Volkswagen Emissions Scandal Speaks to Troubled Culture

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Too many organizations learn the hard way that failure to create a speak-up culture poses risks that go far beyond financial calamity. Volkswagen (VW) appears likely joining those sad ranks today, as it scrambles to figure out how it found itself facing accusations that it installed software designed to falsify emissions-testing results.

The company will probably pay billions of dollars in fines for its transgressions, in addition to absorbing the potential costs of fixing 482,000 or more cars. It has already called a halt to sales of relevant models. And shortly after the news broke this morning, VW’s stock price fell more than 20 percent.

But if the scandal leaves customers feeling deceived by the clean-diesel rhetoric the company has been espousing for years—during which many ecologically minded families have wrestled with whether to purchase a hybrid or diesel vehicle—the damage could be much larger.

As described by eWEEK:

“This isn't the first time Volkswagen has been caught in emissions violations. In June 2005, Volkswagen of America agreed to pay $1.1 million to resolve its failure to promptly notify the EPA and to correct a defective oxygen sensor affecting at least 329,000 of their 1999, 2000 and 2001 Golfs, Jettas, and New Beetles. At the time, it was the largest civil penalty to date for that type of violation. As part of this settlement, Volkswagen completed a voluntary recall of the affected vehicles at a cost of more than $26 million.”

VW now faces the same question that other automakers have been forced to wrestle with: Who knew what and when did they know it? Did anyone report the problem and if so, what was the response? What was the role of the board of directors? Was there a speak-up culture in place? If so, what went wrong? If not, how to create one—now? Who will be our compliance monitor?

Proper Measures: Cultivating a Speak-Up Culture

Most companies, when faced with this type of reputational hit, come out with a statement that whatever happened is against the company’s values. You can set your watch by it. But building a culture that sustains a commitment to its values takes more than a page in a code of conduct.

To begin, VW needs to ask itself whether there were measures in place allowing employees to flag things that didn’t appear right, and if those measures were sufficiently resourced and managed. Recent NAVEX Global data shows, for instance, that organizations are taking longer and longer to resolve matters brought to their attention by staff.

The data encompasses 2.2 million reports over the past five years—representing 32 million employees at more than 4,600 companies—the largest repository of ethics and compliance-related data in the world. It tells us that report volume has increased 44 percent, as measured by reports per 100 employees, since 2010. That likely indicates that ethics and compliance programs are continuing to mature, aided by a growing awareness of whistleblower cases and protections. Case closure times also continue to climb—from a median of 36 days in 2013 to 39 days in 2014. This may in part be due to the rise in report volume, without an apparent increase in the number of compliance professionals investigating these claims.

When reporting systems aren’t adequate, the near-term threat is that an employee may take their complaint to an outside authority. Perhaps more importantly, when a company fails to take action employees may question whether it really cares about misguided or illegal actions among its ranks.

Sending the Right Message: Training is Key

Additional NAVEX Global data shows that boards and executives are actually getting less training on conduct expectations and compliance rules than they used to. Time spent on senior-leader compliance training dropped by nearly 90 minutes this year, to 4.38 hours, from 2014; board training declined by a third, to two hours. This inexplicable drop can only contribute to a sense that an organization cares less about how things are done than it does about its short term business objectives — squandering miles of strategic headway in exchange for meters of tactical gain.

A Long Road Ahead

We will hear more from VW and regulators about where breakdowns occurred. Some may be attributable to rogue employees, in which case smart observers will ask about a broader culture that may have empowered the renegades. Either way, VW must now embark on a quest, if not a race, to instill a speak-up culture that can help heal its relationship with customers and regulators.


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