Trust will only be re-established when VW reconnects to its espoused values and shows that it means what it says. Until then, efforts to rebuild trust will be little more than whistling in the wind.
When I bought a new car earlier this year (Ford, before you ask, but manufactured in Germany), the sales rep told me to ignore the fuel consumption figures, because everyone knows they have no relationship with driving in real life. This is a game that has been played and allowed by regulators for years. If that is the case, then just how big a jump is it to “fixing” the emissions data as well? After all, no government authority has shown the slightest interest in the fact that consumption figures are always way off, so it is interesting to see how lying to your customers about fuel consumption (apparently permissible) leads you on to a slippery slope of lying to the regulators about emissions (clearly not permissible).
Lies and white lies?
There are subtle differences at play here. Taping-off indentations (that cause drag) on a car – something that I venture to suggest that nobody ever does in real life, is seen as acceptable. As is over-inflating the tyres, which of course we never do either because we slavishly follow the handbook. Both of these in pursuit of amazing fuel efficiency to persuade the punter to buy your super-efficient car. And on the other hand putting a piece of software (or according to Jeremy Clarkson hardware in some cars) to reduce emissions during the test cycle is clearly seen as unacceptable.
The difference has little to do with lying to your customers – although US lawyers are already working that angle now. The difference appears to be that the US authorities are truly interested in air quality – unlike the EU which much prefers good sounding initiatives – even if, like conning people into buying diesels for efficiency means that they are persuading them to buy a much more noxious set of emissions. So this time, by actively deceiving the regulators as well as their customers, Volkswagen has brought down on itself the wrath of the long arm of US legal imperialism, which in turn has all of Europe scurrying for cover and threatening re-tests.
Tarnishing the German brand
And now there are cries of woe for German car manufacturers sucked into this scandal, indeed for all German engineering firms, as their moralistic national leaders who until recently had been bemoaning the lies of Greek politicians and lazy tax cheating Greek pensioners, are now seen to be in charge of a country full of lying, cheating manufacturers. The extrapolation from one company to a nation at large has taken newspapers less than a week. Meanwhile, VW’s principal defence has been that not a single customer has been “hurt” by the scandal. Perhaps VW should have reference back to its commitment to the UN General Principles on Human Rights which might suggest that harming the environment and society at large (by means of major pollutant emissions this time) might well have resulted in serious harms that they should be reporting under their observance of the UNGP Human Rights reporting, and that they should be mitigating or eliminating this issue.
Anyway, the purpose of this blog post is not to argue the pros and cons of diesel versus petrol, or even the pros and cons of US versus European regulation. Rather it is to explore the inevitability of things going wrong when you lie habitually to your customers so that you can no longer tell the difference between right and wrong. It seems to me, without I must confess having ever worked even remotely close to VW, that they potentially mixed up their culture and their risk culture. It seems likely that their culture of a class engineering act mixed with an incredible commercial organisation was situated well and truly in the here and now. You can imagine the messages going out through the organisation:
- We will be the biggest car manufacturer in the world
- We will move motorists across to diesel engines, as requested by the EU
- We will demonstrate compliance with Californian air quality requirements
Already the engineers are salivating at the challenge: build more cars, make a lot of them diesel and whoops: there is an issue around the emissions. But never worry. Just like the fuel consumption figures, we can massage the emissions figures better, at least for the period of the test regime.
Today versus tomorrow
Their culture fixed the issues of the day at the expense of creating a long-term sustainable organisation. Their risk culture failed to spot the implications for tomorrow.
The problem was that they were dealing with the omnipresent “now” – the burning issues of “today” rather than the impact that their decisions might have had – indeed did have – on “tomorrow”. Their culture fixed the issues of the day at the expense of creating a long-term sustainable organisation. Their risk culture failed to spot the implications for tomorrow. It is this difference between the culture (which looks at the here and now) and risk culture (which looks at the multiple possible futures of tomorrow) that is so sadly lacking in many organisations. Indeed, in my view, this was one of the major failings of the banking industry in the lead up to the Global Financial Crisis (GFC) of 2008 and which explains the focus on culture by the financial regulators around the world .
It is interesting to note that VW’s core personal values are:
- Social responsibility: Innovative employment models and social involvement.
- Sustainability: Human rights, labour standards, environmental protection: there are many facets to sustainability.
- A spirit of partnership: Equality and humanity: fairness is important to us.
- “Pro Ehrenamt” volunteering initiative: Have you ever thought about becoming a volunteer? There are many ways to get involved – and there’s one near you.
The nearest that any of these comes to defining an ethical approach to business is under the heading of sustainability, where, if you go on to read the detail, VW state:
“We aim to be the world’s most successful, fascinating and sustainable automobile manufacturer. For the Volkswagen Group, sustainability means that we conduct our business activities on a responsible and long-term basis and do not seek short-term success at the expense of others. Our intention is that everyone should profit from our growth – our customers and investors, society and, of course, our employees. In this way, good jobs and careful treatment of resources and the environment form the basis for generating lasting values.”
They go on to say:
Since 2002, Volkswagen has been involved in one of the largest and most important CSR initiatives in the world – Global Compact.
The Ten Principles of
- Human rights
- Working standards
- Environmental protection and
- Combating corruption
form the core values of Global Compact. Together with 12,000 companies from over 170 countries, Volkswagen works in diverse international CSR projects towards making the global economy more sustainable and fairer. An annual progress report documents our projects.”
If this had truly formed the basis of their culture, rather than the elements that speak to the engineer as manufacturer, or marketeer as salesman, then VW might have begun to realise before they installed the offending “Defeat” software that they were heading down the wrong track for multiple reasons:
- Emitting larger amounts of NOx than allowed was not in line with looking after the Human Rights of communities where their cars were sold;
- Lying to regulators by installing this software is fundamentally corrupt when you define corruption as “the abuse of entrusted power for private gain”; and
- Clearly the engineering solution was not consistent with environmental protection.
Remedies or whistling in the wind?
Risk management should be the disruptive intelligence that pierces perfect place arrogance
The new Chief Executive has clearly articulated that he will focus on reorganisation (providing more autonomy to operating divisions and regions), better governance and stronger compliance. To me this is totally missing the point. For all of the work that their risk management and compliance departments were doing, I would venture to suggest that they had missed two of the key risk management issues. VW desperately need to get a grip on their risk appetite and also the tensions between their culture (the here and now) and their risk culture (tomorrow). The gap between espoused values and demonstrated behaviours was simply too great with “today” trumping “tomorrow”, the benefits of short term easy fix, outweighing longer term damage.
Had they worked on both of these areas, I would argue that risk management could have fulfilled its most important role, which is to be the disruptive intelligence that pierces perfect place arrogance, an arrogance so aptly displayed by an organisation that despised its customers so much that it regularly lied to them, and then took to lying to its regulators. Trust will only be re-established when VW reconnects to its espoused values and shows that it means what it says. Until then, efforts to rebuild trust will be little more than whistling in the wind.
If you would like to know more about how AndersonRisk works with organisations to articulate risk appetite, or to measure risk culture while also identifying gaps between espoused and actual values, feel free to contact us here.