Tuesday, January 24, 2006

Questions raised about Wolfowitz style

By Andrew Balls and Edward Alden in Washington
Published: January 23 2006 00:43 Last updated: January 23 2006 00:43

Paul Wolfowitz, who was President George W. Bush’s controversial choice last year to head the World Bank, told the bank’s board of directors last week that he intended to tackle serious corruption problems in an institution that in its last fiscal year committed more than $20bn in loans and grants to alleviate poverty in developing countries.


“By problems, I mean very precisely clear-cut cases of bribes, kickbacks, manipulation of the contracting process, fraudulent procurement,” he said in an interview.

He said he told the board, which is composed of representatives of the bank’s 184 country shareholders: “This is not just an annoyance on our main work or a side issue . . . The whole subject of governance and accountability are really central to development and therefore having our own house in order is a central foundation of our work.”

But after a brief honeymoon period, the anti-corruption drive has triggered a dispute with some of the bank’s career staff. They charge that Mr Wolfowitz is relying on a handful of close political advisers, and complain about a lack of confidence in staff who work in difficult conditions in countries with inadequate governance. “They have brought with them the feeling that the whole aid business, and the bank in particular, is soft on corruption,” said one bank insider.

The dispute has also led to broader questions about Mr Wolfowitz’s management style. Interviews with current and former staff members and with executive directors who represent member countries on the bank’s board suggest growing concern that Mr Wolfowitz has taken too long to put a management team in place. There is also anxiety about the gulf between his team of advisers and the bank’s staff. And there are questions about whether the uncertainty has slowed decision-making, feeding into a drop in projects approved this year.

“People do not see Wolfowitz, and the decision-making is very centralised,” said another executive director. “He relies on outsiders who are Republican Americans.”

The controversy is not surprising. After word of Mr Wolfowitz’s nomination by Mr Bush leaked out last year, many in the bank feared the former deputy defence secretary, who is closely associated with the US decision to invade Iraq, would attempt to foist a Bush administration agenda on the international aid agency. As one executive director acknowledges, that initial hostility might now be contributing to the poor working relationship. “It is hard to judge the direction of the causality,” the director said.

Senior advisers to Mr Wolfowitz say the new president is beginning to tackle problems that have long been allowed to fester. As of last October, they said, there were 387 unresolved internal investigations, involving cases ranging from corruption to sexual harassment. Of those, 243 had been open for at least a year. They said the complaints were from staff who had not received the promotions they expected. “There’s new blood being brought into the system, and that creates a lot of motive,” said one adviser.

James Wolfensohn, the outgoing president, left a badly depleted management team. Of the five managing directors – the top layer of management– appointed by Mr Wolfensohn, four had left without being replaced during his tenure. The fifth, Shengman Zhang, became a powerful number two to Mr Wolfensohn until he left for Citigroup late last year. Bank insiders say Mr Zhang, who many expected to leave, was frozen out by Mr Wolfowitz and his advisers.

Roberto Dañino, the bank’s former general counsel and senior vice-president who was highly-regarded within the bank, also announced his resignation this month. Mr Dañino is said to have been unhappy at the suspicious attitude towards the staff.

Below the managing director level, the bank has more than 30 vice-president positions. From the start, Mr Wolfowitz and his team made clear that he wanted eventually to reduce the number of vice-presidential units, and replace some of those whose jobs were not eliminated. “No one knows if they have any authority,” said one vice-president. Mr Wolfowitz said he needed time to judge individuals and to think about the management structure, and that this should not have affected the bank’s work. A bank executive director said that, while the process had been slow, “it is within the margins of acceptability”.

In the meantime, power has gravitated to the small circle around Mr Wolfowitz. Mr Zhang’s departure has left a void. Graeme Wheeler, a long-time bank employee, was appointed acting managing director, but much of this responsibility is seen as having been transferred to Robin Cleveland, Mr Wolfowitz’s closest adviser.

