Paul Wolfowitz and the World Bank Paul Wolfowitz was the head of the World Bank
ID: 460194 • Letter: P
Question
Paul Wolfowitz and the World Bank
Paul Wolfowitz was the head of the World Bank from June 1, 2005 until May 17, 2007. Mr. Wolfowitz was romantically involved with an executive at the bank, Shaza Riza. Mr. Wolfowitz went to the board with an ethics question about their relationship and her continuing employment. The bank board advised that Ms. Riza be relocated to a position beyond Mr. Wolfowitz’s influence because of their relationship and also because their relationship would preclude her being promoted at the bank. On August 11, 2005, Mr. Wolfowitz wrote a memo to Xavier Coll, the bank’s vice president of human resources, and suggested the following:
I now direct you to agree to a proposal which includes the following terms and conditions:
The terms and conditions included her future at the bank when Mr. Wolfowitz was no longer heading it as well as an obligation to find her other employment. Ms. Riza now earns $193,590 per year at a nonprofit organization, following a stint at the State Department at World Bank expense. She earned $132,000 at the World Bank (a salary that was tax-free because of diplomatic status).
In response to the questions raised about his relationship and the memo, Mr. Wolfowitz posted the following explanation on the World Bank website:
Let me just say a few words about the issue on everyone’s mind. Two years ago, when I came to the Bank, I raised the issue of a potential conflict of interest and asked to be recused from the matter. I took the issue to the Ethics Committee and after extensive discussions with the Chairman, the Committee’s advice was to promote and relocate Ms. Shaza Riza.
I made a good faith effort to implement my understanding of that advice, and it was done in order to take responsibility for settling an issue that I believed had potential to harm the institution. In hindsight, I wish I had trusted my original instincts and kept myself out of the negotiations. I made a mistake, for which I am sorry.
Not only was this a painful personal dilemma, but I also had to deal with it when I was new to this institution and I was trying to navigate in un-charted waters. The situation was unprecedented and exceptional. This was an involuntary reassignment and I believed there was a legal risk if this was not resolved by mutual agreement. I take full responsibility for the details. I did not attempt to hide my actions nor make anyone else responsible.
I proposed to the Board that they establish some mechanism to judge whether the agreement reached was a reasonable outcome. I will accept any remedies they propose.
In the larger scheme of things, we have much more important work to focus on. For those people who disagree with the things that they associate me with in my previous job, I’m not in my previous job. I’m not working for the U.S. government, I’m working for this institution and its 185 shareholders. I believe deeply in the mission of the institution and have a passion for it. I think the challenge of reducing poverty is of enormous importance.
Question:
1. What ethical issues do you see?
2. Did Mr. Wolfowitz act properly? Do you see any rationalizations?
3. What should the board have done?
Explanation / Answer
1. There are multiple ethical issues.
a) It is unclear how discussions between the Ethics Committee and Mr Wolfowitz can lead to a promotion of Ms. Shaza Riza
b) Mr. Wolfowitz is in no position to send the memo to the head of human resources which had terms and conditions that were clearly unfairly positive towards Ms Riza. He himself admits that he should have been out of the negotiations.
2. No, Mr Wolfpwitz did not act properly as highlighted by the ethical issues above. There are a number of rationalizations.
a) He says he acted in good faith whiler the terms negotiated were unfairly positive.
b) He says he is not hiding or blaming anyone else. This is no justification for the unethical aspects associated with the whole episode.
c) He tries to rationalize that he is not in his previous job and removal of poverty needs attention. None of these take away from the fact that the situation should have been handled ethically.
3. The board should have ensured that Mr. Wolfowitz was in no way involved with the negotitions. As he was the head of the bank, an independent party should have been called in for arbitration.