VW has unwillingly become a great business case for conscious capitalism, showing us what happens when ego, arrogance and profit become drivers for business, and why traditional management has outplayed its role.
By all traditional measures Martin Winterkorn was a very successful top executive. In his nearly 8 years as CEO for Volkswagen, he nearly doubled the company’s turnover to €200 billion, he conquered China, and won the race to become the world’s largest car manufacturer, overtaking Toyota and General Motors. With support from the Board, he won a power struggle with Chairman Piëch, pushing Piëch out of the game and securing himself an extended contract. On paper, everything looked like a CEO’s recipe for success.
And according to Winterkorn, he himself was also ‘shocked’ that manipulation with more than 11 million cars could happen on his watch. And with a €28,5 million compensation package firmly placed in his pockets, he took the stage as the astonished CEO who sacrifices himself for a ‘fresh start’ while declaring that he “was not aware of any wrongdoing” on his part, and “only acted in the interest of the company”.
With a successful top executive like Winterkorn, how could things go so terribly wrong for VW? The devil is in the detail. In his closing words Winterkorn himself reveals where he, and one of the most popular car brands in the world, took a wrong turn.
When it is more important to arrive than to travel well
There is truth in everything, also in Winterkorn’s statement that he only acted in the interest of the company. Winterkorn and VW’s ambition was to make VW the largest car manufacturer in the world. An ambition he acted according to and accomplished. Although he left VW and the rest of the world gasping for clean air, he did what he was paid to do.
It’s commendable wanting to become big and strong. It is after all necessary for a company to build some muscle in order to secure future jobs and development. However, where it took a wrong turn for the German top executive was when the desire to become number one came before a higher and nobler purpose than profit. The higher purpose might have been there on paper, but it was neither present nor a priority. The interest of Winterkorn, known for taking harsh decisions to succeed, was to overtake the leading positions of Toyota and GM. The average tenure of roughly seven years for a CEO was breathing down his neck, and some very profitable KPI’s were lighting up ahead, so Winterkorn put the pedal to the metal.
Let’s imagine for a second that VW had paid interest to a higher and nobler purpose than becoming the biggest and strongest in class. And the goal for instance had been to deliver the world’s cleanest and most economical cars.
In a heavily regulated market with increased competition and growing pressure to create commercial results, this requires a long-term perspective beyond knocking Toyota off the podium. Among others, it requires a CEO with a genuine desire to make a positive difference in the world, a CEO capable of handling complex interests in a long term perspective, the ability to make the tough decisions to sometimes prioritize other concerns over profit, and the willingness to invest heavily in development. VW is one of the world’s largest spenders on R&D, so one should think they were equipped for the challenge. Perhaps they would have been.
But when the goal is not the costly affair to become the smartest, but just the strongest, it is by all means easier leaving Toyota and GM to clear the dust out of their eyes behind the finish line by cutting a few corners and tweak matters in your favour to save time and resources. Especially when you think you can get away with it. And someone at VW obviously did.
Putting Blinders On
Perhaps the revelations of fraud and manipulation genuinely came as a ‘shock’ to the trained engineer, known for his zealously attention to details. Perhaps he had not personally neither sanctioned nor tampered with the malicious software, and perhaps he really didn’t know anything. Only investigations will show.
However, regardless of what the enquiries into the affairs at VW reveal, Winterkorn is not exempt from responsibility. Foremost, as the CEO he is setting the course, spearheading the culture of the company and act as the poster boy for company behaviour. The scandal is so big that the deception is assumed to have been known high up the latter of the VW hierarchy. In other words, it was not a lone engineer, who out of misplaced loyalty to the company decided to experiment a little and got it all mixed up. Winterkorn should know that the four small words ‘CEO – Responsibility – Behaviour – Culture’ are inseparable. And with his narrow ambition, he is responsible for having created a culture where it was perceived as accepted to support his ambition by cheating and lying.
An aggressive short-term focus on profit and growth creates a fear driven culture where attentions is paid to the bottom line and not to the admirable values on the website. When one is measured on profit that is where one is going to put focus. And when eyes are fixed on the bottom line and underperformance is punished and over performance is rewarded, it quickly becomes easy to ignore how growth is delivered as long as it is.
It becomes irrelevant that VW has declared to give social and climate interests the same priority as financial interests. When one is measured on hard financial targets and the ‘softer values’ are not a part of the equation, moral and ethics quickly give way to self-interested, unscrupulous behaviour to reach KPI’s and pocket sky-high bonuses. Awareness of when behaviour is immoral becomes deluded, especially in an industry accustomed to ‘getting away with it’.
CSR rapports, vision, mission and strong values, social responsibility, commitment to solving climate changes, and everything else a company needs to stay on course, were all existent at VW, which brands itself greener than a frog. But without a top-leader with his or her heart in the right place it all looses it’s relevance and impact. Banal but obviously true. The admirable declarations become worthless when not integrated into the heart of the organizations and into the principles of daily decision making.
Winterkorn had no real incentive but his own inner compass to enforce morality and ethics or consider other interests than to get his company to the top of the game. He was rewarded for his ability to reach the goal, not on being environmentally friendly. Having driven VW off the cliff, he walks away with only a dent to his pride while the company is in need of radical repair. He is approaching 70 years anyways and a compensation bonus of €28,5 million can keep both him and future Winterkorns warm at night. Regardless of leaving behind a devastated company, of having caused pension funds to loose money, of tarnishing Germany’s credibility, leaving thousands of employees insecure, misleading consumers, harming an entire industry – and even causing more pollution in the world.
VW has a steep walk ahead to regain trust and rebuild what’s left of the pieces. The priority in the “fresh start” is a renewal of the governance model. But a restructuring of who is presiding over who, increased control, and transparency will not solve the fundamental problems for VW. It will probably ensure that the recent scandals – where the diesel scandal is only the latest – will not repeat themselves. In the future decisions will most likely adhere to rules and regulations. But it will not fundamentally change the perspective of a leadership and its culture from focusing on growth to focusing also on higher purpose.
The Need For Conscious Leaders
Sustainable performance comes from leadership culture. A completely new and conscious mind-set, which values a socially responsible company, is needed at VW. It requires a conscious top executive with a heart-based desire to create something better and make a real difference in the world.
Matthias Müller, who has replaced Martin Winterkorn, has ‘grown-up’ in the VW-culture. And despite being known for his transparency, he is still formed by the high-performance profit-first culture, which has caused the mess he is now called in to clean up. If Müller doesn’t set a new course for the company where regards for social and climate responsibility is actually balanced with financial concerns, and make it a part of the culture, it will not change a thing in the grand scale of things.
The scandal at VW is not just a lesson learned for the former consumer favourite, but for all organizations, which have not yet started their transformation to become a conscious business. Of which there are still too many. The idea of being an impersonal profit-making machine, not having to concern itself with the interests of society at large, is no longer viable. Business today has a responsibility to contribute to a more sustainable world.
Companies need a higher purpose beyond making money to navigate after and stay on course. And it is time to once again re-evaluate the corrupting and shortsighted effects of skewed financial incentives. All this is unfortunately not new talk. But the scandal at VW has yet again proven the necessity of expanding a company’s view beyond next quarter or next year, and take on a real responsibility for the world.
But none of this will ever happen without leaders reaching their full potential as the conscious leaders the world need. Acting out of integrity, love and responsibility. And one can just wish that Winterkorn’s leftovers reminds all that the ability to be courageous and hold a long-term perspective is more important than to be a short sighted risk taker.