CHAPTER 7 - GOVERNANCE, LEADERSHIP, MANAGEMENT AND CONTROL

7.1 Introduction

In its 44 years, IRRI has achieved an enviable record of successes in its scientific endeavours, and millions of the world’s population have benefited. Today, its reputation in the worldwide scientific and donor communities and in ‘the public eye’ is excellent, and its managerial and financial competencies and integrity are well regarded by all who review the Institute’s activities, including this Panel.

For reasons totally unrelated to the CGIAR System, (high profile financial scandals in multi-national organizations; the subsequent failure of a major auditing firm, and the resultant increased legislative focus on governance) the management and boards of all organizations - for-profit and not-for-profit alike - are coming under increased scrutiny. The CGIAR System is not immune from this shift in oversight and, as IRRI moves ahead, it too will face increased scrutiny of its managerial and governance activities. Indeed, with the request of a Donor for a Board statement on risk, this trend has already started.

Many of the challenges ahead will fall directly on IRRI’s Board of Trustees and in addition to reviewing the Centre’s overall operation from a management perspective, the Panel has also looked at how IRRI can best position itself with its clients, its donors, and in ‘the public’s eye’ to meet these oversight challenges.

7.2 The Board of Trustees

IRRI’s Board of Trustees is composed of 15 members: 12 of whom are members-at-large and 3 are ex officio. The Secretary of Agriculture of the Republic of the Philippines, the President of the University of the Philippines and the Director General of the Institute are appointed ex officio, and of the 12 at-large members, 3 are CGIAR designated members.

The Board meets formally twice a year and its four Standing Committees (Executive, Finance and Audit, Program, and Nominating) meet at least as often, and as needed. As explained in the Board of Trustees Handbook, all Officers, including the Director General (DG), are elected by majority vote of all the Trustees. The Handbook also states that the Board sets the policies; and that the DG reports to the Board, works under the Board’s direction and is responsible for carrying out the Board’s policies.

The Handbook also prescribes the Board’s own performance assessment process that is based on a Self-Evaluation questionnaire. A new Chairman of the Board has been elected and took office as of January 1^st, 2004.

7.2.1 Overall Assessment

Members of the Team attended a meeting of the full Board, and all Committee meetings, and then met individually with each Trustee attending the Board meeting in Bangladesh.

Like other CGIAR Centre Boards, IRRI’s is in transition from the 1960s’ governance model to a current model that is being driven, in part, by the world wide public demand for improved governance and by such imposed initiatives as the USA’s Sarbanes-Oxley legislation. In this context, the Team notes a current request by one donor (DFID) for formal Statements by the Board of Trustees about IRRI’s (a) risk assessment and (b) the adequacy of the internal controls, including the degree of compliance with CGIAR principles and guidelines. This donor initiative is, no doubt, just the first of many donor-led initiatives aimed at demanding better governance in the CGIAR System.

The differences between the old and new governance models are striking. The changing demands being made on Trustees of CGIAR Centres are summarized in Box 7.1. The IRRI Board is to be commended for its prompt and appropriate efforts to respond to the DFID request: it has created a Task Force of Trustees to work with Management in developing the formal Board response by April, 2004. Some of the IRRI Trustees are acutely aware that, in complying with the DFID request, the Board’s formal response will, for the first time, explicitly place the liability for any future problems squarely with each Trustee, both current Board members and also all future Board appointees. A brief overview of what is typically required of a Board of Trustees by Donors in this instance is provided in the Box entitled ‘Board Reporting on Risk Management...What is Required’ on the following pages.

The Board has the ultimate responsibility for everything IRRI does. In assessing the work of IRRI’s Board, the Panel looked at those key governance tasks that a Board undertakes: developing strategy; monitoring the Centre’s activities; recruiting and orienting board members; and monitoring its own performance.

7.2.1.1 Developing and Monitoring Strategy

A number of Trustees stated that they did not have a significant input into the strategy development process at IRRI - neither in the Program Committee nor in the full Board meeting. Some felt it unnecessary to sit through lengthy scientific presentations by staff (that may have been wholly appropriate under the ‘old’ governance model) when what they should be doing is focusing their scarce time and efforts towards guiding the future of the institution - working closely with Management in developing the Strategic Plan and monitoring its implementation.

By way of example, a few Trustees feel that Management’s current efforts to update the 1996 Strategic Plan may not be the best approach given the shifts in funding, the changing IPR landscape, the increased funding and quality/relevance of private industry research, and other factors that are/will impinge on IRRI’s future in rice research. Updating an existing Plan, they said, is less likely to encourage valuable ab initio thinking. In this context, the Panel encourages management to limit scientific presentations in future board meetings - presenting the main material either in written form at other times during the year via email, or in the context of the Program Committee meetings. The Board Chair, in close consultation with the DG, would then have sufficient ‘meeting time’ to implement an agenda that focuses the Board’s limited time and considerable skills on the Centre’s strategic direction, on the plans and budgets for getting there, and on measuring Management’s performance in achieving the Board’s directives.

