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The wind of change

3 November 2015 By Olaf Storbeck

Volkswagen’s latest fiasco is putting its governance back in the crosshairs. The German carmaker is taking an additional 2 billion-euro charge after saying it may have cheated on the fuel-economy data for 800,000 cars, in addition to fiddling nitrogen oxide emissions in up to 11 million diesel-run vehicles. It’s another sign of how rotten VW’s internal processes and culture have become.

Volkswagen did, at least, reveal the potential problem itself for once, offering some comfort that the investigation run by U.S. law firm Jones Day is making headway. Up until now the company had only fessed up to misconduct that U.S. regulators were already aware of.

But its misconduct is getting more expensive. The money it is setting aside to fix the fuel-economy fudging pegs the cost at 2,500 euros per affected vehicle, compared with 610 euros each for the diesel’s nitrogen dioxide mess. The scandal also now appears to be spreading to petrol engines.

Much of the blame lies with the way Volkswagen is organised. It is run essentially by a loose cabal. One member is the Porsche-Piech family, the company’s largest shareholder and the holder of 52 percent of its voting rights. Another is the state of Lower Saxony, the company’s home base and the owner of 20 percent of its stock and veto power over important decisions. German unions are the remaining members. The structure means management is not subject to as many external checks and balances as most of its rivals.

True, former boss Martin Winterkorn has been shown the door, and a few senior executives have been suspended. But minority shareholders owning non-voting stock have no one representing their interests on the board. The new chairman, Hans Dieter Poetsch, was the group’s finance chief for 12 years, and Matthias Mueller, the new chief executive, is a VW lifer.

It’s reminiscent of the last days of the German Democratic Republic, when well-meaning communist reformers tried and failed to tweak a moribund system. Volkswagen needs to do more than that. Bringing in outsiders, whether to join the board or replace either or both of the chairman and CEO, may be the only way the carmaker can prove it’s serious about cleaning house.



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