good governance and modern international financial institutions

171 Pages·2017·3.82 MB·English

2018
GOOD GOVERNANCE
AND MODERN INTERNATIONAL
FINANCIAL INSTITUTIONS
AIIB Yearbook of International Law

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AIIB Yearbook of International Law

Good Governance
and Modern International
Financial Institutions

2018

Edited by Peter Quayle and Xuan Gao
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AIIB Yearbook of International Law, 2018
TABLE OF CONTENTS

Preface
Gerard Sanders ....................................................................................................................................................................v i
Introduction: Good Governance and Modern International Financial Institutions
Peter Quayle and Xuan Gao ..........................................................................................................................................vii

Part I: The Governance Role of the Boards of International Financial Institutions ..................................... 1
Board Effectiveness in International Financial Institutions: A Comparative Perspective on the
Effectiveness Drivers in Constituency Boards
Stilpon Nestor .........................................................................................................................................................................2
Gender Diversity on Boards: A Cause for Multilateral Organizations
Marie-Anne Birken and Gian Piero Cigna ............................................................................................................... 16
International Financial Institution Governance: The Role of Shareholders
Whitney Debevoise ........................................................................................................................................................... 29

Part II: The Governance Basis of International Financial Institutions .............................................................. 38
The Rule of Law in the International Monetary Fund: Past, Present and Future
Yan Liu ................................................................................................................................................................................... 39
Governance of the Asian Infrastructure Investment Bank in Comparative Context
Natalie Lichtenstein .......................................................................................................................................................... 50
The Evolving Jurisprudence of the International Administrative Tribunals: Convergence or
Divergence?
Joan S. Powers .................................................................................................................................................................. 68

Part III: The Governance Vocation of International Financial Institutions ...................................................... 79
Open Data for Development: The World Bank, Aid Transparency, and the Good Governance of
International Financial Institutions
Catherine Weaver.............................................................................................................................................................. 80
The Making of Global Public Authorities: The Role of IFIs in Setting International Labor Standards
Yifeng Chen ....................................................................................................................................................................... 109
The World Bank’s Sanctions System: Using Debarment to Combat Fraud and Corruption in
International Development
Pascale Hélène Dubois, J. David Fielder, Robert Delonis, Frank Fariello and Kathleen Peters ... 129

2017 AIIB Law Lecture ...................................................................................................................................................... 143
The Necessity of Cooperation between International Organizations
Miguel de Serpa Soares ............................................................................................................................................... 144

2017 AIIB Legal Conference Report ............................................................................................................................ 152
AIIB Legal Conference Report
Christopher Smith ............................................................................................................................................................ 153

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AIIB Yearbook of International Law, 2018
Preface

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. Although the treaty
establishing the institution became effective almost a year earlier, the legal function was set on a
permanent footing only in August 2016 with the first staff appointment of a lawyer, followed quickly by
the recruitment of several other counsel.

These lawyers, working within the Office of the General Counsel, provide advice to the new
organization primarily on institutional and operational matters, a conventional role of many in-house
legal departments. However, it was always understood that the legal function would also look outwards
and embrace the larger responsibilities that befall a modern organization owned primarily by states,
substantially supported by public funds and with the potential to impact on the lives of many. Those
responsibilities include the obligation to share what we learn, the successes we celebrate and the
failures we suffer, so that others may benefit from that experience. Because it is not only experience
that informs knowledge the Bank will also wish to offer, for the critical consideration of others, new ways
of thinking about difficult issues with which international organizations and the wider legal community
must contend. Some of those issues will be recurrent, sometimes being seemingly intractable.
Doubtless, as yet unknown challenges also lie ahead, about what role law does, can and ought to play
in empowering and constraining international organizations and others in the pursuit of societal
objectives. The search for answers, in the international legal sphere as elsewhere, will always draw us
forwards together; an impulse of the human condition as much as the need for law itself.

For its part, AIIB hopes to make some modest contribution to legal knowledge and
understanding, not only by drawing on its own experiences and insights, but by offering a platform for
others to develop ideas on matters of common interest and for the Bank to disseminate them. We all
stand to gain with the enlargement of public goods. In this spirit, 2017 saw AIIB host its inaugural
international Legal Conference, on Good Governance and Modern International Financial Institutions,
which is also the title of this first edition of the AIIB Yearbook of International Law. The conference drew
together, at the AIIB’s headquarters in Beijing, general counsel of international financial institutions and
leading international law practitioners and academics to examine the benchmarks of good governance,
such as transparency, stakeholder participation, the rule of law, accountability and efficiency.
Complementing the conference, the inaugural AIIB Law Lecture was given by the United Nations Under-
Secretary-General for Legal Affairs and UN Legal Counsel on “The Necessity of Cooperation between
International Organizations.” The papers that emerged from the conference and the law lecture together
form the basis of this, the inaugural, edition of the AIIB Yearbook of International Law.