Mr Wolfowitz also brought with him Kevin Kellems, a former Pentagon adviser who also worked for US vice-president Dick Cheney, and Karl Jackson, an Asia expert who served in the administration of President George H. W. Bush. Both are generally well regarded in the bank, although there is some concern that Mr Kellems has now taken up a position as director of strategy in the external relations unit, nominally reporting to the department’s vice-president but remaining a senior adviser to Mr Wolfowitz.

Ms Cleveland was previously associate director of the White House Office of Management and Budget, where she was responsible for the defence and intelligence budgets, and worked closely with Mr Wolfowitz. Some insiders say she lacks knowledge about the bank, has minimal experience in development, and an abrasive manner. Others, who think Ms Cleveland is doing a good job, still say that the centralisation of authority in the president’s office has overburdened her.

These tensions have been highlighted by allegations that Suzanne Rich Folsom sought to bypass internal rules for examining staff e-mail as part of corruption investigations. Ms Rich Folsom, a former Washington corporate ethics lawyer who was originally hired by Mr Wolfensohn to strengthen ties with congressional Republicans, was named last week to head the Department of Institutional Integrity, which has formal responsibility for corruption and ethics investigations.

The previous director, Maarten De Jong, who left in October, was formerly a top law enforcement and intelligence official in the Netherlands, and helped to found Europol. In spite of his impressive background, Mr De Jong was seen as an ineffective administrator, and day-to-day responsibility passed to Robert Hindle, the unit’s senior manager, people familiar with the department said.

Mr Wolfowitz said Ms Rich Folsom was selected after a broad international search.

Four current and former and bank staff, who insisted they not be identified, told the FT that Ms Rich Folsom last year pressed the Department of Institutional Integrity to begin investigating the e-mails of staff members thought to have leaked information about corruption investigations. They said she urged Mr Hindle to bypass internal procedures, which required the signature of the general counsel and a managing director before staff e-mails could be accessed.

Mr Wolfowitz’s office strongly denies that version of events. In a timeline prepared for the FT, the president’s office said the issue arose in August after a whistle-blower – using the bank’s new voluntary disclosure programme that encourages companies involved in bank projects to come forward – alleged corruption on a World Bank project in south Asia.

Several days later, the whistle-blower came back saying he had been threatened and harassed, and was afraid for his safety, because his identity had been leaked by two bank staff members to government officials he had implicated in the corrupt activities.

An investigation was ordered into e-mails of the two staff members in an effort to corroborate the allegation. Senior bank officials said Mr Hindle was not available to act on the request and did not immediately return phone calls. Ms Rich Folsom then tracked down Mr Zhang, who was traveling overseas, to get his approval, and also got approval from the office of Mr Dañino. The FT has seen documentary evidence of the request. But the effort took five days, during which time the whistle-blower fled his country, according to the timeline.

Ms Rich Folsom denies trying to skirt the bank’s procedures, and another senior bank official said nothing was done inconsistent with the rules.

A senior adviser to Mr Wolfowitz said: “This is Washington as usual: a handful of disgruntled anonymous staff sources are spinning tall tales in which they falsely accuse others of doing something that is the opposite of the truth and which is the opposite of the president’s policy.”

But there are also allegations that on another occasion, Ms Rich Folsom asked Mr Hindle to bypass the rules to investigate another suspected leak about an integrity department investigation, according to the people familiar with the matter. Ms Rich Folsom also denied this allegation.

There was an investigation into e-mail monitoring by a senior manager at the bank before Mr Wolfowitz’s appointment, people familiar with the matter said, which may have contributed to e-mail security concerns.

Critics of Mr Wolfowitz agree corruption is important, , and a great risk in the countries in which the bank operates. Many insiders welcome the tough line Mr Wolfowitz intends to take.

Mr Wolfowitz contends that allegations of improper e-mail surveillance are part of an effort to undermine his efforts to go after corruption on bank projects. “I think there are wide differences among the staff in terms of the ones who believe that this kind of change is needed and some who are having, I think, difficulty adjusting to it.”

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