem.Also,theBoardasawholeshouldhaveawell‐balancedmixofskillsandcapabilities.However,thereiscurrentlynomechanismtoensurethattheindividualsappointedasExecutiveDirectorsfitsuchaprofile,orthattheBoardaswholehastherequisitemixofskillsandexpertise.

• Boardfocusonoversight.Finally,theoperationaldemandsplacedontheBoard

leavelittletimeformonitoring,evaluation,orotheroversightactivities.InFY2009,forexample,theBoardspentonlyaboutsixpercentoftotalboardroomtimediscussingissuesthatfallclearlyunderthecategoryofmonitoringandevaluation.56ThoughmuchoftheworkdonebytheBoard’scommitteesalsofallsunderthiscategory,theamountofattentionthefullBoarddevotestoinstitutionaloversightandevaluationappearstobeinsufficient.ConcernsabouttheBoard’sunbalancedfocus,whichresultsininsufficientattentiontooversight,havebeenraisedbythe

55“ReviewofInternalGovernance:ConclusionsandProposals,”DevelopmentCommittee,DC2009‐0004,April17,2009.56SecretariatcalculationsbasedondataprovidedbytheOfficeoftheCorporateSecretary.

35

WorkingGrouponInternalGovernanceandbytheExternalReviewCommitteeonBank‐FundCollaboration.57

Independenceofevaluationandoversightbodies112. TheWBG’ssystemofsafetynetunitshasevolvedthroughaseriesofimprovisedmeasures.Asaresult,thedemarcationofresponsibilitiesamongtheseunitsisnotalwaysclear,givingrisetodisputesandattimeslengthynegotiationsaboutthecontentofreports.Theunitshavedifferentreportinglines;someofthemserveboththeBoardandManagement,othersprimarilytheBoard.58Thisevolutionhasgivenrisetoaccountabilitygaps,someofwhichwereevidentduringtheBank’sleadershipcrisisinearly2007.59113. Anotherissueconcernsfeaturesthatreducetheindependenceofsomeofthesafetynetunits,includingthatoftheIndependentEvaluationGroup,whichisacentralsourceofoversightandinstitutionallearning.Forexample,thereisnorequirementthatamajorityorevenasignificantfractionoftheIEG’sstaffberecruitedfromoutsidetheWorldBankGroup,asisthecaseattheIEG’scounterpartattheIMF.Also,nocooling‐offperiodsareinplacetopreventregularIEGstafffromtakingWorldBankstaffpositionsdirectlyaftertheirserviceasevaluators.60Finally,theIEG’sDirectorGeneralinpracticefunctionsaspartoftheBankGroup’sseniorManagement,forexampleparticipatingregularlyinseniorManagementteammeetings.Thisincreasestheriskof“capture”byManagementandcreatestheperceptionofanunhealthyproximitybetweenevaluatorandevaluee.AllofthesefeaturespotentiallyundermineIEG’sindependenceandexternalcredibility.

57TheExternalReviewCommitteeobservedthat“ExecutiveDirectorsshouldnotbeinvolvedinmanagingday‐to‐dayoperations,butshouldbesettingstrategicdirectionsandoverseeingmanagementperformancewithinthisstrategicframework.ExecutiveDirectorsshouldbeposingtomanagementtherightquestions,demandingtheanswersandholdingmanagementaccountablefortheirperformance.”ReportoftheExternalReviewCommitteeonBankFundCollaboration(“MalanReport”)(2007),p.36.58TheWorldBankIndependentEvaluationGroupandtheInspectionPanelreportsolelytotheBoard.TheInternalAuditDepartmentandtheIntegrityVice‐PresidencyaremanagementdepartmentsbutalsoreporttotheBoard’sAuditCommittee.TheIFC’sComplianceAdvisorOmbudsmanreportsonlytoManagement.59Onthisissue,see“SecondReportoftheAdHocGroup,”R2007‐0089,May14,2007.60TherearerestrictionsfortheIEG’smostseniorofficials.IEGdirectorsarebarredfromtakingjobsinarmsoftheGroupthattheywereresponsibleforevaluating,whiletheDirectorGeneralisineligibleforappointmentorreappointmenttotheWBGstaff.

