How the Federated Model Emerged

The early development of many ICSOs was often both dynamic and chaotic, and founders were either not interested or unable to wield global control. Once the idea for a new organization had proven viable and effective, local and national organizations emerged quickly, with little interest in and often little need for international coordination. The world of the nineteenth and most of the twentieth centuries was determined within national boundaries, and international control of national affairs was seen as undesirable and virtually impossible. In such a world, international governance could only be conducted by representatives of nation-states: The League of Nations and later the UN, the World Bank and the other Breton Woods¹ institutions, the International Olympic Committee, FIFA (Fédération Internationale de Football Association), the Commonwealth, and the EU (European Union)— all of them composed by independent countries coming together to govern common issues. The federation made up of country representatives seemed to be the only international governance model on offer.

For decades the federated model served its purpose well, until the mid-1980s, when globalization created new threats and opportunities that made closer global coordination among national organizations that carried the same name a necessity. Often, the threats rather than the opportunities brought national organizations closer together. For instance, a major scandal in a national CARE, Oxfam, or Save the Children organization that would have been a local, or, in the worst case, a national challenge in the past, would now quickly spread around the globe, impacting the global brand and affiliates everywhere. Suddenly national organizations had to manage the risks of potential misbehavior of their sister organizations in other countries. In order to manage these risks certain standards on key issues, such as financial accountability, program quality, and child protection, needed to be established throughout all organizations carrying the same name. A second risk that affected several of the large ICSOs resulted from the fact that a number of their national affiliates were running parallel programs in the same developing country. Donors and host governments increasingly asked why these programs could not be brought under a single management to establish a single point of contact in each country, to save overhead costs, and to deliver better services. To avoid such criticism, the ICSOs concerned needed to strengthen their internal cooperation.

Together with these new risks came new opportunities: Donor governments and large foundations developed regional and global strategies and were looking for partners that could implement large programs on an international scale. International advocacy—towards the UN and its various organizations, towards the World Bank and International Monetary Fund, and towards the EU and other regional bodies—became a more important aspect of ICSOs' work, and a stronger global cohesion of national organizations under one global name provided better opportunities for being heard. As a consequence of these and other opportunities and threats, ICSOs strengthened their international governance. However, most did not question the federated model they had been using for decades. Given the existence of many independent national organizations, the choice of a federated structure seemed obvious. In fact, it was the only structure acceptable to the national organizations. They wanted to preserve their independence and limit the need to compromise with others to the bare minimum. Today, most ICSOs have federated governance models. Not all of them call themselves federations, however. Wanting to underline the independence of their national member organizations, some call themselves confederations and others alliances or networks.

The Advantages of the Federal Model

What is so attractive about the federated governance model? First, it perfectly accommodates the typical structure of many national CSOs. Around the world, governments have created similar legal and tax-exemption frameworks in which CSOs have to operate. Usually these require a CSO to be governed by an in-country board of directors. Usually the national board is legally responsible for the appropriate use of all resources collected in the country. The federated model is based on these provisions: It takes the national structure as the starting point and just adds an international board to the national ones.

Second, it mirrors the global governance of most international institutions. No matter whether we look at the UN, the World Bank, the EU, or the vast majority of other international institutions—all are composed of national governments who cooperate as far as it to their particular advantage, but not when their interests are not aligned with the institution's. Most of today's ICSOs were founded when this international architecture took shape—and they reflect the thinking that shaped our world of nations. The federated model of ICSO governance doesn't need much justification: It mirrors the way in which national governments work together.

Third, it provides national legitimacy. In a world still very much defined by the nation-state, being a “proper” British, Indian, or American organization with a fully empowered national board helps with raising funds and wielding influence. These positive features are mirrored by a number of negative ones.

The Challenges of the Federal Model

A federated-governance model is highly complex and very difficult for ICSOs to run. Imagine decision-making in a federation of 20, 50, or even 100 national affiliates, all with their own fully independent national board. In addition—not on top—there is a global board aiming to turn the enormous diversity of national interests of countries such as the United States, Fiji, Swaziland, Guatemala, and Japan into consistent global policies. As national boards are constituted under national law there are very limited means for the global board to take—and even less so to enforce—any decision against the explicit interest of a national board. This makes it very hard for many ICSOs to get anything done at the global level.

One of the consequences of federated governance is a tendency to avoid decisions in situations of diverging or even conflicting national or cultural interests. I remember how an international campaign against the corrective spank or smack employed by parents, teachers, or other authorities to discipline children did not take shape because some prominent supporters of one national affiliate believed in the maxim “Spare the rod, spoil the child”—that the occasional parental smack was a legitimate tool in the education of children. In the self-assessment of ICSO leaders below, we will see that taking quick decisions that are guided by global rather than national interests is an uphill struggle.

