Andreas Whittam Smith: The real sins of Wolfowitz at the World Bank

You are a non-executive member of a board of directors when a new executive chairman arrives. What you hadn't realised until you were alerted by newspaper reports, was that one of the first things the new executive chairman had to do was to resolve a personal problem. For his female companion had been a member of staff for some years. The organisation's rules forbid such a situation.

So the new boss arranged for his friend to be transferred to another institution while keeping her on the payroll. At the same time, because the lady in question did not really want to move, he awarded her a substantial pay rise. In handling this matter, the newly appointed chairman followed some but not all of the established procedures.

You may have guessed already to whom this refers, but I am going to withhold the names for a moment longer so that the right course of action can be considered without being influenced by the enormous press coverage the story has generated. Personally, I agree with the lawyer retained by the chairman who said that he didn't see any hanging offences here, certainly no violations of law.

In this respect, the case of Lord Browne and British Petroleum was very different. Lord Browne had lied to a court of law. My conclusion would be that if the anonymous chairman failed to observe all the rules, then the board should confine itself to reprimanding him. And as there has been press coverage, then a statement should be issued saying merely the matter had been considered, and resolved, by the board.

Instead, the organisation in question, the World Bank, which lends substantial sums of money to poor and to developing countries, is in turmoil. Its executive chairman - or President to use the Bank's nomenclature - is Paul Wolfowitz and he is fighting to retain his job. Mr Wolfowitz, who was appointed by President Bush, was deputy defence secretary during the invasion of Iraq. He is a leading neo-conservative and he was the most influential supporter of the Iraq war. The Bank's shareholders are governments around the world and they appoint the non-executive directors. They are agonising over the situation. They haven't quickly dealt with it in the manner suggested above.

This is because a second story involving Mr Wolfowitz has been running parallel to the first. This concerns the new President's policies. Mr Wolfowitz arrived with a passion for fighting corruption. He argues that corruption saps economic life from the world's poorest nations. And he has been prepared to withhold aid until countries tackle the problem.

This runs smack into the Bank's ethos. The Bank has always acted on the assumption that fighting poverty comes first even it knows that a particular leader will take a slice of any new funds to finance a lavish lifestyle. Mr Wolfowitz, on the other hand, wanted to make "governance" a priority equal to, or even ahead of, poverty alleviation. Indeed, he could be right. It may be that cleaning up governance is at least as effective in relieving poverty as are loans for infrastructure projects, because the former also encourages wealth generation.

Again, if a line could have been drawn at this point, there need not have been the great row that has been running for over a month. It cannot have been for just this, or for just this plus his handling of his companion's job that Mr Wolfowitz was greeted with booing, catcalls and cries for his resignation when he met staff recently.

This is an extreme reaction. These factors can't be the whole reason for the staff association's unprecedented announcement that it was "impossible for the institution to move forward with any sense of purpose under the present leadership." These developments surely don't explain why, at a meeting with about 30 vice presidents of the bank, one of Mr Wolfowitz's two senior deputies, Graeme Wheeler, a former senior Finance Ministry official from New Zealand, suddenly said Mr Wolfowitz needed to step down for the good of the Bank. This last is an almost unimaginable scene in a major institution.

The explosive issue is that Mr Wolfowitz has begun to undermine the Bank's identity. The change started with something very simple. He brought a small group of advisers with him from the Pentagon. His two top aides had worked with him there. These appointments suggested that perhaps Mr Wolfowitz had come to the World Bank in order to carry out American foreign policy - by a different means, in parallel with the Bush administration.

And, subsequently, evidence has accumulated that supports this suspicion Uzbekistan's aid was suspended after it ousted American troops in 2005. Moreover, Mr Wolfowitz's passion for fighting corruption seemed to evaporate when it came to reviewing lending to Iraq, Pakistan and Afghanistan, three countries that the United States considers strategically vital.

No wonder the staff of the World Bank are in uproar. They are international civil servants. They think globally not nationally. They wish to do good in the world, not promote one nation's interests over another's. And no wonder the Bank's shareholders find the matter so hard to resolve, although they are due to come to a conclusion tomorrow or the next day. For many of them, likewise, deplore American foreign policy. They want the World Bank to be the World Bank. But Mr Wolfowitz is Mr Bush's man. That, finally, is the great difficulty.

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