36

IV. Recommendations114. Thereisnodoubtthattheinternationalcommunityneedsaneffectiveglobaldevelopmentbanktotacklecurrentandfutureglobaldevelopmentchallenges.Fortunately,thatinstitutionalreadyexistsintheWorldBankGroup.Buttobefullyequippedtoaddressthesechallenges,theWorldBankGroupneedsgovernancearrangementsappropriatefortheproblemsandtheglobalpoliticaleconomyofthe21stcentury.UnlesstheWorldBank’sgovernanceismodernized,theinstitution’sconsiderablefinancialandhumanresourceswillbearrestedbyagovernancestructureconceivedforaworldthatnolongerexists.115. Inthespiritof“repowering”theWorldBankGroup,theCommissionoffersfivemainrecommendations.Therecommendationshaveaunifyinglogic.Theyaremutually‐reinforcingandinterdependent—theywillonlyhavetheirintendedeffectiftheyareadoptedandimplementedasasinglepackage.116. MoreresourcesshouldbemadeavailabletotheWBG,butthisdemandsgreatereffectivenessandaccountabilityfromthePresidentandseniorManagement.Inturn,thisrequiresgovernancearrangementsthatprovideManagementwithmoreoperationalflexibilityanddefinemoreclearlyhowresponsibilityshouldbeapportionedbetweenManagementandtheBoard.Tobeeffective,thePresidentneedsnotonlyformalauthoritybutalsothelegitimacythatflowsfromaselectionprocessthatisopentocandidatesregardlessoftheirnationality.Topreventabusesofpowerorseriousmismanagement,theconflictofinterestinherentintheco‐managerialroleoftheExecutiveBoardmustberesolved.Finally,fromtheshareholders’pointofview,theWorldBankGroupwillbemoretrustednotonlywhenitdeliversbetterresults,butalsowhenthoseresultsperceptiblyreflecttheirowninvolvementintheinstitution’sgovernance.117. TheCommission’soverallrecommendationsarethefollowing:

1. Imbalancesinvoiceandparticipationshouldbeaddressed,bothintermsoftheallocationofvotingpowerandthecompositionoftheExecutiveBoard.

2. TheWorldBankGroup’sgoverningbodiesshouldberestructured—inparticular,

thepoliticalleveloftheExecutiveBoardshouldbeelevatedanditsrolereorientedtowardstrategydefinitionandoversight.

3. Theleadershipselectionprocessshouldbereformedtoensurethatitisrules‐based,

inclusiveofthemembership,andopentoallnationalities.4. ThetoolsandmechanismsthroughwhichtheBoardcanholdManagementto

accountshouldbestrengthened.5. TheGroup’sresourcebaseshouldbefortifiedtohelpitdealwithfutureandglobal

challengesandalsoasastraightforwardmeanstoaddressexistingimbalancesinvoiceandparticipation.

37

Recommendation1.EnhancevoiceandparticipationBoardcomposition118. Boardconsolidation.TheCommissionrecommendsadoptingprogressivelyaBoardofDirectorsthatisrelativelycompactandthereforemoreefficientandeffective.TheWorldBankGroup’sboardsshouldbereducedinsizeto20chairsfromthecurrent25.BoardconsolidationshouldbeachievedinpartbyreducingthenumberofEuropeanchairsbynolessthanfour.ThiswouldguaranteethatamajorityofBoardchairsareheldbydevelopingandtransitioncountries.119. Anelectedbody.ReducingBoardsizewillinevitablycrowdcountriesintofewerconstituencies.Topreventthisfromreducingthequalityofvoiceandparticipation,thefivecurrentlyappointedchairsshouldallbetransformedintoelectedchairs,andaceilingshouldbeplacedonthenumberofcountriesineachconstituency(forexample,tenperconstituency)toensureamoreevendistributionofmembersacrossthegroupsandtoreducetheaverageconstituencysize.120. Thesemeasureswouldyieldseveralbenefits.AsmallerBoardwouldbesignificantlymoreefficientandeffective.Boardconsolidationasproposedherewouldaddressanimportantimbalanceinvoiceandparticipationandstrengthenthevoicesofdevelopingcountries.Redrawingtheconstituencieswouldreduceovercrowdingandcreatemoreopportunitiesfordevelopingcountriestoparticipatedirectly.Finally,byensuringthatallDirectorsrepresentatleastonecountryotherthantheirownandbyeliminatingthe“two‐class”systemofelectedandappointedDirectors,theproposalwouldstrengthenBoardcollegiality.AddressingtheBoard’scompositionisallthemoreimportantinlightoftherecommendationsbelowonrestructuringtheWorldBankGroup’sgoverningbodies.121. ConvertingappointedtoelectedchairswillrequireamendingtheArticlesofAgreement,anendeavorthatwilltakesometimetoaccomplishevenifthepoliticalwillexists.Therefore,intheshortterm,Boardconsolidationalongthelinesproposedaboveshouldbeaccompaniedbyaregroupingofconstituenciessothatall15electedchairsrepresentmulti‐countryconstituencies.Oncethefiveappointedchairsareconvertedtoelectedchairs,theconstituenciescouldthenberegroupedamongthe20chairsandtheappropriateceilinginconstituencysizeset.ProposalstoenlargetheBoardshouldberesisted;furtherenlargementwouldresultinanefficiencyandeffectivenesslossthatislikelytooutweighanypotentialgainsinvoiceandrepresentation.

