VW’s Ousted CEO Is Probably Getting a $32 Million Pension

24 Sep 2015 | Author: | No comments yet »

The absolutely massive challenge ahead for Volkswagen’s next CEO.

Winterkorn is due a pension of approximately $32 million, Bloomberg reported. The chief executive of Volkswagen has quit the car firm, insisting he was not involved in the emissions tests scandal that has rocked the automotive industry and could lead to one of the biggest ever legal claims.Volkswagen Chief executive Martin Winterkorn resigned on Wednesday, taking responsibility for the German carmaker’s rigging of US emissions tests in the biggest scandal in its 78-year history. “Volkswagen needs a fresh start — also in terms of personnel. I am clearing the way for this fresh start with my resignation,” Winterkorn said, following a marathon meeting with the executive committee of the VW board. The resignation of Winterkorn follows five days of growing pressure on VW after the US Environmental Protection Agency (EPA) accused the carmaker of using a defeat device to cheat emissions tests on diesel cars.

The world’s biggest carmaker has admitted to US regulators that it programmed computers in its cars to detect when they were being tested and alter the running of their diesel engines to conceal their true emissions. The company did not immediately name a successor, and a statement from the supervisory board’s executive committee said recommendations for a replacement will be considered at a board meeting Friday. Tagesspiegel, citing sources close to the board, said earlier that Winterkorn would be replaced by Matthias Mueller, who heads the company’s Porsche sports car business. The potential reputation and monetary damage the company is facing is enormous, say leadership and governance experts. “Warren Buffett has often noted that you build a reputation over years and decades, but you destroy it in a blink of an eye,” said Wharton professor of legal studies and business ethics Thomas Donaldson. “Well, Volkswagen just blinked.” He said the nature of Volkswagen’s scandal had few parallels: “I’ve never seen a corporate Watergate of this stripe.” As a result, spelling out how Winterkorn’s successor can begin repairing the wreck isn’t a simple application of crisis management 101. Hanging over it all, leadership experts say, is the political rift that played out earlier this year between Winterkorn and former chairman Ferdinand Piech, who is patriarch of the family that owns just over 50 percent VW’s voting rights.

German Chancellor Angela Merkel had urged Volkswagen to move “as quickly as possible” to restore confidence in a company held up for generations as a paragon of German engineering prowess. VW has enlisted Kirkland & Ellis, the US law firm that defended BP after the Deepwater Horizon oil disaster, to help it deal with the growing pile of investigations and lawsuits.

There was no sign emissions testing was part of Piech’s criticism of Winterkorn, but insiders say Piech was unhappy with Volkswagen’s underperformance in the United States, where sales of VW-brand cars fell 10 per cent last year to less than half of their 2018 target of 800,000 deliveries. The challenge ahead is extraordinary, from overhauling personnel to rebuilding the company’s culture to setting realistic expectations and bringing in untainted outsiders who can send strong signals to investors. Winterkorn has long been accused by critics of an excessively centralised and hands-on management style, which they say has led to production delays and hindered the firm’s ability to adapt to local market needs.

Almost €25bn, or a third, has been wiped off the value of VW this week, although shares in the carmaker rebounded 5% after Winterkorn’s resignation. It’s a crawl up a very steep slope, where at this point you can’t even see the top.” Several governance experts suggested that an outside CEO—or the naming of an interim CEO from the board—would be a good first step. Volkswagen was challenged by authorities back as 2014 over tests showing emissions exceeded California and US federal limits, but didn’t admit wrongdoing. Some even cited dream candidates for the job like former Ford CEO Alan Mulally, who achieved rockstar CEO status with what he turned around the U.S. automaker. With a multi-generational family involved, and given Volkswagen’s importance to the national economy, he doesn’t see it as likely. “I think an interim setup could be argued as being ideal under these circumstances,” Mader said. “If I was a board member, I’d sure be thinking about a ‘buy time’ strategy.” Press coverage, meanwhile, has listed both Matthias Müller, who runs the Volkswagen division that makes Porsche sport cars, and Herbert Diess, who just joined VW from BMW in July, as potential successors.

All participants in these proceedings that have resulted in unmeasurable harm for Volkswagen will be subject to the full consequences.” However, the committee, which includes Wolfgang Porsche, a descendant of the company’s founder, insisted that Winterkorn “had no knowledge of the manipulation of emissions data”. The committee said it had “tremendous respect for his willingness to nevertheless assume responsibility” and added that VW’s global expansion would be “inextricably linked to his name”. That will not only allow the new CEO to start with a clean slate, but will send signals to outsiders—customers, investors, suppliers—that significant change is underway.

Dennis Carey, another senior executive recruiter for Korn Ferry, said that he worked with Tyco International following the company’s accounting scandal, helping to rebuild its senior management team and board. That decision was taken and put into action by people of reasonable seniority. “If the board members knew what was happening, that is clearly severe – and possibly criminal – malpractice. Michael Useem, a professor at Wharton who has worked closely with boards managing crises, says that the first year after a crisis is often a matter of triage, and that emphasizing the slow nature of the turnaround is important. “You’ve got 12 months of extremely heavy lifting,” he said.

The 20-strong board includes members of the Porsche and Piëch families, union leaders, politicians from Lower Saxony, where VW is based, and representatives from Qatar, a major shareholder. “Ultimately, this must happen quickly,” he said. “We must not allow the impression to arise that this is a problem for the whole auto industry or that it raises questions over the integrity of Volkswagen overall. Charles Elson, a governance expert who worked with HealthSouth in the aftermath of its accounting scandal and who remains on its board, says it took years for the company to remove the old vestiges of its culture and rebuild itself with new management.

The 600,000 employees of VW cannot help it that individuals carried out criminal actions on whatever scale.” “Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group,” said Winterkorn, who has led the company since 2007. “The process of clarification and transparency must continue. The same, he believes, will happen at Volkswagen. “It’s important to separate the company from the old culture as dramatically as possible and be extraordinarily transparent throughout the process,” Elson said. “It’s going to take a long time to redo this.”

I am convinced that the Volkswagen Group and its team will overcome this grave crisis.” Earlier, Prof Karel Williams of the University of Manchester business school told BBC Radio 4’s Today programme that the VW scandal reflected badly on Germany. “Germany has been lecturing the Greeks for years on how they cheated on the budget deficit calculations and now look at this – Germany’s largest company is cheating on emissions,” Williams said. Oliver Krischer, the deputy leader of the Green party, told German television that this showed the government knew that car makers were trying to manipulate emissions tests. He said: “The government worked together with the auto industry, not to ensure that the emissions levels were reduced, but so that the measuring system was set up in such a way that on paper the cars met the necessary standards.” The European Automobile Manufacturers’ Association (ACEA) said European rules will soon require testing to be conducted in realistic driving conditions as well as in laboratories, creating the strictest regime in the world.

It said: “The ACEA will continue to engage with the European commission and national governments to address the current challenges and ensure that trust and confidence in the car industry and clean diesel technology are maintained.”

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