Crisis Management Case Study: Volkswagen’s 5 Years of Pain
German carmaker Volkswagen marked the fifth anniversary of ‘Dieselgate’ recently by announcing that it is reforming its compliance culture and expanding its whistleblower program in the hope of avoiding another scandal and as another attempt to restore its reputation.
It has been five years since the emissions scandal began when the US EPA issued a notice of violation of the Clean Air Act. Five years of financial damage, reduced consumer loyalty and constant attacks on Volkswagen’s previously impeccable reputation.
How ‘Dieselgate’ Began
The EPA issued its notice in September 2015 after it had found that Volkswagen had intentionally programmed its diesel engines to activate their emissions controls only during laboratory testing. No output was registered during regulatory testing which enabled the cars to create the perception that they were meeting US standards.
Immediately following the US EPA’s notice, regulators in many other countries began investigations and the carmaker’s stock price fell by a third. It turned out that 11 million cars worldwide were rigged.
There was the usual fall out of senior executives, including the CEO and the heads of brand development and R&D. There was also a huge financial impact, not the least of which was the €16 billion euros VW pledged in April 2016 to rectify the emissions issues and retrofit affected vehicles as part of a recall.
The company also pleaded guilty to criminal charges, including a court deal in the US in which it paid a $2.8 billion fine. Earlier this year, VW estimated that ‘Dieselgate’ had cost it nearly $35 billion in fines and settlements.
How Volkswagen’s Crisis Management Went Wrong
This blog addressed the shortcomings of the company’s crisis response in the early months of the scandal. We noted that:
- It was felt that the company was not being fully transparent and not ‘owning’ the problems.
- VW did not appear to understand how this all looked to audiences outside of Germany.
- The company’s story and statements were inconsistent.
- The offer of reimbursement appeared to apply to some customers but not all.
The New York Times published an analysis of the crisis response under the headline, “VW’s crisis strategy: Forward, Reverse, U-Turn”.
Volkswagen Five Years On
So now we fast forward to this year and the announcement in September of major changes in the company. Even now, investors and analysts are skeptical of the culture change that the company is attempting.
In early October, US investment group Blackrock said that the board’s oversight was not to be trusted as it still lacked the independent oversight that many felt had contributed to the problems in the first place.
The revamped whistle blower program is a big initiative in the new compliance program. A channel for reporting violations was in place in 2015 but, in retrospect, it was not employee friendly and therefore ineffective.
The new hotline for the company’s 670,000 employees worldwide is a 24-hours a day, seven day a week operation, which accommodates 19 languages.
The Lessons for All of Us
In this blog we constantly urge organizations to embrace best practices in issues and crisis preparedness.
Best practices begin with understanding and monitoring risk through to building and testing the playbooks and tools that allow for a quick, effective response to mitigate reputation damage when a real threat presents itself.
In a Deloitte survey nearly three quarters of board members believed that their organization would respond effectively if there was a crisis - but less than half the companies had taken steps to be crisis ready.
Deloitte also notes that often it takes an organization to suffer a crisis to teach it how to avoid them in future.
Rather than wait for your own crisis to create that learning opportunity, Volkswagen provides the critical lessons we need about the price of not being prepared and responding badly.
Learn how hundreds of organizations large and small are using our award-winning crisis management platform, In Case of Crisis, to better prepare for and respond faster to emerging threats.