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Power Sheet – September 24, 2015

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

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.

What We’re Reading Today

40 under 40

Fortune’s annual list of the 40 most influential people under age 40 is now live, and it’s the first time all the names are new. People like Uber’s first hire, Ryan Graves, actress and business tycoon Jessica Alba, and comedian John Oliver landed on the list by showing boundless enthusiasm while tackling changing dynamics – and sometimes causing them – within their industries.  Fortune

VW’s Martin Winterkorn resigns

Winterkorn stepped down as CEO and Chairman of the automaker in an unsurprising move. The board was planning to meet Friday to decide his fate. In the statement announcing his resignation, Winterkorn took responsibility for the scandal while restating that he did not know about the emissions manipulation. His parachute includes a $32 million pension and potentially millions more, depending on how the board classifies his exit.  ABC News

Hackers nabbed 5.6 million federal employee fingerprints

The Office of Personnel Management announced that the cyberattack that stole security dossiers, which was attributed to Chinese-based hackers, also snatched fingerprints. The announcement comes one day before President Barack Obama meets with Chinese President Xi Jinping; cybersecurity will be a major point of contention. NYT

A Who’s Who of tech execs met with China’s President

In a photo that could serve as a world’s most powerful list, Apple CEO Tim Cook, Amazon’s Jeff Bezos, IBM’s Ginni Rometty, and Facebook’s Mark Zuckerberg, among others, posed with President Xi. A flurry of new deal announcements between U.S. companies and China, including one with Microsoft, were timed to Xi’s visit. Microsoft chief Satya Nadella (standing to Xi’s immediate left in the photo) announced Microsoft has forged a number of new partnerships with Chinese groups, allowing it more access to the highly sensitive Chinese technology market. Quartz

Building a Better Leader

Lighten up at the office

Enjoyable environments build relationships. Those relationships matter for business. SmartBrief

Going global isn’t easy… 

…even with a strong partner. Expect and prepare for uncertainty. INSEAD Knowledge

Fidget while you work

It’ll help you counter the negative health effects of sitting for hours at a time. Forbes

Worth Considering

EU offical calls for the end of an EU-US data pact 

U.S. surveillance practices have caused the European Union’s advocate general, Yves Bot, to recommend that the EU end a pact with the U.S. The agreement allows companies to gather customer information and send it back to servers in the U.S. While the recommendation is not an order, it’s a major concern to companies like Apple that uses this pact to move data without violating EU’s strict privacy laws. NYT

What did Angela Merkel know?

With VW firing more people over the emissions scandal, a public broadcaster in Germany has claimed that the German government knew the engines weren’t clean as late as last year. The car industry accounts for about one in every seven German jobs, and the government is trying to isolate the fallout, as it could have a dramatic effect on the national economy. Fortune

Starbucks, Nike, J&J commit to 100% clean energy

Nine large companies – Johnson & Johnson, Procter & Gamble, Goldman Sachs, Nike, Starbucks, Salesforce, Steelcase, Voya Financial, and Walmart – announced they will join RE100, a global campaign that promotes using 100% renewable energy. P&G VP of global sustainability Len Sauers said that his company plans to get 30% of energy from renewables by 2020, with a longer-term goal of reaching 100%. The Guardian

Up or Out

EMC has added BJ’s Wholesale Club CEO Laura J. Sen to its board of directors. Re/code

Dermot McCormack, AOL’s president of video, is stepping down less than a year after he joined as AOL decentralizes much of its video production.  The Hollywood Reporter

Public Service Group has named Daniel Cregg its new finance chief, replacing Caroline Dorsa, who is retiring.  WSJ

Fortune Reads and Videos

Switzerland approves second FIFA official extradition 

The Venezuelan official Rafael Esquivel will be moved to the U.S., where he will face up to 20 years in prison for a number of bribes that he’s accused of taking while divvying up marketing rights for soccer tournaments. Fortune

IBM’s Watson gets a second home in San Francisco…

…to court more companies with its data crunching capabilities.  Fortune

The hidden costs of buying a used Tesla

There are chargers, insurance, and shipping to consider. Fortune

Food startups sued over contractor classification

The suits claim Doordash, Caviar, and GrubHub misclassified deliverers as contractors instead of employees. Fortune

On this day…

…in 1996, Bill Clinton signed the Comprehensive Nuclear Test Ban Treaty at the United Nations, an agreement among national powers to stop testing and building new nuclear weapons.  United Nations

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Produced by Ryan Derousseau
@ryanderous
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