The man who has steadied the legal tiller of the good ship ADB is leaving after almost seven years. What has he achieved? And what challenges will the bank face after he has gone? John Church reports
It is perhaps no coincidence that Chris Stephens, general counsel of the Asian Development Bank, is leaving as the bank stands on the cusp of some of the biggest reforms since its inception back in 1966. These changes are what Stephens has been working towards achieving, and as some major transitions begin, his part in the story is ending.
Stephens has overseen the legal responsibilities of this multilateral financial institution that has 68 member countries and operations that include close to 200 loans, investments and technical assistance projects in 42 countries across the Asia-Pacific worth more than US$30 billion a year.
The organizational chart (see pages 80-81) for the office of general counsel, apart from an office for law and policy reform, includes sovereign operations covering five sub-regions, not to mention non-sovereign operations, finance and funds, public private partnership (PPP) operations, and institutional and
The sheer size of operations would make for grey hair for most counsel, but Stephens is wearing his seven years at the bank’s legal helm well for all that. From his office in ADB headquarters overlooking a busy Manila skyline, he is relaxed but never off focus on the business of the bank, and the role he has played within it.
Stephens is leaving for a position that offers a return to his native United States. “I’ve got a wonderful opportunity to continue working in the greatest, most rewarding sector imaginable, and I simply cannot pass that up,” he says.
“The new role as general counsel of IFC [International Finance Corporation – a sister organization to the World Bank] gives me another opportunity to play a meaningful role in an institution that I believe is vital to the eradication of extreme poverty.
“IFC is the preeminent private sector development institution in the world. With access to the financial, knowledge and talent resources of the entire World Bank Group, IFC is perfectly situated to continue to provide more targeted and more effective investment and advisory products and services more impactfully.
“Working at ADB has been the greatest honour and the greatest experience of my professional life. I am eager to take what I have learned here, and to build upon that by learning from my future colleagues at IFC, and to see how we can continue to grow and build and contribute to the mission.”
There is much to consider on the role he has played at ADB. For example, the bank is on the cusp of redefining its relationship with China. But perhaps his greatest challenge is what the general counsel has seen as an urgent need for change from within, the need for governance reforms within a leadership structure that has served well since the bank’s inception in 1966, but with the particular challenges of the early 21st century desperately needs an upgrade.
Easier said than done for a bank with 68 member states, 49 within and 19 outside the Asia-Pacific, all of which are represented on the board of governors, from whom 12 elected members form the board of directors. To say this could be a politically charged formula intolerant of change is an understatement, but nonetheless Stephens has tackled the issue head-on.
“For the first time in the 53-year history of the bank, we are exploring changes to the relationship between the board of directors and the management of the bank,” says the outgoing counsel. “Boards of directors at many international financial institutions [IFIs] are unique in that they have fiduciary obligations to the institution, while simultaneously fulfilling a representational role on behalf of the shareholders that appointed them. While the two roles don’t necessarily conflict, they frequently require directors to prioritize, and it’s fair to say that most directors see their representational role as predominant.”
Stephens says that, like other IFIs, the ADB has a resident board of directors, meaning they live in Manila and their directorships are full-time jobs at the bank. The intention was to ensure that the shareholders were directly and deeply involved in the bank’s business, but the demands of the Asia-Pacific region have required the bank to increase the volume and scope of its engagements, and to evolve to projects and assistance that are more complex and responsive.
“The traditional governance framework was designed for a different time and business, and is not efficiently matched to the current demands of clients and the increased volumes and complexities of operations,” he says. “In short, we would like the board to consider delegating to management the approval of low-risk projects and to become more deeply engaged in formulating strategies and operational planning in vital areas like smart and green cities, climate change, gender equity and sustainable financing.”
Stephens admits that reform has not come easily. “[IFIs] are typically steeped in tradition and precedent, and instinctively resistant to change,” he says. “This culture permeates the organization – from staff to management, and the board level. But the fact of the board’s residency – living and working in the bank and among the staff – provides us a great opportunity to explore the best way to adjust the corporate culture and modernize some of our traditional frameworks.
“We will add a review and supervisory process. Expect that in the third quarter, if at all. This is something other boards would follow.”
A challenge going forward for his team is the evolution of the bank’s relationship with China, one of the ADB’s top five countries in terms of its business last year, along with India, Indonesia, Pakistan and Bangladesh. China, now the second-largest economy in the world, is under pressure to graduate beyond borrowing status at a bank that has a primary mission of fighting poverty in the Asia-Pacific.
Stephens says the bank continues to invest most where its help is most needed, and the combination of the size and needs of these countries, combined with the ADB’s assessment of where it can make the most positive impact, drives decisions on where and in what to support.
“The principal criteria for a country’s graduation from ADB assistance are intended to determine whether a country’s achievement of economic development is sufficient and sustainable to enable it to evolve from a borrower to donor country,” he says. “The criteria are gross income per capita [currently about US$7,000], access to capital, and the adequate capacity of its key economic and social institutions.
