1. In my view, any such union would necessarily have to account for differences among member countries and avoid anything remotely resembling micro-management. The acid test would be to have Shia and Sunni co-exist and tolerate each other. Whoever heads such an institution could be Shia or Sunni and nobody ought to be bothered. That is the beauty of systems that are derived from democratic institutions. Unless something goes horribly wrong, no one can permanently damage a system.
2. @Echo_419 has made an interesting observation. That Pakistan (or any other country) would have to avoid being a dead weight. If we in Pakistan are able to ensure that the obfuscation and deliberate misunderstanding of constitutionalism is taken care of, we shall indeed not be a dead weight. That would mean that we have taken care of people who reject constitutionalism. Such people include most indoctrinated militants (TTP, some jihadists), supporters of Martial laws, and corrupt leaders who think they can use political parties and democratic institutions to loot and plunder (more needs to be said about this particular point, but not now). In my view a 'dead weight' country would be the one that does NOT have developed institutions, no matter how much cash it may have. To give you an idea, if royal family of SA were to be thrown in disarray, all the money that SA has would be of no use in preventing a Tribal civil war, since Tribalism is very strong and entrenched there. If a country does not have Constitutionalism, developed institutions, and a politically aware population, then it is a very poor country as far as I am concerned.
To re-iterate, this union thingy would be of no value if it is for economic benefit alone. It will be irrelevant like RCD. Does anyone remember Regional Co-operation and Development formed by Turkey, Iran, and Pakistan? Therefore it must be based on countries with 'developed' institutions. Such countries would know how and why of managing differences of opinion and experience of handling diversity of POVs. Only Islamic democratic countries can be the leading lights, not any of the Arabs. Tunisia might be an exception in a decade or so. Let us see.
Such an organization could get a start by democratic countries agreeing to fund shared initiatives in education, technology, research, disaster response & recovery, humanitarian assistance, and institution building. A small group of experienced ex-ministers from member countries could comprise a 'parliament' supported by a small budget. This beginning could later be expanded via small steps and in a very transparent manner without any other country feeling threatened by it.
A military aspect for peace keeping could later be developed. A force of no more than 10,000 smart multilingual personnel with excellent training in peacekeeping and disaster recovery could be kept busy. Our young-blood would-be jihadists could be incorporated into a volunteer peace corps and made to do jihad of providing services in various sectors like disaster recovery, quick response peacekeeping, diffusing flashpoints, etc...
The next step could be a court for dispute & conflict resolution and diffusing tensions among member states. Before long, the whole of Muslim world including Muslim minorities in East, West, North, & South would be looking up to this institution. Dictatorships might fall, monarchies might feel pressured to give way to constitutionalism instead of despotism, etc...
Policy guidelines could be issued to ensure a certain uniformity and standards in provision of services for public, conflict resolution. An important aspect would certainly be the rights and duties of Muslim minorities. If any group uses repression as an excuse to start 'jihad', then this institution could investigate and issue a result after looking at all pertinent angles including the view from the authorities of the country concerned. This way spurious organizations could be isolated and actually be confronted. We shall then see who uses name of our religion for their parochial and self-serving agendas.
In a few decades Muslims would cease to be seen as disruptive element in our global village and instead be viewed as a force for positive change. Any conflicts that do arise would be managed before they escalate. If there is a need to take a stand, sane minds would decide; not wide-eyed fanatics.