Volkswagen’s ‘uniquely awful’ governance at fault in emissions scandal – CNBC

Posted: Sunday, October 04, 2015

It wasn’t always that way. Ten years ago VW’s supervisory board still boasted external luminaries including Mr Cromme, the author of Germany’s corporate governance code.


But Mr Cromme quit VW’s board in 2006 when Mr Piëch used votes from workers to push through a trade unionist as head of personnel, against the wishes of some shareholder representatives on the board.


The influence of employees at VW remains far greater than at any other big German company.


The carmaker’s response to the diesel scandal emissions crisis has been steered by a small committee of top directors and three of the five members are labour representatives.


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Ferdinand Dudenhöffer, automotive expert at the University of Duisburg-Essen, describes Bernd Osterloh, VW’s chief labour representative, as a kind of “co-manager” who now “dominates the supervisory board”.


Because of a lack of suitable candidates among the shareholder representatives on the board, VW’s interim chairman is Berthold Huber, a former head of the IG Metall trade union.


Although these cosy relations have some advantages — in times of crisis, management can more easily get the backing they need to push through changes such as cost cuts — critics say they represent a Faustian pact in which managers protect German jobs, in return for support.


VW has almost 600,000 employees but its management board is staffed entirely by men. Under Mr Piëch and Mr Winterkorn, decision-making at VW was highly centralised and more junior managers were frightened to speak their mind.


In the aftermath of the diesel-emissions scandal, Mr Osterloh has urged VW to create a culture where problems are “not concealed but are openly communicated to superiors”.


Following his appointment as VW chief executive, Matthias Müller pledged to “develop and implement the most stringent compliance and governance standards in our industry”.


Others recall that previous crises at VW — including a prostitutes and bribery scandal in 2006 — did not deliver real reform. “If VW doesn’t change now then they will never do it. It really depends on the three big shareholders — whether they are willing to reform,” Mr Juschus says. “I have my doubts.”


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