Thursday, May 17, 2007

Paul Wolfowitz's judges may have ethical issues of their own.

World Bank Scholar
Paul Wolfowitz's judges may have ethical issues of their own.

Thursday, May 17, 2007 12:01 a.m.

In the winter of 2006 an email was sent to the investigations hotline of the World Bank's Department of Institutional Integrity, or INT. Its subject was the "Hypocrisy of ED Tom Scholar."

"Please know," read the text of the email written by a bank employee, "that UK ED Tom Scholar is continuing an affair with [a bank employee]. This woman has been given preferential treatment in [the department] because of her relationship with this powerful ED, this affair is well known, and is in violation of the Bank Staff Rules and the Boards Standards of Conduct."

"ED" means executive director. There are 24 such directors at the World Bank; collectively, they form the board that oversees the bank's work on behalf of its 185 member countries. Mr. Scholar is the ED from the United Kingdom. This week, all eyes were upon these officials as they decided on Paul Wolfowitz's future as president of the bank. Whether their conclusion is fair is a subject for another time. But no less important is whether, while penalizing Mr. Wolfowitz, the board isn't also covering up its own multitude of sins.

I first became aware of the 37-year-old Mr. Scholar--a former private secretary to British Chancellor Gordon Brown who also serves as an executive director at the International Monetary Fund--following the publication of my May 1 column, "Notes on a Scandal." The column, which detailed the hypocrisy of some of Mr. Wolfowitz's public detractors, including former World Bank senior managers with conflict-of-interest issues of their own, clearly struck a nerve within the bank. Many former and current bank staff wrote me to share stories of other bank managers or directors who, they claimed, had violated staff rules with impunity. Mr. Scholar's name kept coming up.

In one email, a correspondent wrote to say that "just like Wolfowitz, Scholar has a romantic relationship with a female employee at the World Bank. Scholar has never officially disclosed this relationship even though it clearly interferes with his oversight responsibilities as a Board member." The author signed off by saying that he (or she) "regrets to have to stay anonymous for fear of reprisal and hope for your understanding in this respect."

Given the seriousness of the allegation, I spoke with Mr. Scholar's secretary three times and twice left messages on his cell phone asking that he call me back for comment, most recently yesterday. He never replied. I have deleted the name of the woman with whom he is alleged to be involved, as well as the department in which she works, because the conflict of interest is not hers. And I have left vague the precise date of the original complaint and job description of the bank employee who filed it in order to secure the person's confidentiality.

The existence of the original complaint does not in itself prove the truth of the allegation. It does show that a complaint about Mr. Scholar was indeed filed with the INT. Because the subject of the complaint is an executive director, the INT was obliged to notify the board, which in turn is required to refer the matter to its own ethics committee. Membership of that committee--itself comprised of three members of the board--is a closely held secret at the bank.

But it does highlight an inherent conflict of interest in the way the board of directors operates: Where allegations of impropriety regarding its own members are concerned, the board serves as its own judge and jury. What's more, the board's code of conduct requires board officials to "protect the security of any information obtained in the performance of their duties," a requirement that applies to those officials "without limitation, after the terms of service as board officials has expired." In other words, it's a closed loop.

Since the original complaint was filed about Mr. Scholar more than a year ago, there has been no indication that any action has been taken by the board--and no way of finding out if the matter was even discussed. But a new complaint regarding Mr. Scholar was sent directly to eight members of the board this Tuesday. Signed "John Smith"--it is not clear whether the author is the same person who filed the earlier complaint--the one-page letter restates the allegation regarding Mr. Scholar's undisclosed liaison with the bank employee. It also adds significant new detail:

"Mr. Scholar has used his privileged position as an executive director to influence Bank staff to manipulate [Ms.] ---- job description in a way to suit her limited professional qualification. Without Mr. Scholar's intervention she would clearly not occupy her present position.

"Several staff members have in the past reported these facts to HR [human resources] and INT. These complaints have been ignored. Given that Mr. Xavier Coll--VP for HR--and Mr. Roberto Danido [sic, should be Danino]--former General Counsel--have been involved in [this] case, one can certainly speculate about the reasons. The case against Mr. Wolfowitz rests solely on the testimony of these two people. . . .

"The experience of the last two months has clearly demonstrated that complaints are only effective if they are made public."

The letter was sent to eight members of the board of directors, including Dutchman Herman Wijffels, who led the board's inquiry into Mr. Wolfowitz's conduct. It will be interesting to see what comes of it. Given the board's previous apparent nonfeasance, the answer would almost certainly have been nothing had the matter not been brought to public attention.

Why does any of this matter? For one thing, it suggests the board lacks the most basic institutional mechanisms to police the conduct of its own members. This ought to call into question its fitness--and particularly Mr. Scholar's fitness--to judge the conduct of others. For another, the Daily Telegraph has reported that Mr. Scholar is likely to become Gordon Brown's chief of staff once the latter moves to 10 Downing Street.

But it matters most of all because the departure of Mr. Wolfowitz is being demanded by his most vehement critics to show that the World Bank is serious about setting the right example when it comes to governance. If it's a spring cleaning they want, why stop there?
Mr. Stephens is a member of The Wall Street Journal's editorial board. His column appears in the Journal Tuesdays.

Copyright © 2007 Dow Jones & Company, Inc. All Rights Reserved.

Notes on a Scandal
How ethical are Paul Wolfowitz's detractors?

Tuesday, May 1, 2007 12:01 a.m.

