I have been a loyal customer and fan of Volkswagen since I purchased my first Beetle in 1975. Throughout my first career that took me to Italy, Brazil and France, I drove mostly VW cars. Needless to say, I was very disappointed when I learned about the company’s diesel-emissions controversy in 2015.
The VW GROUP is the largest auto manufacturer globally employing over 300,000 people in more than 100 production facilities in 27 countries. The Group produces more than six million vehicles annually. While VW is the flagship brand, the GROUP includes such prestigious names as AUDI, PORSCHE, Lamborghini and Bentley, not to mention BUGATI, Ducati, MAN, Scania, SEAT and SKODA.
Since the scandal unfolded, many top executives of the VW Group have been dismissed. It’s been estimated that the incident has cost VW in excess of $40 billion in fines, vehicle buybacks, and other penalties. And the nightmare continues; German prosecutors recently charged senior executives with allegedly withholding details from investors.
With a market capitalization of EURO 75 billion and more than EURO 235 billion in revenues, VW does not have to cheat on emission tests. One can only ask how and why this could happen to such a large and successful company?
Let’s have a look.
The why has to do with the integrity and ethics of the senior executive team. Subscribing to achieving results “by hook or by crook” will inevitably bring trouble. It is not a matter of if but when. One should always place integrity and ethics ahead of experience and qualifications.
The how is a little trickier but could be caused by a board of directors being “asleep at the switch.” In a private company the owner(s) may opt to be vigilant or relaxed, but in a public company – with shares owned by the general public, funds and institutions – there are no options for the board. Good corporate governance is a must.
Many large companies have been in the news lately for the wrong reasons. Nissan’s CEO Carlos Ghosn was arrested for misconduct. Ghosn was one of the auto industry’s high-profile executives responsible for turning around NISSAN and the architect of a strategic partnership with French automaker RENAULT.
Elon Musk, TESLA’s CEO, was fined $20 million and stripped from his chairman position by the SEC (Security and Exchange Commission) as a settlement over false and misleading statements.
Canadian companies are not immune. Scandals and negative information have been circulating involving SNC LAVALIN, BOMBARDIER, and EDC. The common thread I see with all these companies is that their boards appear to be too friendly with senior management.
Both SNC and BOMBARDIER are public companies, and well established with strong brand names. They have worldwide operations and with shareholders and investors from many Canadian institutions and funds. EDC is owned by the federal government and its mission is to help Canadian business compete in a more competitive global arena. Companies like EDC must be exemplary in their behaviour. That means directors have not only fiduciary responsibility to their shareholders, but a responsibility to all Canadians.
With time and PR, large companies can sometimes rebuild their image and brand, and win back the trust from their customers and shareholders. But it shouldn’t matter if you lead a large or small company. Why take a bumpy road and unnecessary risks that could cancel all your good work?
It’s better to make sure your business success rests on a solid foundation that is based on high integrity and ethics. Assembling a strong board can help protect your success.