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A horribly long trek to redemption: the Volkswagen Case Study, Part 2

2209_VW_Winterkorn_3448815bBy: Rick Kelly, Triad Strategies Vice President of Strategic Communications

Two weeks after the Volkswagen emission test cheating scandal erupted, the company has taken several important steps toward redemption. Here we present our second installment in this real-time case study in crisis management.

Specifically, Volkswagen to date has:

  • Admitted its transgressions.
  • Accepted full responsibility.
  • Issued an unequivocal apology (one significant flaw; we’ll get to that in a moment).
  • Promised to cooperate with regulators and investigators.
  • Assured its customers that it would fix their cars, although it hasn’t yet figured out how.
  • Replaced its leadership, or at least the CEO.

Given the seriousness of the company’s transgressions, the aforementioned steps were all necessary, and they constitute a good start. The hardest work, however, is still to come.

Customers, potential future customers, regulators, shareholders and the public at large demand to know who, in addition to the CEO, was responsible for intentionally circumventing environmental regulations and breaking the law. The ex-CEO said he had done nothing wrong. We’ll see. But even if the scheme was his brainchild, he could not possibly have carried it out by himself.

So who else knew? Why did they do it? Did anyone try to stop it, and what did they say, and to whom?

As for the apology, delivered by Michael Horn, Volkswagen Group of America CEO: He was sincere. He didn’t minimize what the company had done. He acknowledged that “it’s clear that our company betrayed the trust of you, our customers, our employees, our dealers and the public.”

Then came the line that sets off the BS detector:

“The findings of this investigation do not reflect our values or who we are as a company…”

Beep! Beep! Beep!

As we commented last week, the world can forgive negligence-induced mistakes, and even acts of “pushing the envelope” that cross the line. “We were wrong. I’m sorry. We’ve identified and dealt with those who were responsible. We’ve taken steps to assure this won’t happen again.” You still need to walk the talk, but it may not be a horribly long trek.

Intentionally violating regulatory standards and committing criminal acts, on the other hand, are indicative of a diseased organizational culture. An organization does not change its culture overnight, and seldom without an infusion of fresh-thinking personnel. And once the culture has been changed, the public won’t believe it until there is evidence – lots of it, and over a considerable period of time.

In addition to healing its culture, Volkswagen faces other major challenges. For one, how will the cars in question – nearly 500,000 in the U.S. and as many as 11 million worldwide – be fixed? Will the “fix” compromise fuel efficiency and/or performance? If so, how will the company “make it right” with customers?

Additionally, how will the company mollify its shareholders? Maybe a better question is what kind of punishment will shareholders inflict upon the company for flushing away a third of Volkswagen’s market value?

Fixing 11 million cars will be expensive, and Volkswagen also faces billions in regulatory fines and legal costs, so profitability and market value aren’t likely to improve in the short term. Moreover, institutional investors are also turning their backs on the company until they have a better handle on costs, fines, and legal and criminal proceedings.

This is where things stand two weeks in. The crisis could stabilize, or more shoes could drop. But even in the best case, Volkswagen faces a horribly long trek, one that Fortune Magazine described as “one of the largest leadership challenges in recent business history.”

We’ll check back in as events unfold.

The Triadvocate is a publication of Triad Strategies, LLC, a bipartisan lobbying, public affairs, strategic communications, grassroots advocacy, issue management consulting firm located in Harrisburg, Pennsylvania, with offices in Philadelphia and Pittsburgh

 

 

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