Forced exit

Engulfed by a scandal, Paul Wolfowitz, President of the World Bank, resigns.

BY V. SRIDHAR

After defending a hopelessly lost case for two months, Paul Wolfowitz finally announced his resignation on May 17 as President of the World Bank, effective from June 30. His fate was sealed on May 14 when a seven-member ad hoc group, established by the Bank's board to investigate serious allegations of multiple conflicts of interest involving his partner, Shaha Riza, submitted its second report. The report confirmed that Wolfowitz had indeed violated Bank rules on multiple counts and failed to act as a responsible head of the institution.

Wolfowitz was in free fall once it became apparent that US President George W. Bush, himself a lame duck since the last congressional elections, who had nominated Wolfowitz as Bank President in 2005, would be unable to defend him any longer. Wolfowitz's last-ditch efforts were then focussed on softening the impact, especially in working out the terms of his departure with the Bank's board.

The executive directors of the Bank issued a statement on May 17, which appeared to be part of an "honourable" exit package for Wolfowitz. It said that it accepted Wolfowitz's assurance that he "acted ethically and in good faith in what he believed were the best interests of the institution". However, critics alleged that the executive directors, in their eagerness to issue a "balanced statement" and work out a deal, had virtually condoned Wolfowitz's actions. Significantly, the board has neither endorsed nor rejected the ad hoc group's report.

The World Bank Group Staff Association, which had been severely critical of Wolfowitz, issued a statement on May 17 demanding that he be placed on "administrative leave". It also demanded that an Acting President be appointed to take "day-to-day decisions", without compromising the security and interest of the Bank. Commenting on the resignation, Alison Cave, head of the Staff Association, asked: "How can we go out and tell governments what to do ... saying one thing and doing another?"

On May 18, Eckhard Deutscher, German director on the World Bank board, said Wolfowitz's failings went much further than his immediate conflict-of-interest problem. He said the underlying reasons for his departure were his management style, failure to consult the board on important decisions, and lack of a vision for the Bank, while being unduly focussed on protecting his own reputation.

Bush, who stubbornly resisted the demand for Wolfowitz's resignation until the last, said, "I regret that it's come to this. I believe all parties in this matter have acted in good faith." He added: "I admire Paul Wolfowitz. I admire his heart and I particularly admired his focus on helping the poor. All I can tell you is I know that Paul Wolfowitz has an interest in what's best for the Bank."

Wolfowitz tried to drive a hard bargain even as he realised that his stay at the helm could not last much longer. He acted defiantly in the hope that the Bank's board would hand him a face-saving option in exchange for his resignation. On the eve of his resignation, Robert Bennet, his high-profile lawyer, said, "Wolfowitz ... would rather be voted out, if the votes are there, than just resign with this cloud over him."

The final statement of the Bank's board, issued after Wolfowitz's resignation, reflected this behind-the-scenes deal between it and its President. The failure to accept or reject the ad hoc group's findings was a striking result of this compromise. Its "balanced approach" resulted in its acceptance of Wolfowitz's "assurance" that he "acted ethically and in good faith", while accepting that the Bank's own "systems did not prove robust to the strain under which they were placed". In effect, the board trashed the findings of its own committee to provide Wolfowitz an honourable exit.

The group, which re-examined the issue, found that the pay increase that Riza received "at Mr. Wolfowitz's direction was in excess of the range" permitted by Bank rules. It confirmed the suspicion that Wolfowitz, by involving himself in the terms of Riza's secondment to the State Department and pay package, furthered the conflict of interest instead of extricating himself from the "de facto conflict of interest" situation he found himself in when he joined the Bank in June 2005 (Frontline, May 4, 2007).

The ad hoc group, established on April 6, was asked to determine whether there were violations of the World Bank's staff rules, of Wolfowitz's contract with the Bank, or of conflict-of-interest rules, and whether the President's actions had caused "reputational damage" to the Bank. Its investigation revealed that Wolfowitz's action of securing a hefty pay rise and virtually guaranteed promotions (without review) for his partner had violated staff rules and his own contract with the Bank, apart from violating the code of conduct applicable to staff. It also concluded that Wolfowitz, by resorting to "public attacks", had "denigrates[d] the very institution he was selected to lead". This, it pointed out, resulted in placing his "interests ahead of the institution's interests", apart from casting himself "as an adversary of the World Bank".

The group identified three main "areas of concern". The first and the most obvious one was that relating to Wolfowitz's involvement with the terms of Riza's appointment outside the Bank while protecting her pay and rank in the Bank. The second related to "important governance issues". It found Wolfowitz's action of deliberately bypassing the Bank's General Counsel on the issue had eliminated an important element in the system of checks and balances in the governance structure of the Bank. The third area of concern was the "manner in which this matter has become a topic of public debate through the statements to the press". In particular, it noted with dismay the misstatements to the press attributed to Kevin Kellems on behalf of the President that "all arrangements concerning Shaha Riza were made at the direction of the Bank's board of directors". Kellems, a former adviser to Dick Cheney, the US Vice-President, who moved into the Bank after Wolfowitz took over, resigned recently.

The group was outraged by the position taken by Wolfowitz that since there were no rules that applied to his situation, no rules could have been broken. On his repeated assertion that he had only followed the advice of the Ethics Committee, constituted to advice on ethics issues relating to board members and the President, the group observed that the problem of the conflict of interest involving Riza's continued employment was not of the committee's making. It said "the problem was created by Mr. Wolfowitz's decision to accept a position at the place where she was employed". It noted that his attempt to blame the committee for his involvement in the determination of Riza's external employment "turns logic on its head".

The group observed that Wolfowitz, "from the outset, challenged the way in which the Bank's internal governance rules regarded personal relationships". It further observed that it "is troubled by these actions coming as they do from a person responsible for setting the `tone at the top' ".

The group noted that Riza's position "was not unique" at the Bank and that other staff have had to make difficult career choices when faced with similar conflict-of-interest situations. "Ultimately, of course, it was Mr. Wolfowitz's decision to accept the position of President of the World Bank, a decision that had consequences that both he and Ms. Riza should have foreseen."

The report is a stunning indictment, unprecedented in the Bank's history. Wolfowitz, better known as "the architect" of the US-led invasion of Iraq, has always had an uneasy tenure at the Bank. He antagonised the staff, fellow board members and senior executives, largely because of his abrasive style. The suspicion that he has brought the "neocon" agenda to the Bank has persisted. Ironically, by placing the fight against corruption in countries seeking World Bank funds at the top of his agenda, he made even more enemies, which resulted in a series of resignations at the top echelons. The irony has not escaped attention, but he has few friends who will commiserate with him during his last days at the helm.