This first edition of the AIIB Yearbook of International Law (AYIL) examines the theme of ‘Good Governance and Modern International Financial Institutions’ (IFIs). Drawing upon the dialogue begun at the 2017 AIIB Legal Conference and expertise from other IFIs, international law practitioners and eminent academics, this edition of AYIL is divided into three parts to reflect a series of overarching themes.
Firstly, the role of the membership of IFIs as expressed through their executive governance organs, including the benchmark of private financial institution management, the influence of gender diversity, and the particularly essential governance role of an IFI’s leading shareholder. Second, the legal basis of governance of IFIs, utilizing the example of the rule of law at the IMF, a comparative constitutional analysis of the AIIB and the accountability ensured by international administrative tribunals. Third, the interaction around governance between IFIs and external stakeholders, with case studies afforded by the public information policies, implementation of international labor standards, and anti-corruption enforcement procedures of IFIs.
Table of contents
This book is the first edition of the AIIB Yearbook of International Law, a publication of the Asian Infrastructure Investment Bank, an international financial institution fostering growth, development and infrastructure connectivity in Asia. Its content springs from activity sponsored by the Office of the General Counsel in 2017, the first complete year of operations of the Bank.
Gerard Sanders, General Counsel, Asian Infrastructure Investment Bank
Introduction: Good Governance and Modern International Financial Institutions
This first edition of the AIIB Yearbook of International Law (AYIL) pursues this theme, to examine the benchmarks of good governance, such as transparency and stakeholder participation, utilizing the insights shared and dialogue begun by the 2017 AIIB Legal Conference. Drawing upon expertise from other IFIs, international law practitioners and eminent academics, this edition of AYIL is divided into three parts to reflect a series of overarching themes. Firstly, the role of the membership of IFIs as expressed through their executive governance organs. Second, the legal basis of governance of IFIs. Third, the interaction around governance between IFIs and external stakeholders.
Editors of AIIB Yearbook of International Law:
Peter Quayle, Senior Counsel, Head of Corporate Unit, Office of the General Counsel, Asian Infrastructure Investment Bank
Xuan Gao, Senior Counsel, Head of Institutional Unit, Office of the General Counsel, Asian Infrastructure Investment Bank
Using comparative data from a peer group of international and private financial institutions, this chapter explores what drives effectiveness in International Financial Institution (IFI) boards. It starts by identifying their overarching constituency nature and the dual role of directors as representative of shareholder governments and “fiduciaries” of the institution. It also underlines their somewhat contradictory power structure, with a high concentration of decision-making at board level, performed by non-professionals, whose nomination as “executives” belies the absence of any personal executive responsibilities in the organization even when these directors are full-time “residents”—another particularity of IFI boards. The main argument of the chapter is that, while these particularities are important, IFI boards resemble all other boards, especially those of private financial institutions, when it comes to the key drivers of their performance. These consists of their size, composition, leadership, diversity; the competencies and tenure of their directors; the quality of the support they get from management and the tools they use to maintain their effectiveness over time. The chapter concludes with some preliminary ideas on improving IFI board effectiveness.
Stilpon Nestor, LL.M (Harv.), Managing Director, Nestor Advisors Ltd. and the Chairman of AKTIS Ltd.
Gender Diversity on Boards: A Cause for Multilateral Organizations
Good corporate decision-making requires the ability to consider and analyze issues from different perspectives. In the past, corporate governance literature has focused on ensuring that boards can draw on the diversity of their members’ expertise and professional experience. Over the past few years, attention has increasingly shifted to the impact that gender diversity can bring to the decision-making process. There is now evidence to support the idea that gender-balanced boards boost the performance of companies and that companies with greater female representation on their boards are less likely to be affected by governance scandals involving bribery, fraud and other negative factors likely to depress business confidence. In Europe, the discussion about gender diversity on boards is well advanced and a number of countries are aiming for ambitious targets. In the United States (US) the trend seems to have stalled, while in Asia it has not yet taken off, with only a few countries actively promoting gender diversity on boards. This chapter considers the legislation and data on gender diversity on the boards of companies in Europe, the US and Asia. It critically reviews some of the measures introduced by companies, governments and institutional investors to address the gender diversity gap. It concludes by proposing concrete measures that governments, companies and investors may consider adopting to address the gender gap on boards. These measures may be appropriate for international financial institutions to pursue.
Marie-Anne Birken, General Counsel, Office of the General Counsel, European Bank for Reconstruction and Development
Gian Piero Cigna, Senior Counsel, Office of the General Counsel, European Bank for Reconstruction and Development
International Financial Institution Governance: The Role of Shareholders
This chapter addresses the integral role of shareholders in the good governance of international financial institutions. It is divided into five parts, beginning firstly with consideration of the generally held concerns of all shareholders, notably, veto rights, the powers of governors, the role of executive directors, and the essential leadership responsibilities of an institution’s president. Second, the relationship between shareholders, good governance and the mobilizing of resources, in particular funding the institution effectively and developing a sustainable financial model is examined. Third, the chapter looks at the indispensable role of shareholders in maintaining a domestic legal environment conducive to the success of an international financial institution. Fourth, it highlights the role that shareholders may play in inter-institutional relationships. Fifth, and by way conclusion, this chapter argues that good shareholder governance is crucial to the success of international financial institutions, both old and new.