This struggle is made even more challenging by the lack of power at the global center. Usually called international secretariats or international offices (but rarely head offices), most global units are coordinating rather than leading the international organization. This powerlessness at the global level on the one hand stems from the fact that national affiliates—by charity law in most countries—retain all powers at the national level and on the other hand by the fact that most international secretariats depend on national affiliates' financial contributions.

Given these downsides at the level of international governance, the persistence of the federated model may surprise. The main reason for the continued dominance of the federated model is that it reflects very well the distribution of power between the national and global levels. I remember the visit of a CEO around the turn of the millennium, who asked for my advice in turning a national organization into an international one. Based on my personal experience with the federated governance of several ICSOs, I urged him to avoid the federated model. I suggested that he speak to any other CEO of a federated organization, who would most likely give him similar advice. He still decided to turn his unitary organization into a federated one. It looks as if the federated model of ICSO governance is practically unavoidable. However, in the face of the increasing need for consistent and effective international decision-making, ICSOs will have to find ways to allocate sufficient power to the global level.

Facts About Participating ICSOs

• 85% of ICSOs have federated governance. We first asked about the governance structure of the ICSOs and found that two-thirds of the organizations (65%) have a general assembly or members meeting. All have an international board and 85% have a number of national boards. This confirms our understanding that the vast majority of ICSOs work on the basis of a federated governance model and face the challenge of aligning national governance with international governance.
• 69% of international boards are controlled by national representatives. We further wanted to know how their international governance is connected to their national affiliates. We found that nearly half of all international boards (46%) consist exclusively of representatives from national affiliates. In another 23% the majority of directors are representatives from national affiliates, and in 15% of the boards less than half of all directors come from national affiliates. Only 15% of participating ICSOs do not have any representatives of national affiliates on their international boards. Looking at these figures we can say that the international governance of the vast majority of ICSOs (69%) is controlled by their national affiliates.
• International boards focus on supervision. We provided the leaders with the—slightly adapted—BoardSource list of the Ten Basic Responsibilities of Nonprofit Boards and asked them to tell us where these responsibilities were predominantly allocated in their organizations. We found that only half of the responsibilities were predominantly exercised by international boards, who:
  • Select the international CEO (94%).
  • Support and evaluate the international CEO (91%).
  • Provide financial oversight (81%).
  • Ensure legal and ethical integrity (72%).
  • Build a competent board (66%).

The five remaining responsibilities are allocated elsewhere in ICSOs' governance and management structures:

• Determine the vision and mission—mainly shared between ICSOs' general assemblies (47%) and international boards (47%).
• Enhance the organization's public standing—mostly a management (72%) task and much less one of the international board (41%).
• Ensure effective planning—even less important for the international board (31%) but very much the responsibility of management (75%).
• Ensure adequate financial resources—not a major responsibility of most international boards (28%), who are as much concerned as national boards (28%), while management is in charge (63%).
• Monitor and strengthen programs—even less seen as a responsibility of the international board (25%) but very much as a management (78%) task.

The Challenges of ICSOs' Governance

After collecting those basic facts about their organizations, we asked the leaders to give us their personal assessments of the quality of their organizations' governance.

• Nearly half of international leaders see national governance as a challenge. This takes us to leaders' assessments of the quality of their organizations' governance. We asked first about their organizations' overall governance, then specifically about their international governance, and finally about their national governance. Given a choice of POOR, AVERAGE, GOOD, VERY GOOD, and EXCELLENT, 39% of the respondents consider their own organizations' governance overall to be AVERAGE, 28% consider their international governance to be POOR or AVERAGE, and nearly half (47%) see their national governance to be POOR or AVERAGE. This means that 4 out of 10 international leaders do not find their organizations' overall governance good, and they predominantly blame flaws in national governance for the situation.
• Seventy-eight (78) percent think their organization is too slow in taking decisions. What will ICSOs' future governance reform focus on? Obviously, we don't know, but we have some indications from the replies to some of our questions. For instance: 31% of leaders think that their organizations are often too slow in taking decisions and 47% think this is sometimes the case, and 28% often experience decision-making as too cumbersome while 47% sometimes do.
• Sixty-nine (69) percent see decision-making as overly compromised in the effort to balance national interests. In a significant number of organizations, decision-making is either often (31%) or sometimes (38%) too much focused on balancing national interests. One of the reasons for this may be that the organization is dominated by its largest national affiliate(s): 26% believe that this is often the case while 28% see it happening sometimes.
• Sixty-five (65) percent of all ICSOs are reforming their governance or planning a reform. Given leaders' assessments of their own organizations' governance, reform seems to be a necessity in many ICSOs. And there certainly has not been a lack of trying: 88% of ICSOs have reformed their governance during the past 10 years, and 35% even have done it several times. Even more telling is the fact that two-thirds of all responding organizations (65%) are either engaged in the process of reforming their governance at present or plan to do so over the next two years. Overall we can say that ICSO leaders are less than enthusiastic about their organizations' governance, and that they have tried to improve their governance before and they will try even harder over the next few years.
• If we take our results so far as a basis, future governance reform should make ICSOs' decision-making both faster and more effective. It should strengthen the basis for decisions that are in the best interests of the organization globally, rather than pursuing the national interests of the most powerful affiliates or seeking the lowest common denominator between diverging or even competing national interests.

