World Bank Group: Reform Without Change

Why ill-advised restructurings and a baffling governance structure have led the World Bank Group to fail its member countries

World Bank Group Commitments, FY15

Founded in 1944 with the task of leading international post-war reconstruction and development, expectations have always been high of the World Bank Group (WBG). As the global economy has evolved, so has the Bank’s mission – it now places itself on the frontier of ending extreme poverty by 2030 and boosting shared prosperity (income level of bottom 40% in any given country).

To this end, the WBG currently provides $45 billion a year in funding for developing world projects. It boasts a 16,000 strong staff located across 127 countries and five institutions (IBRD, IDA, IFC, MIGA, ICSID). But do WBG operations truly deliver value to its 188 member states? In reality, poor accountability and crippling bureaucracy has resulted in an operational model that is at odds with its business model.

 

Business Model

By providing loans, grants and policy advice, the WBG acts as a bank, a foundation and a think tank to developing countries. However, it receives income from just one of these functions; programs are funded through interest payments on loans as well as through contributions from wealthy member states. While the current President, Jim Yong Kim, has called for the organization to become a “solutions” bank that leverages its vast institutional expertise, the reliance on loan volume to sustain business has influenced the way the Bank incentivizes and evaluates success.

As a result, lending has moved increasingly towards middle-income countries such as Brazil, India and China that can repay large loans, unlike the poorest countries where, by definition, extreme poverty is most pronounced. This mismatch between mission and reality is particularly glaring in light of China’s recent announcement that it would deliver a $60 billion development package to African economies.

 

Operating Model

Global Practice Groups

Organizational Structure

In 2014 the World Bank Group underwent a significant restructuring. Previously, the institution was organized into geographical units, each headed by a Vice President. Many staff had a second reporting line to sector units based on industry expertise (such as health, infrastructure or macroeconomics), forming a matrix structure rather than vertical business units. The restructuring flipped this matrix, creating 14 Global Practice Groups (GPGs) formed along sector lines. The intention was to enrich the knowledge base by increasing collaboration and sharing lessons from a variety of country and regional contexts, rather than operating in geographical silos.

Instead, the result to date has been the creation of 14 new silos, with expertise and decision-making being centralized away from those closest to clients. A second round of restructuring in mid-2015 created an extra layer of bureaucracy by forming three overarching groups, each managing a subset of the GPGs.

The organizational mess at the Bank has left staff dazed and confused; a 2015 survey found just 38% of employees felt senior management “clearly communicates” the institution’s “strategic priorities”, and only 33% have “a clear understanding of the direction in which [senior management] is leading [the World Bank Group]”.

Governance Structure, People and Processes

All recent efforts to reform the organizational structure at the Bank have missed the point: a governance structure that is barely accountable to its member states combined with too many levels of hierarchy have created a disconnect between decision makers and beneficiaries. The governance structure is such that each member country’s number of votes is proportional to its financial contribution to the WBG. The US, as the largest shareholder, holds roughly 17% of votes and has an individual seat on the Board of Executive Directors (EDs). In contrast one ED represents 23 African nations. This structure severely stifles the voice of beneficiaries.

President of the World Bank Group, Jim Yong Kim

EDs are chosen on an individual basis to promote national and regional priorities, rather than collectively to maximize expertise across all key areas of WBG operations. This stands in contrast to the new internal structure of the WBG, and its sector-based GPGs. The Board meets twice a week, weighing in on every single project, but offers little transparency in to its deliberation and voting process. The President of the World Bank Group, another key influencer of change, is nominated by the US government through an informal “gentleman’s agreement” with the EU, who in turn nominate the head of the IMF. Such processes limit the pool of expertise and diversity of viewpoints that are absolutely essential in designing the operating model of one of the most important institutions in the world.

 

The World Bank Group is a prime example of how world-class assets (human capital, global office infrastructure, deep relationships with recipient governments) can be mismanaged through an operating model that is misaligned with the organization’s value proposition. This is exacerbated when that proposition, the business model, is in itself poorly articulated.

 

Sources:

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3 thoughts on “World Bank Group: Reform Without Change

  1. I agree to the broad notion that that bureaucracy has stifled the WBG’s potential as a leading multilateral financial institution, but I wouldn’t go to the extreme to say that it has failed its member states. Some of the largest public projects, esp. in infrastructure development, in emerging markets have only been enabled due to the capital extended by the WBG.

    For me the misalignment in the operating model is around how accountability is structured. As you say, “The governance structure is such that each member country’s number of votes is proportional to its financial contribution to the WBG”. There has always been a view that multilaterals have been used by developed countries to extend their geo-political and economic agenda. The governance structure is a prime example of that – the beneficiary country probably cannot hold anyone accountable if something goes wrong within the project (one that may be of national importance for the country), while being under pressure from vote holders within the WBG to probably let their country’s companies bag maximum contracts for executing the projects. The non-visible parts of this model are what I believe the major structural flaws that no one really wants to address.

    1. Thanks for the comment Ameya!

      I use failure as a relative (and, I guess, deliberately inflammatory) term. The WBG’s unrivalled combination of financial and human capital in the development finance space mean that they are expected to enable large public projects in developing countries that would not have happened without their involvement. And they’re still doing this, driving projects like the Grand Inga Dam forward in D.R. Congo, which if completed would be twice the size of the next biggest power plant in the world.

      But, in my humble opinion, they are currently working well within their capabilities and could achieve much more with the same resources. To do so, I think the accountability issue you bring up with regards to the existing operational model is absolutely paramount, and this is why I believe all reforms taken to date have merely scratched the surface.

  2. Very nice analysis, Nick – thanks for writing. Is there any available detail somewhere on what management at WBG think of these issues? Beyond that, have any more effective restructuring models been proposed or are there any that would allow the leadership to effectively manage such a massive organization?

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