On Incentives

"Never penalize those who work for us for mistakes or reward them for being right about markets. It will go to their heads, is counterproductive and, in any event, material compensation will not correlate with their ability to predict the future next time."

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What the World Should Expect of the Next World Bank President

October 2015

I have been asked on occasion what were the differences between the World Bank’s two Messianic Presidents, Jim Wolfensohn and Robert McNamara. On reflection, if Martin Luther King had a Rolodex and attended Harvard Business School, he would have become Jim Wolfensohn; but if Martin Luther had gone to the Harvard Business School, he would have been Robert McNamara – if Bob had been willing to accept his original sin. I suspect that it may take some Messianic qualities to run the Bank in the future. But first and briefly permit me to suggest what a new President should not do – based on Bank experience over the last 70 years.

  1. Don’t reorganize or restructure or prepare a new budget. If the Bank is organized with significant power in the project staff, leave it alone. So be it. If on the other hand, it is organized with Country Directors having the final say, leave it alone. So be it. If it is organized so that Economists or Sociologists or Political Scientists, or Environmentalists have the final say, leave it alone. The unscrambling process will only result in expending energy and morale with no good coming of it.
  2. Don’t bring in personal staff to take care of you. Not even a “personal assistant.” Unfortunately, they will be successful in insulating you from Bank staff. Bad idea.
  3. Do not come with an agenda. Instead ask about 100 key staff what initiatives would they like to implement and can’t. Why not and what are the constraints? And what keeps them up at night with worry or concern. Then, the President will have an agenda. I am nervous about visionaries. I am more comfortable with the staff.

The staff should understand there will be no gold stars for initiatives that turn out well and no “black marks” for unwise initiatives. In the development business rewards and punishments lead only to excessive risk taking or reversion to the mean – both undesirable outcomes and inconsistent with rational thinking. The President should make it clear it is perfectly okay to tell him (or her) that he/she is wrong, that the President’s priorities are misplaced or that the President’s initiatives will do more harm than good. The fact is the staff is better equipped by experience and knowledge about risk and what can go right and wrong. And they will share it – if the President lets them and if staff don’t feel threatened.

And, make sure the staff knows that you do not think that as President you are the center of the universe. Forget about Davos. That reminds me of a story about a Vice President who had wonderful skills; he was very intelligent, had great judgment and was very well informed and much respected. However, he had one fault. He was a terrible name dropper. One day someone told him he had wonderful qualities but he ought to “cool it” and cut out the name dropping. He replied with great equanimity, “You’re absolutely right. The Queen Mother told me the same thing yesterday.”

You may say, “Well, Gene all that may be well and good but what about leadership? Isn’t that what the President is supposed to do? Lead? Are you not abdicating to the staff? Yes. But, for me, leadership is motivating staff to tell you the truth as they see it – what they really think – to be open about risks, to be open about the failure to act – without any fear of personal consequences. Leadership is tapping into the knowledge and experiences of the thousands upon thousands whose work has been dedicated to development for decades. Leadership also encourages staff to say, “I don’t know. I am not sure what will work.”

Finally, it takes a very strong ego to be President of the Bank. Strong enough to encourage criticism, strong enough to admit to failure (it’s okay – the world is a complicated place. Few variables are under the control of the Bank; they can cause havoc to the best laid plans. Corruption is rife, earthquakes and drought occur, democracies are fragile, civil governance is not a given). The President should be strong enough to withstand the pressure from various constituencies, particularly from her own country, strong enough not to be dazzled by the perks and bowing, strong enough to accept not getting credit which you deserve and being blamed unjustly if stuff goes wrong. There was one President of the Bank who took this to an extreme. With an almost Albigensian sense he took blame for adverse consequences which were not of his doing. It takes a kind of death wish and not a little megalomania to initiate a war on poverty by addressing that subject first at the Wall Street Bond Club; to speak out for the first time for the need for population control at Notre Dame; to speak out against Apartheid as a guest of South Africa; to send an Indian national to Idi Amin to insist that Uganda pay its debts to the World Bank at the same time that Amin was incarcerating or expelling Indians from Uganda, and to insist that I, uniquely, should go to Saudi Arabia in the middle of the 73 middle east war to negotiate borrowing from that country. Some say he was compensating for past sins. That President’s middle name understandably was “Strange.”

A new President should be strong enough to ask for advice, strong enough to admit to vulnerability and lack of control or leverage, and strong enough to realize that although your name will be forgotten in a few decades, it really doesn’t matter because what you have accomplished – less infant mortality, less violence, more calories, a better life for hundreds of millions, water, education, climate change, was worth it – though you won’t get the credit. That takes a very strong sense of self. One day there will be a little girl from Bangladesh who when she grows up will be honored as President of the Bank. She will have never heard of you. But you put her there. That should be enough for the new President.