Power Sheet – March 8, 2016

This is above all a story of flawed leadership, and the protagonist is not Martin Winterkorn, the VW CEO who resigned in September, though he obviously plays a role. It’s Ferdinand Piëch, “a brilliant engineer and a ruthless, terrifying manager who dominated VW for more than two decades,” Geoffrey and Roger say. He was CEO from 1993 to 2002 and then chairman until early last year. His grandfather was Ferdinand Porsche, the man Hitler appointed to create the original Volkswagen car. His uncle Ferry Porsche led an R&D center for the company, and his mother, Louise Piëch, “created an import, sales, and servicing network that became Europe’s largest car distributor.”

Little wonder that, as Geoffrey and Roger show, “the company was run like an empire, with overwhelming control vested in a few hands, marked by a high-octane mix of ambition and arrogance—and micromanagement—all set against a volatile backdrop of epic family power plays, liaisons, and blood feuds. It’s a culture that mandated success at all costs.” And of course that was the source of the emissions scandal. The ambition manifested itself in Winterkorn’s declaration that VW would become the world’s No. 1 carmaker by 2018. Success required that VW sell far more diesel cars in the U.S. America’s emission requirements are different from, and in some ways stricter than, Europe’s. To meet the company’s sales targets, VW had to create cars for the U.S. market that met government emissions standards while also keeping gas mileage high enough and prices low enough to sell enough cars. It could not be done, or at least VW couldn’t do it.

Yet failure would not be tolerated. Piëch had established a culture in which, as he once told Der Spiegel, “I consciously allow those in whom I’ve lost trust to starve by the wayside.” And thus it seemed inevitable that the “defeat device,” the software that enabled engines to cheat when connected to emissions testing equipment, would come into being. Exactly how it happened, who did it, and who knew about it are still unanswered questions. But in a sense they don’t matter. The culture created by Piëch and perpetuated by his longtime favorite, Winterkorn, is the scandal’s real cause.

Remarkably, the company seems still in denial about the whole affair. Last November, when the EPA said an additional class of VW engines used the defeat devices, the company insisted it wasn’t so; but three weeks later, it admitted the charge was true. In January, Winterkorn’s successor, Matthias Müller, a 30-year company veteran, told National Public Radio, “It was a technical problem… We didn’t lie.”

Perhaps the most astounding realization that emerges from Geoffrey and Roger’s article is this: Even now, it’s far from clear whether VW’s supervisory board or current top leaders have learned anything from the scandal.

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