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The world bank governance at its crossroads


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securities regulation, world bank governance and reform

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The world bank governance at its crossroads

  1. 1. 1 ResearchconductedbyArthurMboue The WorldBank Governance at its Crossroads: My lastposttitled“LawsRelated toVoice Reformatthe World BankGroup” didattemptto empoweruswith more toolsinorder to complementknowledgeinthe fieldof votingpowerandvotingpowerrealignment. We didnavigate complex formulasandlawsusedtodesignthis2010 votingpoweroffering. Itwasdifficultfor everyone todigestall these formulasandunderstandhow financialcontributionswere creditedtocountries members. Goodor bad credits,Ido notknow. But what I know isthat 6 yearslaternow,no change nearthe White House. Developingandtransitioncountries still thinkthattheiropinionsdonotcountwhenthe World Bank ismakingitsdecision. The huge gaininadditional shareholdingpercentage andvotingpowerfree of charge because coveredbyaTrust fundand the WorldBank Special Capital Increase isnotthe magictool to helpthemcontrol mattersbefore the WorldBankboardand theiroutcomes. The World Bankgroup needstodo somethingdifferentafter72yearsdoingthingsthiswayin orderto increase accessto opinion of certaincountrieswhoseagreementsare neededforfairandundisputeddecisions and ensure thatsupportfromdevelopingandtransitioncountriesand/ormaybe all borrowercountriesis there forspecificdecisionsrelatedtocertainglobal loanapproval (orapprovedloan) andglobal projects. We needtoholdthese consultationswithbothclassesparticipatingseparatelyinordertoascertaintheir willingnesstoconsidersupportingthese motions. There isnodoubtin mymindthat thisway isthe right way to serve bothsidesbetter,bothclasses,borrowercountriesasshareholdersandclientsinneedforgrants, unlimited global loanandfundingfromthe WorldBank’s limitedfundingandcommitmentswithnodesireto allocate fundstocertaintypesof projects.[notionof prioritizationapplied] Atthistime,72 yearslater,we mustrecognize thatsharesdonations,votingpowerwithall itsvotingdecisionsystemincludingconsensus, simple majorityandspecial majority(onlyMIGA definesit) are not fixingthissystemanditsgoals. CurrentPrincipal DecisionsRequiringsingle anddouble majority of votesof the WorldBank Groupboard Decisions IBRD IFC IDA MIGA UnanimousVote Other Amendment (right to members to withdraw, to exercise pre- emptive right in subscription,…) Article VIII (b)- “…acceptance by all membersisrequiredin the case of any amendmentmodifying (i)-the righttowithdraw fromthe Bankprovided inArticle VI,Section1, (ii)-therightsecuredby Article II,section3(c) (rightto exercise pre- Article VII (b)- “…acceptance by all membersisrequiredin the case of any amendmentmodifying (i) the rightto withdraw fromthe Corporation providedinArticle V, Section1; (ii) the right securedbythe Article II, Section2(d) (rightto Article IX (b)- “…acceptance by all membersisrequiredin the case of any amendmentmodifying (i)-the righttowithdraw fromthe Association providedinArticle VII, section1; (ii) right securedbythe Article III,section1 (c)(rightto Article 59, a (i)- “any amendmentmodifyingthe rightto withdrawfromthe AgencyprovidedinArticle 51 or the limitationon liabilityprovidedinArticle Section(d) of Article 8 shall require affirmative vote of all Governors” Article 59 a (ii)-“any amendmentmodifyingthe
  2. 2. 2 ResearchconductedbyArthurMboue emptiverights in subscription to shares);(iii)the limitationonliability providedinArticle II Section6 (limitationon liabilityonsharestothe unpaidportionof the issue price)” exercise pre-emptive rightsinsubscriptionto shares);(iii)the limitationonliability providedinArticle II section4 (limitationon liabilityonsharestothe unpaidportionof the issue price)” exercise securedpre- emptive rightsin subscriptiontoshares); (iii)-the limitationon liabilityprovidedin Article II,section, section 3 (limitationon liabilityonsharestothe unpaidportionof the issue price)” losssharingarrangement providedinArticle 1and 3 of Annex tothisConvention whichwill resultinan increase inanymember’s liabilitythereundershall require the affirmative vote of the Governorof each such member.” Single MajorityVotes Capital