Two memorandums lie at the heart of the charge that Paul Wolfowitz, the World Bank president, was guilty of a serious failure of corporate governance when he secured an attractive secondment package for a bank official with whom he was romantically involved.
The memorandums, dated July 27 2005 and August 11 2005, were among about a hundred pages of documents relating to the Shaha Riza affair released at the instruction of the bank’s board on Friday.
In the first memorandum of July 27 2005 (presented in draft form) the ethics committee of the board tells Mr Wolfowitz that under bank rules his relationship with Ms Riza “constitutes a de facto conflict of interest”.
It goes on to reject Mr Wolfowitz’s proposal that Ms Riza should be allowed to stay on at the bank, with Mr Wolfowitz recusing himself from personnel decisions relating to her, stating: “The EC does not consider recusal sufficient.”
The ethics committee advises Mr Wolfowitz to ensure “that the staff member will be relocated to a position beyond (potential) supervising influence by the president”.
It recommends that Ms Riza should be compensated for having to withdraw her application for a more senior job within her existing department with an “in-situ promotion” – that is, a promotion in her current job – to compensate her for the “potential disruption” to her career prospect. The wording implies a single-grade promotion within the bank’s very structured seniority system.
Two weeks later, in the second memorandum of August 11 2005 – the existence of which was first revealed by the Financial Times – Mr Wolfowitz orders Xavier Coll, the bank’s vice-president for human resources, to offer Ms Riza a secondment package with specified benefits that go far beyond the simple promotion suggested by the ethics committee.
There is no ambiguity as to who has decided which terms to offer Ms Riza.
Mr Wolfowitz wrote to Mr Coll: “I now direct you to agree to a proposal that includes the following terms and conditions.”
The bank president tells Mr Coll to offer Ms Riza an initial promotion to H (manager) grade “at a mid-point salary level of $180,000” free of tax – significantly more than the normal maximum increase associated with such a promotion.
Mr Wolfowitz then instructs Mr Coll to offer Ms Riza “annual increases which will approximate 8 per cent” – much higher than the average for bank staff – by agreeing in advance that she would be awarded automatic outstanding performance ratings while on secondment.
The guaranteed 8 per cent annual increase meant that by 2010 her salary would be $244,960 free of tax, about $35,000 more than if she was given annual raises based on the average performance grade, though this information was not contained in the memo.
Finally, Mr Wolfowitz orders Mr Coll to put in place arrangements likely to lead to a near-automatic further promotion of one or even two further ranks for Ms Riza on her return to the bank.
The bank president tells Mr Coll it was “reasonable to grant her request to be guaranteed the right to return at an I level” (director level) if Mr Wolfowitz leaves after a single five-year term.
He adds: “Should I stay on to serve a second term, she should return at J level” – vice-president level, the most senior career staff grade at the bank.
Mr Wolfowitz said the further promotion or promotions for Ms Riza on her return should be “contingent upon a review of her work”.
But he ordered Mr Coll that the review should be done by a committee “appointed by mutual agreement between Ms Riza and HR” – in other words, one whose members she could veto.
The memorandum acknowledges that Mr Coll, the bank’s senior human resources officer, opposed at the very least the arrangements for Ms Riza’s promotions.
Mr Wolfowitz writes: “I understand your preference would be to offer her a financial settlement” that would compensate her for lost opportunities related to her forced departure.
However, Mr Wolfowitz overrules Mr Coll, stating: “I direct you to provide her a choice between her proposal and your alternative of financial compensation.”
Mr Wolfowitz says the initial promotion “should be included in either alternative”. The board findings make clear that the terms and conditions Mr Wolfowitz ordered Mr Coll to offer Ms Riza were not seen or approved by either Roberto Dañino, the bank’s then senior legal officer, or the ethics committee.
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