New York City, November 3, 2005

Professor Paul Volcker spoke at the Annual Dinner of the Conference
Board, a
membership organization of world’s business C.E.O.s.

The CB produces the Consumer Confidence Index, the Consumer Internet
Barometer, the Help-Wanted Index and other major indicators that have
an
impact on both business and financial markets. It also produces a
definitive
source of information about worldwide institutional investment trends
and is
a leading source of information about corporate governance, corporate
performance, business ethics, corporate security, human resources
management
and global corporate
citizenship. Headquartered in New York, www.conference-board.org, about
half
of its Board of Trustees is American. The CB is a research organization
in
so far as it tries to foresee coming trends; it is the world’s most
widely-quoted private source of management and economic intelligence.

To understand the place of the CB I would like to quote an executive at
Pepsi who said: “Consultants may provide me with knowledge; the CB
provides
me with wisdom.”

As an example of the horizons at CB I would like to mention that I saw
among
the list of last year’s meetings that the invited guest speaker to an
event
in Ireland was NYT columnist Thomas Friedman. The outgoing chairman of
the
CB is the Chairman of Reuters Group PLC and the incoming chairman is
the CEO
of Pricewaterhouse Coopers LLP.

Mr. Paul Volcker, former Chairman of the Board of Governors of the US
Federal Reserve System, presently Chairman of the Board of Trustees of
the
International Accounting Standards Committee and Chairman of the
Independent
Inquiry Committee dealing with the UN Iraq Oil-for-Food Programme, will
become future high officer to advise Citigroup in matters of the
international atmosphere for business. He is also co-chair of the CB
Global
Advisory Council - its purpose is to set the economic research agenda
to
advance the understanding of the global business environment.

Mr. Volcker was invited to speak at the CB dinner because of the direct
relevance to world business of the saga of the Oil-for-Food scandal -
its
implications to the world of economic development and corporate
governance.

Mr. Volcker said: “It’s commonly accepted among economists and others
these
days that a major obstacle to economic development - maybe the major
obstacle - is not the absence of savings, poor incentives for
investment,
lack of access to capital or even education. Those may be important -
they
are important - but they are symptoms of a deeper malaise. What counts,
for
sustained growth and a flourishing economy is something more basic,
something not part of economic theory, it’s the rule of law and
effective
institutions - governments that are accountable, businesses that are
honest
and reasonably transparent, accounts that are reliable. And all of that
requires an attack on pervasive corruption.”

Mr. Volcker’s above words resonate in the CEO Challenge 2006 report by
the
CB. “Asked to indicate the magnitude of challenge posed by 91 different
challenges, 658 responding CEOs and Chairmen ranked “sustained steady
top-line growth” and “profit growth” at the top of the list. (As an
aside, I
found interesting the rank decrease in Challenges - “Vigilance on
ethics
issues” - from 11th rank to 16, “Cash management” from 17 to 22, and
“Transnational regulatory/fair trade issues” from 29 to 33. A ranking
jump-increase from 30 t0 24 occurred to the “Security of safeguarding
plant/operations/employees challenge - this following the recent
bombings in
London.)

Mr. Volcker, in his reference to pervasive corruption and the UN, said
it is
“significant for the UN itself, for its management, and for its
credibility.” Further, he said, some problems that arise will require a
truly multinational effort and international support. It is then we
look to
the UN for help — whether it is peacekeeping, curbing Asian flu,
dealing
with mass refugees and genocide, environmental emergencies, or some
combination of those. And if the UN itself is deemed incompetent,
unable to
respond effectively, a target of doubts and questions rather than a
depository of talent and confidence, what then? And what kind of
example
would that provide to those many areas of the world mired in
corruption, cronyism, and nepotism?”

Evaluating his Commission, Mr. Volcker said “it provided the eyewitness
evidence — of what went wrong and why. As a result, I don’t think the
‘need’ for change and reform can any longer be intellectually
contested.”

“Iraq had retained the right to designate both oil purchasers and goods
vendors, as well as the initiative on pricing. Sadam figured out how to
manipulate the program in ways to reward Iraqi friends: Russian,
French, and
Chinese citizens and companies”, mentioned as being allowed
“underpriced oil
and overpriced imports” leading eventually to a flow of about $2
billion in
illicit payments. About 4,500 companies world-wide were involved and
according to Iraqi records and other sources, “about half of these
companies
were in some way responsible for illicit payments, directly or through
agents, knowingly or unknowingly.” The “Programme” was “a pact with the
Devil and the Devil had means for manipulating the Programme to his
ends.”

There was poor design of the Programme compounded by a failure to
clearly
define the complex administrative responsibilities - contrary to usual
UN
practice - shared by the Security Council and the Secretariat. The
result -
no-one was clearly in command. The Security Council even permitted
large
illicit sales of oil to Jordan, Turkey, and Syria, outside the
Programme and
contrary to the sanctions. These amounted to five times the moneys that
were
evidenced in the illicit payments through surcharges and kickbacks.
That is,
the Security Council, because of the internal disagreements - we could
say
even self-serving stands by Permanent Members - has contributed to the
illegalities in the execution of the supervision on Sadam’s Iraq.

“The secretariat and some nine UN Agencies had large responsibilities,
both
in New York and on the ground in Iraq….aggravated by unethical and
corrupt
behavior at key points….true at the very top…. the absence of truly
independent status for the auditing and control functions was a
critical
deficiency”. That was Mr. Volcker’s litany, but he also remarked that
the
Programme was also a success because it averted the clear danger of
malnutrition and further collapse of medical services, further, the
continuation of this humanitarian effort helped keep the sanctions in
place
and the arms inspectors at work. “Saddam Hussein, after all, did not
obtain
weapons of mass destruction.” Nevertheless, “the problems in the
Programme
are symptomatic of deep-seated long lasting systemic problems in UN
administration. The problems are inherent in an Organization designed
sixty
years ago for a different and simpler time.”

