Corporate governance, securities regulation

1. 1 ResearchconductedbyArthurMboue
WorldBank Group Governance is Here toStay:
Corporategovernanceis the foundation of the World Bank group governance.
Founders of the World Bank group governancestructuredid study the corporate
governanceand adapt it to the reality of the ‘social’ corporation or ‘social’ bank in
order to come up with the World Bank group Governance.(seetable 1)
This structureguides policy decision affecting the World Bank group leadership and
operation of the IBRD, IDA, IFC, MIGA, ICSIDand trustfunds. (seetable 2)
The board of governors is like the board of directors, the highest decision making
authority holding fiduciary duty to people who appointed them. The board of
governor roleis ceremonial during which finance ministers and treasury secretaries of
the member countries meet twice a year to drink, talk and get pictures taken. In

2. 2 ResearchconductedbyArthurMboue
addition, they will receive audit of accounts, administrativebudget and annual report
on the bank operations without any obligation to read them. Itis why the board of
governors, appointed for 5 years renewal, delegate authority to the board of executive
directors to exercise any of its power except for certain powers enumerated in the
Article of Agreements. That said, they delegate responsibility for supervising day to
day operation to a board of executive directors, known as the board but a shadow
board rank. As you may realize, founders was rightwhen they empowered all
operational responsibilities to a Full Time board of directors to facilitate the work of
approvalof requests fromthe management of the world bank about the complex
issues related to loans, grants, loan modification and more fromthe wholeworld. It
could have been too costly in term of time, money and knowledgefor these full time
department chiefs to meet more than twice a year but they are still accountable to
their people through their 188 parliaments. That said, they must be informed about all
the decisions made here on their behalf. How? For some it is not that easy. The board
of executive directors is comprised of 25 executive directors to represent 188 member
countries. According to the article of agreements, executive directors are appointed or
elected every 2 years. Executive directors are neither officers nor staff of the bank.
Eight non-borrower shareholders including US, UK, Japan, China, Russia, Germany,
Franceand Saudi Arabia are represented by 8 executive directors that mean one
executive director each non borrower member. 17 executive directors represent180
member countries that mean there is sharing representation where one executive
director represents a lot of countries grouped into 17 constituencies from3 to 23
member countries. (see table 3)

3. 3 ResearchconductedbyArthurMboue
The disparity of voting power between US (now 340,000votes) and the lowestvoting
member country, Palau (with 630 votes) did create the systemof constituencies. This
big difference is reduced with the constituencies systemwhere US executive director
with 340,000 voting power willdeal with (Nigeria, South Africa and Angola ) executive
director, EDS 25, with 33,500 voting power to come to an agreement, it is why this
Bylaw is called article of agreements. But, will this multi-countries executive director
position havepower, control and faith to create incentives for its executive director to
representthe interests of all the countries he representinstead of the interests of his
own country and people and be accountable to all these governors when thebanks is
distributing a lot of grants and free help? I do not have the answer to that question
but Ann Florini did say ‘governments, answerableonly to domestic electorates, face
few incentives to act for the benefit of someone else’s constituency”. There is not
better provision thatshift control fromnon-borrower member countries to borrowing
member countries than the consensus doctrineinstead of votes. When decisions are
made by the search of consensus between the borrower and non-borrower member
countries, the voting rights is not exercised while minority and ‘preferred’
shareholders’ interests will be prioritized. The World Bank President, the only US
citizen to chair a board meeting does so sometimes and mostof the times delegate
this chair to somebody else. After discussion if there is not sufficient supportfor a
project, its discussion is postponed while waiting for behind closed doors negotiations
between executive directors’ offices. Rarely, does these decisions and discussions will
be interrupted with divisivevote. Decisions aremade by the way you argue your case,
your friendship with non-borrower shareholders representatives, your committee’s
position and how sorry others willfeel for you. These decisions are againstcorporate
governanceand do not maximize all shareholders value.