This change, however, places a much greater burden on each Trustee to (a) have read the material sent by Management; (b) fully understand the nature of the governance functions expected of him/her; and (c) be prepared to debate and inform the strategic issues at hand. Some Trustees may find this change in role difficult without some training.

7.2.1.2 Recruiting Board Members

As IRRI’s future strategy is developed and implemented, it will be critically important for the Board’s Nominating Committee (NC) to identify potential candidates whose competencies closely match the Centre’s emerging needs. At the most recent NC meeting to consider candidates for 2004-5 Board vacancies, it was not clear that the Committee’s list of potential candidates adequately reflected the Board’s perceived competency requirements^[47] that specifically requested CVs of candidates with IPR/legal, or finance/treasury competencies. Nor were there candidates representing the for-profit segment, even though it is clear that closer interactions with that sector are being pursued by IRRI.

Absent the new strategic plan, the Panel does not presume to know what set of competencies will be required: it is concerned, however, that the nominating process be one that identifies the most appropriate candidates to effect good governance. As an example of the effects of changing governance expectations, under existing laws^[48] IRRI does not have a quorum of ‘qualified’ Trustees on its Finance and Audit Committee.

The Panel recommends that, annually, the Nominating Committee develop a List of Trustee Competencies required by IRRI over the next 5 years and, on approval by the Board, develop its list of potential candidates accordingly. This List should also be a key input in the Board’s decision as to whether a second term should be offered to current Trustees up for re-election. Automatic second term election, even where there are no adverse circumstances suggesting otherwise, should not be the norm.

This is particularly important in IRRI’s case where a relatively high percentage of Trustees are either ex officio, or are nominated representatives of certain country, or donor constituencies. While the Panel does not believe this ‘reserved seat’ concept is in IRRI’s best overall interests, at least the List can also be a useful guide for the Constituency officials as they seek to identify and nominate their representatives to the IRRI Board.

7.2.1.3 Orienting Board Members

The Panel commends IRRI for arranging for the incoming Board Chair to attend the Harvard Business School’s ‘Governing for Nonprofit Excellence’ course as part of its ongoing efforts to bring the Centre’s governance activities more in line with best practices. What the Harvard and similar programmes uniquely provide is a course designed specifically to examine best governance practices worldwide and to enable participants to interact with, and learn from, a large number of Board Chairs from a widely different set of non-profit organizations. This wide exposure to best practices by governance practitioners is an essential component of the learning process. The CGIAR Secretariat has advised that it is also reviewing governance training.

7.2.1.4 Keeping the Board Informed

As IRRI’s Board moves towards the new governance model, Trustees will demand much more information from Management concerning the Centre’s operations. Increased Trustee oversight responsibilities and the concomitant liability exposure will require that they be well informed, on a regular basis, about the Centre’s operations. The Board, at present, receives three financial reports during the year on the Centre’s operations; the Treasurer’s report as of April and September^[49] and a new quarterly report on finances. As has now been evidenced at some other CGIAR Centres, this paucity of information leaves Trustees vulnerable to accusations of poor governance.

The Panel recommends that IRRI provide all members of the Finance and Audit Committee with:

(i) a monthly Cash Flow forecast for the ensuing 6 months;

(ii) monthly income and expenditure statements (with actual vs. budget comparisons and commentary);

(iii) quarterly reports on Project costs and revenues - highlighting those where cost under/over runs exceed 10% and articulating what management is doing to resolve the issues; and

(iv) monthly reports on investment income compared to budgeted income.

All Board members should receive this same information on a quarterly basis, and all these reports should be available to Board members within 20 days of the end of the reporting period.

7.2.1.5 Monitoring the Board’s Own Performance

The Board’s own self-assessment process has worked sporadically in the past, but is now in regular use. The Board is considering changes in the format for the future, but based on the results of the last self-assessment of the most recent Board meeting (Sept 03), Trustees generally viewed themselves as being ‘strong’ in attendance at Board meetings, in devoting sufficient time to Board activities, participating in the discussions, and in their overall commitment to IRRI. Conversely, their ability to offer innovative programme ideas and other ideas leading to scientific excellence; their participation in IRRI activities outside of the two formal meetings each year; and fund raising activities, scored less well. What is needed now is that this important feedback from such self-assessments be collated by the Board Chair and turned into useful recommendations for improvements for the Board’s governance activities as a whole, and used as the basis for individual counselling sessions between the Board Chair and each Trustee on a regular basis.

