The man who has steadied the legal tiller of the good ship ADB is leaving after nearly 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 completing.
Stephens has for almost seven years 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 page 43) 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 administration matters.
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 US. “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, and with access to the financial, knowledge and talent resources of the entire World Bank Group, Stephens says IFC is perfectly situated to continue to provide more targeted and 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. The bank is on the cusp of redefining its relationship with China. And India looms large on ADB books for the number of ongoing and upcoming projects.
But perhaps his greatest challenge was 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, it 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 is tackling 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,” he says. “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 will 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 this in July or the third quarter if at all. This is something other boards would follow.” Another challenge for Stephens is his office’s role in 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 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.”
India is prominent on the general counsel’s radar this year for the hive of activity in new and ongoing projects with the bank. Stephens says the ADB’s country partnership strategy (CPS) with India from 2018–2022 aims to support the government’s goal of faster, inclusive and sustainable growth accompanied by rapid economic transformation and job creation. ADB’s assistance falls under three strategic pillars: boosting economic competitiveness to create more and better jobs, providing inclusive access to infrastructure networks and services, and addressing climate change and increasing climate resilience.
“Over the plan’s three-year period, ADB cumulative lending will be about US$10 billion in these projects, most of which will be infrastructure,” he says. “The transport sector will account for 42% of the programme, water and other urban infrastructure and services 24%, and energy 16%. The agriculture, natural resources and rural development sector will account for 10%, education and health 4%, and finance 4%.
“ADB’s technical assistance programme will support project preparation, capacity development, and strategic studies for a robust lending programme and a well-performing portfolio. ADB’s private sector operations will focus on infrastructure and catalyzing the development of the financial sector. Private sector investment is expected to cover transport, power, urban infrastructure, agribusiness, health, education, small and medium-sized enterprises, affordable housing, and financial inclusion.”
The legal work associated with the issues above present a formidable workload, but Stephens’ philosophy on these challenges inevitably resides with the strength of his team.
“As I see it, a general counsel has two separate sets of responsibilities: He/she acts in a technical sense to advise the board of directors, senior management, and the leaders managing the operation and administration of the organization on issues affecting them,” he says. “But while the general counsel may generate a useful idea or piece of advice, the lawyers and staff in the legal department dispense hundreds of opinions, ideas, solutions and work products for people on the front lines of the bank’s business. So in a very real sense, the greater challenge is to hire and retain a legal team comprising men and women motivated and dedicated to the challenge of constantly acquiring skills and experience, and to delivering high-quality legal services in a timely and practical manner.”
Stephens personally has a swag of awards testifying to his competence, and likewise his legal team has been recognized for innovation and results. As he explains his own methods for organizing and managing such a large and diverse team, the themes of inclusion and trust are recurring.
“I am impressed – awed – on a daily basis by the commitment and success of our international and national lawyers and administrative staff,” he says. “This is no ordinary collection of nine-to-fivers working in a commercial company. Our staff have embraced the mission of the bank and all of us feel fortunate and honoured to be working here.
“As managers, our challenge is to keep the staff motivated and high-performing, and we do so by earning and keeping their trust and living by our shared values. Trust is key, and staff have to know that management is genuinely committed to their career development in an environment that rewards their performance.
“A critical element of team performance is corporate culture and values. A ‘departmental culture’, anchored on a set of formalized, shared values has had an extraordinary impact on our work environment.”
A few years ago, Stephens launched an initiative to determine how and what the work culture should be, that is, the shared values and attitudes among staff that characterize the legal team and define its essential nature as a working unit within the bank. The agreed “values” refers to the guiding principles, beliefs and standards that inform the way staff interact and work, and are the essence of work culture.
“Our staff discussed, debated and determined our shared values over a period of four months,” he says. “This had to be a bottom-up exercise – not decreed by management or recommended by external consultants. Every person in the legal team was involved, and ultimately agreed that our values comprise about 30 elements consolidated under broad concepts of mutual respect, character and integrity, and professionalism and results.
