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Bill Waite on a VW rebuild: Culture first, then compliance

My first car was a VW beetle. It met its emission standards everywhere it went — which was not far because it did not have an engine.

It was a rebuild project. However, I discovered I was better at law than mechanical engineering ….so it rested in the garage until I finally sold it for £20.

Although I doubled my money, “culturally” I had failed. My brother could fix anything — I could not. He was the success in the family and I learned an important lesson to recognize my strengths and more painfully my inevitable weaknesses.

In 2005, VW was embroiled in another scandal. Peter Hartz, the personnel director, was found to have authorized  the supply of cash, sex, drugs and, no doubt, rock and roll to members of the supervisory works council to ensure labor relations were “smoothed.” The conduct had taken place for over a decade.

The then CEO and chairman denied knowledge and said VW was an ethical company. Had they known of the conduct they would have stopped it. The company promised to do better. New ethical standards and compliance structures were promulgated to guard against the acts of the malign few.

In 2006, VW executives were caught up in yet another scandal. It involved a French engineering business that supplied parts to the automotive industry. Bribes were paid for contracts of which it was said VW executives were recipients. The CEO of VW threatened to terminate the contract with the French supplier. “No unethical conduct here,” he shouted.

Those implicated in the sex, drugs, and cash scandal were sentenced in 2008. VW was cleansed of the unlawful acts. The company had moved on and all was well, or was it?

We now know that since 2009, 11 million VW vehicles contained software deliberately designed to defeat emission tests.

Those tests are crucial in obtaining approval for distribution of vehicles, and therefore are also crucial to the value of VW’s stock. Emission results were also used to support marketing campaigns to potential customers, deceiving them into believing they were buying green, energy efficient diesel cars.

I am told it takes 24 to 36 months to design and test a new motor car before production can begin.

The plan to lie to regulators and customers alike must therefore have been hatched in 2006 or 2007.    

VW CEO Martin Winterkorn resigned Wednesday following a 20 percent fall in the share price of Volkswagen stock. As his predecessors have done, he took full responsibility for the scandal. But again, as with his predecessors, he denied any personal knowledge. Time will tell.   

Like my brother, VW is excellent at mechanical engineering. Like me it culturally failed. Unlike me, its supervisory board failed to recognize its strengths and weaknesses.

VW now needs a new cultural engine designed, implemented and driven by a new supervisory board — and not a half-baked rebuild of a compliance structure built of promises of future ethical conduct. Failing which it is probably better left in a garage.  


Bill Waite is a contributing editor of the FCPA Blog. He’s one of the founders of The Risk Advisory Group, established in 1997 with the objective of building Europe’s leading independent risk management consultancy. He serves as the group’s CEO and general counsel. He formerly practiced as a criminal barrister before joining the U.K. Serious Fraud Office in 1991 as a prosecutor. He can be contacted here.

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