increase Article II, Section2,b “the capital stock may be increasedwhenthe Bank deemsitadvisable by a three fourths(3/4) majority of the total votingpower” Article II, section2,(c) (i) “by a majorityof the votescast, incase such increase isnecessaryfor the purpose of issuing sharesof capital stock…. (ii)-inanyothercase,by a four-fifths(4/5) majorityof the total votingpower.” Article III, section1, (d)- “All decisionsunderthis Sectionshall be made by a two-thirds(2/3) majorityof the total votingpower.” Article 5, c “ the Council,by special majority,mayat any time increase the capital stock of the Agency” *Special majoritymeaning Article 3,d “a ‘special majority’meansan affirmative vote of notless than twothirds [2/3] of the total voting power representingnotlessthan fifty-fivepercent[55%]of the subscribedshares of the capital stock of the Agency” [*multiple] Issuance of share stock Article II, section4- “… Othersharesshall be issuedatpar unlessthe Bank bya majority of the total votingpower decidesinspecial circumstancestoissue themon otherterms.” Article II, section2, (e)- “issuance of sharesof stock,otherthan those subscribedeitheron initial subscriptionor pursuantto paragraph (d) above,shall require a three-fourths (3/4) majorityof the total votingpower.” Silent??? Article 6 “eachoriginal memberof the Agencyshall subscribe atpar to the numberof sharesof capital stock setforth…,The Council mayprescribe rules by whichmembersmay subscribe toadditional sharesof the authorized capital stock.”Majority vote Increase in Board seats Article V, section4, b- “…Whengovernments of othercountries become members,the Board of Governors may,by four-fifths (4/5) majorityof the total votingpower, increase the total numberof directorsby increasingthe number of directorstobe Silent Silent Article 32, b “the board shall consistof notlessthan twelve Directors. The numberof Directorsmay be adjustedbythe Council to take intoaccount changes inmembership….”Means Majorityvote cast
  3. 3. 3 ResearchconductedbyArthurMboue elected.” President Selection Maintenance of membership after cessation of the IMF[Bank] membership Article VI, section3- “Anymemberwhich ceasesto be a member of the IMF shall automaticallycease afterthree monthsto be a memberof the Bank unlessthe Bankby three-fourths(3/4) of the total votingpower has agreedtoallowitto remaina member.” Article V Section 3 is silent Article VIIsection3is silent Article 52, d – “The suspendedmembershall automaticallycease tobe a memberone yearfromthe date of itssuspension unlessthe Council decides to extend the periodof suspensiontorestore the membertogood standing.” Termination of operations Article VI, section5 (e) ii-“amajorityof the Governors,exercisinga majorityof the total votingpower,have decidedtomake a distribution.” Article V, section5, (a)- “The corporationmay permanentlysuspendits operationsbyvote of a majorityof the Governorsexercisinga majorityof the total votingpower.” Article VII, section5, (a)- “the Association may permanently suspenditsoperations by vote of a majority of the Governors exercisingamajorityof the total votingpower.” Article 55, a “the Council, by special majority,may decide tocease operations and to liquidate the Agency. Thereuponthe Agencyshall forthwithcease all activities….”Means 2/3 votingpower and Governorsrepresenting 55% of subscribedshares Distribution of assets after termination of operations Article VI, section5 (f)- “Aftera decisionto make a distributionhas beentakenunder(e) above,the Executive Directorsmay by a two- thirds(2/3) majority vote make successive distributionsof the assetsof the Bankto membersuntil all of the assetshave been distributed.” Article V, section5, (b)- “No distributionshall be made to memberson account of their subscriptionstothe capital stock of the Corporationuntil all liabilitiestocreditors shall have been dischargedorprovided for anduntil the Board of Governors,byvote of a majorityof the Governors exercisinga majorityof the total votingpower,…” Article VII, section5, (b)- “Nodistribution shall be made to membersonaccount of theirsubscriptionsuntil all liabilitiestocreditors shall have been dischargedorprovided for anduntil the Board of Governors,byvote of a majorityof the Governors,exercisinga majorityof the total votingpower,…” Article 