A key litmus test for the effective governance of any MSI is its capacity to deliver results on key priorities and a work plan agreed upon by it governing board. Needless to say, a competent and effective Secretariat is essential to delivering strong results. But for a new MSI contemplating the creation or evolution of its Secretariat, what are the options available and lessons learned from other organizations? Should it start out as a project of a larger organization, create a standalone Secretariat, or consider something in between?
Each organization is different and its governance and structure will by necessity have to be tailored to its own circumstances, purpose, and community of interest. Generally, Secretariats would perform a range of tasks, typically including the following:
· Overall management of MSI, including implementation of the annual workplan;
· Financial management,
· Technical or policy development and support to members and/or community of interest
· Communications and outreach
· Supporting the Board and Annual General Meeting of members; and
· Advice to the Board on strategic planning.
This blog (excerpted from a larger report) provides a few thoughts on the strengths and potential risks of various ways of structuring an MSI’s Secretariat. Most arrangements can be boiled down to the four broad categories below: 1) Secretariat hosted by a large, international organization; 2) Hosted by more independent; 3) Standalone, independent Secretariat; or 4) Independent Secretariat, but supported.
Option 1: Secretariat hosted by a large, international organization
Many MSIs are hosted within large, international organizations and others are hosted by smaller organizations. Often, initiatives will spend their first formative years at an international organization, then spin-off into more independent structures. There is a wealth of experience to provide lessons learned on the advantages and pitfalls of pursuing different options.
Locating an MSI within an international organization such as the UN or the OECD would provide the advantages of strong institutional capacity, meaning a high degree of professionalism, knowledge, and skill of employees located within the larger organization available to support the smaller one. This includes financial administration, legal services, and program management, as well as policy and communications capacity. A large international organization can also provide high-level, strategic and outreach support to the initiative. Donors may have more confidence in such hosted initiatives, potentially improving their financial stability. In some cases, an international organization may directly cover some of the costs of the initiative, such as salaries. More generally, it may be incentivized to help the initiative succeed and above all, to prevent it from failing.
However, with all these benefits come some downsides, chiefly that such organizations can be very bureaucratic and lack the nimbleness of small, standalone secretariats. Following institutional procurement rules, hiring, and other human resource policies can be very cumbersome, time-consuming and frustrating. Staff can also be very expensive in such organizations and increase overall costs.
One major risk of locating an MSI at an international organization, particularly one in a similar policy field, is the potential lack of independence of the smaller initiative. Other initiatives have found that larger institutional priorities and an institutional culture can subsume a small secretariat.
Locating a secretariat within an international organization may complicate decision-making and governance. Entities which sign contracts on behalf of others nonetheless remain the ones that are ultimately responsible for legal implications, and in such cases often reserve the right to make final decisions. This could create situations where the host agency overrides the wishes of the MSI regarding who is awarded a particular contract, or perhaps even, who is hired by the organization.
If an MSI were to decide to be hosted at a large, international organization long-term, its governance arrangements should be carefully crafted and drafted to spell out clearly the lines of accountability and the role of the international organization. Its Governing Board could include a member of the hosting international organization, but it should be clear that the Executive Director reports to the Board, not to any person at the international organization.
When it comes time to hire an Executive Director, the ED search committee could include a member of the international organization, but again, it should be the Governing Board with the final say on candidate selection. To avoid perceptions of a lack of independence, the MSI should retain its own website, and the language used to denote the relationship between the initiative and the international organization should say “hosted by” rather than “a project of.” Lastly, in order to ensure maximum independence and clear lines of accountability, the MSI’s Executive Director should not be drawn from staff employed at the international organization.
Option 2: Hosted but more independent
There are ways of mitigating the above-mentioned risks to a certain extent. One of them is to locate the MSI in an organization that is not in the same policy field. This may reduce risks to its independence. Another option is to host the initiative at a smaller organization, such as a non-profit corporation or equivalent.
If an MSI were to select Option 2, it would be important to explore ways of structuring the relationship such that the hosting organization still plays a fiduciary role, but with lowered risks of interference. As above, the governance documents could stipulate that the host has a seat on the Governing Board, but otherwise does not get involved in the decision-making of the organization. Other indicators of independence, such as a standalone website, are also relevant for this option. A good example of a hosted but more independent secretariat is GIFT which is currently hosted by the International Budget Partnership. A host without a financial stake is also less likely to interfere in decision-making.
Many organizations have had good experiences with different hosting structures to strengthen independence. However, if complete autonomy is desirable, it is best achieved through the creation of a legally separate, independent secretariat.
Option 3: Standalone, independent secretariat
A standalone, independent secretariat implies an entity with its own legal standing. A number of MSIs have created their own standalone secretariats. There are many benefits to this legal independence. Decision-making powers and authorities are much more concentrated in a small number of actors. Executive Directors are directly accountable to boards; and while decision-making may on occasion be contested between those actors, power and influence are not siphoned off by a host organization. This direct accountability can help the organization have clear goals and deliver clear results. Having a separate legal personality means the organization can be nimble in hiring and entering into contracts, making it easier to build a strong, efficient, and effective team and to move quickly. Perhaps most importantly, the organization can take risks and be innovative and entrepreneurial in a way that might be difficult in a large, bureaucratic setting.
With these benefits come risks. The organization must be set up from scratch. It alone is responsible for all its contracts and financial management, and it must outsource all kinds of services such as IT, accounting, auditing, and legal services. It will, by necessity, be small, and it may lack the high-level advocacy support received by initiatives hosted by larger organizations. Also worth considering is that it may have cash flow challenges from time to time.
If an MSI were to select Option 3, it would be essential that its Executive Director and Financial Manager possess strong administration and management skills to ensure that proper systems are developed and followed scrupulously. The Board would need to ensure an active and effective finance and audit committee provide adequate oversight of the organization. However, once competent staff and good procedures are in place, Option 3 has the potential to unleash a highly effective organization, as other MSIs and non-profits have shown.
Option 4: Independent secretariat, but supported
There are ways of mitigating the main risks of independent secretariats. A key factor of an independent secretariat’s success is whether it is anchored in a strong, supportive broader community. If influence has diminished and high-level support is lacking, a small secretariat could seek to attract a high-profile external chair who could help bring visibility to the MSI and open doors.
With regard to the financial management of the organization, many small non-profits do this entirely in-house without a problem. There are, however, options to provide support and to help manage the administrative burdens and costs of independent status. Some organizations share space and professional staff, such as financial managers, to reduce costs. Others employ shared services platforms that operate to administer grants and budgets in return for a set percentage of amounts managed, for example, 7-10%. In addition to providing more certainty to donors, these platforms may additionally provide temporary insulation from fluctuations in cash flow, as well as assistance with program management.
If an MSI were to select Option 4, it would be important to select the Secretariat’s location first, and then to seek organizations who could support the Secretariat in that location. This is because organizations operating under a platform or in cooperation with others may decide in the medium to long-term that it would be preferable and more efficient to simply hire competent staff to perform those roles in-house. The long-term location is a far more important consideration, as is discussed in another blog.
Mora Johnson, October 2017
This blog is excerpted and edited from a longer report prepared by Michael Lenczner of Powered by Data and me on the long-term governance of an MSI, found at https://www.aidtransparency.net/wp-content/uploads/2017/08/Recommendations-for-the-long-term-institutional-arrangements-for-the-International-Aid-Transparency-Initiative-August-2017.pdf