Business perceptions

Has 'Made in Germany' Lost its Shine?

Korruption, Gesch„ftsmann,  Handschellen, Detail innen, Mann, Anzug, Verbrechen, Wirtschaftskriminalit„t, Verhaftung, BetrÅger, Steuerhinterziehung, Politiker, korrupt, Mafia, Mafiosi, Festnahme, Bestechlichkeit, Straftat, Haft, festgenommen, Straft„ter, Kriminalit„t, Krimineller *** Local Caption *** 03198993
In Germany, the divide between business mangers and its populace is growing.
  • Why it matters

    Why it matters

    Germany, whose economy is heavily dependent on exports, has long profited from the positive perception of the ‘Made in Germany’ brand, but the Volkswagen emissions scandal has seriously undermined it.

  • Facts

    Facts

    • The survey questioned consumers about their take on German companies’ commitment to the common good.
    • It found that public trust in VW has melted away, although trust in other carmakers was unmoved.
    • Wholly private companies fared worst, with Facebook, McDonald’s and Deutsche bank doing particularly badly.
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There’s no getting around it, Germans have lost trust in Volkswagen since the emissions-rigging scandal. But is the wider German business world right to wring its hands over the future of the country’s other carmakers, and even the whole ‘Made in Germany’ brand?

Business leaders, lobbyists and politicians are all spouting the same warnings. The promise of credibility, which has won over consumers all over the world to German-made goods, cannot be allowed to suffer because of Volkswagen’s actions, they say.

That’s presumably why VW boss Matthias Müller recently joined Chancellor Angela Merkel on her trip to China: It was an attempt to limit the collateral damage.

Not all business leaders are panicked. “Of course, these kinds of issues do have the potential to spill over from one individual company to many others,” said Siemens boss Joe Kaeser. “Many worry that the Made in Germany image, the quality and reliability for which Germany is known across the globe, will be affected. I don’t see it that way.”

So how worried should German businesses be? St. Gallen University in Switzerland recently compared the results of consumer surveys conducted before and after the Dieselgate scandal, which saw VW admit to installing software in 11 million diesel cars to cheat emissions tests, broke in September.

All modern managers are clear on this issue. At least in public, companies must present themselves as upstanding contributors to society.

The “common good atlas,” based on polls by Forsa, found that consumers have directed their anger squarely at the Wolfsburg carmaker. But the reputation of competitors such as Daimler and BMW haven’t suffered, and certainly nobody seems to be questioning the overall quality of German manufacturing.

Before the scandal, consumers saw VW as an exemplary company with high moral standards. According to surveys done after the emissions scandal first broke – but before the latest allegations of foul play – Volkswagen’s place on the rankings had plummeted.

But while they did not collectively condemn German manufacturers for VW’s mistake, they did express declining trust in those firms’ willingness to work for the common good. In fact, private companies generally fared pretty poorly in this regard.

In at number 24 on the overall ranking – far behind the volunteer fire brigade, various non-governmental organizations and even public service broadcasters ARD and ZDF – comes the charitable foundation arm of engineering and electronics firm Bosch.

Not far behind that is German drugstore chain DM, whose founder Götz Werner also put his entire fortune into a foundation. Daimler Benz is the highest ranking firm without a charitable arm attached, and ranks down at number 38 on the list.

All modern managers are clear on this issue. At least in public, companies must present themselves as upstanding contributors to society.

They understand the value of donating to charity, sustainability programs, serving fair-trade coffee in the canteen and the publication of regular reports about socially conscious projects to make sure everyone gets the right message.

The European Economic and Social Committee, which advises E.U. bodies, recently advised companies to establish socially conscious credentials. The aim, the committee wrote in a memo, was the “switch-over to an ethical European market economy.”

It’s a far cry from the infamous maxim of the late U.S. economist and Nobel prize-winner Milton Friedman, who said that, “The business of business is business,” meaning that a company’s social responsibility is to bring in profits.

But the study probed some further questions about the common good and what the respondents felt counted most: How much do fairness and propriety matter? What does quality of life really mean to people? How much does money count?

Companies, NGOs and public offices all shape these and other social values. Whether by maintaining traditions or by redefining the way people think about things with new products and services, these all shape what is seen as valuable by society.