55,b “No distributionof assets….or providedforanduntil the Council shall have decided to make such distribution” meansmajorityof votes cast Global Loan or Projects Approval Article V, section3, (b)- “Exceptas otherwise specificallyprovided, all mattersbefore the Bank shall be decided by a majority of the votescast.” Article IV, section3 (b)- “Exceptas otherwise specificallyprovided,all mattersbefore the Corporationshall be decidedbya majority of the vote cast.” Article VI, section3, (b)- “Exceptas otherwise specifically provided,all matters before the Association shall be decidedbya majority of the votes cast.” Article 42 (a)- “…Exceptas otherwise specifiedinthis Convention,decisionsof the Board shall be takenby majority of the votescast.” Buying and Article IV, 8 (iv) –“ To Article III, Section6 (iv)- Article V, section5 (iii)- silent
  4. 4. 4 ResearchconductedbyArthurMboue selling of certain securities buyor sell suchother securitiesasthe Directorsby a three- fourth(3/4) majorityof the total votingpower may deemproperfor the investmentof all or part of the special reserve under Section…” “buy or sell securitiesit has issuedorguaranteed or in whichithas invested” “buy andsell securities it hasissuedor guaranteedorin which it hasinvested” Selection of currency where repayments are not made in the currency loaned Article IV, section4 (b)(i)-“…These payments,subjectto the provisionsof Article II,Section9 (c), shall be equivalenttothe value of suchcontractual paymentsatthe time the loanswere made,in termsof a currency specifiedforthe purpose bythe Bank by a three-fourths (3/4) majorityof the total votingpower.” silent Silent silent Other amendments (Schedule A and B) silent silent silent Article 59, b “Schedule A and B to thisConvention may be amendedbythe Council by special majority” Single or Double majority Requesting Governors meetings Article V, section2, (c)- “…Meetingsof the Board shall be calledby the Directorswhenever requestedbyfive (5) membersorby membershavingone quarter(25%) of the total votingpower.” silent silent Article 31, (c)-“The Board shall call a meetingof the Council whenever requestedby five members or by membershaving 25 percentof the total voting power”means5 members or 25% votingpower Multiple Majority Votes (weighed voting) Amendment of Charter Article VIII,(a)-“…when three-fifths(3/5) of the members,having eighty-fivepercent (85%) of the total votingpower,have acceptedthe proposed amendments,the Bank Article VII, (a)-this Agreementmaybe amendedbyvote of three-fifths(3/5) of the Governorsexercising eighty-fivepercent (85%) of the total voting power.” Article IX, (a)- “… Whenthree-fifths(3/5) of the members,having four-fifths(4/5) of the total votingpower, have acceptedthe proposedamendments, the Associationshall Article 59 (a)-“this ConventionanditsAnnexes may be amendedbyvote of three- fifthsof the Governors exercisingfour- fifthsof the total voting power,..” means4/5 of voting powerand 3/5 of
  5. 5. 5 ResearchconductedbyArthurMboue shall certifythe factby formal communication addressedtoall members.” certifythe fact by formal communication addressedtoall members.” Governors Quorum: Governors Article V, section2, (d)- “a quorum forany meetingof the Boardof Governorsshall be a majority of the Governors,exercising not lessthantwo-thirds (2/3) of the total voting power.” Article IV, section2, (f)- “A quorumfor any meetingof the Boardof Governorsshall be a majority of the Governors,exercising not lessthantwo-thirds (2/3) of the total voting power.” Article VI, section2, (f)- “A quorumfor any meetingof the Boardof Governorsshall be a majority of the Governors,exercising not lessthantwo-thirds (2/3) of the total voting power.” Article 40 (b)- “A quorum for anymeetingof the Council shall be constituted by a majorityof the Governors exercisingnot lessthan two-thirdsof the total votingpower”means majorityof the Governors and 2/3 of votingpower Suspension and restoration of members Article VI, section2- “If a memberfailstofulfill any itsobligationsto the Bank, the Bank may suspendits membershipby decisionof a majority of the Governors, exercisingamajority of the total voting power….” Restoration: silence Article V, Section2, (a)- “If a memberfailsto fulfillanyof its obligationinthe corporation,the Corporationmay