World Bank gone nuts?

First it was the country’s fourth largest software services company. Now it’s another billion-dollar revenues monolith Wipro that the International Bank for Reconstruction & Development seems to be targeting. The World Bank as it’s popularly known has debarred Azim Premji controlled Wipro and its affiliates, for four years beginning June 2007 (i.e. the ban continues for another 2.5 years) for allegedly ‘providing improper benefits to bank staff.’
Plainly put, the multilateral financial institution is alleging that some form of bribery was used to affect the outcomes of business dealings with the firm. In the US if corruption is proven, companies can be hauled over the coals. Since Wipro conducts substantial portion of its business in the US and the World Bank too is headquartered in Washington D.C. it ought to be easy for the institution to prove a case of corruption and prosecute the offenders and the company.
That’s where Wipro’s response to the World Bank disclosure on projects financed by it in developing countries makes for Interesting reading. “In 2000 in connection with its IPO of ADS in the USA, Wipro offered a commonly utilized and Securities Exchange Commission approved Directed Share Program that, allowed employees and clients to purchase ADS at the IPO price.” The World Bank’s chief information officer and senior staff were offered participation in the programme and they in turn directed this to their family and friends, says Wipro. Further Wipro claims that all purchasers of the directed share program signed a statement saying that their purchase did not violate any ethics or conflict of interest policies of their company.
Given Premji and Wipro’s squeaky clean reputation one does not need to doubt them for offering a scheme clearly allowed by the US capital markets regulator. In this case, the World Bank action of debarring Wipro nearly seven years after the alleged act occurs is not only a violation of the statute of limitations but also seeks to cover up for the Bank’s own failures in its system of checks and balances, to monitor employee behaviour and compliance with laid down policies. In this case the blame lies squarely with those officers and staff of the institution who gave false declarations to Wipro to facilitate the allotment of the ADS.
However it’s not as if Wipro is entirely blame free. Its officers should have smelt something fishy when the World Bank staffers directed the preferential allotment offer to their family and friends instead of themselves. After all, if it was completely above board than why weren’t they buying it in their name?
More importantly Wipro was offering the ADS allotments as a reward for the continuing business relationship with the bank. So the allotment ought to have been directed ideally speaking to the Bank itself rather than its employees. The Indian IT industry is replete with examples where vendors offer their clients some stake that allows them to participate in the upside of stock market valuations, in return for certain business contracts.
Had Wipro followed the same practice in this case it would have not lost 9.3 per cent of its value on 12th Jan 2009 as it did. Sometimes resisting greed is as important as being legally correct. Mr. Premji are you listening?