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Power Sheet – April 22, 2016

The Volkswagen emissions cheating scandal is shaping up as a leadership case study for the ages, especially after developments yesterday and this morning that further increase the scandal’s potential cost. This is clearly a story of failed leadership, not a rogue employee or two, and the lesson we’re learning is that the cost of poor leadership can be more staggering than anyone would imagine.

The company this morning said it’s taking an $18.3-billion charge related to the scandal, after taking a $7.6-billion charge last fall; the company reported a deep loss and will slash its dividend almost to nothing. Yesterday it barely met a deadline for reaching an agreement with federal regulators on how to fix most of its cars in the U.S. equipped with emissions cheating software – except that the company won’t necessarily fix them. It may just have to buy them. Analysts have estimated the cost of buying back all the affected U.S. vehicles at $7 billion to $9.4 billion, and that would be just the beginning of the costs. Owners will have the option of getting their cars fixed if that’s possible, but in either case they will also receive “substantial compensation.” VW also agreed to invest in clean technologies to offset some of the environmental damage caused by the affected vehicles. The company still doesn’t know how large a fine it will pay to the government, but the amount could be in the billions.

Analysts are still struggling to estimate the actual eventual cost. Evercore ISI says $34 billion; UBS says $43 billion. But no one knows.

Even those numbers are certainly too low because they ignore costs that are incalculable but definitely real. VW will have trouble attracting and keeping top talent not just because of its tarnished reputation but also because public opinion is forcing the company to cut the pay of managers, even those who were uninvolved in the scandal. VW sales are already suffering because of the scandal. What’s the present value of reduced sales for years into the future? Brand Finance, a U.K. consulting firm, guesses the VW brand has lost $10 billion of value. That may not account for the cost of turning the German public furiously against VW for damaging the country’s largest industry, autos. Even the nation itself has been damaged. Engineering excellence is a key attribute of brand Germany, and the cheating software was an attempt to conceal a gigantic engineering failure.

Such large, far-reaching, long-lasting damage is rare. Its cause is becoming clear. Under former CEO Martin Winterkorn and former chairman Ferdinand Piëch, VW developed a culture of declaring titanic ambitions and ruthlessly punishing anyone who failed to perform his assigned tasks in achieving them. When it became clear that VW engineers could not simultaneously meet targets for cost, fuel efficiency, and emissions, managers felt they could not tell the truth to their superiors. So they cheated.

VW’s leaders thought they were heroes for being so demanding. But forbidding bad news doesn’t mean there isn’t any. It only means the leaders don’t hear about it. And then it just gets worse.

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What We’re Reading Today

Uber settles lawsuits for $100 million 

The  class-action suits in California and Massachusetts cut to the heart of Travis Kalanick‘s business model, as drivers sought designation as employees. The settlement ensures that the drivers will remain independent contractors. Uber will change some policies to reduce oversight of the drivers.  Los Angeles Times

Daimler investigates emissions    

The Mercedes-Benz manufacturer said the U.S. Justice Department has prompted an internal review of its emission certifications. Shares in Dieter Zetsche‘s company fell more than 5% on the news. Daimler has previously come under fire for its emissions as a proposed class-action lawsuit claimed some of its emission-fighting technology stops working when the temperature drops below 50 degrees. It’s unclear if this investigation relates to that technology. Deutsche Welle

Valeant may have found its new CEO

The troubled pharmaceutical company is reportedly in late-stage discussions with Perrigo CEO Joseph Papa to become its next CEO. The contract is reportedly agreed to, but Perrigo’s board is debating whether to allow Papa to void his non-compete clause. Valeant doesn’t consider the two companies competitors. If the deal is finalized, Papa will replace J. Michael Pearson, who has agreed to step down as soon as a successor is found. WSJ

Prince was an early adopter of the web…

…but grew to dislike how much control it gave record labels. Prince was one of the first musicians to sell his albums on the Internet but had more recently tried to remove his music from streaming sites such as Spotify. His reason: “Essentially, streaming has offered labels the ability to pay themselves twice while reducing what is owed to artists.” Following the news of his death, fans turned en masse to the Internet to try to watch videos of his performances. Fortune

Building a Better Leader

Financial reports are 50% longer today…

…than they were in 2005. Reasons: more regulations and more complex transactions. Knowledge@Wharton

The Navy refrain, “Ship, shipmate, self”

…is a great way to motivate employees. When company leaders get it backwards, trouble often follows. Fortune

The most expensive U.S. city for business travel is…

…San Francisco. The daily cost of food, hotel, and rental car averages $547.34. USA Today

Worth Considering

Judge approves VW buyback plan  

Matthias Müller‘s company agreed to buy back some 500,000 vehicles in the U.S. with illegal emissions software. U.S. District Court Judge Charles Breyer set a deadline of June 21 for Volkswagen and regulators to agree on a fine and the amount the company will pay as compensation to vehicle owners. The agreements will sharply increase VW’s costs beyond what it had set aside for the scandal – $7.6 billion – as estimates for yesterday’s deal climb to over $10 billion. NYT

China shuts down Apple iBooks and iTunes Movies

The government action comes only a few months after the two services opened in China. For Tim Cook‘s company, China is the second largest market after the U.S. Apple has survived China’s regulatory scrutiny with only minor problems; yesterday’s action could signal a move to tighten clamps on Apple services. CNNMoney

Apple co-founder says Apple should pay more taxes 

Steve Wozniak thinks Apple should pay a higher tax rate, 50%, like he pays. Apple faces a potential tax bill in the billions in Europe as the European Commission investigates whether Ireland gave the company preferential treatment. Cook says the company doesn’t evade taxes. Fortune

Up or Out

Eventbrite has named co-founder Julia Hartz CEO. She had taken over for her husband Kevin Hartz when he took medical leave. Fortune

Nike has moved v.p. of footwear Michael Spillane to president of product and merchandising. He succeeds Jeanne Jackson, who will become an adviser to CEO Mark Parker. WSJ

Fortune Reads and Videos

Spending for the 2016 election has hit $1 billion…

…and we have six months left. Fortune

Facebook will tweak its News Feed…

…to show articles that it thinks you will spend more time reading. Fortune

Adidas is removing plastic bags from its stores

It will reduce plastic bag use by 70 million per year. Fortune

The most influential business people…

…on the new TIME 100 include Mark Zuckerberg and Donald Trump. Fortune

Quote of the Day

“All people care about nowadays is getting paid, so they try to do just what the audience wants them to do. I’d rather give people what they need rather than just what they want.” — Prince.  Vox

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Produced by Ryan Derousseau
@ryanderous
powersheet@newsletters.fortune.com