The Direction of Governance Reform

What do ICSO leaders tell us about their intentions for governance reform? What do they plan to focus on? One area of potential improvements concerns the question, Who among the organizations' key stakeholders should be represented in ICSOs' governance?

• Fifty-six (56) percent of ICSO leaders would like to increase the number of beneficiaries in their governance. The most significant change concerns the people ICSOs are aiming to serve. More than half of all leaders (56%) believe that beneficiaries should be more involved in their organizations' governance. The only other group a significant number of ICSO leaders would like to see more involved in their governance are external experts: 50% would like to bring additional experts into their governance. If ICSOs follow the guidance of our survey, they will increase the numbers of beneficiaries and experts in their governance while leaving the numbers of activists, national affiliates, and donors as they are.
• Seventy-seven (77) percent want national affiliates to remain or be more involved in international governance. Asked to what degree representatives of their national affiliates should be involved in governance, 50% of respondents believe that national affiliates should stay involved at the same level, 27% think they should be even more involved, while 17% would like them to be less involved, and only 7% think they should not at all play a role in the organization's international governance. This is surprising given the replies to some other questions in our survey, which identify the strong role of national affiliates in the organizations' international governance as a major challenge. One possible explanation for this seemingly inconsistent view may be linked to the distribution of power in most ICSOs. Power is mainly rooted in income, and in most ICSOs money is earned by national affiliates, especially the ones in industrialized countries, rather than by the global entity. This means that governance that properly reflects the real power relations needs to have a strong involvement of the rich national affiliates.

Most ICSOs also depend on their national affiliates to implement the organization's programs and most other decisions of the international board. When asked whether their governance is “unable to secure implementation of its decisions,” 13% of all respondents stated that this is often and 47% that this is sometimes the case. This takes us to 60% of organizations that experience a lack of cooperation in making their decisions a reality. Kicking their national affiliates out of the international governance would probably further reduce the odds of having board decisions implemented. Whatever the correct explanation, it is obvious most ICSOs cannot imagine running their international governance without strong involvement of their national affiliates. Thus, our earlier assumption that ICSOs will try to change their governance to make them less dependent on their national affiliates seems unrealistic.

We finally asked respondents for any comments they wanted to provide that completed the statement: We will/we should reform our governance in the following way. We also provided space for any other comments they wanted to make. Clustering the statements under those sections provides the following areas ICSO leaders want to focus on in reforming their governance:

• Professionalization and effectiveness. Governance should be “less bureaucratic,” more professionals should be involved, the right mix of skill sets should be secured, governance processes should be streamlined, and in some organizations the size of governing bodies should be reduced.
• Accountability and transparency. Governance processes need to be more transparent—in general and specifically towards “those we serve”; roles, responsibilities, and accountability need to be better aligned; national affiliates should be more accountable to the organization as a whole; and accountability needs to be the basis of better performance evaluation and management.
• Diversity in governing bodies. The composition of international boards should reflect the organization's global presence, there should be more board members from the Global South (experts and/or partner representatives), a better gender balance in governance is needed, and local ownership should be strengthened and the most marginalized should be included.

In conclusion: While leaders identify a range of aspects of their governance they want to reform, very few, if any, want to change their governance model as such. For the foreseeable future, we have to expect the federated system will remain the dominant model. On the other hand, given its obvious—and widely acknowledged—flaws, federated governance is not the most appropriate answer to increasingly pressing global challenges. Climate change, eradication of species, pollution of the oceans, scarcity of fresh water supplies, increasing competition for shrinking resources, dramatically growing international migration, terrorism, authoritarian government, shrinking civic space, and many other challenges demand consistent and effective global answers. Such answers can only be found with the benefit of humanity as a whole in mind. They can neither be determined by a handful of a few rich-country representatives nor by finding the lowest common denominator among all countries. Under these aspects federated governance cannot be the last word in conducting global affairs.

