Corporate Advisory

VW reveals IA review findings: systemic culture and ethics issues

Yesterday VW’s Supervisory Board (non-executives in UK governance terms) appointed Karlheinz Blessing as the new head of HR effective 1 January 2016.  Blessing is the CEO of German steelmaker Dillinger Huette and the nominee of powerful VW union IG Metall.  He replaces retiring personnel chief Horst Neumann.  He steps into the second most powerful board role at VW after the CEO facing major challenges to address newly admitted cultural issues in the emissions scandal, and pressure to cut costs and therefore headcount.

As VW now faces multiple, costly business ethics failures (defeat devices across multiple engine platforms and models impacting both emissions and fuel economy), company Chairman Pötsch confirmed in a press conference (recording available here) this morning that culture played a major role in the failure, admitting that the scandal has arisen from systemic problems rather than a few rogue technicians.  The VW internal audit investigation, based on 87 interviews and examining 1,500 computers and other devices, has concluded that the emissions scandal was due to three factors:

  1. Misconduct by some individual staff members
  2. Flaws in some VW processes
  3. An attitude in some parts of the company that tolerated rule-breaking

This follows the typical ethics scandal anatomy Ocreus GoodConduct has identified from many previous ethics and related corporate failures: a trigger event usually caused by a few individuals (finding 1), allowed to grow to catastrophic proportions by latent risks within the company’s management systems (finding 2) and culture (finding 3).

A formal external legal investigation by Jones Day will not conclude until well into 2016, but new CEO Matthias Mueller has already identified a five point plan, including “renewing mindsets”.

Together Blessing and Mueller face a formidable challenge at VW: changing culture in an organisation of 600,000 people globally while managing multiple regulatory investigations and reducing costs.

It is an unfortunate coincidence that 2015 is the tenth anniversary of the resignation of one of Blessing’s predecessors, Peter Hartz, following implication in another ethical scandal (corruption allegations).

Let’s hope that VW and Blessing approach these greatest challenges to VW’s reputation learning from past and present errors.