The people who could’ve saved VW — and why they didn’t

If culture and integrity come from the top, it’s clear why VW ended up with a major crisis on its hands.

Volkswagen is in the midst of a huge crisis. In September, the world discovered that the 78-year-old car maker installed a piece of software in its diesel engine cars that was specifically designed to fool emissions tests done by regulators.

The harm it is doing to Volkswagen is almost hard to calculate. Problems keep mounting, with hearings before legislatures around the world, recalls of its cars across Europe and beyond, and the situation hitting the share price and the company’s credit rating. Every day seems to bring new revelations and new challenges that VW will need to address.

As soon as the news hit the headlines, many questions centred around who knew what, and when? It’s a question that comes up in the immediate aftermath of every corporate crisis or scandal. But perhaps the bigger question is what structures or processes allow something like this to happen and what could have been done to avoid it?

Some of the culpability lies with the company’s board of directors and the executive team. What role has VW’s board played in this crisis? Can boards of other companies learn from VW’s mistakes?

Insular board

The VW board is a big one, with 20 people. Like most German public companies, it has representatives from labour and large investors on its supervisory board. But although VW has a huge global presence, the board is still fairly insular. The founding family has a big presence with five members of the Porsche and Piëch families. Seventeen of the 20 board members are German or Austrian. The board does not have a great deal of diversity of thought.

Listen: Lucy Marcus discusses VW’s corporate crisis with BBC presenter Evan Davis on BBC Radio 4.

For a company that operates globally in an exceptionally competitive marketplace, VW, by many corporate governance standards, does not seem to have a board that is fit to take on the challenges it faces today and tomorrow.

Look around the table of your own board and your organisation as a whole. Do you really have diversity of thought? Are there enough people who ask hard questions? Most importantly, do you have people who challenge the status quo and help you future proof by thinking about who you are today and also who you want to be? If not, it is time to make a change.

Joe Raedle/Getty Images

Boards need people with whom you might not always want to go out to dinner, but whose challenging questions and expertise will make the business stronger, both in the short and long terms.

Infighting board

The VW board has been in turmoil for some time. In April, the chairman, Ferdinand Piech, quit after a very public squabble with the company’s now former chief executive officer, Martin Winterkorn. Though I have often written about healthy tension in the boardroom that comes from asking hard questions, significant boardroom battles create an unproductive atmosphere and can distract the board from what it’s supposed to be doing, including, as in this case, ensuring that the company does not squander years of hard-earned good will and trust.

If your board or team is prone to conflict, quickly determine whether that tension is healthy or destructive. Something needs to change if the board spends more time fighting than it does thinking about the business of the company. If your board can’t come to an agreement, sort it out fast — even if it means calling in outside advisors to help find a path forward. Also, try to discourage those disagreements from spilling into the public domain.

Setting the tone at the top

Consider this: How is it even possible that a company or its employees think it is OK to proactively do something that subverts government regulations? Whether the VW software installation turns out to be the work of a couple of engineers, as VW claims, or a more widespread problem, it is an indication that something is really wrong. Boards set the tone of a company. It is up to the board and the management team to make sure that everyone at the company knows that truth, integrity and transparency are paramount.

Also, as this case has proven, the costs associated with shortcuts are much greater than any short-term gains. And the non-monetary cost is much harder to recoup — the hard-earned trust of consumers, of regulators around the world, of its dealership network and of the company’s labour force.

Think about the messages you send when you give feedback to an executive team. If you’re a board director or even a top manager or executive, are you always asking for short-term answers? The cheapest solutions?

Thinkstock

Do you ever ask — and really want to know — about the impact decisions will have on the long-term viability of the company? If not, it is time to reframe your approach.

Never let a crisis go to waste

VW has a huge mountain to climb. The company has not made the best start in addressing that, choosing to appoint company insiders to the role of chairman and CEO. But VW still has a chance to overhaul their board and bring in people who ask hard questions, make sure the company is being held to account, encourage transparency and actively rebuild trust and relationships. It is going to require a completely focused, committed board.

When a company is hit by a crisis, it is easy to run headlong into trying to fix things without stepping back and seeing the crisis as an opportunity to address the problem more deeply. Are board members contributing to the problem? Is the company headed in the right direction? Are there skills and abilities missing that would bring the company back stronger? It is possible, if managed carefully, that a crisis can be a blessing in disguise. Sometimes a crisis is exactly the call to action an organisation needs to bring some change, bring a team together and build something better for the future.

Lucy Marcus is an award winning writer, board chair and non-executive director of several organisations. She is also the CEO of Marcus Venture Consulting. Don’t miss another Above Board column by subscribing here. You can also follow Lucy on Twitter @lucymarcus.

The opinions expressed are those of the columnist and do not necessarily represent those of BBC or BBC Capital.