Conduct Governance Reform with a Strategic Perspective

Having been involved in several governance reform processes, in the various roles of CEO, board member, or outside adviser, I often found two patterns of seemingly instinctive behavior, both of which threaten the success of governance reform.

The first one is the endeavor to fix the flaws of the existing governance system. Many governance reforms start with a review of the strengths and weaknesses of the governance as practiced over the past three to five years. After identifying specific aspects that did not go well in recent times, the review usually provides some recommendations on how to resolve these challenges. Based on this analysis the board or the general assembly of the organization decides on the way ahead and another round of governance reform takes its course. What is going wrong here? The organization has decided to resolve some challenges of the past, and while the reform process takes its course—often lasting for several years—new challenges to the organization's governance arise. And all too often, shortly after the governance reform has been concluded, a new discussion about the organization's governance starts. I assume that many of the ICSOs in our survey that reformed their governance several times over the past 10 years have fallen into that trap. Change fatigue in many organizations is often due to that mistake having been made too often. In order to avoid this mistake, governance reform has to look at future demands rather than past shortcomings.

The second mistake often made in governance reform is to look exclusively inside the organization. Questions such as: How can we speed up decision-making? How can we avoid internal resistance to decisions? How can we secure smooth implementation of our decision? are often the only ones that are being asked. Such an approach fails to see that governance is only as effective as it enables the organization to fulfill its mission in the outside world. Governance that does not take its lead from the demands of the fast-changing environment in which all ICSOs operate today cannot be effective. I recommend starting with the question: What are the changing conditions under which we aim to fulfill our mission in the outside world? Based on the answers, the next question should be: What kind of governance would be best suited to fulfill our mission in the outside world?

Look to the future, look to the outside world.

Combining our replies to both mistakes in governance reform, we can say the guiding question for any governance reform should be: What kind of governance should we have in order to best serve our mission in the outside world over the coming five years? Or in brief: Look to the future, look to the outside world.

Address the Distribution of Power

One of the main reasons why ICSO's governance does not work very well is that it does not properly reflect the distribution of power in the organization. For instance, I have experienced several situations in which ICSOs agreed on decisions that were not wholeheartedly supported by some of the larger national affiliates. Usually the skeptical affiliates voted with the majority, as it was more comfortable than explaining and defending an opposing position, but then they did not act on the decision's implementation. What went wrong here?

Generally, ICSOs are very skeptical towards power: In their work they frequently experience how many governments, armies, armed movements, certain companies, and many others are abusing their power. Against this background, being powerful is usually perceived as negative in itself. Thus, ICSOs usually avoid addressing the elephant in the room: The question of where power resides in their own organization. They follow principles such as “one affiliate—one vote,” preserving the illusion that all affiliates are equal. In organizations in which the richest affiliate may have 100 times the budget of the poorest one this is an unrealistic assumption: The allocation of power is not reflected in the governance. It only manifests itself in the implementation of decisions: The powerful affiliates decide whether a vote of the international board is going to be implemented or not. A governance structure reflecting the distribution of power would give the larger affiliates a veto right, and at the same time oblige them to implement all decisions that are taken at the international level. Governance reforms that do not properly reflect the distribution of power in the organization will fail to provide the basis for effective decision-making and implementation.

Sadly, aligning governance to the distribution of power fails in a situation in which power is not allocated where it would be most useful in achieving the organization's mission. This is possibly the single biggest challenge most ICSOs face. As discussed earlier, most ICSOs were shaped at a time when they could pursue their missions predominantly at the national level. Meanwhile, globalization demands many more decisions at the global level, and the empowerment of the individual through digital technology mandates more decisions be taken at the local or even individual level. Thus, power should flow from the national level in both directions, towards the global and towards the individual. In fact this power shift in ICSOs has been happening over the past decades and continues to occur at present, but at too slow a pace. Therefore, aligning governance with where power resides at present will not make the organization much more effective in its international work—but actively shifting power would.

ICSOs will have to find ways to shift a significant part of the power of the (rich and usually Northern) national affiliates to the local and global levels. If they fail at doing this, they will also fail at fulfilling their global missions—and they will lose their appeal to the next generation of donors and activists. Governance reform on its own will not produce this power shift. For instance, inviting some more beneficiaries to join an ICSO's board does not shift power to the local level in a governance system in which the rich affiliates still decide whether they will finance and implement the international board's decisions. History tells us that the powerful rarely give away any of their power if they are not being forced to do so. So, the question is whether the boards and CEOs of rich and powerful national affiliates in the Global North will be willing to empower their local partners and beneficiaries and their global decision-making bodies. Should such a miracle happen and power shift to where it delivers maximum benefit, it would not be too difficult to establish a governance system that frames power in a very legitimate and effective way.