Whitney Debevoise, Partner, Arnold & Porter, Washington, D.C, former US Executive Director, The World Bank
The Rule of Law in the International Monetary Fund: Past, Present and Future
The International Monetary Fund (the “Fund”) has evolved considerably since 1945 to respond to the changes in the global economy with its constant mandate to maintain and safeguard a stable international monetary system. Throughout its evolution, the Fund continues to adhere to the rule of law, which is key to the legitimacy, credibility and effectiveness of the Fund as an institution. The Legal Department of the Fund plays a critical role in ensuring that the Fund effectively responds to the changing developments in the international monetary and financial systems while maintaining the rule of law. The responsibilities of legal counsels at the Fund have been expanding over the years to keep up with the Fund’s evolution, ranging from traditional in-house counselors, trusted advisors to membership to active public policy contributors. In discharging these responsibilities, legal counsels must maintain independence, objectivity and consistency to ensure credibility and effectiveness of their legal advice, which is pertinent to upholding the rule of law at the Fund.
Yan Liu, Assistant General Counsel, Legal Department, International Monetary Fund
Governance of the Asian Infrastructure Investment Bank in Comparative Context
The Asian Infrastructure Investment Bank (AIIB) was launched in 2016 with governance arrangements that build on the foundations of its progenitors, with adaptations and updates reflecting AIIB’s own focus and founders. AIIB follows multilateral development banks (MDBs) such as the World Bank, Asian Development Bank, European Bank for Reconstruction and Development and Inter-American Development Bank in its governance structure (Board of Governors, Board of Directors and President). AIIB includes expanded powers for the Board of Governors to add flexibility in areas such as new types of financing and assistance to non-members. AIIB’s Board of Directors serve on a part-time non-resident basis, with detailed powers for policy, oversight and delegation. AIIB’s President is limited to two terms. AIIB’s voting structure is tied to shareholding but less so than in many other MDBs, as basic votes for all members and Founding Member Votes for founders reduce the impact of shareholding to less than 90 percent of total voting power. The underlying comparisons with other MDBs are spelled out in detail in this chapter, summarizing AIIB’s heritage and innovation in governance.
Natalie Lichtenstein, Adjunct Professor, Johns Hopkins School of Advanced International Studies, Washington, DC.
The Evolving Jurisprudence of the International Administrative Tribunals: Convergence or Divergence?
Between the late 1940s and 1980, there were two principal international administrative tribunals in operation—the United Nations Administrative Tribunal and the Administrative Tribunal of the International Labor Organisation. Observers at the time noted that certain principles of international administrative law had become well-established in the jurisprudence of these tribunals, and that their judgments reflected a commonality in approach. However, since 1980, a number of new administrative tribunals have been established by various international organizations, including each of the multilateral development banks and other international financial institutions, and the UN has changed to a two-tier judicial system. Now, with over 15 administrative tribunals in operation, can it still be said that there is a general harmonization amongst the tribunals? Or have the tribunals gone in different directions in analyzing the legal framework for the employment relationship within an international organization? This presentation will examine these questions with respect to selected issues considered by administrative tribunals.
Joan Powers, former Assistant General Counsel, International Monetary Fund
Development scholars and practitioners today see progressive access to information and transparency policies as necessary preconditions for improved effectiveness of international development aid and the legitimacy of modern international financial institutions. This chapter examines the evolution of access to information and broader open data policies in international development institutions. Drawing from the case of the World Bank as a “first mover,” this chapter examines the complex internal processes and factors that shape the adoption and implementation of access to information policy reforms. While challenges to achieving robust information disclosure and open data policies across all multilateral and bilateral aid agencies persist, transparency is now a benchmark for good governance in global development finance and the proverbial genie that cannot be put back in the bottle.
Catherine E. Weaver is Associate Professor, LBJ School of Public Affairs and Co-Director, Innovations for Peace and Development, The University of Texas
The Making of Global Public Authorities: The Role of IFIs in Setting International Labor Standards
Through liberal interpretations of their mandates, international financial institutions (IFIs) have been able to constantly redefine their own roles. The activities of IFIs have for a long time moved beyond purely financial matters. In seeking popular legitimacy, during the past decades, IFIs have embarked on a governance vocation and reinvented themselves as actors of global governance. In this way, IFIs increasingly absorb Labor standards into their operational policies. The inclusion of Labor standards into the 2016 Environmental and Social Framework of the World Bank serves as a recent example. This chapter examines the role and limitations of IFIs in setting and enforcing Labor standards. Engagement with Labor issues also presents enormous knowledge management and institutional challenges to IFIs. This brings further cultural, ideological and institutional changes to IFIs. In conclusion, the potential of IFIs transforming into public authorities of global environmental and social justice deserves close scrutiny.
Chen Yifeng, Associate Professor of International Law, Peking University Law School
This chapter presents the main features of the World Bank Group’s sanctions system and considers its contribution to global efforts to promote good governance. It first introduces the basic features of the World Bank Group’s sanctions system, an administrative law system that has evolved since its inception in 1996. The chapter then briefly reviews the history of that evolution and considers where the system stands today. The chapter also considers the broader international context in which the system was established and continues to operate and concludes by examining some of the lessons learned over the course of the system’s 20-year evolution.
Pascale Hélène Dubois, Vice President, World Bank Group Integrity Vice Presidency, The World Bank
J. David Fielder, Manager, World Bank Group Integrity Vice Presidency, The World Bank
Robert Delonis, Senior Litigation Specialist, World Bank Group Integrity Vice Presidency, The World Bank
Frank Fariello, Lead Counsel, World Bank Legal Vice Presidency, The World Bank
Kathleen Peters, Senior Legal Consultant, World Bank Group Integrity Vice Presidency, The World Bank
More at https://www.aiib.org/en/about-aiib/who-we-are/yearbook/index.html
