Section One
The Executive BoardThe board of executive directors is responsible for the conduct of the general operations of the Bank and performs its duties under powers delegated to it by the board of governors. As provided in the Articles of Agreement, five of the twenty-four executive directors are appointed by the five member governments having the largest number of shares; the rest of the board is elected by the other member governments, who form constituencies in the election process every two years.
The executive directors consider and decide on the IBRD loan and IDA credit proposals made by the president, and they decide policy issues that guide the general operations of the Bank and its direction. The executive directors are also responsible for presenting to the board of governors at the annual meetings an audit of accounts, an administrative budget, and the Annual Report on the operations and policies of the Bank, as well as any other matters that, in their judgment, require submission to the board of governors. During fiscal 1996, the executive directors met 114 times in formal board meetings and another forty-one times in seminars, informal sessions, and as the Committee of the Whole. In addition, most of the executive directors serve on one or more of five standing board committees: Audit Committee, Committee on Development Effectiveness, Budget Committee, Personnel Committee, and Committee on Executive Directors' Administrative Matters. The executive directors' Steering Committee, an informal advisory body, also meets regularly.
In addition to the meetings and committee work, the executive directors accompany the president of the Bank when he travels to their constituencies. Groups of executive directors and alternate executive directors at times make special trips to borrowing countries to observe Bank-supported operations and its assistance strategy first hand. They meet with a wide range of people, including staff of the Bank's resident mission or field office, government officials and project managers, NGOs and project beneficiaries, and the business community. In fiscal 1996, groups of executive directors visited Eastern and Southern Africa (Ethiopia, Kenya, Mozambique, Zambia), Latin America and the Caribbean (Brazil, El Salvador, Guyana), and Central Asia (Kazakstan, Kyrgyz Republic, Uzbekistan).
Shaping Policy
The board of executive directors' oversight role covers virtually all Bank policy, so its role cannot be clearly separated from most of the Bank activities and initiatives covered in this Report. This oversight role is exercised in part through the process of board approval of each Bank or IDA lending operation and the annual budget process. Although a board committee cannot make a decision for the entire executive board, the committees increasingly look in depth at specific issues or Bank practices and report their findings and recommendations to the board. Also, the executive directors review major policy areas in order to keep them current. In a sense, the board of executive directors in its oversight role seeks to ensure that Bank policies are being interpreted and implemented correctly. The Operations Evaluation Department, an independent body within the Bank that reports directly to the executive board, assists in this function. It was through this oversight role that it became clear that the Bank should take a serious look at the type of results it was achieving, which resulted in the Task Force on Portfolio Management and its follow-up in recent years.
The executive directors are agents of change and also exercise a strong and important role in shaping more rapid shifts or innovations in Bank policy. It is in this role that the directors represent the changing perspectives of their shareholder governments regarding the Bank's role, particularly in response to international economic shocks. In this context, the need for a new role or emphasis for the Bank may become widely recognized by shareholders within a relatively short time. Examples are the visible refocusing of the Bank on poverty reduction about ten years ago and the emergence of such new areas of concern as governance, financial sector reform, and private sector development.
These policy initiatives normally reflect needs perceived by shareholders and involve a process of consensus building, both among executive directors and with Bank management. That process is presently ongoing on the issue of how to find a solution to the official debt problem of the heavily indebted poor countries. The Bank and shareholder governments are working to define their various roles in a coordinated approach.
The Development Committee's Task Force on Multilateral Development Banks was a different type of shareholder initiative that resulted in recommendations for change in the Bank and the other major MDBs.
The Task Force on Multilateral Development Banks was established in October 1995 by the Development Committee with a mandate to assess the implications that economic change in the world has had for the priorities, instruments, operations, and management of the world's five principal multilateral development banks (MDBs). In its April 1996 report to the Development Committee, the task force set forth five priorities that multilateral development banks must support in order to achieve sustainable development. Poverty reduction, the task force said, is the main challenge of development. The remaining four priorities were promotion of effective government and a strong civil society, assurance that development be environmentally sustainable, investment in infrastructure and utilities, and encouragement of private sector development.
The priorities should be carried out, the task force continued, by enhancing the strategic role of the MDBs' executive boards; strengthening national ownership of reforms, programs, and projects; learning from experience, developing better ground rules for sharing country economic information more widely; and demonstrating heightened cost-consciousness, especially in the light of the fact that their costs are borne by the world's developing countries through fees and charges.
The directors agreed that the Bank will make a progress report to the Development Committee in two years.
Poverty Reduction
The executive board in fiscal 1996 continued its efforts to see poverty reduction, the Bank's overriding objective, more comprehensively integrated into the country-assistance strategies and all Bank work and analysis in borrowing countries. Directors made it clear that the poverty-reduction objective must not get downplayed in the course of the changes that are being made to increase Bank efficiency. Although recognizing considerable progress in the past few years, directors stressed the importance of keeping current with poverty assessments for borrowing countries, since it was difficult to begin serious work to help a country reduce poverty on a sustainable basis without the basic information. They also asked for more efforts to identify the real causes of poverty in any country so that efforts to lessen it could be appropriately targeted.
Institutional Initiatives
The Budget Committee reviewed institutional initiatives proposed by the president with an eye to their effect on the budget and the board's desire to stay very close to previously agreed budget reductions. They asked management to explain its justifications for the initiatives, as well as detailed cost estimates, possible tradeoffs with other Bank programs, and redeployment options. The new initiatives will be paid for largely out of efficiency gains or budget reductions elsewhere.
The Personnel Committee reviewed business-process innovation in the Bank to date, particularly what had been done under pilot programs. It has expressed the need for management to take a more comprehensive approach to personnel issues and monitor the effects of change management on personnel issues.
The Audit Committee considered a report on the effectiveness of controls and supported the use of the framework defined by the Committee of Sponsoring Organization (COSO) of the Treadway Commission to carry out a Bankwide review of internal controls. This review began in fiscal year 1996.
Development Effectiveness
The board Committee on Development Effectiveness continued urging management to develop indicators of development effectiveness, or development impact, that could be applied to operations ex ante. This would constitute one major follow-up to the Task Force on Portfolio Management, and it would help in efforts to design higher-quality projects.
The committee is also interested in having the IFC develop indicators to measure the developmental effectiveness of its investments.
Supervision and portfolio evaluation and management are other areas of major follow-up to that task force report, and the board now reviews it via an "Annual Report on Portfolio Performance." It has expressed satisfaction that active portfolio restructuring and management have become increasingly employed by Bank staff and country officials.
New Auditors
On the recommendation of the Audit Committee, the board in fiscal 1995 decided to periodically rotate external auditors. In fiscal 1996, procedures for getting bids from five international firms were decided. The actual bidding process and the selection of the new auditor are expected to take place in fiscal 1997.
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