Govern Facilitation Rather Than Intermediation

Most of the largest ICSOs are facing significant changes to their traditional role as intermediaries between donors and recipients of aid. When organizations such as Save the Children, Oxfam, CARE, and many others were founded, they served as indispensable intermediaries between donors, usually in the Global North, and recipients, usually in the Global South. Without ICSOs, donors and recipients could not possibly find each other—nor did they have a common basis of communication, let alone cooperation. With the emergence of the digital world this situation has changed fundamentally. All potential donors and the vast majority of potential recipients have access to the Internet. They can find each other through web-based searches or on one of the aid and cooperation platforms that have been set up by a new generation of digital CSOs.

This means that donors and beneficiaries can come together virtually, communicate with each other, and collaborate without the help of a traditional ICSO. And increasingly they do so. With the completion of the spread of the Internet to the poorest and remotest parts of our planet, which will happen over the next 10 years, and the rise of a new generation of donors who have grown up with the Internet and are used to communicating globally, the traditional role of ICSOs as intermediaries will fade away—or at least become much less important. The vast majority of donors will give through highly efficient and much cheaper Internet-based platforms to the people they want to support. And many recipients will be very happy to get rid of often-patronizing Northern-based ICSOs and work directly with individuals and institutions who want to support them.

Governance reform, which aims at securing ICSOs' future, will have to take these changes into consideration. If my organization can no longer play the role of intermediary and can no longer expect to live from the related income, is there a different role we can play—and what governance will that role demand? I believe that there are a number of important tasks ICSOs can and should pursue. For instance, they should swap their role as intermediary for a role as moderator in the communication and cooperation between donors and recipients. For instance, there often will be culture and language differences between donor and recipient that need to be overcome. ICSOs, with their vast experience and presence in the field, could help. There will be a continued need for advocacy for a more just and sustainable way of organizing our societies: ICSOs have the capacity and knowledge to do this. We don't have the room here to explore ICSOs' potential future roles any further, but two important consequences from the loss of the intermediary role seem to emerge: First, the power of intermediaries, resulting from the fact that they were indispensable for any cooperation between donors and recipients, will shrink. And second, the large incomes ICSOs drew from their work as intermediaries will shrink accordingly. This means that ICSOs will have to learn to pursue their missions with less money and less power. They will not only have to find new roles for themselves, but they will also have to acquire a new legitimacy.

I cannot imagine that all of this will be possible with ICSOs' present governance structures, processes, and personnel.

Govern Growing Complexity and Accelerating Change

Global governance necessarily means governing complexity. It means governing different cultures, languages, ways to see the world, and ways to express one's views. It means governing small and large, rich and poor, and powerless and powerful elements and actors. It means governing in a world that grows in complexity at breakneck speed while sticking to its old ways of governance that were developed in times of much less complexity and much slower change. A few years ago I was asked to advise one of the leading ICSOs on governance reform. They had identified the lack of speed in their decision-making as one of their key challenges. Often external events demanded an immediate response from the organization, but their decision-making processes across their extensive global structures took so long that once they had developed a solid and widely shared position the world had already moved on and there was no longer any interest in what the organization had to say.

ICSOs that want to be seen as leading global influencers need to find ways to organize their governance and management in such a way that they are able to produce quick, relevant, and competent statements on behalf of the whole organization within a few hours rather than days, weeks, or months. As the world demands an ever-faster pace in decision-making, it also becomes more complex by the day. No longer can any single person or group credibly claim to hold all information necessary to run a billion-dollar ICSO that operates worldwide. This means that decision-making has become much more decentralized. The people who are directly affected by a decision need to have much more influence in making the decision, and, wherever possible, take the decision themselves.

Leadership teams that are strategically established to cover a wide range of skills and represent a diversity of personal backgrounds and views secure a more solid basis for decision-making in complex and often inconsistent situations. At the same time they need to be set up to take decisions quickly, as the outside world no longer tolerates lengthy decision-making processes. Such teams will require very different leadership skills. Rather than being the one undisputed head of the team leading from the front, future leaders will be able to share leadership across the team and see themselves as facilitators and coaches rather than final decision makers.

Lately we can observe the first examples of shared leadership at the CEO level, but ICSOs are still far away from a systematic approach to shared leadership across the whole organization. Whether ICSOs will come up with governance and management approaches that allow them to quickly tackle complex situations in a fast-changing environment will very much define their future scope and relevance.