(Un)Solicited Advice to the Candidates for the World Bank’s Presidency

Mr. Jim Yong Kim, the U.S. candidate to preside the World Bank, mentioned in the Financial Times (“My call for an open, inclusive World Bank,” March 29, 2012) that he was looking forward “to hearing the views of the World Bank’s constituents – clients, donors, governments, citizens and civil society – as we forge a common vision” for the institution. The other two candidates (Ms. Ngozi Okonjo-Iweala and Mr. José Antonio Ocampo) have also expressed their willingness to listen to different opinions in their quest for the Presidency of the World Bank. Here are some thoughts, the result of almost nine years of service -which I have just finished- as Executive Director for Argentina and Haiti at the Inter-American Development Bank, and more than three decades working on poverty-alleviation and development programs in middle and low-income countries.

The starting point for any aspirant to the Presidency of the World Bank (or any other public service position) must be a proper understanding of what economists call the “principal-agent” relationship that applies to that position.  The head of those important international organizations must humbly recognize that they are agents in that relation, not principals.  They are acting at the service of others.

I was reminded of how easily this basic principle is forgotten, when, recently, I was boarding a plane, and a cameraman entered the plane, filming how the head of an important international organization was entering the aircraft and settling in first class.  While the cameraman finished recoding the event, packed his equipment, and walked to the back of the economy section, I thought about the strong temptation for people in those positions to think they are principals when in fact they are only agents.

But then the next question is who are the principals?

In this regard, the usual references to different “stakeholders,” such as “clients, donors, governments, citizens and civil society,” may not help because too many categories of “principals” would obscure the basic fact that the people of the member countries are the owners of these institutions. It is true that the voting power of the shares is exercised by Governments, who temporarily hold power in a country, but the final owners of the shares of each country are its inhabitants. In my work at the Inter-American Development Bank it helped me greatly to keep the focus on this notion of who my “principals” were.

Several practical consequences for my work followed from this focus. First, I realized that I must listen and work with all people and groups from the countries I represented: not only the government that had sent me to the Bank but the opposition as well; the public sector but also the private sector that wanted to interact with the Bank; and all the vast range of civil society groups, religious or secular, labor unions or employers’ associations, civil or less civil.

Second, when I interacted with my colleagues at the Board, I saw them as representing the people of their countries, through the elected governments that had selected them to serve at the Board. In this perspective, there were no donors, on one hand, and clients or beneficiaries, on the other.  The people of the member countries, although they do have different perspectives and needs regarding the institution, are collectively the “principals,” the proper owners of the “cooperative” called IADB. And those owners, all of them, were who in a real sense paid the salaries of all of us involved in the operations of the institution.

This perspective of “people of the member countries as owners of the institution” needs also to be kept in mind by the President and staff of those institutions.  And it has positive operational implications for their work as well.  For the President, it means the recognition that she/he must work with the Board of the institution.  The heads of those financial organizations have a dual role as Chairperson of the Board and CEO of the institution, the result of the arrangement present in the charter of the 1940 Inter-American Bank, which was never ratified but that provided the basis for the subsequent creation of the World Bank and the IMF.  In that dual position, the temptation is to concentrate on the CEO role, where the President exercises greater power over the staff and resources of the institution, and minimize the interactions with the Board. This would be a mistake.  The legitimacy of the institution, and the whole issue of voice and representation, hinges on that close work with the representatives of the owners, and not with vaguely defined “stakeholders.”

The staff of the international organizations, many of whom tend to see the Board as meddling in the affairs of “their” institution, also must not forget that the Board represents the owners of the institution.  The countries are not “donors” and “clients” that require a powerful Management to arbitrate between them –or in their dealings with other “stakeholders” as well.

Also, it is sometimes argued that Board members have a “conflict of interest” between serving the countries they represent and properly contributing to the governance of the institution. I do not find that argument compelling: it is like arguing that shareholders in cooperatives (or even in private sector companies) should be kept from participating in decisions, leaving all in the hands of management, who, in this line of thinking, would know better what is good for the owners of the institution.  The whole thrust of private sector governance reform has been to empower shareholders.  This must also be the focus in international financial institutions: without this empowerment of the shareholders in the Boards, the debate about voice and representation in those organizations would be largely academic, and crucial decisions in those institutions would then be made not by “principals” but by “agents.”

It is true that someone may argue that individual Board members can be less knowledgeable of the working of the institution and of the requirements of development, but in my time at the IADB Board I never met a colleague whose views were not worth listening to, even if I disagreed.  Also, in non-democratic countries the main “agent-principal” relationship, the one between citizens and governments, would most likely not work properly: in those cases the participation of civil society groups -broadly defined, and not only the traditional international NGOs with specific agendas that may or may not coincide with the needs of developing countries – is important for a better representation of the citizens of a country. But the Board would still provide, as a whole, the democratic framework for the crucial decisions.

In any case, a President that works hand-in-hand with the Board will be a powerful balance to the tendency of the management of those organizations to take a self-centered institutional view of the world, which, for all the knowledge and dedication of the staff, may or may not coincide with the needs of the shareholders.

I know the debate right now focuses on whether the traditional division between the US and Europe for the leadership positions at the World Bank and the IMF should be maintained or not.  This is a very important issue, and people have strong and differing views about it. But to me, it is even more crucial that all involved, starting with the new President of the World Bank, recognize that in those positions we are mere agents, working for the people of the Member countries, particularly the poor and more vulnerable, who are the real owners of those organizations, and not merely “clients” or “donors” or a nebulous group of “stakeholders.”