What happens when the leader loses his ability to lead?

For the most part, it simply means that the leader ceases to be able to command authority and rally the workforce behind the leader’s vision for the organization. In other words, leaders lose their credibility with the people they command. And, there is nothing that will cause a manager or executive to lose credibility faster than to act as if the rules don’t apply to him.

The latest sad example: World Bank President Paul Wolfowitz.

Wolfowitz joined the World Bank in 2005 after a controversial stint as President Bush’s point man in Iraq. Shortly after starting his new job, he directed the bank’s vice president for human resources to approve an extremely generous pay and promotion package for a woman described in various media as his “girlfriend.” According to The New York Times, Wolfowitz’s memo to the HR vice president was detailed and pointed, virtually dictating the kind of job she should be given. “I now direct you to agree to a proposal which includes the following terms and conditions,” Wolfowitz wrote to the HR VP. “You should accept immediately her offer to be detailed to an outside institution of her choosing while retaining bank salary and benefits.”

The “outside institution” the girlfriend was “detailed to” was the State Department, and her salary has been increased twice since she has been there by a total of $61,000. She now earns $193,590 annually, and although she now works at State, she is still on the World Bank payroll.

Not only is this a gross conflict of interest for Wolfowitz, but the World Bank board now says that neither the board’s ethics committee nor general counsel ever was informed or approved of this arrangement. Wolfowitz has apologized for his actions, but as with Don Imus, it only seems to have made matters worse. The World Bank employees’ staff association now says that its members have lost faith in Wolfowitz’s ability to lead and are demanding his resignation.

There is a lot of rhetoric surrounding this situation, but the average person will see this for what it is: The new boss used the power of his position to enrich and reward a woman he is involved with who is also on his payroll. Sleeping with a subordinate is never a good idea (it was once described to me as “Don’t fish off the company pier.”), but Wolfowitz compounded the problem exponentially when he played Henry Higgins with her pay and career.

I don’t understand why executives like Paul Wolfowitz don’t have the good sense to get out when schemes like this are discovered. Not only have his egregious actions been discovered, but he’s completely lost his ability to lead and effectively do his job. When will he finally figure out there’s not much else left?