“China’s growth and development in the past 30 years is one of the most remarkable stories in the history of human development, and clearly puts China on a path towards graduation. It has the second-largest economy in the world and enormous foreign currency reserves. But it still has enormous areas in need of development.
“China will graduate; the question is when and how, and the answer will involve a transition period during which the bank’s assistance will focus on particular strategic needs, such as projects aimed at environmental protection and climate change, and technical assistance.”
Stephens says the ADB and China will review and update their partnership strategy in 2019-20, and seek to define the evolving nature of ADB’s assistance. In the knowledge-sharing and technical assistance areas, his legal team will offer to assist in law reforms relating to areas of strategic importance. These might include laws involving economic management, capital markets and institutional capacity-building, corporate restructuring of banks, management of laws governing public-private partnerships (PPPs) – that is up to China.
“The bank is also engaged in an important discussion of differential pricing – charging higher margins for loans to countries better able to pay,” he says. “This includes, but is certainly not limited to, China and covers the few countries that have attained a higher level of wealth and development. There is a stage of economic development at which upper-middle income countries (UMICs) continue to need assistance from multilateral institutions, but can afford to pay a bit more than the poorer countries. It’s important to remain engaged with UMICs to ensure their level of development is secure and sustainable, and to help them meet their development needs.”
As the ADB prepares for change, Stephens says he hopes his legacy at the institution will be that he has contributed to cultural shifts that have created stronger and deeper bonds among the bank’s people, based on a common commitment to the bank’s mission.
“It’s an incredible honour and privilege to work in a development institution and to be given a position from which one can make a contribution to the improvement of the lives of so many people,” he says. “With that privilege comes responsibilities – to work a bit harder, to strive to do a bit better, to hold ourselves and others to higher standards of performance and accountability, and to put the mission and our shared commitment ahead of individual objectives. If these values are shared among staff, a culture of cohesion, collaboration, mutual respect, meritocracy, hard work and accountability takes root.”
He says the nature of the work of his legal team, including lawyers and non-lawyer staff, gives it a uniquely broad perspective into the institution, having a hand or an eye on all facets of projects, operations and administration.
“This enables us to contribute to the improvement of all the operations and administration of the bank. Thus, the legal role becomes a multi-disciplinary function that extends beyond compliance, and covers aspects of strategy, risk, finance, human resources and governance.
“And I hope that no one in the legal team forgets that the legal role is a services function, and that we should forever embrace a client-oriented mindset; understand the client’s business and objectives, and embrace its challenges and problems as our own. And strive not to merely answer questions and assess legal risks, but to solve problems – even before the client is aware of them – and aim to contribute to the strengthening and performance of the client’s operations, as well as your own.”
Building a crack in-house team and retaining them, as any general counsel will attest, is easier said than done. Stephens says his winning formula in the past few years has involved broadening the concept of “fairness”.
“Treating people fairly used to mean treating them the same – providing the same opportunities for training and the same for work, and we still do that for a period after people first join the legal team,” he says. “But resources are limited, including resources for training and development and the resource of time. So after someone has been with us a while, we can start to determine the potential of their career trajectory, and we invest accordingly. The people who consistently deliver results and exhibit our shared values – including investing in the betterment of the team – are the ones that are sent to Singapore or London for workshops, or given special assignments. We’ve found that people respond to this approach, and often a virtuous cycle of performance-reward develops.
“At the same time, we have to be vigilant in addressing under-performers. Hard work and high competence are among our values, and when someone is not meeting those standards, we try to be as candid and encouraging as we can, to a point. At that point, however, fairness – fairness to the rest of the team and fairness to donors and clients who are entitled to quality legal services – demands that we encourage them to move on so that the next person can step in and has an opportunity to achieve and deliver.”
Having worked at Breed Abbott & Morgan in New York for 12 years and then in Hong Kong as partner/managing partner of Coudert Brothers for nine years, then at Orrick Herrington & Sutcliffe for seven years, Stephens has his law firm grounding, which he advises young talent to achieve before making any move towards working in-house.
“Perhaps I’m old-fashioned, but I don’t think there’s a substitute for the intensity and rigorousness of the training that a large, well-resourced international law firm provides young lawyers,” he says.
“We don’t have the capacity to train new lawyers, and normally hire lawyers who have had five to 10 years of prior experience. Lawyers with an ambition to pursue development work at an international organization should spend four to five years doing finance work in a large law firm. This is where they will learn the fundamentals of project management, organization, legal writing, negotiating and – most of all – analytical and critical thinking.”
Stephens says one challenge of transitioning from private law practice was adapting to the desire for consensus in decision-making in public institutions. “In the private sector, lawyers don’t want to attend any meeting for which their contributions are not vital,” he says. “Here, meetings with staff, management and board members are a regular part of the daily routine, and significant time is spent debating, persuading and forming consensuses. Resulting decisions and solutions are certainly stronger as a result and more goodwill is created for future rounds, but there’s a cost to spending so much time in discussions.”