38

Votingpowerallocation122. TheCommissionrecommendsthatinparalleltothereformofBoardcomposition,thefollowingprinciplesshouldguidechangestotheallocationofvotingpowerattheIBRD,IFC,andIDA:

• Regularreviews.TheCommissionrecommendsintroducingintheIBRDandIFCautomaticshareholdingreviewseveryfiveyearstoensurethattheshareholdingstructureskeepupwithchangesintheglobaleconomyandinthecircumstancesofmembercountries.

• BankIMFlink.GiventhedifferentmandatesoftheIMFandtheWorldBank,werecommendabandoningthehistoricallinkbetweenIMFquotasandIBRDshareholdingandvotingpowerallocation.WorldBank‐specificprinciplesandformulasforshareholdingshouldbedeveloped,alongwithatransitionalarrangementfortheirgradualimplementation.

• Basicvotes.TheCommissionrecommendsthat,withorwithouttheintroductionof

aBank‐specificshareholdingformula,theshareofbasicvotesintotalvotingpowerattheIBRDandIFCberaisedandfixedatalevelmuchclosertothatwhichexistedwhentheseorganizationswerefounded:10.78attheIBRDand12.28attheIFC.Werecognizethatdilutionofothermembers’votingpowerwillbeverydifficulttoavoidandmaybeaninevitableconsequenceofthisreform.

• Equity.Thebalanceinvotingpowerbetweendevelopedanddevelopingcountries

intheIBRDandIFCshouldbere‐examined,withaviewtomovingtowardanevensplitbetweenthetwogroupsofcountriesineachoftheseorganizations.Oncereached,thesplitshouldremainflexibleenoughtoadapttochangesintheglobaleconomyandtothemigrationofcountriesfromonecategorytoanother.

• Discountfactor.InIDA,theallocationofvotingpowershouldmoveawayfromthe

practiceofweightingallcontributionsequallyregardlessofage.Anappropriatediscountfactorshouldbeintroducedsothatrelativelyrecentcontributionsareweightedmoreheavilythanolderoneswhenallocatingvotingpower.

• Specialmajority.ThemajorityrequiredforamendingtheIBRD’sArticlesof

Agreementshouldbeloweredfrom85to80percent.

39

Recommendation2.RestructuretheWBG’sgoverningbodies123. TomaketheWorldBankGroupmoreefficientandmoreaccountable,werecommendthreeinterdependentstepsregardingitsgoverningbodies.Thefirsttwo,discussedinwhatfollows,aretoraisethepoliticalleveloftheExecutiveBoardandtodelegatetoManagementauthorityoverfinancingoperations.Thethird,discussedunderRecommendation4,istostrengthentheBoard’soversightmechanisms.ElevatingandreorientingtheBoardofDirectors124. AministeriallevelBoard.ThenatureoftheBoard’sduties—settingtheinstitution’sgoals,broadstrategies,andkeypolicies,aswellasconductingoversightofitsactivities—callsforelevatingtheBoardtoahigherpoliticallevel.TheCommissionthereforerecommendsthatthepresentBoardofExecutiveDirectorsbereconstitutedasa“WorldBankBoard”inwhichtheDirectorsareministersandtheirAlternatesareofficialsatthedeputyorvice‐ministeriallevel.61125. ThischangewouldapplytoallfourarmsoftheWorldBankGroup.62TheBoardsofGovernorswouldremainintactinstructureandoperations.ThereconstitutedWorldBankBoardwouldmeetmorefrequentlythanthecurrentDevelopmentCommittee,thoughcertainlymuchlessoftenthanthecurrentExecutiveBoard.126. TheresponsibilitiesofthereconstitutedWorldBankBoardwouldincludethefollowing:

• Selecting,appointing,and(ifrequired)dismissingthePresident;• ApprovingtheGroup’soverallstrategyanddirection;• Makingmajorpolicydecisions;63• Conductinggeneraloversightoftheinstitution,includingperiodicallyreviewingthe

President’sperformance;• AppointingmembersoftheInspectionPanelandAdministrativeTribunal;and• ApprovingthebudgetandtheIndependentEvaluationGroup’sworkplan.

