During the writing of my upcoming book, a shocking story came out about Volkswagen. It was discovered that eleven million diesel vehicles sold in the United States and Europe contained a so-called software-enabled “defeat device,” which effectively lowered vehicle emissions for regulatory testing purposes. Basically it was a technique to deceive the regulatory agencies and their customers, by falsely lowering the levels of pollutants that were actually being emitted, but only during emissions tests. The United States Environmental Protection Agency issued a notice on September 18, 2015 that the carmaker had violated the Clean Air Act.
Two days later, VW admitted the deception. The stock dropped 20 percent, and declined another 17 percent the next day. On September 23, CEO Winterkorn resigned (followed by another six executives resigning in the ensuing days) and customers around the world were left wondering how this problem would be fixed. Four weeks after the initial scandal broke, Volkswagen, for the first time in its history, offered a thirty-day amnesty program to all employees (excluding management) if they would come forward and tell what they knew about how this happened. Obviously this investigation came way too late. The crisis has continued to unfold for many months–and will continue for years to come–with potential civil and criminal lawsuits, customers wondering what will happen to their cars, and leaders and employees wondering what the next moves will be.
Like so many people, I could not help wondering how this could have happened to one of the largest and most respected global automakers. What level of disconnect within VW could have caused such an outcome? What kind of management processes allowed this to occur? What prevented employees and leaders to be silent when they knew this was wrong? Why hadn’t the board of directors been aware of this situation so that they could proactively deal with it?
It is pure speculation of course, and it is unclear exactly who was culpable, but I have seen similar crisis-level situations before, and here is a plausible scenario:
The company and its CEO announced ten years ago that they would be launching a new line of diesel cars that would be extremely fuel efficient, green, and would perform better than their current models. Factions within VW intended to purchase Mercedes‘ BlueTec system for reducing pollution, but other parts of VW rejected that and preferred to develop their own. A substantial amount–perhaps billions of euros–would be invested to develop the technology and manufacturing facilities built to produce these cars.
Along the way, various delays occurred in developing the new technology, but the launch date was never revised because the launch was “carved in stone.” Downstream leaders were afraid to tell their bosses there were issues. (VW leadership has been well known for a command-and-control style “on steroids.”) So some of the engineers developed a software program, the sole purpose of which was to allow the car to falsely pass the test for the government regulatory certification. This meant the cars that were sold were neither in compliance with the law nor did they have the gas mileage performance that had been marketed to customers. I can’t help thinking that the CEO and/or the senior leadership must have fostered an atmosphere of fear that helped produce this disaster—that some or many employees were afraid to tell those at the top about the development of the software—or, if senior people did know, that employees were afraid to tell them it was a bad idea. Or—and this is the crux of it—that too few employees said, “Wait—what are we doing here? Why are we doing this? We need to pull the fire alarm lever!”
It will take years for Volkswagen to dig itself out of this situation—a situation that could have been entirely prevented if leaders had felt comfortable enough to raise their hands and say there was a problem. A New York Times article in December 2015 reported that a former VW employee, Mr. Arndt Ellinghorst, who is now an automotive industry analyst at an investment advisory firm, decided not to stay at Volkswagen, partly due to its management style. “VW had this special culture,” he said. “It was like North Korea without labor camps,” he added, quoting a famous description of the company published in Der Spiegel magazine. “You have to obey.”
On January 8, 2016, the Wall Street Journal reported: “Volkswagen AG Chief Executive Matthias Muller will visit the U.S. next week to attend the Detroit Auto Show and meet top regulators amid growing frustration over the German car maker’s cooperation with U.S. investigators probing its emissions-cheating scandal.”
Stay tuned.