“These values influence the establishment of our team’s goals, the approach to our work and to ADB as a whole. They inform our behaviour, actions, and many of our decisions, including decisions about how we plan and do our work, how we co-operate and support each other, who we hire, and how we cultivate, nurture and evaluate talent and performance, and promote and reward people.”
Stephens has been described as a hands-off manager, but he shirks at the label, adding that he certainly gives more leeway to people who have proven they can generate results, good judgment and an ability to earn the trust of their direct reports, peers and clients.
“I’m a sucker for competence. Conversely, it’s equally important to identify under-performers and deal with them quickly yet fairly,” he says. “I try to find creative ways to encourage and reward high performers. One of the biggest challenges in the transition from a large private law practice to an in-house role in a public institution was the loss of large bonuses and the lure of partnership as a management tool. So we have to find other ways to incentivize performance and encourage desired behaviours. We do that with promotions, awards, salary adjustments and the allocation of better work to those who have demonstrated the most capacity for growth.”
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 has 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, then in Hong Kong as partner/managing partner of Coudert Brothers for nine years, and then 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.”
He 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.”
In the middle of last year the ADB adopted its Strategy 2030 as an effort to take account of adjustments in the nature and focus of its operations in light of the evolving needs of client countries in the region. While the region still requires massive amounts of infrastructure investment, clients had also expressed their need for more investment in agriculture, healthcare, education and smart cities than was the case in 2008-2009, when the last strategy was developed.
The bank and its stakeholders also sought even stronger commitment to climate finance, gender mainstreaming and a larger role for private sector investment in poorer, fragile and conflict-affected countries. All this had to be taken into account and is reflected in Strategy 2030.
“The legal team at ADB is engaged more broadly and deeply in the full spectrum of client relationships, project implementation and institutional administration than any other department,” says Stephens. “Individually, there are other departments that are specifically charged with responsibility for these elements of the bank’s business, but no other department is similarly exposed to all of them. The lawyer is on the team that designs and negotiates the country partnership strategy, project concept and design, documentation and negotiation, management and board approvals, and funds drawdowns.
“Even after the loans are advanced, the lawyers look after the project – including hedging and swaps, and borrowers’ requests for covenant waivers or project contract variations – until the loan is repaid, typically 15 years later. A mid-level lawyer on one of our sovereign teams will do eight to 12 projects a year, while looking after 80 more that have accumulated under his or her management.”
The bank’s Law and Policy Reform (LPR) programme, initiated in 2005, is another high-profile programme that Stephens says is been increasingly tying itself to the core strategic focuses of the Bank.
One such priority is the desire to provide more knowledge services to clients, especially upper middle-income countries that may rely less on ADB for traditional lending. LPR’s knowledge services include capacity development and training for judges, corporate governance, capital markets and banking reforms, and assisting with the enactment of laws that facilitate investment and trade. Stephens says the bank has also significantly expanded its engagement in gender equality, including in particular in Pakistan, Afghanistan and Tajikistan.
“The results are impressive,” he says. “We have helped Myanmar with a new company law and new insolvency law; we assisted Fiji and Papua New Guinea establish international commercial arbitration as a means to attract foreign investment; we have assisted six countries to set up ‘green benches’ where judges are trained and certified to hear complex environmental cases; we regularly assist central banks to meet international standards on anti-money-laundering and counter-terror financing; we are advising the Philippines on creating an Islamic financing regime; and we assisted Pakistan establish Asia’s first gender-based violence specialized courts, making it easier for women to give testimony and prosecute gender-based crimes.”
With gender balance, Stephens says the work begins at home and although the bank has made significant strides, more needs to be done to identify and deal with barriers and obstacles facing working women, and to cultivate career advancement so that women are more prevalent in the senior positions.
“We’re fortunate that there are lots of women in the legal profession who enjoy development work, and so there should be higher expectations of the legal team to find and cultivate more women. And indeed we have raised our female compliment among the legal staff from about 38% to more than 50%. And, at the management level, 50% of our assistant general counsel are women.”
As the ADB prepares for further 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.”
As Stephens departs his position, his achievements may illustrate that his successor has some big shoes to fill.