suspenditsmembership by decisionof amajority of the Governors, exercisingamajority of the total voting power….” Restoration: silence Article VII, section2, (a)-“if amemberfailsto fulfillanyof its obligationstothe Association,the Associationmay suspendits membershipby decisionof amajority of the Governors, exercisingamajority of the total votingpower.” Restoration: silence Article 52, a “If a member failstofulfill anyof its obligationunderthis Convention,the Council may,by a majorityof its members exercisinga majorityof the total voting power, suspendits membership.” Restoration: majorityof vote cast Quorum: Executive Directors Article V, section4, (f)- “A quorumfor any meetingof the Executive Directors shall be a majority of the Directors,exercising not lessthanone-half (1/2) of the total voting power.” Article IV, section4 (e)- “A quorumfor any meetingof the Boardof Directorsshall be a majority of the Directors exercisingnotlessthan one-half (1/2) of the total votingpower.” Article VI, section4, (e)- “A quorumfor any meetingof the Executive Directors shall be a majority of the Directorsexercising not lessthanone half (1/2) of the total voting power.” Article 42, (b)-“the quorum for a meetingof the Board shall be constitutedbya majorityof the Directors exercisingnotlessthan one-half the total voting power”means½ of voting power and majorityof directors Permanent suspension of operations Article VI, section5 (b)- “The Bank maysuspend permanentlyits operationsinrespectof newloansand guaranteesbya vote of a majority of the Governors,exercisinga majority of the total votingpower….” Article V,5(a)-“the Corporationmay permanentlysuspendits operationsbyvote of a majority of the Governorsexercisinga majority of the total votingpower….” Article VII,5(a)-“the Associationmay permanentlysuspend itsoperationsbyvote of a majority of Governors exercisingamajority of the total voting power…” Article 55, a-“The Council, by special majority,may decide tocease operations and to liquidate the Agency. Thereuponthe Agencyshall forthwithcease all activities,…”means2/3of total votingpower representing not lessthan 55% of subscribedsharesof the capital stock of the Agency
  6. 6. 6 ResearchconductedbyArthurMboue I believewe needanewsysteminordertomaximize inputfromdeveloped,developingandemerging economies. We needasystemallowingustogetfeed-backfromourclientsandshareholders, borrowing membersof ourWorld Bank. We needa system helpingbothsidestocommunicate,cooperate and compromise inordertoserve our clients anddonors better. We needto designproductstargetingourclients’ needsandhelpingthemtoachieve theirtargetgoal indevelopmentandhappiness. We are in competition againstour missionandothers,anygroupwiththe bestdata and bestanalysiswill winthiscompetition. A paperauthoredbyProf Dr Cord Jakobeit,paidandcirculatedbythe GermanMinistryforEconomic CooperationandDevelopment,“Enhancingthe Voiceof DevelopingCountriesinthe WorldBank’proposedthe introductionof double majorityvotinginthe decisionsof some WorldBankaffairsfora pilotprogram. Truly,a one or two yearsprogramshouldrequire anapproval butnot an amendment. Decisionlike change of rate of charge (interestpaidbyborrowers) orthe rate of remuneration(interestpaidtocreditors) will stillrequire this supermajorityapproval vote. Butafterreviewing8documentsincludingBy-lawsandArticlesof Agreements,I have to argue that hisproposedpilotprogrammayhave requiredalot of amendments. Thatsaid,my proposedpilotprogramisjustlike anysurveyorfeed-backbecause thereisnoWorldBankBy-lawsor Article of Agreementsregulatingsurveysorfeed-backfromExecutiveDirectors. On topof that votingruleshere allow subsequentvotes afterconsensusagreement. Havingsaidthatthispilotprogramwill startafter Executive Directorsloan/projectagreement andclosedmotion,theywill be handedasurveywith24 hours’ notice,time forthemtoconsultcountriesandbuildcoalitionforapossible classresponse. ElectedExecutive Directorscan eithervote forhisconstituent(EDS) orpercountry. At the end,resultwill be computedbasedon shareholdingorpercountry. Frankly,because of myrootsas a SEC expert,Ibelieve inBJR(BusinessJudgment Rules),thatmeansImay choose shareholdingoverpercountry, mostlyusedbysome international institutions. Imade thischoice notbecause thisisa Bank but alsobecause 2 divisionsof the WorldBank,IBRD and IFCare regularlyanalyzedandratedbythe marketratinggroup calledMoodyService. Atthe endof this informal pilotprogram,we will analyze dataandsentthemtothe Board of Governance forpossible amendmentandimplementationof anewsystemof vote. Status of the Decision Making Votes vis a vis the World Bank
