Irreparable Damage VW's Inevitable Boardroom Cleanup

A new beginning in management at Volkswagen is unavoidable, requiring board changes at the top to finally get past the carmaker's diesel emissions scandal, writes the head of Handelsblatt's companies and markets desk.
Former supervisory board Chairman Ferdinand Piëch and ex-CEO Martin Winterkorn are no longer with VW, but more board members may have to leave the carmaker as it investigates Dieselgate.

Volkswagen has been in a state of emergency since April 10, 2015. The day on which then Supervisory Board Chairman Ferdinand Piëch publicly declared his lack of confidence in then Chief Executive Officer Martin Winterkorn marked the beginning of an unprecedented dismantling of the company, its management and its owners.

This dismantling is now turning into a mudslinging match that continues to damage the company, an affect that will be permanent.

In the period of almost two years since that April day, we have experienced a tragedy at the helm of this global, majority family-owned corporation. Owners are attacking other owners, and supervisory board members are attacking management.

The fact that this game has not affected the operating business is attributable to VW's strong base at the middle management level and among its employees. They ensured that the Volkswagen Group did very well last year, ousting Toyota from its position as the world's largest automaker. They have played a key role in providing VW with the economic backbone to cope with the financial consequences of the diesel scandal.

It is about time to separate Volkswagen from individuals. The company will continue to exist and continue to function, even after a bloodletting in management.

But the hard truth is that the company's management has had little to do with these successes. Volkswagen lives on, but its top management is doing its best to further its professional demise.

There is a long list of failures. How is it possible that management did not voluntarily forgo bonuses for 2015, as the management of Deutsche Bank has now done? How can someone like Christine Hohmann-Dennhardt, a proven expert in corporate governance, be quite obviously appointed to the management board purely for show and then fired a year later? And how can someone who is not a lawyer and has little experience with compliance then be appointed to the board and placed in charge of legal and compliance matters? How can a chief financial officer whose role in the diesel scandal has not been fully clarified be made chairman of the supervisory board?

These are only a few examples. The mudslinging match that Mr. Piëch has now instigated is also a consequence of all of these things. Witnessing this dilettantism must be exceedingly painful for the patriarch.

Paradoxically, the charges Mr. Piëch is now leveling against the supervisory board members are on the one hand harming both the company and the family. On the other hand, they could also contribute to a long overdue cleanup campaign at VW.

So many managers are now implicated that a new beginning in management is more unavoidable than ever. The public relations crisis for all those who have long held important positions is constantly growing. Mr. Piëch is unlikely to relent. So far, he and Mr. Winterkorn are the only members of top management who have left the company.

No one should be fooling themselves at VW. The management shakeup will happen sooner or later. The company faces a serious test. The so-calling monitoring procedure, in which a watchdog appointed by a U.S. court will be looking over VW's shoulder for three years, will permanently change Volkswagen. Compliance experts with experience in these matters expect massive changes all the way up to the management level. Old cases such as Daimler, Siemens, Thyssen and Bilfinger are perfect proof, resulting in new CEOs, many new board members, and a fire-and-hire process in middle management.

But what a few key individuals at Volkswagen apparently have not understood yet is that it is no longer just a matter of the potential culpability of management, but also of investigating the past and, most of all, changing the culture. Decent compliance starts at the top of a company. This change in culture, the implementation of new control bodies, changes in work procedures and a new way of thinking – all of this is very heavily promoted by the upcoming monitoring.

VW, on the other hand, increasingly resembles a circle of wagons. Old relationships are upheld and the family influence is ensured, the assumption being that this major storm will eventually pass.

But it won't. It is about time to separate Volkswagen from individuals. This affects management and parts of the supervisory board. The company will continue to exist and continue to function, even after a bloodletting in management. But the company has to be disassociated from the mudslinging matches engaged in by the owners and top executives.

In the end, Volkswagen will not be able to avoid suing everyone involved in the diesel scandal for damages. It owes it to its shareholders. Siemens did it and others are doing it, even years later. But if the parties involved continue to level accusations at each other, as they are doing now, it may remain entertaining for the public, but it will become unbearable for the company and is employees.

The author heads the Companies & Markets desk. You can reach him at: [email protected]