4. 4 ResearchconductedbyArthurMboue
At the World Bank group, the only time voting number matters it is when the
governors of the borrowing member countries are voting for their executive directors
and alternates to represent them because non-borrower member countries appoint
their own executive directors and alternates. The case of US representation is very
troubling to me because all accusations againstUS and its co-non-borrower member
countries are getting cannot materially be proven in practice. U.S with 16 to 20 %
voting rights has had 9 vacancies of either executive directors or alternates since2005.
This absenteeismhas kept it fromrepresenting US interests in all committees of the
board of executive directors (Audit, Budget, ethic, CODE, COGAMand HRC). (seetable
4)
As you may know, alternate can assumeall power and responsibilities as an executive
director and register as a full member of the committee with rights to participate in

5. 5 ResearchconductedbyArthurMboue
negotiation toward the search for consensus. Itis why half of the US seats have been
vacant since2005. Who to blame? Congress. (Seeillustration 1) US congress did
providethis provision to shift control from US to developing countries by failing to
confirmnominee for either the position of executive director or alternate on time.(see
table 5)
For an institution that rules through the search for consensus, I do not believe
increasing developing countries voting power tied to increase in subscription and paid
in contribution or not will add transparency to the World Bank group management’s
information. Borrowing member countries have less incentive to improvetransparent
information related to approvalof loan modification and grants than non-borrowing
member countries. Borrowing member countries have less incentive to supportissues
related to environment, gender equality, tax fund and anti- corruption becausethey
require transfer of funds fromIBRD and IFCto IDA that means declining incomes from
IFC and IBRD will reduce available funds for lending and grants to poor countries. (see
table 6)
Table 6-Characteristics of Shareholder
Executive
directors
Voting power accountability Dividend
Non Borrower
shareholder
1 high directly reinvested
Borrower
shareholder
Sharing
director
low indirectly Through available
cheap liquid
At the same token, these issues punish these developing member countries and keep
them frominvesting their funds wheretheir governments may want with a change of
heart because of the Bank monitoring systemand earmarks. Although capital
structureand voting rights, if it matters, at the World Bank have shifted from1944 to
2016, thestrength of the U.S, from35 % when it was created to 18 % today voting
rights and agreement with European countries to appoint the World Bank Presidentis
still felt strongly in the presentgovernancestructure. Itdoes not matter that the US is
not exercising its power through attendance to board committees and consensus, the
World Bank Presidentwho is appointed and reappointed by the US Treasury Secretary

6. 6 ResearchconductedbyArthurMboue
and Presidentis controlling whatissues will come for discussion to the Board and what
kind of issues will continue behind closed doors. That said this is one of the two
important powers left to the US after 72 years of reign in addition to power to veto any
change of Article of Agreement. (85 % votes needed to approveany change of the
Article but US has more than 15 % voting rights)
In 1979, theWorld Bank did adopt Articles of Agreement, Article V, Section 3, stating
that each member has 250 basic memberships plus one additional vote for shareof
stock held. This provision to shiftcontrol fromnon-borrower member countries to
borrowing member countries is justa concession toward equality in control without
increase in ownership. In thelong run, it will affect the world bank credit rating from
AAA becausewhen the bank is controlled by developing countries with no incentive to
protect its lending and projects, the higher the risk the lower the credit rating, the
higher the world bank will get its capital from Wall Street, the higher it will sell its
loans. It will affect its ability to compete against other Multilateral Development Banks
including China Development bank. (see table 7)
Over the past years, when there is a new membership to the IMF, becauseyou must be
an IMF member in order to apply for a World Bank membership, the Board of
Governors willexamine the candidate member wealth and determine its value and its
sizeof voting power to the World Bank group. Its entranceand acquisition of required
shares of the World Bank group including subscription and paid in contribution (6% of

7. 7 ResearchconductedbyArthurMboue
subscription) willrequire changes in ownership for all pre-existing shareholders
including US by the reliance of the corporateformula about new shares number (see
the formula below)
The same scenario will take place when any existing member countries file for increase
in ownership based on sometriggering events including annexation/recognition of new
lands and other values added (GDP, GNP,…), it is why China did file for increase in
shareownership after the accession of Hong Kong and huge economic boom.
Although I believe that its case was easy at the IMF board, when it comes to the World
Bank board, I havereasons to believe that it did get morethan it did bargain for when
it did receive its own executive director as a bonus fromthe deal. Because of classified
documents related to this vote, I cannotsay for surewhy one of the World Bank group
top 1 borrowing countries ($21.76 Billion in 2015) cannothave incentive to argue
against the World Bank group interest payments. In addition, China Development
Bank and China export-import bank are now one of the strong competitors of the
World Bank group with more than $100 Billion loan committed to developing countries
since 2010. (seeillustration 2)

