By Ryan Derousseau
December 3, 2015

Today is another big day – in a bad way – for Volkswagen. In Germany, the board of Audi, Volkswagen’s luxury brand, is meeting with CEO Rupert Stadler. The meeting will surely be tense because Audi admitted last week that some of its cars carried the “defeat devices” that deceive emissions testing equipment, after belligerently denying it three weeks earlier. Like most luxury auto brands, Audi is the profit machine for its corporate owner. And in New Orleans today, plaintiffs’ lawyers from across America are converging for a massive scrum to determine where the U.S. lawsuits against VW – 480 filed so far – will be consolidated and heard. Getting the cases consolidated in a law firm’s hometown could be worth millions, since local firms are likelier to be assigned lead roles in this guaranteed massive, multi-year festival of litigation.

Regular Power Sheet readers know we’ve been tracking the VW scandal since it broke in September because it has looked from the beginning like a classic case study of poor leadership before the revelations of emissions cheating, under Martin Winterkorn, and of either good or bad crisis leadership in the aftermath. The verdict on the aftermath is becoming clear: VW’s leadership has been disastrous.

We don’t yet know how to apportion blame between CEO Matthias Müller and the VW board; Müller certainly looks bad, but maybe he is being constrained or directed by the board. What we can say for sure is that in the 11 weeks since news of the cheating first appeared in the U.S., VW has been living in a previous decade. Like big, old industrial companies caught misbehaving in the past, it has assured the world of its good intentions while issuing obtuse, legalistic statements when forced to acknowledge yet another deception, as has happened repeatedly. A Bernstein Research analyst observed, “The press releases from VW seem almost purposefully designed to infuriate further investors — and probably regulators — with their obscure language.”

In its defense, the company argues that it must go slowly in order to be thorough. But then it commits a significant blunder, insisting that Audis did not carry defeat devices – directly contradicting a statement by the U.S. Environmental Protection Agency – only to admit later that actually, they did. In the midst of this debacle, VW announced that it had discovered an entirely separate deception involving carbon dioxide emissions on European models, and even then, reports the Financial Times, revealed crucial information about which models were involved only under questioning.

Union Investment, a major VW shareholder and Germany’s No. 3 asset manager, has called publicly for Müller, other top managers, and the board to be replaced by outsiders. “It’s all about trust,” a senior portfolio manager told the FT.

What a mess, and it becomes harder to fix with each passing day. This could have been a story about inspiring leadership and culture change. Instead, employees, customers, suppliers, communities, and investors are still wondering how bad it will get.

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