“Managers lack adequate language to describe the complexity of the business processes in a way that is compelling to citizens.”

Timo Meynhardt, Professor, St. Gallen University

But society also has to recognize these as a contribution and right now, in Germany, it seems the divide between business leaders and the populace is growing.

Companies may be investing in corporate social responsibility programs and polishing up their reputations, but the majority of people don’t seem convinced. Of those surveyed, 85 percent were concerned or very concerned that too little attention is paid to the wider good.

The results of the comparison of consumer views surprised even Timo Meynhardt, the professor in St. Gallen who headed the study. “It’s amazing how in Germany there’s such faith in public or civil organizations – or even those that are owned in part by the public. They’re what people look to, rather than business, when it comes to the public good.”

And this was happening before the VW scandal, Mr. Meynhardt added. “Managers must once again learn to think about economic and societal questions at the same time.”

So are managers doing too little, or does the public expect too much? Andre Habisch, professor for Christian social ethics at the Catholic University of Eichstätt-Ingolstadt in Bavaria, says the public’s skepticism arises due to two deep-seated reasons. “The phrase ‘common good’ is historically burdened by its abuse by the Nazis in Germany,” he said. “It meant ‘you are nothing, but your people are everything.’ Adding to that is the ‘system debate’ of crisis-ridden capitalism.”

It’s a discussion that sociologists and social scientists debate more passionately in Germany than elsewhere. Some even suggest that voluntary social commitment by socially responsible entrepreneurs isn’t possible.

Mr. Meynhardt explains the disconnect in this way: “Managers lack adequate language to describe the complexity of the business processes in a way that is compelling to citizens.”

Forays into CSR, sustainability and similar projects have often been a helpless attempt to create a new language to reach the public, he added. Still, companies would do well to put even more energy into these kind of projects, because 77 percent of the survey respondents said they would prefer to work for companies where this approach is important.

Ironically, only 17 percent said they were willing to pay more for products created by such exemplary companies, though. As an economist and theologian, Mr. Habisch has worked extensively with this topic. His conclusion? “Many self-laudatory companies claim to have big corporate governance and CSR programs that turn out to be hot air upon closer analysis.” That’s often because, “although upstanding people in the corresponding departments labor to achieve these aims, they are often held back by the boardroom.”

It’s also interesting to consider the lowest-ranking companies in the survey, all of which are major companies. McDonald’s rang in at number 123, while Facebook took 126th and Deutsche Bank took 127th. Bringing up the rear was German taboid Bild, the country’s largest newspaper. The ranking prompts two interpretations: Either companies that provide services that are popular with a great number of individual people are bad for the common good, or customers don’t actually care if a company can’t be bothered to improve its moral image.

It’s an insight that perhaps comes too late for Volkswagen, since the public isn’t particularly impressed with the company’s level of propriety at the moment. The carmaker ranked last when it came to categories such as task fulfillment and quality of life, too.

But there is hope for recovering their good image in the eyes of the public. Regaining credibility must come at the hands of an independent third party, according to the findings. Furthermore, all managers involved should be held financially responsible.

Holger Geissler, head of the market research firm YouGov in Cologne, says: “The amount of time it takes to recover from damage to a company’s reputation depends largely on how quickly it addresses and investigates the scandal.”

The depth and length of media coverage also play a role in image recovery. And the intensity of media coverage is often proportionate to how serious the financial consequences of the scandal turn out to be, Geissler said.

“Estimates are very difficult,” he added. “It is quite possible that the scandal will have a measurable impact on the image of Volkswagen even two to three years from now. The Germans have learned something about VW that they didn’t expect. And this disappointment will remain in their minds for a long time.”

Regardless of how long it takes, recovering VW’s good name will be expensive. Late last month, the company posted its first quarterly loss in more than 20 years after setting aside billions of euros to deal with millions of recalls relating to the diesel-emissions scandal.

Following the announcement, Mr. Matthias spoke to investors for the first time since the scandal broke, saying in a statement that “the initial impact of the current situation is becoming clear. We will do everything in our power to win back the trust we have lost.”

 

This article originally appeared in the business magazine WirtschaftsWoche. To contact the authors: anke.henrich@wiwo.de, rebecca.eisert@wiwo.de, martin.seiwert@wiwo.de and cornelius.welp@wiwo.de

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