Relieving Management

VW’s Declared Innocence

VW press conference lineup managers dpa
Did we do wrong? VW's executives, including CEO Matthias Müller (middle).
  • Why it matters

    Why it matters

    The recommendation could be a sign that there is no evidence the executive board was complicit in the diesel emissions manipulation scandal.

  • Facts


    • Each year and in accordance with German law, shareholders are asked to effectively approve the executives’ duties and discharge the managers of responsibilities in that year.
    • Former CEO Martin Winterkorn resigned days after the carmaker admitted to manipulating 11 million diesel cars worldwide to cheat emissions tests.
    • Hans Dieter Pötsch was VW’s chief financial officer until October 7 last year and then became chairman of the non-executive supervisory board.
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It’s a scandal that has already cost Europe’s largest carmaker €16.2 billion ($18.5 billion) and will probably drain it for billions more. Yet on Wednesday, Volkswagen’s  supervisors said none of the automaker’s executives were to blame.

VW’s non-executive supervisory board, which supervises Chief Executive Matthias Müller and his colleagues, will advise shareholders to absolve management of its responsibilities for last year’s historic €1.6-billion loss and the massive scandal over the company’s cheating on diesel emissions values.

It is a bold move for the embattled carmaker and also goes against past practice at other major German firms like Siemens that were engulfed in scandals in the past.

Shareholders are effectively being asked to approve the work of the management board for the year 2015 at the manufacturer’s annual shareholders meeting, scheduled for June 22. Each year, shareholders of German listed companies are asked to approve the executives’ duties and discharge the managers of responsibilities in that year.

It is advice that is likely to be followed, if only because around 87 percent of VW’s voting rights are controlled by the Porsche and Piëch families, descendants of carmaker Ferdinand Porsche, as well as the state of Lower Saxony and oil nation Qatar. All these investors have representatives on the supervisory board that issued Wednesday’s statement.

The Wolfsburg-based automaker has painted the scandal, which broke last September, as the work of mid-level engineers and managers and insisted that top executives were unaware of their actions. The non-executive supervisory board, which has the power to hire and fire executives and decides on strategy, also recommended shareholders to approve of the supervisors’ duties last year.

“The recommendation is in line with the current 'eyes shut, plow through' mentality of the management.”

Christian Strenger, Corporate governance expert

“Although the investigation by (law firm) Jones Day is still ongoing, according to information currently available, no serious and manifest breaches of duty on the part of any serving or former members of the board of management have been established that would stand in the way of granting ratification at this time,” VW’s supervisory board said in a statement Wednesday.

VW’s preference shares, which are listed in the German blue-chip DAX index, slightly trimmed losses after the news, trading down 0.6 percent at €128.85 by 3 p.m. local time in Frankfurt. Preference shareholders do not have any voting rights.

The stock is still down 21 percent compared with last September, when Europe’s largest carmaker shocked customers and investors by admitting to the manipulation of diesel emissions on 11 million cars worldwide.  The cars emit more toxic nitrogen oxide gases than U.S. laws allow.

VW set aside €16.2 billion, or $18.5 billion, last year to repair the cars and pay for legal costs, generating an annual loss of €1.6 billion, the highest since the company’s founding in 1937. Its preference shares have fallen as much 40 percent in the aftermath of the scandal, wiping out more than €15 billion of the company’s market value.

The signal that supervisors are attempting to give investors, employees and judicial officials is clear: management is not to blame.

“The recommendation is in line with the current ‘eyes shut, plow through’ mentality of the management,” Christian Strenger, a corporate governance expert, told Handelsblatt.

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The move by supervisors wasn’t without controversy, with a meeting of the supervisory board going well into Tuesday night. Stephan Weil, the state premier of Lower Saxony and a member of the board, strongly resisted clearing the board but Mr. Pötsch, the chairman, assured that the recommendation was possible by pointing to legal briefs by a German law firm and a former judge, Wulf Goette. In the end, the vote was unanimous.

Absolving the managers of responsibility is still a risky move. A vast array of investigations and claims against VW are still running, including the carmaker’s own internal probe by the U.S. law firm Jones Day.

The U.S. Justice Department and other agencies are at the forefront on the regulatory side and are still expected to fine the German manufacturer billions for the scandal, which was first unveiled by the U.S. Environmental Protection Agency. An investigation by German prosecutors in Braunschweig is also still ongoing.

Should proof emerge at a later date that executives did indeed know of the manipulation, it would plunge the supervisory board and management into yet another major crisis. The supervisory board did say that its advice, which was based on the preliminary findings of the Jones Day investigation, could change if new information came to light by June 22.

The decision will make it difficult for VW to sue its executives for damages in future, though the carmaker’s supervisors said that absolving management of last year’s responsibilities “does not imply any waiver of possible compensation claims,” meaning executives can still be held accountable for wrongdoing if that were proven to have taken place. German law firm Gleiss Lutz was assisting the supervisory board in examining whether claims against individual board members should be pursued, the board said.

The move by VW’s supervisory board also marks a departure from past scandals in Germany. In many cases, supervisors have refused to back executives in order to clear a path for legal settlements.

Siemens’s supervisory board in 2007 refused to back its management after the engineering firm had to pay billions in fines for alleged bribery. VW itself in the past even refused to back the management of its own subsidiary, MAN, after allegations of bribery emerged. MAN CEO Hakan Samuelsson in 2011 agreed to pay €237 million to his employer to settle the case.

The supervisory board’s decision also comes despite the company already taking personnel consequences. Days after the scandal broke, then-CEO Martin Winterkorn resigned and Matthias Müller, until then head of VW’s sports car brand Porsche, took over the reins.

Hans Dieter Pötsch was VW’s chief financial officer and an executive board member when the scandal broke, but became non-executive chairman on October 7, leading the supervisory board.

There are also signs executives knew of a possible scandal brewing well before it broke out into the open. Two months ago, VW said in a statement that Mr. Winterkorn was informed about emissions irregularities as early as May 2014, but he may have failed to heed the warnings.

Last month, German state broadcasters NDR and WDR reported that high-ranking VW managers below the executive board were involved in the carmaker’s diesel emissions manipulation scheme, but neither Mr. Winterkorn nor other board members were aware of it early on.


Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin, covering companies and markets. Martin Murphy and Markus Fasse are Handelsblatt correspondents covering the German car sector. To contact the authors:, and 

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