View from City Road: De Larosiere needs to take radical steps

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The Independent Online
The European Bank for Reconstruction and Development can breathe a sigh of relief that Jacques de Larosiere, the governor of the Bank of France and former chief of the International Monetary Fund, has agreed to be its new head. Mr de Larosiere is everything that Jacques Attali was not. He is considered and cautious, where Mr Attali was flashy and impetuous. He is a good listener and manager. Moreover, Mr de Larosiere has a strong personal interest in Eastern Europe.

The real question, though, is not whether Mr de Larosiere can repair the bank's scandal-hit image. His appointment alone goes a long way to wipe the slate clean. It is whether he can also turn himself into an organisational radical.

The central problem with the EBRD is its top-heavy management structure, insisted upon at the outset by the Americans as a way of allaying their legitimate fears about the inexperienced Mr Attali.

This small bank, a tenth the size of the World Bank, has a board of similar size. Whereas the World Bank shares many of its directors with the IMF, also based in Washington, the EBRD has no other institution in London with which to share. Its 23 directors are backed up by 23 alternate directors and 23 assistants, all there to double-guess the actions of the executives. Add in support staff, and you have a veritable army. With meeting rooms and so forth, the national delegations take up two floors of a 12-floor building.

This is a problem for three reasons. First, the directors are all full- time officials on the EBRD payroll, so that a fifth of the overheads of the bank have no executive role at all. The EBRD's costs are bound to be excessive. Second, they have no raison d'etre other than to stop things happening and lobby for national pet projects. Third, the people who are attracted to such a job are not usually the imaginative high flyers that an institution trying to foster the private sector needs.

One solution is to send the EBRD directors back home. They should be made into non-resident non-executives, so that they would fly in for regular board meetings. The bank board would attract a higher standard of public official, and a slimming operation would remove a deadweight from the bank's operating costs. In Mr de Larosiere's hands, the EBRD should be given its head.