The ultimate test for the Board, however, lies in the extent to which it will guide the strategic direction of the institution, and keep Management’s focus on the path ahead. In this the Board apparently feels that substantially increased involvement by them is appropriate and the incoming Board Chair will need to address this issue quickly - particularly as the new strategic plan is being developed.

7.3 Leadership and Culture

The Director General establishes the tone and culture that imbues an organization. With a total staff complement of some 889, representing no less than 24 nationalities, it is clear that leadership plays a critical role in the human resource function at IRRI. The large size also sets a challenge for disseminating the culture throughout the organization.

The 5th EPMR recommended that IRRI embark on a period of stabilization to enable the newly appointed DG to assume control after a previous period of management turmoil and to allow time to customize and improve the matrix management processes. The Senior Management team is to be commended for its achievements on these points and its ability to maintain an active, participative staff during a difficult period of downsizing where the total staffing complement has been reduced from 1,115 to 889 over the past 5 years.

Productivity and standards of operation have been high. The positive outcome of this review is testimony to the daily culture being good and clearly the IRS and NRS staff are well motivated. One event was unfortunate: an entire group of Staff Association representatives resigned from the Association as a symbolic protest against Management’s perceived lack of interest in resolving issues.

In a research based organization like IRRI, a culture that inspires creativity is essential. With so many research opportunities and a specific mission but limited funding, priority setting and the concomitant rejection of many good ideas is also essential. Priority setting, to be useful and accurate, must derive from top-down, and from bottom-up scenarios. This will happen when there is a climate that encourages open debate among and between senior management, creative scientists, Project Leaders, and indeed staff at all levels such that scenarios are evaluated, ranked and chosen according to agreed criteria. Only then will staff ‘own’ the outcome of the debate. The Panel senses that these debates are not as frequent or as healthy as staff would like, in spite of all the formal time devoted to planning. ‘Ownership’ is reinforced as staff fully understand what decisions are made - particularly the prioritization decisions - and how these decisions are made.

IRRI has led the world in rice research in the past: it is now faced with much greater and growing competition in a number of areas and must sustain a relevant comparative advantage to assure its future. The debate that will inform, guide, and ensure this will be detailed, difficult, and have far reaching consequences in terms of funding sources, staffing competencies and investment requirements. The DG, together with the Board, will always need to establish and encourage a forum that is conducive to scientific enquiry and learned debate where, at the end of the process, staff have personal ‘ownership’ of the agreed vision and strategy. Creating such an environment is always a challenge for the DG, and the Board is urged to recognize this as a leading indicator of performance as it reviews the DG’s performance at the next formal review.

7.4 Organizational Structure and Programme/Project Management

The Current organization structure at IRRI is as shown in Figure 7.1.

In response to one of the recommendations of the 5th EPMR, IRRI changed the management structure from an ecosystem based structure to one where four programmatic themes became the structural fabric into which existing Projects were mapped appropriately.

The four programmatic themes are:

1. Genetic resources, conservation, evaluation, and gene discovery;
2. Enhancing productivity and sustainability of favourable environments;
3. Improving productivity and livelihood for fragile environments; and
4. Strengthening linkages between research and development.

Project Management is effected through a multi-dimensional matrix management (MM) approach that devolves the budgetary and output management responsibility for each Project to the 12 individual Project Leaders. Project Leaders manage a single Project and report to one or more Programme leaders and also to the Division Heads of their primary scientific discipline. The strategy formulation and planning of the overall project palette lies with the four Programme Leaders who themselves report to the DDG-R.

Figure 7.1 - IRRI Organizational Structure

Further enhancing the matrix are four Division Heads, one Centre Head, and seven Organizational Unit Heads who also report to the DDG-R.

MM systems are always complex and demand special interpersonal skills on the part of every member of the matrix management team for the structure to work well. As IRRI has evolved this structure to meet its specific requirements over the past 3-4 years, it has skilfully avoided the major pitfalls of the MM approach - specifically those having to do with serious, but unintended gaps in responsibilities, and missed opportunities for cooperative activity because of the diffuse nature of the ‘ownership’ of outputs.

The Panel noted some side effects: the role of the current Programme Leader position is nebulous today and it was noted that since 2002, the DG’s Annual Report is structured along Project lines, and not integrated along Programme lines.

Within IRRI at this, time a number of organizational modifications are being considered as the Institute seeks to fine tune the MM approach in the interest of operational efficiencies, simplicity and other reasons. The Panel, for its part, has considered whether the organization is now optimally configured to deliver IRRI’s mission. The Panel recognizes the value of having leaders of disciplines - or coherent groups of disciplines - for many purposes. However, it agrees with IRRI that the budgetary and human resources required to deliver the principal outputs should reside with the Project Team Leaders (PTL), being sympathetic to the need to empower those responsible for delivering outputs from multidisciplinary Projects. These PTLs should enjoy a high profile within IRRI and be rewarded accordingly. The Panel therefore supports Management’s initiative to devolve responsibility for resources to the Project Leader.