8. 8 ResearchconductedbyArthurMboue
As long as these borrowing countries will have substitute products to the World Bank
group lending coupled with easy requirements and low global interest rate, it will be a
decrease in demand for the World Bank group lending products and IBRD and IFC
incomes and increase in global financial competitive environment. ( see table 8)

9. 9 ResearchconductedbyArthurMboue
Itshould be noted that the World Bank has always faced pressureto lend at no cost
coupled to higher default risk fromstructuralfactors, institutional factors and external
factors including demand fromits own non-borrower shareholdersand this pressureis
worsening with top borrower shareholder and competitor is enjoying the rights
reserved to non-borrower shareholder and theentrance of very low global interest
rate in the global market.(seeChart 1)
Chart 1-Tentative Remediestothe WorldBank Group Problems
 Increase loanprice (butitmust remaincompetitive toincrease demand)
 Revisitandimplementnew softrequirementtomaintainloancommitment
(lessdemandingmetricsfordemocracy,tax fraud,corruption,…)
 Reduce transfersfromIBRDand IFC to IDA (you mustreplace the endof
povertyby2030 sloganwithdevelopmentandindustrializationfocustoshare
prosperity)
 Slightlyincreaselendingvolume (watchdefaultriskbutcap Chinaborrowingor
become itspartner‘if youcannot beatChina,joinChina’)
 Remembertokeepyouradvisoryservice demand,youmustshow thatyoucan
manage yourself. Thisreputationisnecessaryforotherstoseekyouradvises.
In sum, the debate about how the World Bank Group is managed did take its worse
turn weeks ago and it is that event that triggered my search for the truth. If I was not
expert in this field I could justbelieve in everything I did read from others and Prof
Stephany Griffith-Jones becauseshe did build a good case againstUS and all non-
borrower member countries. When it comes to University President Jim Y Kim, I would
say only a few university presidents are alike. A lot of university presidents would have
turned down this kind of offer because they believe they will not have the respectand
knowledgeneeded to run this kind of specialized institution. (seetable 9)
The mechanism through which Dr Kim and others executive directors werechosen for
their positions did not performvery well. I believe wecan downplay this kind of
protests of the leader by choosing leader the sameway we are choosing our US DoJ
leaders. I would say even the brother of the US President, Robert Kennedy, did have 2
years legal experience before being hand the powerfulposition of the Attorney

10. 10 ResearchconductedbyArthurMboue
General of the US. That said, the international prestigious positions of executive
directors and American citizen World Bank presidentmust be financial (financial
related) experts through education and/or experiences. The Board of the Governors
can adopt an amendment to the article of agreements and/or special rules of election.
(see Chart2)
Another proposalis a mandatory hiring of independent compensation consultant to
guide the HRC when dealing with World Bank top executives compensation packages.
In addition, no person related to the World Bank presidentand his lieutenants should
be allowed to attend this portion of the board debate. Another proposalis that 5 out
of 8 members of the audit committee mustbe financial experts. Also, this committee
must work with other committees and make surethat the World Bank helps an
averageexpert to understand its operation and management with a consolidated
financial report of the World Bank Group. This annualreport guided by a disclosure
expert must add clarity, transparency and understanding to the World Bank
information it makes available to the public.(seeChart 3)

11. 11 ResearchconductedbyArthurMboue
To close, I would say, for the last 72 years, the World Bank lending systemdid develop
China, Singapore, Malaysia, Taiwan, Thailand, South Korea and provideclothes,
shelter, health care and food in Haiti, Djibouti, Ethiopia, Papua and other poor
countries, all of this with US, Japan, France and UK donation, we cannot afford to
replace a winning system justto feed a small number of people with hunger to change
things negatively for power. When human beings wereforced from their homes
because of corrupted and/or addicted leaders or when human beings weredying from
Aids or when the world was dealing with people who were justborn this way, poor,
the World Bank was there with its help, can you truly comparethese institutions to the
World Bank? Itis true, the World Bank group is experiencing problems now but we
can fix them and adapt them to the new global competitive environmentdictated by
rapid changes, speedy technology and respectfor talents. Thus, we should know that
after trying this experience, US will end up doing the right thing to keep the world a
better place.