Did World Bank go wrong in banning Wipro
World Bank should have taken care to emphasise that Wipro had complied with rules and responsibility for the violation rested squarely with its staff. Wipro centres
By Arvind Panagariya, |
Media preoccupation with Satyam has let another scandal this month escape close scrutiny. The players in this scandal are Wipro and the World Bank. Sadly, while the guilty party is the World Bank, punishment has been meted out to Wipro and its shareholders.
Some eight years ago, in 2000, Wipro carried out an initial public offering (IPO) of American Depository Shares in an effort to raise capital from the US market. As a part of that effort, it offered a small number of shares to its employees and clients at the IPO price through the Directed Share Program (DSP).
The programme is commonly employed by companies to promote themselves to employees and clients and is approved by the Securities and Exchange Commission (SEC), the US equivalent of the Securities and Exchange Board of India (Sebi).
Among the beneficiaries of the Wipro DSP were a few World Bank employees. In dealings with them, Wipro
representatives had taken extra precautions by channeling the offers of shares through the chief information officer and a senior staff member. The latter directed the offers to bank staff, their family members and friends.
The Wipro representatives made sure that as per the SEC rules all buyers of the shares signed the conflict-of-interest statement declaring that they did not violate the ethics or conflict of interest policies of their employer.
The ban remained under the wraps until January 11, 2009 when the bank decided to go public with it. That day, it issued a press statement, now posted on its website, listing Wipro, Satyam and Megasoft Consultants Ltd as companies banned from competing for direct bank contracts.
From the available information, one would think that if any rules were violated in the sale of the Wipro shares, the guilty parties were the bank staff. Surely Wipro representatives were justified in assuming that the chief information officer would be informed about the rules of his or her institution. Yet, the World Bank press note disclosing the ban on Wipro made no mention of either the reasons for the punishment meted out to Wipro or the actions taken against its own staff.
My follow-up email inquiring the precise nature and timing of the disciplinary actions and the cause of departure of guilty individuals from the bank ��� did they leave as a result of the bank���s disciplinary actions or for unrelated reasons ��� failed to elicit a written reply. The spokesperson would only offer to speak on the phone.
Some eight years ago, in 2000, Wipro carried out an initial public offering (IPO) of American Depository Shares in an effort to raise capital from the US market. As a part of that effort, it offered a small number of shares to its employees and clients at the IPO price through the Directed Share Program (DSP).
The programme is commonly employed by companies to promote themselves to employees and clients and is approved by the Securities and Exchange Commission (SEC), the US equivalent of the Securities and Exchange Board of India (Sebi).
Among the beneficiaries of the Wipro DSP were a few World Bank employees. In dealings with them, Wipro
representatives had taken extra precautions by channeling the offers of shares through the chief information officer and a senior staff member. The latter directed the offers to bank staff, their family members and friends.
The Wipro representatives made sure that as per the SEC rules all buyers of the shares signed the conflict-of-interest statement declaring that they did not violate the ethics or conflict of interest policies of their employer.
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This would seem to be a routine transaction carried out by the book, especially in the context of the norms and practices of the time. Yet, seven years later, in June 2007, the bank decided that Wipro had been guilty of violating its rules and banned it from direct contracts for four years. The ban remained under the wraps until January 11, 2009 when the bank decided to go public with it. That day, it issued a press statement, now posted on its website, listing Wipro, Satyam and Megasoft Consultants Ltd as companies banned from competing for direct bank contracts.
From the available information, one would think that if any rules were violated in the sale of the Wipro shares, the guilty parties were the bank staff. Surely Wipro representatives were justified in assuming that the chief information officer would be informed about the rules of his or her institution. Yet, the World Bank press note disclosing the ban on Wipro made no mention of either the reasons for the punishment meted out to Wipro or the actions taken against its own staff.
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When contacted by email, the World Bank spokesperson would only state, ���In the case of the three individuals involved in this matter, the bank followed its internal disciplinary process and actions were taken consistent with the bank���s rules. The individuals are no longer employed by the bank group.��� My follow-up email inquiring the precise nature and timing of the disciplinary actions and the cause of departure of guilty individuals from the bank ��� did they leave as a result of the bank���s disciplinary actions or for unrelated reasons ��� failed to elicit a written reply. The spokesperson would only offer to speak on the phone.
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This episode raises two sets of concerns. First, while the bank insists on holding the developing countries to the highest standards of transparency, its own actions remain shrouded in mystery. To-date, it has offered no explanation of why it took seven long years to act against Wipro. Did the World Bank rules change in the interim, which it then applied retroactively?
Or, did the bank realise one fine morning that it had failed to enforce the rules that had existed all along and then proceeded to enforce them with vengeance, turning Wipro into a sacrificial lamb? When and precisely what action did the bank take against its own staff members? Why the reluctance to reveal the timing and nature of actions and cause of departure of offending employees?
Also disturbing is the fact that the bank waited to make its decision public until a major corporate scandal in the country broke out. Judging by the comments on various newspaper websites, the bank���s press note has left the distinct impression that the Wipro leadership is cut from the same corrupt cloth as the outgoing Satyam leadership. Unsurprisingly, Wipro shares plunged 8% the following day.
The second set of concerns relates to the injustice meted out to Wipro and its shareholders. Commonsense suggests it is impractical to require a company to study the internal rules of each company whose employees receive shares under DSP. The SEC requirement that the buyer sign the conflict of interest statement, which Wipro fulfilled, is the obvious safeguard against possible corruption. As such the guilt of Wipro remains unexplained.
Even if we give the bank the benefit of doubt arguing that once the violation had occurred, regardless of who was guilty, it was bound by its rules to move against Wipro, its handling of the matter was grossly insensitive and unnecessarily detrimental to Wipro interests. The bank press note should have taken extra care to emphasise that Wipro had actually complied with the stipulated rules, that the responsibility for the violation rested squarely with its staff and that it was sorry that given its internal rules it was forced to subject Wipro to the ban.
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This would have guarded the reputation of Wipro and the value of its stock. Instead, the bank left Wipro to fend for itself, which it did through an explanatory note on its website. But predictably, sceptical Indians saw the explanation as the admission of guilt. As a concluding thought, let me note that today India is the largest borrower of the World Bank. With $250 billion in the RBI reserves, does the country really need to borrow more from the bank? Setting aside its International Development Agency loans, which are on concessional terms, India pays higher interest on the bank loans than the RBI earns on its reserves.
Surely, it will be in national interest to use the RBI reserves instead! So how about a four-year ban on the World Bank loans for a change!
(The author is a professor at Columbia University)
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