At present, some of the most relevant and thus important outputs for the NARS are delivered through the two Consortia Projects for the favourable and unfavourable environments respectively. Internally, however, the resource requirements for these Consortia Projects are supplied from other Projects - thereby requiring significantly greater attention to coordination and monitoring of results to be sure that the research in these other supporting Projects are optimized for delivery to the NARS. The Panel fully recognizes that this entails cross Project management and extensive interactions and sharing of resources and objectives between Projects, and concomitant demands on the matrix management systems in place.

The Panel suggests that the current ‘favourable’ and ‘unfavourable’ Programmes should be perceived as two ‘flagship’ programmes in which the visibility of the Consortia is high from both internal and external perspectives. These Programmes would be led by Programme Leaders who have the responsibility of ensuring that the internal supporting Projects are optimized to deliver the needs of the Consortia, ensuring the efficiency and effectiveness of the Consortia operations with the NARS, and elevating the status of the Consortia.

The third ‘flagship’ programme would be Programme 1. The Panel believes that the current organizational arrangements that tie its activities into Programmes 2 and 3, while allowing high visibility externally, are appropriate.

The ‘flagship’ concept has a number of advantages: it places accountability for results with one individual, and it is much easier for clients and donors alike to understand the totality of IRRI’s research activity.

The Projects in Programme 4 are heterogeneous and the arguments for the existence of the Programme appear weak. The Panel proposes that Project 10 and 11 activities be folded into other Projects as appropriate and Project 12, Training and Information/knowledge Dissemination, be separately identified as a Unit so that it can enjoy a separate and higher profile status. (See the Recommendation in Chapter 5.)

The proposed changes in Project 10 are more than mere realignments of tasks: what is being proposed here reflects the Panel’s desire to see a more integral role being played by social scientists in developing and prioritizing projects so as to maximize adoption and people’s welfare. The Panel also recognizes that the current level of resources available for social science work may be inadequate, but leaves IRRI Management to work out how much of the greater scope of work will be met by additional resources, and how much by a realignment of personnel within the Social Sciences Division.

In sum, the Panel believes that an organization consisting of three ‘flagship’ Programmes, a highly visible Unit delivering training and information/knowledge and high quality disciplinary-based Divisions should serve IRRI well into the future as it continues to ‘market’ its relevance and compete with other organizations for funding.

7.5 Planning, Priority Setting and Monitoring

7.5.1 The Process - A Description

IRRI’s planning process begins with the development of a Strategic Plan. This plan, that is developed about every 8 years following extensive consultations with IRRI’s partners, scientific staff, donors and CGIAR officials, governments, and farmers, establishes the future direction of the Institute and the proximate resource envelope within which IRRI is expected to operate for the ensuing 10 years. The last plan ‘IRRI Towards 2020’ was initially approved by the Board in 1996; an update was completed in November 2003 just prior to the initial visit by the EPMR Panel.

The Strategic Plan lays out IRRI’s Mission Statement (goals, objectives, strategy and values), the policies that govern its activities (scientific quality, efficiency and equity, collaboration and partnerships and research relevance), and the priorities that guide the institution in terms of the allocation of scarce resources as among rice ecosystems, geographic regions, and between basic and applied research activities.

Annually, Management prepares the rolling Medium Term Plan (MTP) - a Plan covering the institution’s activities for the next three years in the format suggested by the CGIAR System. This Plan, which is currently in preparation for the period 2005-2007, builds upon and updates the strategic plan developed in 1996-97. The MTP takes the strategic plan to the next level of detail and, once endorsed by the Board, is the basic research guideline and priority setting exercise for all activities over the forecast period. Individual programmes, projects and tasks are identified and the resources for each are allocated following an extensive review of alternatives in Network/Consortia meetings, an annual planning meeting, and other processes, including the review of grant proposals by senior Management. Programme Leaders and Project Leaders are assigned and resources allocated to complete the agreed activities.

As Projects are implemented, the financial systems monitor expenses against an agreed plan and financial reports are generated for use by each level of the management structure. Quality control (research) is exercised by the DDG-R who has responsibility for all four research Programmes and the research support services. The DDG-P is solely responsible for the quality of the remaining support services - Networks, Communications/Publications, Information Technology, Intellectual Property Management, the Library and Visitor/Info Services. The DG issues an Annual Report, by Project, that discusses Project activity, performance to date, and expectations for the future from a more qualitative perspective.

