Board Effectiveness in International Financial Institutions: A Comparative Perspective on the Effectiveness Drivers in Constituency Boards

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.), is the Managing Director, Nestor Advisors Ltd. and the Chairman of AKTIS Ltd. He has advised the boards of numerous private financial institutions as well as international financial institutions and organizations on governance issues. From 2010 to 2014 he sat on the board of the European Investment Bank. In the earlier part of his career he was the head of the OECD’s corporate Affairs division. E-mail address: snestor@nestoradvisors.com. The author would like to thank Konstantina Tsilipira, Analyst at Nestor Advisors, and Lisa Andersson, Senior Analyst at AKTIS for their research support. My gratitude also goes also to Emmanuel Maurice, Enery Quinones and George Papakonstantinou, all senior advisors at Nestor Advisors, for their extremely valuable comments and insights. Board Effectiveness in IFIs