Dieselgate Judgement

US monitor: VW had corrupt culture, flawed leadership

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Larry Thompson at VW's headquarters in Wolfsburg. Source: Volkswagen

Only six months into his job, the US Justice Department-appointed monitor had some frank words for Volkswagen. “There was a corrupt corporate culture at Volkswagen,” Larry Thompson told Handelsblatt during his first interview since he started his work at VW’s headquarters in June. “It was not a culture marked by honesty and openness. The executives responsible for the affair obviously were not concerned that they would be putting their company in a precarious position.”

Mr. Thompson, the former US deputy attorney general under president George W. Bush, has been tasked with preventing any future transgressions at Volkswagen, where the monitor will spend the next three years overseeing the implementation of reforms. The US Department of Justice appointed him as special supervisor as part of a guilty plea agreed in January and settlements totaling as much as $15.3 billion. US environmental regulators revealed the scam in September 2015 after they had detected that VW cars spewed out more nitrogen oxide than regulations allow.

In the interview, Mr. Thompson said it will be years before VW has improved enough to make sure something like the emissions scandal, which affected 11 million diesel cars globally, never happens again. “At Volkswagen, we have a three-year marathon ahead of us, this is not a six-month sprint. There is no other way to go about it, because this is a very large corporation with hundreds of thousands of employees as well as complex internal structures.” The legal expert and his team will also investigate why the system of fraud and conspiracy went undiscovered for so long.

“Many VW employees feel personally deceived ... Yet on the other hand they still remain proud of their company.”

Larry Thompson, US monitor at VW

Mr. Thompson said he had yet to work out why the scandal occured in the first place. “Volkswagen has always been a successful company, after all,” he said. “And yet it happened anyway. We will work hard to get to the root causes. But honestly I have to say that right now I do not know if we will be successful in that endeavor.”

Mr. Thompson, you have been appointed as the “monitor” by the US authorities to assist in reappraising the diesel affair. Can you summarize your role in just a few words?

My task is to work towards the establishment of an efficient and highly capable compliance and ethics system at Volkswagen. Aside from that, it is my job to ensure that the penal consequences associated with the diesel affair do not repeat themselves. Is that brief enough?

What expectations did you bring with you upon your arrival in Wolfsburg half a year ago?

From the very start it was clear that we would be doing the majority of our work in Germany. To do it from outside, from the US, would be very restrictive. I worked on the ground here to enable our team to begin its work very quickly. The second task involved establishing a good working relationship with the VW management in an equally rapid fashion. We need to explain to the board of management what it is we are doing.

Are there any particularities at Volkswagen which make your work here different from that of other monitoring proceedings?

Working as the monitor here at Volkswagen is an extraordinary experience. There is the normal monitor role that arises from the admission of guilt by Volkswagen, which I have just described. And then there is an additional second objective, an auditing function, which is more regulatory in nature. Through its criminal conduct, the Volkswagen Group failed to comply with several environmental regulations in the United States. Now we have to ensure that Volkswagen complies with these regulations. We will also be releasing two different reports: one confidential report for the monitoring proceedings, and a public report for this auditing process.

Is that it?

No, there is still one more particularity. Normally the monitor begins their work after all of the criminal investigations have concluded. However that is not the case here. There are still several criminal, environmental and corporate law investigations ongoing at Volkswagen in the United States, in Germany, and in many other countries. For instance, just a few days ago a German court decided that a special auditor will be appointed to Volkswagen who will investigate possible corporate law violations.

main 122765600 Bloomberg – VW Volkswagen CEO Matthias Mueller left works council head Bernd Osterloh middle non-executive chair Hans Dieter Poetsch Wolfsburg headquarters Nov 2017 Dieselgate
Three powerful men shaping VW's culture: CEO Matthias Müller, left, works council head Bernd Osterloh, center, and Hans Dieters Pötsch, non-executive chairman. Source: Bloomberg

In what way does that second particularity affect your work in Wolfsburg?

It’s not so simple when the judiciary has yet to complete its investigations. I do not wish to, and I cannot, become involved in criminal investigations with my team, that is not the job of the monitor. And aside from that, we are very much dependent on confidential information from within the company. We have to guarantee that this information is not going to be used in the ongoing proceedings.

Are you able to get your information, or are the VW employees reluctant to share?

We get it, but perhaps more slowly than is usually the case.

A works council is something completely new for you. How do you get along with them?

There are no difficulties whatsoever with the works council. In that regard I have had only positive experiences. If this monitoring process is to be successful, it will only be possible with the information provided by the employees of this company. Nobody is more familiar with this place than they are.

Were you aware of that at the time you were appointed to the role of monitor?

It was only after I arrived here that I became aware of the significance of worker representation in German companies. We have to hold regular in-depth discussions with VW employees, that is a part of our job. Some people would call them interviews when we meet with VW employees. But to me as someone from the United States, an “interview” is a part of a criminal investigation. That’s why I prefer to use the term “meeting”. We trust the employees, and I think the works council trusts myself and my team in equal measure.

Are you noticing any successes which indicate that Volkswagen is becoming a better company?

There have been quite a few changes, even before my arrival. Volkswagen really wants to achieve a cultural change, I have no doubts whatsoever about that. For instance, one of the initial changes involved splitting engine development and vehicle approval into two separate divisions. Aside from that there are new company rules, the Code of Conduct, an integrity program – and all of these are continuously accompanied by staff training sessions. But we have also found a few areas which require improvement. However I am not able to give further details about that at this time.

