Is Volkswagen So Complicated Only Insiders Can Fix It?

25 Oct 2015 | Author: | No comments yet »

Directors Say Volkswagen Delayed Informing Them of Trickery.

Volkswagen’s massive diesel emissions scandal isn’t just an embarrassment for the company: by many estimates, it’s also going to cost it tens of billions of dollars in fines, lawsuits, and recalls.

At least three members of Volkswagen’s board said they were left in the dark about the company’s emissions cheating for two weeks after top executives admitted the deception to American environmental officials. The effort to find the guilty and prevent a recurrence is in the hands of new CEO Matthias Mueller, who has been with the group for almost three decades.

The board members’ statements shed new light on flaws in the management structure and lines of communication at Volkswagen, the world’s largest automaker. Volkswagen’s stock has lost about a third of its value since Sept. 18, when the cheating was made public by the United States Environmental Protection Agency.

Volkswagen has admitted that some cars were programmed to disable their pollution controls unless the software detected that emission tests were being conducted. With the controls off, the vehicles had better acceleration and fuel economy, but emitted far higher levels of nitrogen oxide, a pollutant linked to lung ailments. The billionaire members of the Piech and Porsche families collectively control a majority of the voting rights through their holding company, Porsche Automobil Holding SE.

Lower Saxony, the Germany state where Volkswagen’s Wolfsburg headquarters is located, holds a 20 per cent voting stake, giving it the legal right to block plant closures. If he was aware, he withheld significant information from members of his 20-member supervisory board. “That they were not informed about a problem of this dimension, that points to a huge communications problem,” said Markus Kienle, a Frankfurt lawyer who is on the board of a shareholder-advocacy group known by its German initials SdK. Stephan Weil, a board member who is also prime minister of the German state Lower Saxony, where Volkswagen is based, said he learned of the cheating while watching television news.

Dirk Toepfer, a member of the parliament of Lower Saxony, presents a commonly heard argument in Germany: that the peculiarities of Volkswagen mean company veterans are best positioned to lead the clean-up. “Volkswagen is a different world,” says Toepfer. “That means this enterprise functions under different rules than other enterprises. That’s why they need someone that knows the structure.” The management under Winterkorn also has been criticised as overly opaque and hierarchical. Toepfer acknowledged that the inside-outside question has two sides: “Before it’s known who was involved and how, there’s the danger that those put in charge of clarifying matters were involved themselves.” Volkswagen has made some effort to reach outside, hiring US law firm Jones Day to find out who knew and did what in the scandal.

Volkswagen also sought legal clarification about Poetsch’s move to become chairman, said Hans-Gerde Bode, the company’s director of communications. “Knowing that these questions would come up, we obtained a legal opinion ahead of time, which made this change possible to undertake, because we knew, yes, that will lead to multi-sided discussion.” Bode said the company cannot predict what Jones Day will find but that it’s “relatively sure that the CFO and the very top management was not involved in this decision” to alter engine software so that the cars evaded the US tests. He added: “Naturally, if at one point or another possible conflicts of interest are indicated with anyone whatsoever, these people will surely not be part of any meeting where Jones Day reports something and where decisions are taken.” Carol Adams, a professor at Durham University Business School in Britain, questions the idea that only an insider could fix Volkswagen. She says that may stem from the scarcity of outside directors on its board, which is dominated by the owner families and employee representatives: “If you’ve got a board with independent directors on it, you’re less likely to have that fear of questioning a particular culture.” Stephan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences-Bergisch Gladbach, says the Jones Day probe will likely identify the individuals responsible. He noted that American regulators had raised red flags about Volkswagen emissions in 2014. “Talks took place for a full year before Volkswagen admitted the deception,” Mr.

The company, he says, should appoint an outside commission put together from experts, researchers and nongovernment organisations to investigate what happened and how to prevent it from happening again. Weil said. “This confession should clearly have occurred much earlier.” Critics of the company previously have said that top managers in Wolfsburg, Germany, where the company is based, hoarded power while discouraging open discussion of problems.

Matthias Müller, Volkswagen’s new chief executive, has acknowledged the flaws and promised a more open style of management, although changing a company with 600,000 employees could take years. Toyota recalled millions of cars after a crisis in 2009-10 over unintended acceleration in some cars and GM had to fix vehicles where faulty ignition switches could shut off the engine and disable airbags.

But Siemens AG, a German engineering conglomerate, reached outside the company for a new CEO after it was hit with criminal investigations for using widespread bribery to win business in a number of countries. Peter Loescher was brought from pharmaceutical company Merck and streamlined the company’s complex structure and, by his own account, purged 80 per cent of top management.

Winterkorn said in a statement accompanying his resignation. “I am not aware of any wrongdoing on my part.” Some outsiders expressed surprise that Mr. Standing next to him at the time was a regulator with the California Air Resources Board, according to an E.P.A. official who confirmed the events, earlier reported by Reuters. Hocker said shareholders are angry and want changes. “The whole company was run from Wolfsburg,” he said. “They have to get away from this centralized management.”

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