Gerard Sanders*

* General Counsel, AIIB, Visiting Professorial Fellow at Queen Mary, University of London, and Founding Editor
of Law in Transition.
vi
Introduction: Good Governance and Modern IFIs
Introduction: Good Governance and Modern International Financial
Institutions

Peter Quayle* and Xuan Gao†

In accordance with its Articles of Agreement, one of the reasons that the Asian Infrastructure Investment
Bank (AIIB) exists is of course to “improve infrastructure connectivity in Asia.” From the outset, this is
to be understood in its broadest sense as the entire sustaining context of successful major infrastructure
projects. With the 2017 AIIB Legal Conference, this mandate was to the fore, bringing together and
connecting an unrivalled range of diverse experiences and expertise to help the AIIB, as the newest
International Financial Institution (IFI), examine and understand the challenges and possibilities of good
governance of multilateral development institutions. This debate and discourse surrounding the good
governance of IFIs and the broader standards set by intergovernmental institutions was of pressing
relevance given how, in today’s era a commitment to globalized trade, investment and
interconnectedness comes under pressure.

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.

In his chapter that begins the first part of this edition of AYIL, Stilpon Nestor examines data
from a peer group of international and private financial institutions and whilst identifying important
distinctive governance features of IFI boards, concludes that IFIs share with private sector governance
bodies the same key drivers of superior performance. Next, Marie-Anne Birken and Gian Piero Cigna
turn to a specific component of all governance boards—gender diversity—to argue for the deserved
prominence of this feature in good governance, drawing upon the experience of private financial
institutions and, in turn, IFIs. Lastly this first part concludes with the unrivalled vantage point of Whitney
Debevoise on the role of member states, given voice and weighted votes on the governance board of
IFIs, to contributing to the good governance of multilateral development institutions and their broader
operational success, and sometime shortcomings. The chapter does not shy away from arguing for a
particularly essential governance role of an IFI’s leading and largest shareholder.

In the second part of this edition, Yan Liu begins with the case study of the International
Monetary Fund, its time tested but evolving purpose, and examines the way in which the Fund’s legal
office contributes to the rule of law and so to the effectiveness and independence of this essential global
institution. From one of the longest established, to the most recently founded IFI, Natalie Lichtenstein
places the recently formed AIIB into a legal comparative context, highlighting the important areas of
constitutional continuity and contrast of this newest institution to its IFI peers. This part concludes with
an examination by Joan Powers of the only routine judicial oversight of the governance of IFIs, namely
that afforded by international administrative tribunals which adjudicate employment disputes in
accordance with international administrative law, the law of employment relations of the international
civil service. This chapter considers whether the jurisprudence of multiple international administrative
tribunals intends towards fragmentation or synthesis, and the resulting implications upon the
governance of IFIs.

The third and last part of this edition considers how the good governance of IFIs implicates
broader concerns about interactions with, and influence upon, third parties. Catherine Weaver
examines the way in which the World Bank led the way in making its operations more open and
transparent, with significant ramifications for its own governance, its influence on other IFIs and
ultimately with consequences for the operational efficiency and effectiveness of the Bank. Yifeng Chen

* Senior Counsel, Head of Corporate Unit, Office of the General Counsel, AIIB and Visiting Professor of
International Organizations Law at Peking University Law School.
† Senior Counsel, Head of Institutional Unit, Office of the General Counsel, AIIB, Deputy Editor-in-Chief of the
Manchester Journal of International Economic Law, and Guest Professor of China University of Political Science
and Law.
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AIIB Yearbook of International Law, 2018
traces the expanding role that employment standards have had in the conditionality of IFI projects and
whether or not this has led to a distinct body of IFI labor standards or transposed existing standards
expounded by the International Labour Organization. Lastly Pascale Hélène Dubois, David Fielder,
Robert Delonis, Frank Fariello and Kathleen Peters co-author a chapter that studies the role of the
World Bank Group’s sanctions system and considers its contribution to global efforts to promote good
governance and thwart the misuse of public monies.

This edition concludes with the text of the 2017 AIIB Law Lecture, delivered by the United
Nations Under-Secretary-General for Legal Affairs and Legal Counsel, Miguel de Serpa Soares on the
subject of “The Necessity of Cooperation between International Organizations” and a summary report
on the proceedings of the 2017 AIIB Legal Conference.

Running through this inaugural edition of AYIL is a constant thread: that whilst rules,
regulations, systems and processes are essential to the good governance of modern IFIs, they are not
altogether sufficient. Rather, what animates multilateral development institutions are not procedures,
but people and their principles. For IFIs to succeed, to entrench and expand their relevance, to deliver
upon their high purposes, is to depend everyday upon the professionalism, good conscience and
seriousness of purpose of the international civil servants who staff these essential institutions. It is these
servants whom are called upon to apply themselves to the constant task and toil of good governance,
with a fidelity to the principles of professionalism and a public trust and duty, dependent upon the rule
of law, that governs and enables the mandates of IFIs.

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AIIB Yearbook of International Law, 2018

Part I: The Governance
Role of the Boards of
International Financial Institutions

1