7.5.2 Assessment

As noted above, some Board members are concerned that they do not have adequate collaborative input to the development of the Strategic Plan at the level they would like: that the current strategic plan is an update of an older plan and, as such, does not benefit from the ab initio thinking that some would like to have seen. This is particularly relevant, they say, at a time when there are competing claims for the research dollar that historically would have gone to IRRI. Furthermore, there is increasing competition in terms of the research itself as between national research organizations, the international organizations such as IRRI, and increasingly, the private sector. This shifting landscape, some Trustees argue, is reason for taking a completely fresh look at IRRI’s strategic alternatives - as illustrated by the current discussions on different scenarios of a strategic alliance between IRRI and CIMMYT.

A number of the scientific staff would also welcome more extensive debates about IRRI’s vision and strategy for the future. Some staff believe that future opportunities for IRRI’s participation in the research on rice may well be significantly different from the current approaches reflected in the plans and Projects.

The shift in funding dynamics for all the CGIAR Centres is having a profound effect on CGIAR Centre priority setting, and hence on the strategic direction of research. Increasingly, Centres are having to cut their core budgeted research efforts as the proportion of core funded to restricted core funding drops. While the effect of this shift in funding has been rather less for IRRI than for other Centres (IRRI’s proportion of unrestricted funding, including ‘other’ income, stood at 51% of total revenue in 2003 compared to 42% for the system as a whole) nevertheless, the trend is clear, and IRRI’s strategic plan must take cognizance of this fact. Some further reduction in this percentage is envisaged in the MTP, however the Panel would have expected that the MTP would explore alternatives depending on the assumptions made about funding trends and levels, and articulate those for the Board’s review.

Some of IRRI’s ‘clients’ also question IRRI’s vision and modus operandi. In response to the Panel’s Questionnaire, respondents documented their mixed reactions to IRRI’s current strategy. More than half questioned IRRI’s internal ability to prioritize its activities to reflect the client’s views. The most responses, however, concerned how they would like to see changes in IRRI’s role in rice research overall. Clients questioned what IRRI does and where its comparative advantage lies today; where its efforts should be focused geographically; and the extent to which some of what IRRI now does should be left to other local, equally competent organizations or even contracted out to other institutes that may be better qualified (or have lower costs) to undertake such research efforts.

Taken together, it is clear that IRRI has not yet articulated a strategy that convinces the wide ranging expectations of its client base. This is no easy task in today’s research and funding environment. IRRI’s Board is charged with the responsibility of developing and monitoring the Institute’s strategic direction and much work needs to be done. Mapping the strategic direction of a CGIAR Institute today is not an easy task. Much is changing within the CGIAR System itself: Challenge Programmes are being introduced that potentially could significantly alter the centre of governance in CGIAR science; Centre consolidation is being explored; and closure is being implemented in at least one case.

As it takes the lead in planning, prioritizing and monitoring IRRI’s future participation as a key player in the rice research arena, the Board, together with Management, has a critical task ahead. It must oversee the development of a strategy that:

1. reflects the needs of both donors and clients;
2. is cognizant of the likely availability of scarce resources (in terms of scientific staff and funding);
3. optimizes the scientific contribution that IRRI is uniquely able to provide that is likely to produce impacts;
4. clearly demonstrates that it has explored alternatives sufficiently to justify the priorities that underpin the Strategic Plan; and
5. is coordinated with the CGIAR System’s new initiatives.

7.6 IRRI’s Administrative Support Services

Elsewhere in this report, the research and research support activities are evaluated in detail: in this Chapter the remaining ‘service’ functions are evaluated. These are Finance (including Treasury), Human Resources and Administration (including Housing, Legal, Materials Management, Physical Plant, and Safety/Security).

7.6.1 Finance

7.6.1.1 Funding: Trends and Implications

IRRI, like other CGIAR Centres, has experienced a decrease in the absolute level of funding over the review period. Total revenue has dropped 15%, from US$37.7 M in 1998 to US$31.9 M in 2003. IRRI’s grant income fell by 21%, from US$34.5 M to US$27.1 M, during this same 6-year period. The major contributors to the decrease in donor revenue were Australia, Denmark, Germany, Japan, and the World Bank.

IRRI’s total revenues of US$205 M during this 6-year period included an amount totalling US$19.1 M (9%) resulting from:

a) interest income earned on surplus cash balances (US$8.9 M);
b) the net of investment gains (US$0.2 M) and losses (- US$ zero);
c) the net effects of exchange rate gains (US$6.4 M) and losses (US$1.3 M);
d) income from self-sustaining activities (US$2.9 M); and
e) sundry other income (US$2.1 M).

For 2003 specifically, the net impact of these ‘other income’ items was an increase in revenue of US$4.8 M, representing 18% of IRRI’s total grant income for the year. This added revenue represented an effective 42% increase in unrestricted core operating funds for the year - an important revenue contribution.

Contrary to some other CGIAR Centre expectations, IRRI forecasts that donor funding will increase again beginning in 2004, rising to US$33.3 M by 2006 - an increase of 23% over the next four years. Much of this increase is expected to be in restricted core funding and will come primarily from Challenge Programmes.