127. Underthisarrangement,theDevelopmentCommitteewouldbecomeredundantandwouldbedisbanded.BecauseoftheenduringneedtoenhanceBank‐Fundcollaboration,theCommissionrecommendsthattheIMFcontinuetoparticipate,throughobserverstatusattheWorldBankBoard,onallmattersofconcerntobothinstitutions.TheCommission

61ThisarrangementrecognizesthepossibilitythattheAlternateDirectorcouldalsobeaministerfromadifferentministryordepartmentinthesamecountry,oraministerfromanothermemberoftheconstituency.62Inthelongterm,themembershipmaywanttoconsiderwhetherandhowthefourboardsmightbelegallyunifiedintoasinglebody,replacingthecurrentmodelofasingleboardwithfourincarnations.63“Majorpolicydecisions”isatermthatwillrequirecarefuldelineation.Itcouldinclude,forexample,decisionswithasignificantimpactontheinstitution’sfinancialstanding,importantchangesintheallocationofresourcesacrosssectorsorarmsoftheGroup,andsignificantmodificationsinhowtheWBGengageswithshareholdersandstakeholders.

40

alsosupportsestablishingastandingworkinggroupattheBoardlevel(andattheIMFClevelontheFundside)topromoteBank‐Fundcollaboration,aswasrecommendedbytheExternalReviewCommitteeonBank‐FundCollaboration.128. DelegationtoManagement.ABoardabidingbysoundgovernanceprinciplesshouldnothaveaco‐managerialrole.ResponsibilityfortheapprovalofallWBGfinancingoperationsshouldthereforebetransferredtoManagement.64ThisreformwouldeliminatetheconflictofinterestthatiscurrentlyembeddedintheExecutiveBoard’sdecision‐makingprocess.Inaddition,placingresponsibilityformostloansandguaranteesunambiguouslyonManagement’sshoulderswouldstrengthenaccountability—aslongasothermeasuresproposedheretoenhancepresidentialaccountabilityareadoptedaswell.ThisdelegationofauthoritywouldenhancetheGroup’sflexibilityandefficiencybyreducingthenumberofstepsnecessaryforloanapprovals.ItwouldalsofreeupconsiderableBoardandstaffresourcescurrentlydevotedtotheBoardreviewandapprovalprocess.129. SomewillarguethataBoardcomposedofbusyministerswhomustbalancemanyotherresponsibilitiescannotbeeffective.Butifgovernmentsaretrulyconvincedthatitisintheircountries’interesttohavestrongermultilateralinstitutions,theyshouldbeabletocommittogreaterinvolvementinthegovernanceofthoseinstitutions.Further,theworkloadofthereconstitutedWorldBankBoardwouldbemuchbettertailoredtoahigh‐levelBoardthanisthecurrentBoard’sworkload,becauseitwouldonlyinvolvedecisionsappropriateforseniorgovernmentofficials.130. ElevatingtheBoard’slevelanddelegatingfinancingoperationstoManagementwouldnotrequireamendingtheArticlesofAgreement.65Itwouldnecessitatearevisionofthe1947agreementbetweenPresidentandBoardandareinterpretationofprovisionsrelatedtotheBoard’smeeting“incontinuoussession.”ThereconstitutionoftheBoardcouldtakeplacethroughtheregularelectionsinthefallof2010.131. ChairingtheBoard.TherestructuredWorldBankBoardwouldselectachairmanfromamongitsmembersonarotatingbasis.ToensurethattheBoardremainsappropriatelyconnectedtotheinstitution,thePresidentwouldremainanon‐votingmemberoftheBoard,thoughheorshewouldnolongerchairthebody.ThischangewouldrequireanamendmenttotheArticlesofAgreement.132. UntiltheArticlescanbeamendedtochangetherulesonBoardchairmanship,theelevatedstatusofBoarddirectorswouldchangethetenoranddynamicsoftheBoard‐Presidentrelationship,settingthemonamoreequalfootingandenhancingtheBoard’sindependence.Naturally,neitherthePresidentnorhisorherrepresentativeswouldchairmeetingsontheselectionofthePresidentoronevaluationsofpresidentialperformance.

64Inextraordinarycircumstances,theBoardshouldbeinvolvedintheapprovalofmajorfinancialorfinancingoperationswithstrategicconsequencesfortheGroup.Thecharacteristicsofsuchoperationswouldneedtobedefinedexante.65TheBoard’snamewouldnothavetobelegallychanged,aslongastherewasgeneralagreementonrenamingitinpracticetosignifyitsnewcomposition.

