On Friday evening, the governors of the European Bank for Reconstruction and Development (EBRD) selected a new president: British civil servant Sir Suma Chakrabarti. The decision is important because the EBRD has recently taken on a major global challenge: assisting the countries of the Arab Spring. It also matters because the selection process raised the bar for open, transparent and merit-based leadership selection at other international institutions, including the World Bank, IMF and the other regional development banks.
First, a quick refresher on the EBRD and why it matters. The newest of the multilateral development banks (MDBs), the EBRD was established in 1991 after the collapse of communism to support the development of market economies in central and eastern Europe. Unique in having an explicitly political mandate to assist countries committed to multi-party democracy, it focuses on the private sector, lending about €9bn a year. With many of its borrowers successfully making the transition to market economies, the EBRD was beginning to look redundant. But following the Arab Spring, members asked it to support transition in North Africa and the eastern Mediterranean. Over the next three years, the EBRD is expected to lend about €2.5bn to new borrowers such as Tunisia, Egypt, Morocco and Jordan.
The process that led to Chakrabarti’s appointment represents a significant advance for international financial institutions. It’s hard to see how other institutions can resist similar reforms.
Until now, the EBRD was very much a part of the international compact whereby leaders are selected through complex backroom deals. EBRD presidents were appointed by agreement of the French and German governments – often as part of a package of appointments to international institutions.
The incumbent president, Thomas Mirow, a German, was seeking renewal of his term and was widely agreed to have done a good job, especially by leading the Vienna Initiative in 2009 which helped to stabilise emerging European economies during the financial crisis. But for domestic political reasons he did not get Germany’s backing for a second term, so neither he nor Philippe de Fontaine Vive, the French candidate, had the full-throated support of their own governments. As a result, instead of being presented with a fait accompli by France and Germany, for the first time the EBRD governors were given a choice.
Suddenly the rules of the EBRD selection process made a big difference. The appointment of the president of the EBRD requires a ‘double majority’ – that is, the successful candidate must have both half the voting shares (the largest shareholders are the US, France, Germany, Italy, Japan and the UK) and half of the 65 governors. To select from among the five nominated candidates, the governors voted by secret ballot, gradually eliminating the candidates with the least support until one of them got over both thresholds.
The use of secret ballot turned out to be important. It makes it much harder for countries to enforce back-room deals about supporting each other’s candidates. When the ballot is secret, such deals are impossible to enforce.
Based on nationality alone, Chakrabarti would not have been a promising candidate. There was a widespread assumption that with the EBRD headquartered in London, the president would come from another country. Other European countries may not have felt that they owed anything to the UK. But in the secret ballot, Chakrabarti led from the first round, and he went over 50% in the third round of voting, with the remainder roughly evenly split between de Fontaine Vive and Mirow.
At the Center for Global Development in Europe we did what we could to support the principle of open, merit-based appointments, by focusing attention on substance rather than nationality. I offered all five candidates the opportunity to be interviewed about their vision for the EBRD. Four agreed. You can listen to the interviews here, or read the transcript here. Perhaps this made a difference: at least one finance ministry told us their decision was influenced by listening to the interviews. It is much harder for the shareholders to appoint a manifestly unsuitable candidate if they have all been subjected to public scrutiny.
I am not pretending the process was free of political influence. The UK government lobbied for Chakrabarti, and that may have affected the result, though the secret ballot means that there could not be any binding deals. Nonetheless, the appointment of Chakrabarti – an eminently well-qualified candidate from the wrong country – suggests that this process was much more driven by merit and substance than previous appointments to the EBRD or indeed to other international institutions.
This has been a step forward towards a more open, transparent, merit based appointment, which sets a new standard, both for future EBRD appointments and for appointments to other international institutions. It has established some key principles which should apply to other international appointments, including for the World Bank and IMF.
First, there should be a choice of candidates. In the case of the IMF and World Bank, this principle appears to be established: there were two candidates for the IMF in 2011, and three for the World Bank in 2012.
Second, the candidates should have the opportunity to set out their position publicly. This helps to focus the debate on issues of substance and direction, and makes it less likely that weak candidates will be nominated or receive support. It was to this end that the Center for Global Development provided platforms for the candidates for both the World Bank and the EBRD presidencies to set out their vision.
Third, the candidates should be given the opportunity to present their vision and answer questions to the decision-makers. In the case of the EBRD, the Governors interviewed each of the candidates for 45 minutes the day before the vote, and apparently it was on the basis of this that some of the undecided countries made up their minds.
Fourth, the decision should be made by secret ballot to make it difficult to enforce back-room deals. The EBRD was exemplary in using multiple rounds to identify the candidate with more than 50% support.
Fifth, as Nancy Birdsall has argued elsewhere, the World Bank and IMF should introduce double majorities for the election of their heads in future, as well as for other key decisions.
The new President of the EBRD will bring about some significant changes, especially in the way the EBRD is managed. As he said in our interview with him before the appointment, his approach is to be accessible and engage with staff. He focuses on results, celebrating success while being tough on poor performers. He also brings considerable development expertise which will be important as the EBRD re-orients its work towards North Africa and the Middle East. He inherits an efficient bank which has ridden out the financial storm. We wish Chakrabarti well in his new role. He leads the Bank at an important and challenging time, as it works to maintain financial stability in the face of uncertainty in the Eurozone, while extending its remit to invest in the new transitions in North Africa and the Middle East.