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Sunday, 11 October 2015

“Truth in Engineering”? Believe It or Not That’s Volkswagen’s Strap Line!

One of the members of my Vistage CEO peer group recently sent me a link to an article written by the much admired journalist Lucy Kellaway, columnist at the Financial Times.

Lucy debated the subject of corporate values and came to the general conclusion that the definition of  "corporate values" has little meaning.

It is a beautifully argued article and while I don't altogether agree with her conclusions it had a certain resonance for me.

In the furore swirling around the Volkswagen emissions scandal it seems to me that while just about every facet has been and indeed is being dissected and discussed at length, the one factor of corporate ethics has been relegated to the sidelines.

If the matter had emanated from a "failed state" in the more remote regions of the planet we would nod sagely and say something like "What do you expect?" 

It isn't a failed state, it's the largest automotive manufacturer in the world and it is in Germany, for heaven's sake!

To summarise we are talking here about 11 million diesel powered vehicles worldwide, of which there are 8million in Europe and 1.3 million in the UK that are affected.

Now it has been alleged that some bright but misguided software engineer at Volkswagen realised that if the customer is to be satisfied with performance and fuel consumption, then low emissions have to sacrificed.

All well and good but unfortunately emission levels are generally government regulated  so now we have a dichotomy. How best to square the circle?

Someone decided that everyone had to be satisfied and devised a fiendishly clever piece of software that could detect when the vehicle was undergoing laboratory tests and ensured that the results would be well within the regulated levels.

This was done in the knowledge that if emissions were to be acceptably low consistently then performance and fuel consumption would suffer and customers wouldn't like that.

Unfortunately when the vehicles were driven by normal people in a normal manner on normal roads, the emission levels were at normal levels, that is, way over the maximum permitted.

The regulatory bodies accepted the laboratory results so everyone was happy except some bright spark who disclosed the awful truth, that VW in the USA had been deliberately misleading the regulators and the public.
Please note that diesel powered vehicles in the US comprise 5% of the total whereas in the UK the proportion is nearer 50%.

Latest reports are that VW has allocated €5 billion to cover the cost of the debacle against a pre-tax profit last year of €8 billion. It is almost certain that the cost of correction plus the likelihood of class actions will massively increase the costs.

Please note: apparently this debacle was not an error but rather a considered approach to solve a problem and to maintain commercial success worldwide.

Illegal?  Probably. Ethical?    Absolutely not.

It is a dubious blame game being played here by VW.  Do we really believe that one engineer can make a decision that affects 11 million vehicles without anyone noticing?

Back to Lucy Kellaway's article. I am quite sure that VW have a nice list of values by which they live, a list that makes everyone feel nice and warm, and trusting.

What we actually have sparks memories of Enron with the company saying one thing and apparently doing the opposite in the background, again for commercial gain.

If this can happen at the great Volkswagen, we ask how widespread is this approach in business?

What about the bankers who invented fiendishly complex derivatives that were so complicated that no-one really understood them making some individuals very rich and brought on the recession?

The stated values by which we run our businesses define the culture, the way that we do things around here.

If they are not lived by everyone in the business, consistently and ethically, then Lucy was right; ditch them and go you town way but be aware of the potential consequences.

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