41

ManagingDirectorsorVice‐Presidentswouldbebarredfromchairingmeetingsdealingwithissuesdirectlyundertheirpurview.CouncilofRepresentatives133. Toconductitswork,theBoardwillsurelyneedsupport.WerecommendthatthisbeprovidedbyanadvisorygroupofofficialsorganizedasaCouncilofRepresentatives.66TheCouncil’scompositionwouldmirrorthatoftheBoard.Councilrepresentativeswouldbeselectedbyeachconstituencythroughaprocesstobedeterminedinternallybythatconstituency.RepresentativesshouldpossessprofessionalqualificationsagreeduponbytheBoard.GiventhereorganizedBoard’sroleandresponsibilities,theCouncilwouldrequirelesshumanandfinancialresourcesthanthosecurrentlydevotedtotheExecutiveBoard.Someoftheresourcesreleasedintheprocesscouldbeusedtoenhancethecapacityoflow‐incomecountriestoparticipatemoremeaningfullyintheinstitution’sgovernance.134. CouncilrepresentativeswouldrepresenttheirBoardmembers(andconstituency)whentheBoardisnotinsessionandwouldberesidentattheBank’sheadquartersforatransitionalperiod.TheCouncilwouldsupportasignificantportionoftheBoard’soversightactivities,thoughtheBoardwouldretaindecision‐makingauthority.Inpractice,Boardmembersandtheirrepresentativeswouldworktogetherclosely,particularlyduringtheearlystagesofthetransitiontothenewarrangement.TheBoardwouldcontinuetoworkthroughcommitteesasappropriate.BoardcommitteememberswouldcontinuetobeDirectorsorAlternates,supportedbytheirrepresentatives.135. TheCouncil’sresponsibilitieswouldincludethefollowing:

• ReviewingandadvisingonallbriefingpapersandrelateddocumentationnecessaryformeetingsoftheBoardanditscommittees;

• AdvisingtheBoardonissuesofoversightandpresidentialperformance;• AdvisingtheBoardontheperformanceofthesafety‐netunits;• DiscussingandadvisingtheBoardonissuesofdevelopmenteffectivenessand

institutionalperformance;• ConsideringwhetherInspectionPanelinvestigationsshouldgoforward(though

thesedecisionswouldformallybetakenbytheBoarditself);and• Reviewingreportsbyinternalandexternalauditorsandsafety‐netunits.

136. Inaddition,representativeswouldnetworkwiththeirregionalandinternationalcounterparts,exchangeinformationanddevelopmentexperiences,andkeepthemembershipconnectedtotheinstitution.Councilrepresentativeswouldmeetasagroupasneeded,maintainingtheiradvisoryrole.

66TheCouncilcouldbeestablishedthroughthesameprovisionsthatcurrentlyallowtheExecutiveBoardtocreatecommittees,exceptthattheCouncilwouldbeauniquetypeofcommittee.TheWorldBankArticlesgivetheBoardwidelatitudeintermsofcommitteemembershipandtherulestoselectcommitteemembers.

42

137. TheCommissionrecommendsthattheCouncilofRepresentativesberesidentforatransitionperiodofuptofiveyearstofacilitatethetransitiontoareconstitutedBoard.IftheaccountabilityframeworkforManagementandotheroversightstructuresandprocessesareinplacebythen,theremaybenooverwhelmingreasonfortheCouncilofRepresentativestoremaininresidencyindefinitelyattheBank’sheadquarters.67138. HavingBoardmembersandadvisorsresidentattheBank’sheadquartershasasignificanthuman‐capital‐formationvalueformanycountries,particularlyforthosewithfewopportunitiestoexposepromisingcivilservantstotheworkoflargeinternationalorganizationssuchastheWorldBank.ThislegitimateconcernshouldbeaddressedbycreatingpositionswithintheWBGtobeoccupiedbymid‐careerprofessionalsfromdevelopingcountriesforlimitedperiodsoftime.Furthermore—shouldtheBankchangehumanresourcepoliciesthatineffectprovidetenuretohighlyqualifiedpersonnel—morecapacity‐buildingopportunitieswillopenupformid‐careerofficialsfromdevelopingcountries.Recommendation3.Reformtheleadershipselectionprocess139. GuidingtheCommission’srecommendationsinthisareaarekeyprinciplesconsideredessentialforaleadershipselectionprocesstobeperceivedaslegitimateandtogeneratehighlycapableleaders.Theseincludeprocessthatisrules‐based,inclusiveofthemembership,andcompetitive.140. TheCommissionrecommendsthatstartingwiththecurrentPresident’ssuccessor,apresidentialselectionprocesswiththefollowingcharacteristicsbeadopted68:

• Membercountriesshouldbeinvitedtonominatecandidatesduringafixed,publicly‐disclosedperiodbeforetheendoftheincumbentPresident’sterm.69

• Nominationsfromallqualifiedcandidatesshouldbewelcomed,regardlessoftheirnationality.Candidatesshouldbesponsoredbythegovernmentofamembercountry,thoughnotnecessarilybythegovernmentoftheirowncountryofcitizenship.