Meet Dennis de Tray. In the summer of 1998, the University of Chicago-trained economist had his 15 minutes of fame when, as director of the World Bank's mission in Indonesia, he was called by The Wall Street Journal to account for the bank's performance amid that country's economic collapse. After 30 years and $25 billion of loans to the Suharto dictatorship, it turned out that "World Bank officials knew corruption in bank-funded projects was common, but never commissioned any broad reports tracking how much money was lost to it," according to Journal reporters Marcus Brauchli and Jay Solomon.

Why the relative indifference to the problem? Because, as Mr. de Tray explained at the time, "there is a trade-off between, shall we say, being pure and helping people," and also because "sometimes calling a spade a spade is not the best way" when it comes to confronting corruption.

Had matters rested there, Mr. de Tray, who still consults for the bank while working at the Center for Global Development in Washington, D.C., might never again have had his role in the Indonesian debacle reprised. Yet his name pops up as a signatory to a letter published on April 22 in the Financial Times under the headline, "For the good of the World Bank, Paul Wolfowitz should resign." The letter is meant as an indictment of the bank's controversial president, who may soon lose his job for a promotion and raise he authorized for his girlfriend, World Bank staffer Shaha Riza. But look closer and what emerges from the letter is a testament to the hypocrisy, or worse, of Mr. Wolfowitz's leading accusers.

In Mr. de Tray's case, it may seem strange that a man who was willing to countenance the theft of the bank's money by Suharto & Co. as the inevitable price of "helping people" (which people?) should now wax indignant about the damage Mr. Wolfowitz has supposedly done to the bank's "credibility as the international community's trustee of resources for fighting poverty," in the words of the FT letter. Yet Mr. de Tray is nothing if not consistent: Since leaving the bank last year, he has publicly objected to the "Puritan overtone in the current debate on corruption" and argued that Suharto's corruption "created value for Indonesia . . . just as Sam Walton created value for the U.S."--comments that nicely capture the quality of economic analysis at the bank as well as the prevailing in-house view regarding Mr. Wolfowitz's anti-corruption campaign.

Now consider the case of Shengman Zhang, a former No. 2 at the bank who is currently a vice chairman for the global banking division at Citigroup. Mr. Zhang, whose name appears third on the list of signatories, is the husband of Lingzhi Xu, a World Bank employee who began her career as an assistant working in procurement issues--a "Level D" position with a "market-reference point" of $52,000--and was ultimately promoted to her current job--a "Level G-G" high-level staff position with a reference point of $123,000.

Since Mr. Zhang was a managing director of the bank, his wife's employment presented significant similarities to the conflict-of-interest problem that required Mr. Wolfowitz to seek a new job for Ms. Riza, yet it never seems to have raised an eyebrow within the bank's management. Even more remarkable was the relative speed and ease of Ms. Xu's ascent.

"She did two things that are very unusual," says a World Bank source who asked to remain anonymous for fear of career reprisals. "First, she moved from a staff-assistant position to an analyst position. Generally that's very, very difficult. The technical requirements [for the analyst position] are usually quite specific. It's a promotion that needs to go to a sector board, and there are question marks about the process that was followed in her case. [Second], two-and-a-half years later she was promoted to senior procurement specialist. By any bank timeline this is a very quick progression."

Mr. Zhang, whose office did not return calls seeking comment, may be under the impression that his wife's arrangements will go unnoticed. And not just his: A 2005 report, prepared by the bank's Human Resource department, noted "there were 581 couples with 193 'potential for supervision' [conflicts-of-interest] between spouses." Yet about these cases next to no corrective action has been taken, according to bank insiders.

In a similar vein, it has also gone mostly unnoticed that among the letter's signatories is former HR vice president Richard Stern. Mr. Stern resigned from the bank in 2000 when his brother, Nicholas, was appointed chief economist, but only after coming under enormous pressure from the bank's staff association. At the time, then-bank President Jim Wolfensohn was inclined to wave off the staff's objections, observing at a press conference that while "you can't have brothers and sisters [working together at the bank, as president] you are entitled, under Article 5, to run the business as you want, and if you want to vary the rule, you can." (Emphasis added.)

The list goes on. Much has been made of the fact that the raise Mr. Wolfowitz accorded Ms. Riza--after his attempt to recuse himself was rejected by the Ethics Committee, and after he was required to resolve the matter himself, thereby forcing the very conflict-of-interest he had sought to avoid--means she now earns more than Condoleezza Rice's $183,500 salary. Less noted is that no fewer than 1,396 bank employees are at or above that pay grade, hardly putting Ms. Riza in an exclusive category by the standards of her peers.

Much has also been said about the role of Xavier Coll, the vice president for HR, who is supposed to have allowed Ms. Riza's raise and promotion without actually "approving" it. Bank insiders report that Mr. Coll now goes about with a blue ribbon on his lapel, a symbol of the staff's demands for Mr. Wolfowitz to go. How fashionable. But if Mr. Coll really believed the terms of Ms. Riza's package violated bank rules, he had a fiduciary responsibility to object and even resign. That he did not says nothing about Mr. Wolfowitz but everything about Mr. Coll.

As this column goes to press, it's unclear whether Mr. Wolfowitz's presidency will survive the week. So be it. Once the Wolfowitz "scandal" ends, we can begin looking in earnest at the real scandal called the World Bank.
Mr. Stephens is a member of The Wall Street Journal's editorial board. His column appears in the Journal Tuesdays.

Copyright © 2007 Dow Jones & Company, Inc. All Rights Reserved.

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