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Volkswagen's Long And Winding Road Ahead

This article is more than 8 years old.

You could hear the sense of betrayal in the voice of the Congresswoman from Colorado.

“My first car was a 1960 Beetle,” said Rep. Diana DeGette, during an October 8 Congressional hearing on the Volkswagen emissions scandal. She waxed nostalgic about her grandmother who owned the car before her, the fabric roof, and simpler times when cars didn’t have all those corruptible computers on board.

Her fond memories and those of other VW-owning members of Congress only deepened the anger running through the room, captured in DeGette’s assertion that the company now has “purposefully deceived millions of customers.” Over a few short weeks, the carefully crafted and hard-won image of Volkswagen as a youthful, hip, environmentally-friendly company has been crowded out by a darker image of a corporate goliath that forgot its values in its drive to become the world’s largest automaker.

Charles Lane, a columnist for the Washington Post, writes of the personal pride he took in being someone who cared enough to buy what he thought was a green, clean diesel Jetta, named “car of the year” by Green Car Journal.  Worse than any financial loss is “the psychological blow – and I don’t know how they’ll make us whole for that.”

Volkswagen’s betrayal ripples on: Lane relied on Green Car Journal, which, in making its now-rescinded award, relied on data from the Environmental Protection Agency, which, in turn, relied on the honesty of Volkswagen. That trust has been broken. The EPA, which has allowed carmakers to self-report emissions based on laboratory tests, now plans to step up expensive and cumbersome road testing of all new vehicles, regardless of manufacturer.

“The EPA is overworked—but this is necessary, because this has shown the system can be gamed,” says Green Car Journal’s editor and publisher, Ron Cogan.

Now, Cogan and other advocates of environmentally friendly vehicles are only hoping that VW’s fraud doesn’t cast suspicion on promising developments in advanced diesel engines. “There’s certainly room for diesel in the United States,” he says. “There are plenty of models, and no evidence of impropriety from any other manufacturer.” As for Volkswagen, Cogan adds, “Owner loyalty is a big thing—and a lot of loyalty has been compromised.”

All of which is to say that, to regain that loyalty, Volkswagen now has reputational mountains to climb – not hills.

To get there, the company will need to reexamine not just the deficiencies in design and manufacturing oversight that enabled this specific crisis, but an insular corporate culture emanating from Volkswagen’s headquarters 100 miles from Berlin. Wolfsburg has been described as Germany’s “ultimate company town,” where VW funds everything from the local university to the soccer team, and employs half the citizenry.

Those are good reasons for Wolfsburg residents to love Volkswagen, but a cozy, company-town mentality is nothing short of disastrous in a board of directors responsible for overseeing a vast enterprise with critical constituents scattered across the globe.

Three primary interest groups currently dominate Volkswagen’s 20-member supervisory board. “You’ve got labor, whose interest is employment; government, whose interests are political rather than economic, and family members, who control a majority of the voting shares and have agendas of their own,” says Charles M. Elson, professor of finance and director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. (In 2012, then-chairman Ferdinand Piëch raised eyebrows by having his fourth wife, a former kindergarten teacher with scant business or automotive experience, appointed to the board).

“It doesn’t create the kind of management monitoring board that is necessary at a well-functioning public company,” Elson says. “They’re going to have to reset the entire culture of the place. They need to bring on a number of outside, independent directors who represent the shareholders’ interests.”

The company’s new board chairman, Hans Dieter Poetsch, (a company insider, plucked from the ranks of VW management) has pledged: “The public and above all our clients have a right to be informed comprehensively.” At the same time, though, Poetsch warned the public not to wait with bated breath to be so informed. To avoid releasing “presumptions or vague preliminary facts,” he said, further information “will still take some time."

Of course, nobody would counsel releasing premature facts or conclusions. “We don’t yet know what happened in the company in terms of how widespread management’s involvement was, and how far up the ladder knowledge of the wrongdoing went,” cautions Jill E. Fisch, Perry Golkin Professor of Law at the University of Pennsylvania. Still, Volkswagen’s board must not use prudence and patience as an excuse for inaction and insularity. There is much they can and need to do – and the hourglass is draining.

“It is their role to try to figure out what went wrong, and to determine whether the incentives, the reporting structure, and other things are fundamentally broken, allowing a problem of this size to persist,” Fisch says. “Any company the size of Volkswagen can have rogue employees, and there’s no way that a board is going to police against all illegal activity. But at least what we see so far in the media suggests this can’t be a situation that was limited to a few people.”

The company has pledged to cooperate fully with the investigation and comply with regulatory measures. Crucially, though, Volkswagen must not appear to be simply complying. Such promises, however necessary, miss the much larger challenges facing Volkswagen in the days and years ahead. The fact is Volkswagen has no choice but to comply, and to pay billions of dollars in fines as investigations proceed around the world. Mere compliance will therefore do absolutely nothing to advance the still more important challenge of regaining trust.

The true test of Volkswagen’s ongoing viability will be its nimbleness and sincerity in convincing a vast network of dealers, suppliers, regulators, politicians and, most of all, its drivers, of its seriousness in confronting the scandal head-on and moving the company forward.

Alice Korngold, a New York corporate governance consultant and author of the book, A Better World, Inc., says this still-unfolding scandal contains no shortage of lessons for any major company. “This will absolutely be a call to boards and companies to increase their scrutiny in terms of ethics and governance,” Korngold says.

Where environmental, social, and governance (ESG) issues were widely viewed as the province of do-gooders and tree-huggers, the world is waking up to the real economic value of ethical practices. “This is not Kumbaya,” Korngold says. “The Volkswagen case shows that you can succeed or fail by paying attention, or not paying attention, to these issues.”

It’s hard to imagine that an enterprise as vast as Volkswagen won’t weather this crisis. The question, is, will it be able to recover the qualities that ensured the loyalty and affection of its customers and constituents? To be sure, they endured crises before—starting, most obviously, with the company’s very founding as an engine of the Nazi war machine leading up to World War II. Through innovative craftsmanship, phenomenal marketing, and patient years of convincing the world of its sincerity, the company buried its dark past and emerged in the 1960s, against all odds, as one of the world’s corporate good guys. A similarly monumental effort may be called for today.

Richard S. Levick, Esq. is Chairman and CEO of LEVICK, a global strategic communications and public affairs firm.