• ANominationsCommitteeofappropriatesizeandcompositionshouldbeselected

fromwithintheBoardtooverseetheselectionprocess,evaluatethenominated67OnememberoftheCommissionfeltthataresidentCouncilofRepresentativesshouldbeapermanentfeature,astheresponsibilitiesoftheCouncilwouldneedcontinuinginvolvement.Accordingtothisview,developing‐countryconstituencieswouldalsobenefitfromanarrangementinwhichtheirofficialshaveanopportunitytointeractwithvariousaspectsofWBGpolicymakingdirectly.68OneCommissionmember,althoughinagreementwiththeideathatthetraditionalleadershipselectionpracticeshouldbechanged,believesthatthisreportshouldnotbespecificonthemaincharacteristicsofthenewproceduretobeadopted.69Asiscustomaryinotherorganizations,theincumbentshouldfirstbegiventheopportunitytoannouncewhetherheorsheintendstoseekanotherterm.AmechanismcouldbeintroducedtogiveshareholderstheoptionofretainingthePresidentwithouthavingtoinitiateafullselectionprocess.

43

candidatesagainstanagreedlistofqualifications,anddevelopashortlist.TheCommitteewoulddoitsbesttobuildconsensusaroundasinglecandidate.Ifnoconsensuscandidateemerges,theBoardmaytakeavote.

• TheselectionoftheExecutiveVice‐PresidentsofboththeIFCandMIGAshould

continuetobeledbythePresident,buttheprocessshouldberules‐basedandcompetitive,withoutformalorinformalrestrictionsonthecandidates’nationality.JobdescriptionsandqualificationsforbothpositionsshouldbedevelopedandapprovedbytheBoard.

GiventhedualnatureoftheunwrittenagreementthatreservestheBankpresidencytoaU.S.citizenandtheIMFManagingDirectorpositiontoaEuropeannational,itisimportantthattheleadershipselectionprocessesinbothinstitutionsbereformedinparallel,facilitatingthepoliticalbargainthatwillsurelyberequired.Recommendation4.StrengthenManagementaccountability141. Withoutaco‐managerialrole,theBoardwillnolongerfaceaconflictofinterestwhenoverseeingmanagerialperformance.WithsupportfromtheCouncilofRepresentatives,thereorientedBoardwillbebetterabletofocusitstimeandresourcesonoversight.However,thebodymustalsohaveatitsdisposalmoreeffective,professional,andindependentinstrumentstooverseetheinstitutionandholdManagementtoaccount.142. Thereformoftheleadershipselectionprocessdescribedaboveisacrucialfirststeptowardadequatepresidentialaccountability,butotherelementsofastrongeraccountabilityframeworkarenecessary.Werecommend(1)introducingaframeworkandprocessforreviewingpresidentialperformance,(2)strengtheningtheGroup’ssafetynetunits,and(3)makinggreateruseofexternalexpertise.Presidentialperformancereview143. TheCommissionrecommendsthattheBoardintroduceaframeworkfortheannualperformancereviewofthePresident.70Theframeworkshouldprovideclearperformancecriteria,outlinehowthereviewprocessistowork,andproposehowassessmentsshouldbetranslatedintoincentives.TheperformancereviewcriteriashouldfocusonthePresident’simplementationofBoard‐approvedstrategies,onhisorherconductoftheordinarybusinessoftheGroup,andonthequalityoftheGroup’soutputs.Strongersafetynetunits144. Institutionalreview.TheBoard’sWorkingGrouponInternalGovernancerecommendedthatManagementundertakeaninstitutionalreviewoftheBankGroup’s70IntroducinganaccountabilityframeworkforManagementwasrecentlyrecommendedbytheBoard’sWorkingGrouponInternalGovernance.AttheIMF,asimilarrecommendationwasmadeseparatelybytheCommitteeonIMFGovernanceReformandtheIMF’sIndependentEvaluationOffice.

44

safetynetunitstoassessoverlaps,gaps,andinconsistencies.ThefullBoardapprovedthisrecommendation,andenvisagesthatthereviewwillbecarriedoutin2010.71145. TheCommissionendorsesthisproposalandcallsforthespeedycompletionofthereview.Itrecommendsthatthereviewincludethefollowing:

• Anassessmentofthesafetynetunits’mandatestoensurethatthedivisionoflaborbetweentheunitsisrationalandefficient,andthatimportantareasofaccountabilityarenotleftout;

• Anexaminationofwhethertheunits’currentlinesofreportingareappropriate;• Anassessmentoftheunits’governance,payingattentiontowhetherthenecessary

safeguardsareinplacetoprotecttheirindependence;and• Actionablerecommendationsforaddressinganyconcernsidentified.

