Power Sheet – September 24, 2015

September 24, 2015, 1:49 PM UTC

We’re about to find out whether Volkswagen’s leaders passed Scandal Management 101. The initial signs are decidedly mixed.

Produced by Ryan Derousseau

To no one’s surprise except maybe his own, CEO Martin Winterkorn resigned yesterday after a meeting with VW’s executive committee. The committee members said in a statement they were certain he knew nothing about the company’s multi-year use of engine software to cheat on emissions tests in the U.S. and around the world, a scandal that is expanding by the day. VW doesn’t dispute what happened. The leadership issues center entirely on managing this mega-crisis that caused a 78-year-old company, the largest in Germany, to lose almost 40% of its value in two days.

The most troubling part of the company’s response so far is its neglect of employees, nearly 600,000 of them plus many more who work for suppliers. They’re scared and distracted, and their friends and families are asking them what happened. They can be a powerful help to the company, but its leaders aren’t seizing the opportunity. They’ve given the employees no comprehensive answers or focused attention. On the contrary, one of their few public references to workers was a statement that they hoped the authorities would prosecute any employee who was involved in the scandal.

By a most unfortunate coincidence, former VW employees in Brazil yesterday sued the company for telling Brazil’s military dictatorship decades ago that they were union activists or “subversives,” leading to their detention and torture by the government. Employee torture is not a topic you want workers talking about at a time like this.

By contrast, note the strategy of General Motors CEO Mary Barra in the ignition-switch crisis last year. She immediately held a town hall meeting in Detroit that was live-streamed to employees worldwide. She helped workers maintain self-respect as the scandal developed and even enabled them to feel proud of their company’s response. (See “What Volkswagen’s Next CEO Can Learn From Mary Barra.”)

Volkswagen is doing much better at another pillar of scandal management, being as open as possible as quickly as possible. The U.S. Environmental Protection Agency accused the company of falsifying emissions from 500,000 cars, and the company itself reported just two days later that in fact it had done the same thing with as many as 11 million vehicles worldwide. Leaders have repeatedly promised full cooperation with law enforcement and regulators, and they seem to be making good on their pledge.

On another key aspect of scandal management, owning the problem and moving ahead, VW’s leaders are having a harder time. Winterkorn said clearly in his resignation statement that “I accept responsibility” for the problem, but he also insisted on distancing himself from it – not something that effective leaders do, unless they’re not leaders anymore – and adding the weakest claim of innocence I’ve heard in some time: “I am not aware of any wrongdoing on my part.”

As of last night, VW’s website didn’t even mention the problem; the most recent post in its “News” section trumpeted the company’s ranking as the world’s most sustainable carmaker. A brief statement was added today, six days after the crisis broke, saying “We sincerely and deeply regret that we have abused your trust” and promising to “do everything to fully regain” it.

The company could name a new CEO as early as tomorrow, and maybe he’ll get scandal management on track. There’s no time to lose.

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