There were lies, cover-ups and deceptions.

What is more important with respect to leading a company onto the right path: Is it the structures within the company which require updating, or must changes take place at executive management level?

To some extent the structures are set by statutory or corporate law, so there is not a lot of room for us to intervene there. The company culture is the key point of intervention, because that is where the people are. In order for VW to achieve a high standard with respect to culture, integrity and compliance, the employees need to understand what the company stands for. For instance, they should know that VW does not tolerate dishonesty, and that governmental authorities are not to be misled. This requires a great deal of training, as well as a real commitment to creating a whole new company at Volkswagen. Compliance and integrity must be afforded the same significance within the company as vehicle development, manufacturing, or sales and marketing.

Do you have an explanation for why Volkswagen broke the law? Is this a German problem?

This is certainly not an issue related only to Germany. Misconduct and breaking the law know no national boundaries. In my country as well there are enough examples of companies which – to put it mildly – did not adhere to the rules of good corporate governance.

For many VW executives, the Dieselgate scandal is already a thing of the past. Doesn’t that indicate a problem in the company’s management culture?

At Volkswagen, we have a three-year marathon ahead of us, this is not a six-month sprint. There is no other way to go about it, because this is a very large corporation with hundreds of thousands of employees as well as complex internal structures. The actions of some VW employees were shocking to people all around the world. Because of this, the resolution phase must proceed in a thorough fashion, among other things in order to regain trust. We will also have to address the question of why this system went undiscovered for such a long time.

Large scandals such as the bribery affairs at Siemens and Daimler, and now the Volkswagen diesel scandal, were first brought to light by US authorities. Why aren’t German investigators able to do this?

I cannot speak to those other cases. The legal violations at VW largely took place in the US. There were lies, cover-ups and deceptions being committed there. Therefore, the investigation of these incidents is a matter for the US authorities.

Do you now have an explanation for why this diesel affair was able to happen in the first place?

There was a corrupt corporate culture at Volkswagen. It was not a culture marked by honesty and openness. The executives responsible for the affair obviously were not concerned that they would be putting their company in a precarious position. We now have to ensure that all of the programs launched by VW to improve company culture actually work as intended.

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Trying to revive the past: Herbert Diess, head of VW passenger cars. Source: Bloomberg

Prior to the diesel affair, external auditors gave VW consistently high marks for compliance. Despite this, it was still possible to commit fraud. Why is that?

That is all a matter of leadership style. It is important that the board of management set the right tone from above and gain the trust of the employees. But that entails more than issuing decrees. It also must be backed up with actions. On the other hand, each individual employee also has a responsibility to uphold: Every one of the 600,000 employees at VW needs to do their part to ensure that the company follows the compliance regulations.

In the past two years Volkswagen has replaced quite a few of its executives. But was that enough? Perhaps far more should have been done?

Volkswagen admitted its guilt and several executives were deemed responsible. As the monitor I am not a prosecutor, therefore I have no further comment about that. However if we do encounter any new items of suspicion in the course of our work, we would of course report it to the company and also to the authorities.

Is the language barrier a big problem?

The language could be an obstacle. But in my team there are many people who speak German or are German themselves. We do everything to ensure that language does not become an issue.

Another question concerning practical matters: How do you find the employees that you wish to speak to in this enormous organization?

Volkswagen has set up an in-house project office for the monitoring proceedings. When we wish to speak to a particular employee or view a particular document, this office assists us. It is the same at Audi in Ingolstadt and at Volkswagen in the US, where we are also represented.

Who are your most important contact partners in VW management?

The organizational unit under management board member for integrity, Hiltrud Werner, is responsible for cooperating with the monitor. The working relationship with team leader Thomas Meiers has been excellent; he is the head of the project office and is directly responsible for cooperating with my team. He has been incredibly supportive, any help we need from him we receive.

In the few months that you have spent in Wolfsburg, do you feel as if you have come to understand the company?

(Laughs) That is of course difficult. However I have been into this business for more than 43 years now. And because of that I know exactly where the pressure points are, as well as what I have to look for. And yet: I still don’t understand why this diesel deception had to occur in the first place. Volkswagen has always been a successful company, after all.

So from an economic perspective this deception was completely unnecessary?

Exactly – and yet it happened anyway. We will work hard to get to the root causes. But honestly I have to say that right now I do not know if we will be successful in that endeavor. It would be great if we really could find the underlying causes. That way we can give the company the right recommendations.

Have you experienced anything truly positive at Volkswagen?

Many VW employees feel personally deceived and betrayed as a result of the diesel scandal. Yet on the other hand they still remain proud of their company. They are proud to work for Volkswagen. This strong bond with one’s company is something extraordinary from my perspective as an American.

You describe your work with Volkswagen in consistently positive terms. But don’t you run into the occasional open confrontation?

I always hope that there will be no confrontations, and that the necessary level of openness will always be there. This mutual openness ensures that larger conflicts can be avoided before they start. Should there be any larger conflicts, however, the Department of Justice in Washington will have the final word.

There are far more restrictions on the use of personal data in Germany than in the US. Do you find this to be an obstacle?

You get used to it. Sometimes this means it takes longer to do our job, but of course we have to respect German laws, and to this end we have brought in the necessary subject matter experts on our team.

Stefan Menzel writes about the auto industry focusing on Volkswagen. Martin Murphy covers the steel, car and defense industries for Handelsblatt. To contact the authors: menzel@handelsblatt.com and murphy@handelsblatt.com

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