146. Immediatereforms.Inaddition,theCommissionrecommendsthefollowingstepstosafeguardtherealandperceivedindependenceofkeysafetynetunits.Thesestepscanbeimplementedimmediately:

• TheBoardshouldrevisethetermsofreferenceoftheIndependentEvaluationGroupto(1)requirethatamajorityofIEGstaffberecruitedfromoutsidetheWBG;(2)introducecoolingoffperiodsofappropriatelengthtoendthe“revolvingdoor”dynamicbetweenregularIEGstaffandWorldBankstaff;and(3)ensurethattheIEGDirectorGeneralnolongerfunctionsasamemberofseniorManagement.

• AsecondexternalevaluationoftheInstitutionalIntegrityVice‐Presidencyshouldbe

conductedwithintwoyearstoensurethattherecommendationsoftheIndependentPanelReviewoftheWBG’sDepartmentofInstitutionalIntegrity(the“VolckerPanel”)havebeenfullyandproperlyimplementedandareproducingtheresultsintendedbythePanel.

• Aspartoftheinstitutionalreviewofthesafetynetunits,theBoardshouldconsider

whethertheIFC’sComplianceAdvisor/Ombudsman(CAO)shouldcontinuereportingtoManagementonly,ratherthantotheBoard.Inaddition,theBoardshouldconsiderhowbesttoensurethattheCAOhasappropriatemeanstoensurethatitsrecommendationsareadoptedandimplementedbyManagement.

Accesstoexternalexpertise147. TheCommissionrecommendsthattheBoardmakemoreextensiveuseofexternalevaluationstoassesscriticalaspectsoftheWorldBankGroup’sactivities,processes,71“ReviewofInternalGovernance:ConclusionsandProposals,”DevelopmentCommittee,DC2009‐0004,April17,2009.

45

strategiesandperformance.Thefewsuchevaluationsthathavebeenconductedhaveusuallyproventobevaluablesourcesoffreshinsightsandboldrecommendations.72Inaddition,theCommissionalsosupportstheBoard’srecentproposaltoensurethatBoardcommitteeshaveaccesstooutsidelegal,accounting,andotherexpertiseasappropriatetofulfilltheirfiduciaryduties.73Recommendation5.StrengthentheWBG’sresourcebase148. AsmentionedinSectionIIofthisreport,theeconomiccrisiscurrentlyaffectingtheworldeconomyandtheaccompanyingdisruptionincapitalflowstodevelopingcountrieshasopenedasignificantfinancinggap,whichtheWorldBankcanhelptofill.Rapidandeffectiveactionisrequired.Nineoutoftendevelopingcountrieshavebeenhighlyormoderatelyexposedtotheshock,andmostofthemarehard‐pressedtomitigateitsimpact.ManyofthemdonothaveaccesstoIBRDfunding,andalthoughIDAfundshavebeenfast‐trackedandfront‐loaded,ultimatelyIDA’stotalresourcesarefixedandcannotberapidlyaugmentedinresponsetoincreasedneeds.Formanyofthesecountries,thecrisisthreatenstohavelong‐termeffectsonhumandevelopmentandcouldreversepastdevelopmentgains.149. TheWBGhasrespondedcommendablytothecrisisbyincreasingitslendinglevelstoUS$100billionoverathree‐yearperiod.DemandforIBRDloanshasalreadytripledfromitsFY2008levelstoapproximatelyUS$32billioninFY2009.TheWorldBankexpectsthatdemandwillincreaseuntilatleast2012andmayexceeditsexistinglendingcapacity.Becauseitscurrentcapitalbasehasnotexpandedsubstantially,theplannedincreasetoUS$100billionwillforcetheWorldBanktoloweritslendingtobelowthepre‐crisislevelforseveralyearsstartingin2012.Also,anyadditionaldemandsontheIBRDtotakeonmandatesrelatedtoglobalpublicgoodswillrequiresignificantnewresources.150. TheCommissionrecommendsstrengtheningthefinancialcapacityoftheWorldBankGroup.ShareholderswillhavetodecidehowbesttoachievearecapitalizationandwherebesttodirecttheirfundingwithintheGroup.Theyshouldalsorecognizethatarecapitalizationcanhavegovernanceimplicationsbyopeningnewavenuesforaddressingsomeoftheissuesraisedinthisreport.72Inthelastdecade,fivemajorexternalevaluationshavebeencommissioned.TheycovertheWorldBank’sresearchfunction(AnEvaluationofWorldBankResearch,19982005,2006),Bank‐Fundcollaboration(ReportoftheExternalReviewCommitteeonBankFundCollaboration,2007),theperformanceoftheWBG’santi‐corruptioninvestigativeunit(ReportoftheIndependentPanelReviewoftheWorldBankGroupDepartmentofInstitutionalIntegrity,2007),theWBG’sperformanceinextractiveindustries(StrikingaBetterBalance:TheExtractiveIndustriesReview,2004),andtheComprehensiveDevelopmentFramework(TowardCountryledDevelopment:aMultiPartnerEvaluationoftheComprehensiveDevelopmentFramework–SynthesisReport,2003).73TheBoardrecentlyreviseditsResolutiononStandingCommittees,statingthat“eachStandingCommitteemay,underexceptionalcircumstances,obtainadviceandassistancefromoutsidelegal,accounting,orotheradvisorsasdeemedappropriatetoperformitsdutiesandresponsibilities,givingreasonableadvancenoticetotheBoardsandthePresidentofitsintentiontodoso.AppropriatefundingfromtheBoard’sbudget,asdeterminedbytheBoard,shallbemadeavailableforcompensationtosuchadvisors.”WorldBank,“ResolutiononStandingCommittees,”BoardReport49586,July6,2009.