A summary of IRRI’s operating performance over the review and forecast periods is given in Table 7.1 (following page).

In light of the decreased funding over the past five years, IRRI’s Board and Management reacted quickly and appropriately - reducing expenditures by 19% over the same period, primarily by making substantial reductions in staffing complements and associated costs. Internationally recruited (scientific) staff levels dropped from 133 to 105 and nationally recruited staffing levels dropped from 982 to 784 during this 5-year period. The gradual shift in the designation of grant monies mirrors a CGIAR systemwide shift from unrestricted core funding to restricted and Challenge Programme funding. In IRRI’s case the historical and projected shift is as shown in Table 7.1.

Table 7.1 - IRRI Programme and Resource Highlights, 1998-2006

The short-term implications for this shift are significant. First, IRRI will be less able to fund that innovative and early stage science that would typically lead to external funding once the feasibility of the research effort has been demonstrated using core monies. Second, scientists will increasingly be linked to, and paid by, special projects with the concomitant ‘costs’ of such short-term employment contracts in terms of the calibre and seniority of scientists willing to relocate to Los Baños for the short term, and in terms of the loss of institutional memory.

Table 7.2 - Historical and Projected Funding from Unrestricted to Restricted Funding at IRRI and in the CGIAR

(Note: Earned income in each year is treated as unrestricted core funding)

The longer term implications of this shift in funding are yet to be worked out within the CGIAR System collectively and within each Centre individually. For IRRI specifically, three major questions came to mind as the Panel looked ahead 10 years:

1. Will IRRI’s research agenda be increasingly driven by donor interest in, and the availability of, project specific funding to undertake research with a shorter term output time horizon than heretofore (including Challenge Programmes)?
2. Might donors increasingly see IRRI as just one of a number of highly qualified research institutions able to carry out the donor’s requests? Absent major innovations by the System as a whole, or by its Board, could IRRI inexorably gravitate towards a consulting/service organization where its survival would depend, inter alia, on the competitiveness of its cost structure vis-à-vis other (and possibly nationally based) research institutions? and
3. might the CGIAR seek to restructure its Centres radically in ways that would adversely impact IRRI’s vision and competencies?

The Panel believes that this type of ‘scenario’ thinking is a key activity for IRRI’s Board. As noted above, this concern also underlies comments by some Trustees that an ‘incremental’ strategic plan built on past plans and earlier successes is not where IRRI should be placing its planning efforts at this critical time in the Centre’s history. The Panel emphasizes once again, that the Board’s major task in the next few years will be to provide strategy driven direction in an increasingly fluid funding driven environment. It will not be easy.

Overall, IRRI’s financial ‘health’ is excellent. IRRI’s position, using standard comparative ratios, is shown in Table 7.3.

Table 7.3 - IRRI’s Financial Health Indicators

These ratios also confirm that IRRI is in excellent shape financially as it enters 2004. The Panel commends Management for its successes in carefully marshalling scarce resources during times of significant change in donor funding patterns and much uncertainty as to the levels of such funding.

7.6.1.2 Funds Management

(a) Current Account Banking Arrangements: Given its substantial cash balances, Management has wisely made a careful determination of the ranking and quality of the commercial depository institutions used by IRRI. Only the largest Tier One banks are used for the majority (in excess of 98%, typically) of these funds. Some (peso-denominated) funds are also held in a Philippine bank.

In October 2002, the Board of Trustees authorized the Director General to designate the officers with authority to sign. This Authority designates any two of seven senior managers to sign checks, drafts or give other orders to the Institute’s financial institutions. There is no evidence that the Finance and Audit Committee reviews the creditworthiness of these institutions and the deposit arrangements (for example the ‘cash sweeping’ arrangements for the various currency depository accounts) on a frequent basis. The External Auditors (EA) had no criticism of these arrangements in their Management Letters over the review period and the Panel found them generally satisfactory except for the above-mentioned need for periodic review of the arrangements by the FAC.

(b) Invested Funds Management: In light of the funding situation at IRRI, the Panel also carefully reviewed the appropriateness of the current Board approved Investment Guidelines. It also assessed the current portfolio in respect of (a) compliance with the guidelines; (b) hedging arrangements against currency fluctuations, interest rate shifts and maintenance of capital; (c) auditing and reporting arrangements; and d) portfolio benchmarking strategies.

The Panel believes the Investment Policy Guidelines are in need of revision. In examining the current portfolio, the Panel noted that loss of capital has occurred on at least one occasion. The Panel also noted that IRRI has US$2 M invested in a US based Healthcare Company basket equity fund managed by Citibank, NY. Such investments, whilst in strict compliance with the current Guidelines^[50] nevertheless raise questions as to the appropriateness of the current Guidelines. Furthermore, it is important to have a formal benchmarking strategy in place for a portfolio of this size, both to gauge the performance of the Investment Advisor and to ensure that IRRI is optimizing its portfolio management guidelines over time.