The UN, designed at the end of WWII had no idea that it will have now
191
member states and will be involved in such large and complex
operational
challenges alongside its political and diplomatic responsibilities, and
have
a staff of thousands spread so widely around the globe.

Looking at the above, the main Volcker recommendation now, looking at
the
Secretary General job as defined at the time as Chief Administrative
Officer, he sees that the position was being filled always by someone
with
political skills. This position requires in the present complicated and
enlarged situation to be amplified carefully - besides the political
skills,
an actual Chief Administrator who is outside this political fray is
needed.
This vision is something very obvious to the CB audience and to be
expected
from someone who is highly regarded as a no-nonsense man. His statement
is
that he wants to emphasize two points:

(1) “The need for a strong Independent Oversight Board with real
authority
able to review staffing of the audit and inspection divisions…it
should
protect the independence of the audit and control functions from
management
control and intrusion.”

(2) “The need for effective administrative focus and discipline.” The
solution he suggests is “an effective Chief Operating Officer,
nominated by
the Security Council and appointed by the General Assembly.” This
amounts to
no less then a second person, independent of the Secretary General,
elected
the same way as the SG, and in charge of overseeing finances and
management,
while the SG continues in his efforts of managing with his political
skills
the interests of the 191 membership that is probably to grow further.

Looking at the two points, I see here an actual change of the UN
Charter to
allow for a Chairman of the Organization who is loosely designed along
the
lines of the old SG, while a new C.E.O. comes alongside, but who cannot
be
fired by the the Chairman, only by some form of decision of the GA.
Further,
a Board of independent professional overseers are set to audit the
whole
organization - the UN and its affiliated bodies. To achieve these
changes,
Mr. Volcker suggests a “coalition of the willing” and is not shy to
point
out that the Canadians the Scandinavians were traditionally supportive
of
the United Nations. “But a certain skepticism and suspicion among many
smaller countries must overcome. And the big democracies - India,
Brazil,
Mexico - have yet to be heard from - Maybe some are satisfied with a
relatively weak UN. But I don’t think that can be in the interest of
the US
or other democracies.”

——————————-

Mr. Volcker was outspoken, but yet quite cautious. Nevertheless he
points us
in the direction that simple UN reform will not do - we need indeed
rather a
‘reformation’ of the UN. We were not careful when admitting new members
as
we did not look at the quality of government of those states. We never
held
them responsible to “WE THE PEOPLES” or to the concept of Human Rights.
Good Governance was of no concern - so why are we now surprised that
the
poison we left unchecked inside the borders of the Member States
spilled
over and poisoned the UN Organization at large? We made the GA
irrelevant
because we understood that we are playing there with democracy while
the
majority of those voting represent non-democratic states. We allowed
power
to be concentrated at the SC while we understood that this body does
not
even represent now all nuclear states, forget representation of
democracies
or economically important states. After 60 years, the world has changed
and
trying to hold an organization back from recognizing these changes
leads
naturally to distortions.

Think for a moment at what it means that it took 60 years for the UN to
recognize the importance of the Holocaust genocide. Now when, after 60
years, the UN recognizes as a special date the liberation of one of the
Holocaust camps, the President of one member state, Iran, is literally
calling for a second Holocaust by his call of the eradication of
Israel,
another member state of the UN, some other Muslim states think this is
a
good idea and the UNSG considered for a week to continue his travel
program
by including Iran, saying meekly that the Iranian statement “dismayed”
him.
This as if nothing serious enough to disturb him has just happened. It
required a public outcry, and some warnings from Washington, to change
his
plans. What about other cases of genocide - in Darfur for instance?
What
about this web-site pointing out that whenever you look at misery you
also
find the cause to have to do something with oil? Oh, I really may
stretch
the point further by saying that the innocents pay for excesses of the
rich
countries by having their environments and health destroyed because of
our
excesses. Is it not the clear role of a UN to worry about the level of
lead
found in the blood of the Eskimos, the melting of the glaciers in the
Himalayas, the sea level around Tuvalu, or the death caused by
intensification of the hurricanes?

OK, what I am saying here is that when starting to look at the needed
‘reformation’ at the UN, we must also write into the renewed charter
some
minimum standards for membership requirements. Something that goes
beyond
the disregarded ‘we the peoples’ it should mention directly ‘we the
keepers
of planet earth responsible for our fellow man, nature, global climate
and
peace’. In effect, with the recent acceptance of “the Obligation to
Protect”
the UN has indeed made the first step in the direction suggested here -
so
it is not impossible. Further, creating a “Council of Democracies” at
the
UN, and doing away with the outdated system of “Regions” at the UN
(because
it failed by not distinguishing between Syria and India or Libya and
South
Africa), we also are moving here in the right direction. Now, there is
nothing wrong in leaving outside the UN those states that are not ready
to
live up to the needed norm; isolate them until they find it in their
interest to change - after all we started out with an organization that
did
not include all peoples. We created a Trusteeship Council in order to
help
those on the outside - we can recreate the temporary home for Peoples
that
are not free yet.

This will be possible only if the new UN has incorporated the
management
changes suggested by Mr. Volcker. Making space for India, Brazil,
Mexico,
Japan, Germany, Canada, Sweden, South Africa in the inner circle of
leadership would help. These changes are needed in order to increase
the
effectiveness of the organization and making it efficient without the
need
to allow misdeeds like the those of the SC allowing knowingly the
subversion
of the sanctions against Iraq. A correct UN will be in the interest of
all
the world’s democracies, giving it then some power will not frighten
us.