Sunday, May 06, 2007

My Financial Times comment on Wolfowitz and the World Bank

How the ethics committee failed Wolfowitz

Kenneth Anderson

Financial Times,
May 7, 2007

The World Bank’s ethics committee should have a sign on the door warning: “Caveat emptor –don’t rely on us.”

The absurd controversy over the tenure of Paul Wolfowitz, World Bank president, whose longstanding romantic partner was at the bank years before he was, can be traced to that committee’s incoherent advice.

The ethics chairman who proffered advice to Mr Wolfowitz when he joined the bank is now backpedalling furiously. In loosing the hounds to bay after Mr Wolfowitz and his friend, the institution has set in train a process that will inevitably draw attention to the varied personal relationships and salary levels of other bank administrators and directors.

In 2005, the ethics committee rejected Mr Wolfowitz’s workable proposal to recuse himself on all personnel matters concerning his friend. Instead, it ruled that she would have to leave the bank altogether, disrupting her career and making her forgo a promotion for which she had been shortlisted.

It was an extraordinary decision, raising important questions of gender equity at the bank.

Some have mistakenly supposed that the “advice” was a reflection of settled bank rules. But, in fact, it was quite different from the treatment accorded to some other couples who work there.

Mr Wolfowitz’s friend, Shaha Riza, whose dignity and reticence have been trampled by the bank, testified last week before an ad hoc investigating committee of the bank board of executive directors. Ms Riza said: “I could not understand at the time or now why I was being singled out for this treatment when the then managing director Shengman Zhang’s spouse . . . was working at the bank and before her . . . Caio Koch-Weser’s spouse, when he was managing director. Neither wife was asked to leave the institution.”

Mr Zhang, a Citigroup vice-president who formerly served as the second highest ranking official at the World Bank, has suggested that the analogy is unfair, arguing that wives and husbands have more latitude to work together under “circumscribed conditions” than do persons in less traditional relationships.

But the bank’s staff manual states, in rule 4.01, paragraph 5.2, that spouses and registered domestic partners are forbidden from working in any situation where one “supervises the other, directly or indirectly”, or where they will be brought by their duties into “routine professional contact”. This might seem to apply to Mr Zhang. What is more, rule 3.01, paragraph 4.02, says in the case of more informal relationships, such as that of Mr Wolfowitz and Ms Riza, simply that the supervisor “shall be responsible for seeking a resolution of the conflict of interest”.

But if the bank’s former number two manager cannot recall the rules and exceptions that actually applied to him, how can anyone else be expected to know what they mean?

With perverse illogic, after insisting that Ms Riza must leave the bank, the ethics committee directed that Mr Wolfowitz himself must take care of the terms of her departure, including appropriate compensation for career damage. It mandated the very conflict that Mr Wolfowitz had aimed to avoid yet gave no instructions on how to carry this out. He took the matter to the human resources department, and the ethics committee later issued two reports pronouncing itself satisfied with the outcome.

Ad Melkert, former ethics committee chairman, now creates the impression that the matter was handled under the table, but he ignores the plain language of his committee’s reports. Ms Riza testified that “during my negotiations with [the bank vice-president of human resources], neither he nor anyone else ever suggested to me that my compensation package might violate bank policy in any way.”

If the ethics committee was not “consulted” beforehand on the terms of the Riza negotiation, it is because Mr Melkert refused to deal directly with Ms Riza or consult the head of human resources on what to do in order to give Ms Riza an adequate, yet not excessive, buy-out. If he was unaware of terms of the compensation package, it was because he washed his hands of the matter. His complaints today are opportunistic and smack of a political agenda.

Why such animus against Mr Wolfowitz? Some say it reflects hostility to reforms and others point to the interest of European contributors in a chance at the bank presidency.

Whatever the case, the board is frothing, with many directors apparently seeking any excuse to fire the boss. Its ad hoc investigative report is due at any moment.

But the facts before the board show that the real scandal does not centre on Mr Wolfowitz. The real scandal is the arbitrariness of an ethics committee and its muddled advice, and the astonishing way in which that committee’s failures have metastasised into an ethically dubious venture to bring down the president. None of this speaks well of the bank’s internal processes, or the likelihood of effective internal reforms that would enable the bank to carry forward its important work.

The writer is a law professor at American University and a research fellow of the Hoover Institution.


Anonymous said...

after attempting to inject a bizarre "red herring" into the fracas surrounding wolfowitz' actions, you continue to press this amazing caricature, sure in your ability to spin cliched paranoia into scholarly gold. as a member of the "evil cabal" at the bank (and perpetually corrupt also) i and my european cronies now know why we have never heard of kenneth anderson.

Per Kurowski said...

Although I was an Executive Director at the World Bank, 2002-2004, I arrived there directly from the private sector and so I might not know much about the nuances of diplomatic affairs but, the way I see it, perhaps I am better off so.

The Ethics Committee proposed a solution to Mr Wolfowitz’ conflict of interest that could have entailed having the poverty fighting World Bank to pay out US$1.950.000 over ten years (US$ 130.000 plus 50% benefits) and that, no matter how we read it, is just plain crazy. Then Mr Wolfowitz, whom as President should know that something does not have to be right just because an Ethics Committee says so, raised the potential cost for the bank of what is delicately phrase as a secondment to US$2.700.000, or more.

Both the Ethic Committee and Wolfowitz were wrong and neither of them should be allowed to hide out under some pro or against Wolfowitz banners. If the World Bank is to come out well of this, as the world needs it to do and as its overwhelmingly good staff, management, board members and presidents, present or past, absolutely deserve, then the issue should exclusively be about what is right or wrong.

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