MistakesToday, we conclude our week long exploration of the original Star Wars trilogy, all posted in conjunction with three podcasts, subtitled May The Podcast Be With You, where we use one movie as a staring point to review Foreign Corrupt Practices Act (FCPA) compliance and translations services lessons learned which can be derived from the movies. It certainly has been a ton of fun in watching the movies (yet again), researching George Lucas and his franchise, writing these blog posts and preparing for and then recording the podcasts with former Hollywood insider and now Mr. Translations himself, Jay Rosen.

I hope you have had some fun reading about or listening to some of the compliance lessons that I have put forth this week. Today I want to step back and take a very big picture look at the evil force in the trilogy, the Galactic Empire, run by Emperor Palpatine and his disciple, Darth Vardar. How did the rebels defeat the Empire? One could say the Empire’s own arrogance and actions brought the weight of its actions down upon itself. Recognizing that George Lucas drew inspiration back as far as the Greek myths, this is certain plausible. Of course, you could also say that the good guys had to win for Americans to go see.

It did strike me, however when reading recent comments by the top leaders at Volkswagen (VW) that the company’s downfall was as inevitable as a Greek tragedy. At the very least the mindset of the company was very flawed. In comments by Chairman Hans Dieter Pötsch and Chief Executive Matthias Müller during a two-hour news conference, as reported in the Wall Street Journal (WSJ) in an article by William Boston, Hendrik Varnholt and Sarah Sloat, entitled “VW Says ‘Culture’ Flaw Led to Crisis”, VW leaders blamed the crisis on “a chain of mistakes” and a “culture of tolerance for rule-breaking that allowed the deception to continue for a decade.” Pötsch went on to say, “the roots of the deception were the misconduct and shortcomings of individual employees” coupled with “insufficient internal processes to detect fraud.”

The bottom line is that the company put a ‘win at all costs’ approach first and when it came to its diesel engines, they absolutely, positively had to meet regulatory standards, such as those set by the Environmental Protection Agency (EPA). If the emissions standards were not going to be met, a work around had to be found to meet the stated management goal, as reported by Jack Ewing in the New York Times (NYT) article “Volkswagen Cites ‘Chain of Errors’ in Emission Cheating”, which stated for the company to “overtake Toyota as the largest carmaker in the world”.

VW does still not seem to understand that its culture is responsible and its culture was, is and will be set by senior management. Andrew Hill, writing in the On Management column in the Financial Times (FT) put it with typical English understatement when he posed the following question, “how many psychologists does it take to change a lightbulb?” His answer: “It only takes one psychologist but the bulb has to want to change.” Hill concluded his piece with the following “it is hard to say whether VW will succeed in making the shift. The group needs to change. It says it will. What remains unclear is whether it really wants to.”

If you compare the conduct and language of VW senior executives of those from Wal-Mart or even General Motors (GM) you will see no greater contrast. These words and actions may also speak to whether VW will or even wants to change its corporate culture. As reported in another FT article by Richard Milne, entitled “Volkswagen tries to get a grip after emissions scandal”, at the same recent press conference, VW Chief Executive Matthias Müller, when asked how he would behave on his first trip to the US after the scandal broke said, “I don’t think I will get down on my knees, I will be self-confident. Of course, I will apologize for things that have occurred.” Later he added, “The future at VW belongs to the brave.”

But Müller did not stop there, he “also took an axe to some symbolic elements of luxury: he will sell VW’s Airbus”. If now you are scratching your head about how the sale of a corporate jet can actually facilitate a change in the ethics and compliance culture in the company; consider that the FT article went on to quote Arndt Ellignhorst, an analysis at Evercore ISI, for the following insight into the corporate mindset at VW, “Cutting corporate jets and fancy cars show galas might not sound like much to the outsight world, but in means a lot in terms of culture and attitude.”

So there you have it, getting rid of a corporate jet is a sign that culture has improved at VW. If that is a sign of improvement, I think it gives some serious insight into not only how the problems first arose but also the difficulty the company will have moving forward from this scandal. Not only do the internal controls and processes need to be overhauled but also it would seem the attitude of entitlement should also be addressed. Simply getting rid of the corporate jet had nothing to do with the corporate governance, management or even the need for a “systemic culture review” at the company.

Hill pointed out that by blaming bad culture, senior management does not have to take the responsibility for creating the atmosphere that allowed the conduct to occur and, in VW’s case, flourish for over 10 years. Hill focused on the mindset at VW, which he believed allowed violations of regulatory requirements because if your mindset is fixed it cannot allow you to be seen to be imperfect so you lie about it. Here in Houston, we have plenty of experience with that phenomenon… it is called Enron.

Can VW change? Chairman Pötsch headed in the right direction at the press conference when he began. “We need the courage to be more honest.” However he veered off the message when he, once again, failed to take responsibility when he intoned, “The growing industry-wide discrepancies between official emissions data and real-life levels are no longer acceptable.” I am not sure he understands that VW, beginning with himself, need to change.

Is VW the evil Galactic Empire? I will leave that determination to others. But the lessons foisted upon the Empire might well play out for VW, if it fails to take full responsibility for its actions and work to change them. With the release of Episode VII – The Force Awakens the saga will continue.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2015

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