Usually I have Houston professional sports teams to hold high as example of true bone headedness around compliance issues. However, as my beloved Houston Astros took the World Series Champions, KC Royals, to the 7th inning of a game 5 before folding in the American League (AL) Division Series and then had the AL Rookie of the Year and Cy Young Award winners, I cannot cite to them about now. How about the NFL’s worst excuse for a football team, the Houston Texans? Once again no because they just put a huge beat-down, old-school butt-whoopin’ on the previously undefeated BB shootin’ rootin’ tootin’ Andy Dalton-led Cincinnati Bengals this past Monday night. Finally, the pathetic Houston Rockets, who made last year’s NBA Western Conference finals, yet unceremoniously quit playing for Coach Kevin McHale after a paltry seven games this season because, you know he hurt their feelings when he questioned their work ethic, thereby getting himself fired; they actually started trying not to lose and won the first game after said termination. So we will give Houston professional sports teams a pass this week for my ‘Stupid is as stupid does’ lesson, at least for this week.
However, there is one German automobile manufacturer who has joined the ranks of Houston professional sports teams in providing lessons learned on what not to do in the wake of scandals. I, of course, refer to Volkswagen (VW) that apparently not only cannot find its left hand with its right hand but also may actually be trying to avoid finding either hand all together about now. What did the German national brand mean to you before the VW emissions-testing scandal? For me in meant two things: Quality and Honesty. Now it appears single-handedly VW is trying to destroy both of these positive legacies with its actions in the wake of the September revelations. As reported William Boston and Mike Spector in the Wall Street Journal (WSJ), in an article entitled “VW to Meet With Regulators as Patience Frays”, the German auto manufacturing company has moved from Forest Gump mode in handling it responsibilities to outright insanity in how it deals with regulators and the public. Whatever its reasons for doing so, I seriously think it will certainly not work to VW’s benefit.
VW has become the textbook case of what not to do in the wake of a huge corporate scandal. If you are a Chief Compliance Officer (CCO) or compliance practitioner, you should be watching, reading and listening carefully not only for yourself but also for your senior management and Board of Directors. VW’s descent into near PR-madness all started when the company allowed the Environmental Protection Agency (EPA) to make the initial announcement that VW had indeed cheated with its ‘defeat device’ and then consistently lied about it to regulators across the globe.
How bad was the bone-headed public relations disaster? Two of the company’s Directors were not even told about the scandal or the company’s admission that it had intentionally installed the defeat the device almost five years ago. The WSJ reported that Board member and “Lower Saxony Prime Minister Stephan Weil told his legislature on Oct. 13 that he and a top deputy heard the news “from media reports” over the weekend.” A former Board member and current German Vice Chancellor, Sigmar Gabriel, “also learned about the scandal from media reports. When one of his top aides awoke to coverage on Saturday morning, Volkswagen was unreachable”. VW’s response was almost priceless. The WSJ piece said, “A Volkswagen spokesman said management wasn’t required to inform Mr. Weil or other directors until the full dimension of the scandal became clear.” Don’t you love it when the lawyers write the press releases? (Free compliance tip # 1 for VW – tell your Board members that you have violated the law before they here it from US regulators on TV.)
But even more than keeping their own Board members and high German government officials in the dark, VW has embarked on a campaign to (apparently) alienate regulators across the globe so deeply that the company will lose all credibility. The article noted “EU Industry Commissioner Elzbieta Bienkowska was in Berlin recently and believed she had a meeting set with Herbert Diess, chief of the Volkswagen brand. The meeting was canceled. “I don’t think it was a good decision,” she said. “I don’t know why it was canceled. It was not me who canceled.” A Volkswagen spokesman said Mr. Diess and Ms. Bienkowska didn’t have a confirmed appointment that day.” With only understatement that the WSJ could get away with, the article noted, “While possibly a misunderstanding, the exchange shows how tense Volkswagen’s relationship with Brussels has become.” Indeed. (Free compliance tip # 2 for VW (and Mr. Diess) – have your people, call her people and confirm.)
Don’t worry as I am just getting warmed up because VW has gone further than just insulting the paltry EU Industry Commissioner and their own Board members. First as to US regulators, VW has, once again apparently, decided to fight tooth and nail. Earlier this month, “Volkswagen received another notice from the EPA, this time alleging cheating software also was in 3.0-liter diesel engines used in luxury sedans and sport-utility vehicles made by its namesake, Audi and Porsche units. Volkswagen contested the claim, but still angered some customers who bought the vehicles only to see them drop in value.” The article somewhat dryly noted, “Impressions matter in high-stakes government investigations. Past cases indicate the U.S. is more inclined to impose lower fines on companies that are seen as cooperative in public, even if disagreements over facts continue behind closed doors.” (Free compliance tip # 3 for VW – credibility is key with regulators. So don’t use the public defense that we lied and cheated regarding the emissions-testing for only 12 million of our cars, but not the rest.)
Indeed the VW attitude towards the EPA has become so toxic that even the German government has called the company to task. The WSJ article said “Interactions between Volkswagen and the EPA got so bad that German Transport Minister Alexander Dobrindt publicly criticized the company after he met with agency officials last month. The EPA “is dissatisfied—angry,” he said in Washington, D.C., after meeting U.S. officials. “Trust has been destroyed and it will take considerable work to rebuild it.””
As you might expect VW sales are now down, yet the company has not provided its sales force, i.e. the VW dealers out there, information on how to respond or even what is going on. The article reported, “Some dealers say they are equally frustrated.
“We still don’t know what to tell our customers,” said Steve Kalafer, who co-owns Flemington Car & Truck Country, a New Jersey-based dealership. “We need details about how VW plans to make our customers whole.”” (Free compliance tip # 4 for VW – your sales force is the organization that faces the public; keep them informed so they can talk to your customers.)
All in all, one quote from the article sums it up, when the WSJ quoted Sasja Beslik, head of Responsible Investments at Swedish fund group Nordea Asset Management for the following, “This is a textbook example of how it should not be done”. Amen, brother.
Finally, free compliance tip # 5 for VW, call Jim Crane, owner of the Houston Astros, who intentionally tanked his team for three years so the team had the worst record in baseball yet this year had a team in the playoffs. I cannot think of anyone more well suited to advise you how to run your business about now as Crane certainly cannot give you any worse advice on how to run your business.
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© Thomas R. Fox, 2015