The Panel recommends that IRRI develop updated Investment Portfolio Guidelines that cover the broad spectrum of portfolio management guidelines typically addressed, including maturities; types of instruments; risk assessment, risk management and reporting; benchmarking arrangements; currency hedging arrangements; and the risk and portfolio reporting procedures for the FAC and the Board, for the External and Internal auditors, and for Management.

Given the number of currencies and funding sources, IRRI’s portfolio management task is neither simple nor easily monitored. Advice from a highly qualified investment adviser, one with particular competencies in international investment opportunities and foreign currency hedging arrangements, will almost certainly be required in developing these new guidelines. In carrying out its governance function, IRRI’s Board will need to be receiving periodic reports (at least quarterly for the FAC) that clearly document an expert review of the portfolio metrics, the Policy Guidelines, and the quality of the advisers and custodial arrangements used.

7.6.1.3 Financial Controls and Reporting

The 5th EPMR Panel noted that the finance division was "...staffed with dedicated personnel possessing a high level of professional qualifications....they are supported in their efforts by modern computerized systems and have responded to the funding changes that require increasingly stringent identification of costs and their containment." At that time, the 5th EPMR noted that IRRI was "...in the process of installing a new financial management system to run on networked PCs."

In 2003, IRRI substantially completed the installation of the ‘eFinancials System’ of accounting. In discussions with users, the Panel believes that this new system satisfies user needs in most accounting areas. The staff (accounting and users) appeared to be pleased with the accuracy, content, accessibility and timeliness of the information produced.

At the Project/task level, minor problems result from a need for consolidated reports and more detail. These problems have two causes:

1. User groups did not completely identify their needs when the system was designed; and
2. The level of detail and report flexibility required to solve the problems will require a more detailed chart of accounts and account numbering system to capture additional information at the transaction level.

The Finance Department is aware of these problems and is seeking alternate solutions with the software vendor.

The new accounting system prepares perpetual inventory reports that could be used more effectively. At present, the report is used annually to test the physical quantities of selected inventory items: auto parts, fuel, maintenance, and household and office supplies. The Panel suggests that partial physical counts of these and other physical items be compared with perpetual inventories throughout the year and any shortages be brought to Management’s attention.

The Panel commends IRRI for identifying a responsive accounting system and for installing and operating it in a very competent manner, and notes the high quality of the staff employed in the Finance organization.

7.6.1.4 The Auditing Function

(a) External Auditors: IRRI’s EAs for the past 6 years are SyCip Gorres Velayo & Co. (SGV) - a Philippine firm that is affiliated with the worldwide firm of Arthur Anderson through 2001, and after that firm’s worldwide demise, with Ernst & Young, International.

CGIAR Guidelines suggest that Centres rotate the External Auditors every 5-7 years. IRRI is using SGV for its 2003 audit and an internal study and for its Programme audits. The Board has already approved a re-bidding of the IRRI EA contract for 2004. The Panel emphasizes that the CGIAR Guidelines require that the current firm (SGV) be excluded from the bid process - a guideline that should be followed.

(b) Internal Auditors: The 5th EPMR Panel noted that "...the Internal Audit unit at IRRI has a direct reporting relationship to the Director General and the Audit Committee, it has been ineffective in improving internal controls." The Review went on to recommend that IRRI ensure that the internal audit function "becomes fully effective in improving internal financial and operational controls, by reviewing the current level of skills available within IRRI for the Internal Audit function, deciding which skills it is necessary to have internally and which skills might be outsourced, and implementing the organizational and staffing changes required."

In response, in 1999 IRRI with two other Centres^[51] jointly formed a Consortium to employ a centralized internal audit capability headquartered at IRRI. The approach has worked very well. The Panel Consultant read numerous internal audit reports, met with two of the Internal Auditors involved with the preparation of the audits, and spoke with the Director of the CGIAR Internal Auditing Unit.

The quality of the internal audits is excellent, as was Management’s responses to the many issues raised by the audits. Further, the selection of audit areas (including reports on the country offices) was excellent and responsive to the Institute’s needs.

Two of these reports addressed the specific deficiencies in the management of the human resources function where the recommendations contained therein have been implemented - the acquisition of a computerized HR management function that is just now becoming operational. The Panel suggests that the Internal Audit group again review the operations of the new system several months after the installation is complete.

The Panel noted that several reports had been completed, but not signed off and released, for many months, The Internal Audit Director has assured the Panel that the final reviews and issuance would be done promptly for the uncompleted and future reports.

7.6.2 Administration and Human Resources

The A & HR group oversees all the administrative support services for IRRI except Finance. This includes Food and Housing, HR (three departments), Legal, Materials Management, Physical Plant, Safety and Security, and Transport services.

