Wolfowitz's Dilemma

By Scott Horton

To hear Paul Wolfowitz tell it, the source of all his troubles today is that people remember him as the architect of the Iraq War. His defenders at the Wall Street Journal editorial page – as usual, offering us more comic amusement than any paper’s funnies – say that he is the victim of a power play by the defenders of the status quo intent on unsettling all his reform projects.

But the facts are far more mundane and less spectacular. Paul Wolfowitz made the sort of managerial errors in judgment that cost executives their jobs with some regularity in the corporate world. While he ran the bank, his paramour was a bank employee who received two promotions. He then intervened personally to place her in a highly lucrative position at the Department of State with extraordinary compensation arrangements. The Financial Times provides a comprehensive account:

When Mr Wolfowitz became president of the World Bank he also became the boss of his girlfriend, Shaha Riza. To resolve this situation – inconsistent, rightly, with Bank rules – Ms Riza was seconded to the US State Department.

So far, then, so unproblematic. Yet, it is alleged, the terms of the appointment, which appear astonishingly generous, violate a number of Bank protocols. Worse, it now appears Mr Wolfowitz personally directed the Bank’s head of human resources to offer his girlfriend these exceptional terms. Worse still, this has come out after misleading claims by a senior official that the ethics committee of the board, in consultation with the general counsel, approved the agreement.

What then do we see here? The answer is: an apparent violation of Bank rules; favouritism that borders on nepotism; and a possible cover-up. It is true Mr Wolfowitz and Ms Riza were put in a difficult position. Even so, what has come out would be bad in any institution. In an institution that spear-heads the cause of good governance in the developing world, it is lethal.

The Financial Times concludes that there is only one course which a responsible corporate manager would take in such a case: resign. They are certainly correct. Wolfowitz’s next steps will say as much about his residual integrity as his conduct with Shaha Riza.