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Power Sheet – March 8, 2016

For the most revealing and insightful leadership story you’re read in a very long time, please check out “Hoaxwagen,” by Geoffrey Smith and Roger Parloff. It dissects what went wrong at Volkswagen before and after the revelation last September of the massive emissions cheating scandal that has taken tens of billions of dollars off the company’s value and will certainly continue doing damage for years to come. You’ve never seen this corporate disaster explained so deeply, and you’ll probably conclude, as I did, that you never previously understood what had happened.

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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What We’re Reading Today

White House surprised by Israeli Prime Minister’s…

…invitation decline. Benjamin Netanyahu was set to visit the U.S. later this month. The White House extended an invitation to meet with President Barack Obama, which Netanyahu had reportedly requested but then declined when it was offered, opting to cancel his trip instead. The trip would have coincided with the annual Washington meeting of the American Israel Public Affairs Committee, at which several presidential candidates will likely speak, and Netanyahu may have wanted to avoid any appearance of interfering in U.S. politics. But Obama and Netanyahu have had an icy relationship since the Iran nuclear deal. CNN

German prosecutors expand probe into VW 

The authorities have expanded their investigation to include 17 staff members. They’re also weighing criminal charges but have not expanded the investigation into current or former top management. Last week, Volkswagen confirmed that former CEO Martin Winterkorn received a memo about the emissions cheating in 2014, over a year before the scandal became public; the investigators say it’s not enough to open a probe into his role. Fortune

Leading genetic testing company to put data in public domain

Ambry Genetics will load anonymized genetic data of 10,000 customers into a database that can be accessed by the public, including doctors and researchers. CEO Charles Dunlop hopes to help scientists link genes with specific diseases. NYT

McClendon’s complex finances

The late Aubrey McClendon, the former CEO of Chesapeake Energy who died in a one-car crash last week, had borrowed against his wealth in order to launch a second act. His efforts to build a new oil-and-gas business faltered as oil prices declined. Included as collateral were part of his ownership in the NBA basketball team Oklahoma City Thunder and a 2,000-bottle fine wine collection. McClendon died the day after charges were brought against him for rigging oil bids in Oklahoma. WSJ

Building a Better Leader

An office designed for cyclists

The odd design of bike component manufacturer SRAM’s office allows for biking while working. Fast Company

The companies with the best reputations…

…have more than twice as many women in management as did companies with poorer reputations.  Fortune

The upside to shame 

If you feel bad for having one too many at the company outing, that’s likely a good thing for your career. Quartz

Worth Considering

Michael Bloomberg rejects presidential run 

The former New York City mayor said it had become clear he “could not win.” With Hillary Clinton‘s growing momentum in the Democratic race, Bloomberg said his candidacy would only help Donald Trump or Ted Cruz win the White House. His decision is nonetheless a relief for Clinton because his candidacy might have denied any candidate a majority of electoral votes, throwing the race into the Republican-controlled House. Fortune

Theranos ran tests despite erratic results

Elizabeth Holmes‘s company ran 81 tests in mid-2015 to gauge a patient’s blood clot rate despite quality control tests that casted doubts on the test’s accuracy. The test is important for patients who are susceptible to strokes. Theranos says the issue does not reflect the current state of its lab. WSJ

Ssangyong Motor to enter the U.S. market

The South Korean car company wants to enter the U.S. market by 2019. CEO Choi Johng-sik has long wanted to compete in the U.S., but this is the first time he has set a date. Ssangyong is owned by India’s Mahindra & Mahindra, whose Executive Director Pawan Goenka said recently that the U.S. was a low priority because Ssangyong needs to focus on China next. Yet Choi called the U.S. market a “make or break” for the company. Reuters

Up or Out

J.M. Smucker Co. names Mark Smucker president and CEO starting in May. He will replace his uncle Richard Smucker.  Cleveland Plain Dealer

Google has hired 4Chan founder Christopher Poole. It’s not clear what his role will be, but it’s expected to focus on building online communities.  Fortune

Deutsche Bank names Rene Keller CIO of its Private, Wealth and Commercial Clients division.  WSJ

Fortune Reads and Videos

Amazon enters the virtual reality field

It’s assembling a team for “immersive storytelling.” Fortune

Porsche and Nike back away from Maria Sharapova…

…after the tennis star failed a drug test. Fortune

Snapchat wants at least $300 million in 2016 revenue

That’s over six times more than its 2015 target. Fortune

Google now lets anyone in the U.S. sign up for Project Fi

The service allows users to pay only for the mobile Internet data they use. Fortune

Quote of the Day

I’ve learned a lot through my mistakes, stumbles, and losses in football. I’ve also learned this game is a mighty platform that has given me a voice that can echo well beyond the game. Football has taught me not to be led by obstructions and setbacks but instead to be led by dreams. Due to some good genes, I’m smart enough to know that those lessons can enrich who I am and where I go from here.” — Peyton Manning announcing his retirement from football.  ESPN

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