  7. 7. 7 ResearchconductedbyArthurMboue Voting process Definitions Main Characteristics Background at the World Bank Suggestions I made Consensus A system which requires a collaborationto negotiate until agreements of the participants withno need for a vote  Requiredendless negotiation  Increase backlogs  Well-connected negotiators prevail  Squeeze out new representatives  Mayleadto unacceptable agreement just to end the postponement and endless delays Meetings ofthe Executive Directors Board are guided bya consensus decisionmakingculture. Their Bylaws allowconsensus agreements unless formal votes are requested. There are claims relatedto powerful directors who are allowedto negotiate the outcome ofproject proposals or loan requests behindclosed doors. Decisionare made bythe waythey argue, theyundermine other ideas, their friendships withinsiders and each others, their seniorityinthat WashingtonDCbuildingor howsorry others will feel for the requested countrydevelopment status or need. At the same time, thisconsensus systemclaims a lot of backlogs and rerun votes behind anyself-imposed timelines while increasing coalitions and costs. It is true that Boardmembers get more experience while aging with the company. Thistheory can helpthe companyif use properlyduring anynegotiations includingconsensus. All consensus agreements should be followed bya double majority just as feed-back to serve better these clients andinvesting donors or to rate the project vote viabilityamong twoclasses of members withor without coalition. Majority A voting system which requiresthe decision rule to be achieved or adoptedwhenit is favor bymore than 50 % of votes cast  Conservative decisionmaking  More acceptable  One vote can leadto a huge crowdof discontents A lot of decisions require such a simple majorityof votes (50+%) cast for their approval at the WorldBankGroup.  Issuance of shares stock  Loan and projects approval  Suspensionandrestoration of members Let reduce the number of this voting system. It is not as democratic as it seems because of the needto increase the voice of the borrowers whoneed to be helped to developthemselves. One or two should remainto approve appointment and meetingrequests. Super Majority A voting systemwhich requiresthe decision rule to be achieved or adopted whenit is favor bya huge percentage of votes cast, something aroundtwo-thirds or 75+% votes cast.  Difficult to reachthis target vote.  Mayclose goodvotes for failure of reaching the requiredvotes  Slim minoritywith adverse interest may be ignored Certaindecisionat the World Bank Group requires approval of special majorityincluding:  Capital increase andmaintenance of Bank membershipafter cessation ofIMF membership (75%)  Increases inthe number of electedExecutive Directors (80%)  Distribution of assets after terminationof operation(2/3) World BankGrouphas enough of super majorityrequirements in its voting book including weighted voting which requires super or simplemajoritycoupled with proportionof total voting power. We cankeep some in order to seek a huge percentage to approve some veryimportant decisionof the WorldBank group Unanimous vote A voting systemwhich requiresthe decision rule to be achieved or adoptedwhenit is favor byall participants that means 100% votes cast.  Veryinclusive  Fullyparticipatory  Difficult to reachthe requiredvotes Certaindecisions at the WorldBank Group require approval ofallmembers including  Amendments to the Articles that wouldmodifythe right of members to withdraw, to exercise preemptive right insubscription to shares or the limitation on liabilityon shares to the unpaid portionof the issue price. (100%) It shouldbe kept thisway without anyexpansion Weighted voting A weightedsystemis ruled bya combination of the majority(simple or supermajority) anda voting power, that means a complicated self- made formulato assigna voting weight to  Increase contribution for voting power  Prioritize members with highvoting power  Requiredendless voting realignment and allthe costs Certaindecisions at the WorldBank Group require both a numerical majority(simple andspecial) of members anda proportion oftotal voting power including  Amendment of Charters  Quorum for Governors meeting  Quorum Executive Directors Weighted voting system has served the WBGfor decades with either simple or super majority, now it is time for a change. The elimination of voting power withits complex and manipulative voting rights tied to a veryhuge fundingand