7.6.2.1 Human Resources

Within this group, the Human Resources Management Team has faced some particular challenges over the review period. A new Director for Administration and Human Resources (DAHR) was appointed in 1999. An upgraded HR management information system has been procured and is currently being implemented and, most importantly, IRRI was forced to undergo a major staff reduction programme - where the total staff complement was reduced by 20%, from 1,115 to 845 by the end of 2002 as donors to the CGIAR System lowered their contributions^[52].

Inevitably, such reductions in staffing leave the remaining staff somewhat demoralized, though IRRI Management clearly took great pains to explain the need for the reductions being made. Some IRRI Trustees commented to the Panel that they felt that the reduction was timely, not just to match costs with reduced funding availability, but also since the smaller IRRI was "probably now at about the right total staffing level for what it is doing these days". Financial projections for the period 2004-2006 are predicated on no increases in total staffing through the period.

The HR departments have appropriate staffing policies and procedures in place, or about to be issued. Philippine labour laws are followed in the case of NRS staff, and IRS staffing policies are in line with those at other CGIAR Centres.

One area of concern noted by some IRS and NRS staff is that the current grievance procedures make it difficult, in practice, for a person who is being adversely affected by his/her immediate supervisor to complain outside of the usual line relationship; i.e. through the immediate supervisor. This deficiency in the current procedures could easily be corrected though the appointment of an independent Ombudsperson who would report directly to the Board Chairperson, and thereby bypass the in-house Appeals Committee and Senior Management. The CG-endorsed Model Grievance Procedures used by most Centres are deficient in this respect: indeed the current Model will need to be modified to reflect the provisions of the new governance legislation or CGIAR Centre Boards will be unable to comply with the DFID-requested attestations.

IRRI’s gender profile has changed slightly over the review period: the proportion of female staff has increased over the review period from 33% to 36%. To encourage female IRS candidates to apply, IRRI employs spouses where it is feasible to do so.

IRRI conducts a staff appraisal process annually for all staff, and has recently added a new Classification and Evaluation scheme for IRS staff that seeks to address the multiple dimensions of performance inherent in the MM approach. The appraisal process is thorough and quantitative where appropriate.

7.6.2.2 Physical Plant Services and Computer Systems

The Consultant to the Panel toured the facilities at Los Baños and confirmed that IRRI has consistently maintained the plant and equipment to high standards, and that the provisions for capital replacement (at US$10.7 M) appeared adequate. Insurance coverage for all facilities is reviewed regularly - though the costs of actually replicating the genetic materials stored in the International Rice Genebank facility in the event of a loss are not covered - and possibly could not be covered at a reasonable cost. It is noted, however, that some 90% of the accessions are backed up at a facility located in Fort Collins, Colorado.

The Panel noted that adequate computing equipment redundancy, and on-site, and off-site data backup capabilities are in place, and commends IRRI for the redundancy capabilities that have been designed into the overall system. The entire campus has been retrofitted with a fiber-optic data and communications network and is well regarded by staff.

7.6.2.3 Space Planning and Utilization

IRRI has a campus like arrangement for most of its IRS staff and operates a guesthouse for visitors. Staff, and most spouses are content with the housing arrangements, The Panel was very impressed with the facilities.

IRRI’s Headquarters facilities, including some of its research fields, are located within the boundaries of the campus of the University of the Philippines, Los Baños (UPLB) under an Operating Agreement that was recently renewed for another 25 years at nominal cost. The current facilities - built to support a total workforce of some 1,600 staff and field labourers, are not fully utilized at the current staffing level of 895. IRRI has arranged to rent some excess space to other users where this is consistent with the Agreement under which IRRI operates, and some space has been utilized for improved staff amenities.

7.6.2.4 Materials Management

As is often the case in CGIAR Centres, this area typically is where the loss of portable equipment, fuel and motor vehicle parts and supplies occurs most often. The Panel has the impression that IRRI’s loss experience in this area is probably less severe than at other CGIAR Centres, however, and the overall losses are small. The Internal Audit function has focused attention on the systems and the ‘checks and balances’ in place and there appears to be suitable controls in place. The Panel has commented elsewhere in the Report on the need to improve perpetual inventory checking routines.

7.6.2.5 Safety and Security

IRRI maintains its own fire and police units - both of which work closely with their counterparts on the UPLB campus.

General security arrangements have been generally adequate in the past, even though there have been several serious incidents, including a murder on the field site (not an IRRI staff member), several car-jacking incidents and a grenade throwing incident at a senior staff member’s home. IRRI recently commissioned an extensive study of its security arrangements and, in light of the study findings, expects to make a number of improvements including controlled access to many sensitive locations, closed circuit TV monitoring installations and other arrangements as necessary. The Panel was impressed with the quality of the recommendations.