German companies were always the figureheads of solid business. Good products for a reasonable price. Accurately manufactured, sustainable, good quality, reliable. Several weeks ago I wrote about reputation risk. Reputation is slowly won and quickly lost, as my grandmother used to say. I did not know then that the reputation of the large, unshakable, and infallibly solid Volkswagen group would manage to fall so quickly and so deeply. Faster than a galloping horse. Faster than a Porsche.

Since then, I regularly think about it, for I cannot understand. If you have such a good, solid and profitable company, you do not deliberately deceive people for a few cents, do you? Deliberately deceiving the authorities to be able to make a higher profit? How stupid can you be, you wonder as an outsider. Each day I waited for a rational explanation, like “it was a technical error that only seemed nasty but in reality was not”. There is no such explanation and it does not seem to be expected either. Yesterday, I read a full page Volkswagen advert in the newspaper with the title “Blush of Shame.” So they just admit it (following the advice of their marketing department?). At Volkswagen they are simply a bunch of frauds. Cheating software is now the official name. Unbelievable.

And then corporate governance. Dozens of questions. Who knew? The main management in Germany? Or was it just the lower level that was aware? If only the sub-management level knew, why did this information not reach the higher level? What else did the main management not know? And if the main management did know, was the Supervisory Board aware of it? If that is not the case, what else does the main management fail to tell its Supervisory Board? Companies of this size spend a lot of money on risk management. What do they actually do about it? Do they check the right things? How is the Volkswagen company culture? Do they trust each other? Do they feel ethical and honest? How can you consider yourself ethical and honest, if you do things like this or know about them? The alarming thing is that every possible answer to each of these questions will only make you frown more. It is almost impossible to make this right.

Meanwhile, the president of the management board of Volkswagen has resigned and his successor attempts to control the damage. For the time being, the damage is mainly defined as the problem that Volkswagen owners are facing increases in (road) tax. Volkswagen is willing to pay that. In my opinion, the real damage is much more fundamental. The real damage is a breach of trust.

This is also a wakeup call for every CEO and every supervisory director in a company of a reasonable size. Do you really know what is happening in your company? And even more interesting: have you yourself always given such a good example that your staff, ethically speaking, acts exemplary or at least properly? Or are you actually also a cheater deep inside? The problem is that people do not like to look at themselves in this way. If something borders on or goes over the edge of what is appropriate, there will quickly be a rational explanation that it is actually still all right. There are few frauds who consider themselves frauds. On the other hand, you can also very quickly be accused of something, and as a person or company end up in a whirlwind of negative publicity. This whirlwind is almost impossible to stop. Management of reputation risk. That should be on top of the focus list of management boards and supervisory boards: are we cheaters?

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Do you have a question about corporate governance yourself? Please e-mail it to governance@ekvandoorne.com and perhaps your question will be discussed in the next blogpost.

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