46

V. Conclusion151. ThestakesinreformingtheWorldBank’sgovernancearehigh.Someofthemostseriousandurgentchallengesfacinghumanitytodayhavenohopeofsolutionsavethroughmultilateralaction.Withacentralplaceintheglobalmultilateralsystem,theWorldBankGroupisstronglypositionedtocatalyzemultilateralapproachesandhelpdesignandfinancemultilateralsolutions.Butifitistoplayitspotentialrolesuccessfully,theinstitution’sgovernanceurgentlyneedstobemodernizedsothattheWorldBankGrouphasthecapabilitiesandlegitimacynecessarytoconfronttheglobalchallengesofourtime.FailuretobringtheWorldBank’sgovernanceintothe21stcenturywillundermineoneoftheinternationalcommunity’smostvaluableinstrumentsfortacklingthesechallenges.152. Together,thefivecomponentsofthegovernancereformthattheCommissionproposes—rectifyingimbalancesinvoiceandparticipation;restructuringtheWorldBankGroup’sgoverningbodies;reformingtheleadershipselectionprocess;strengtheningManagementaccountability,andaugmentingtheresourcebase—wouldgofarinaddressingtheinstitutionalweaknessesidentifiedinthisreport.TheproposedreformwouldpositiontheGroupasamoreeffective,accountable,andlegitimatevehicleforinternationalcooperationinthecomingdecades.Becausetheproposedmeasuresareinterdependent,theywillonlyhavetheirintendedeffectiftheyareadoptedandimplementedasasinglepackage.153. OnlynationalleaderscanbreakthegridlockonreformoftheWorldBankGroup:meaningfulreformsofmultilateralagencies,atleastintheirbroadoutline,areunlikelytobedecidedanywherebutatthelevelofheadsofstateandgovernment.ItisunlikelythattheWBG’sBoardofGovernorswillundertakethenecessaryreformswithoutcleardirectivesfromtheirnationalleaders.Norisitrealistictoexpectthatmajorstepstowardsimprovedgovernancewillbediscussedandagreedbytheinstitution’sExecutiveBoardactingalone;indeed,thesafestroutetoinactionwouldbetoleavethisprocessoftransformativereformsolelyinthehandsoftheExecutiveBoard.74154. Ifnationalgovernmentstrulybelievethatrealizingthebenefitsandminimizingthedownsidesofincreasinginterdependencecallsformorepowerfulinstrumentsofcollectivedecision‐makingandaction,nationalgovernmentsshouldnotregardtheagendapresentedherewithanattitudeof“businessasusual.”Strengtheninginternationalinstitutions,includingtheWorldBankGroup,cannolongerbeanever‐presentbutnever‐accomplishedobjectiveontheinternationalagenda.

74AlthoughthedraftingofthisreportwascompletedbeforetheG20summitofheadsofstateandgovernmentinPittsburghonSeptember24‐25,2009,theleaders’communiquéechoedatleastfiveoftherecommendationsmadeinthisreport:(1)anopen,transparent,andmerit‐basedselectionofthePresident,(2)amovetoward"moreequitable"votingpowerintheIBRD,(3)adynamicformulaforvotingpowerallocationintheIBRD,(4)protectingthevotingshareofthesmallestpoorcountries,and(5)ensuringthattheWorldBankGrouphassufficientresourcesatitsdisposaltoaccomplishitsmission.

COMMISSION REPORT - World Banksiteresources.worldbank.org/NEWS/Resources/WB... · Report of the...

Documents

Transcript of COMMISSION REPORT - World Banksiteresources.worldbank.org/NEWS/Resources/WB... · Report of the...