  8. 8. 8 ResearchconductedbyArthurMboue each member also called voting right. It is adoptedwhenboth majorities are achieved. involvedwith the process  Can stealcontrol power from very important members (majority shareholder or borrowers) Meeting  Suspensionandrestoration of members  Permanent suspension  Distributionof assets to members Trust funds andfailingto increase voice andhappiness of the developing countries. It is time to increase satisfactionto both borrowers and donors because we need this donation to helpthe needy(endextreme poverty, grants to poor countries,…) and development of MICand poor countries. Multiple Majority A voting systemwhich requiresthe decision rule to be achieved by two separated majorities for the resolution to be accepted  Give greater voice to both parties  Mayrequire coalition to be taken seriously  Distribute control power to bothsides with veto power  Require diplomatic and deal making skills to fullyvoice their control and concerns The WorldBank Groupdoesnot have anysuch type of multiple Majority (double majority) which requires two (or more) specifiedclasses of members to achieve two separated majorities votes for the projects proposals or resolution to be acceptedor approved bythe board. It couldhave facilitated borrowing countries to form coalition and inform non borrower countries about their feedback (approval or disapproval) about anyloanrequests or projects proposal before the board. Do we trulywant to increase the voice of developing countries while increasing donationOR do we want to shift control from developedcountries to developing countries while reducing donations? This is a crucial questionwe must answer clearlywithout lying to ourselves. Ifit is about increasingvoice ofthe borrowing countries, a double majorityof the borrowing countries and borrowers can help. We can also use it as surveywe needto analyze and improve services, segmentationof products,… without anytrust fund andfight about the voting power constant realignment, reliabilityand costs and failure to reach target goals In sum,internationalorganizationshave alotof challengesdesigningtheirorganizational structure because theyare ownedbytoomany countrieswithdiversifiedstylesof managementandtransparencyrules. Itiswhy whenyourproposal isto reformtheirglobal governance,youwill make more enemiesthanallyfromthe establishmentalthoughtheyare aware of the problemsintheirsystemof governing. The failure of the consensussystemisdifficultandpainful forpeoplewholove thisglobalwelfare Bank. Myhope isthat this informal pilotprogramheldafterthe consensusagreementwill produce amore favorable resultbutIdoubt that. We needthe WorldBankto be a legitimate, noncompetitive andrespectedglobalfinancial institution again. It is whywe must thinkclearlyandfindbetterwayto reformthissysteminorderto empowervoices that have beenunhappyaboutshareholdingfreegiveawayandthose voicesthathave beensilencedbythis global ‘bribery’. Thus,a goodshare versusvoice analysis willexpose anegative synergyof that2010 voting powerrealignment,amergerbetweenshareholdinggiveawayandvotingpoweradjustment. Idonot think that there isa needforfuture researchto investigateanduncovernew shortcomingof thatculture of voting power,consensusandvotingpowerrealignment,itistime tobringa new dynamictothe WorldBank governance. Itistime to try whatwe have beenavoidingforyears,adouble majoritysystem. Thisdouble majorityshouldgive opportunityforbothsides torepresenttheirdivergentinterestsandincrease their privilegeandabilityto compromise and influence decision. The righttime isNOW,firstwe muststart inserting thisinformal pilotprograminthe systembecause we shouldnotsettleforless.Toclose, aweak and reputational challenged WorldBankGroupmay notsurvive thisincomingcompetitive environment.