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Power Sheet: Why VW Is In Deep Crisis — And GM Isn’t

August 16, 2016, 2:23 PM UTC

Two headlines this morning update my current favorite do-this-not-that study of leadership and culture. Here they are:

U.S. Said to Uncover Evidence of Criminal Acts in VW Probe

Texas Judge Tosses GM Ignition-Switch Lawsuit

These two long-running stories are well known, especially to Power Sheet readers, but the significance of the big-picture comparison is easy to overlook. Consider the contrast. The VW story is 11 months old, and under CEO Matthias Müller it’s still getting worse. The company settled with U.S. regulators and consumer plaintiffs in June for $15 billion, but that’s just the beginning. Settlement of the new criminal issues with the Justice Department will cost more, as will settlements with U.S. dealers, whose sales have fallen for nine consecutive months, and settlements with owners of 85,000 vehicles powered by engines not covered in the June settlement. The German state of Bavaria recently announced it will sue VW, and two other states may join the suit. German prosecutors last month searched offices and private homes as their investigation continues to widen. The end is nowhere in sight. VW keeps increasing its loss reserve for the mess, which stands now at $21 billion.

The GM ignition-switch story virtually evaporated within months of its coming to light two-and-a-half years ago, just as CEO Mary Barra was taking over. New developments like yesterday’s show up mostly in trade publications or as minor items in general-interest media. As often as not, they’re good news for GM; earlier this year the company won a case at trial in New York, and a plaintiff withdrew his suit. “GM has already paid more than $2 billion in civil and criminal penalties and settlements,” Automotive News reports. That cost will certainly increase, but it’s hard to imagine its ever approaching VW’s costs. Reputational damage, impossible to quantify, also appears far worse at VW.

Obviously the cases are different, but it isn’t clear that VW’s should have been the greater corporate calamity. GM’s case involves millions of cars and 124 deaths vs. 600,000 VW vehicles with emissions cheating software in the U.S. So why is VW taking the bigger hit? Much of the explanation is leadership. Both CEOs got their jobs just as the scandals were breaking. Müller responded much as GM would have done in the past – with terse, legalistic statements and denials of responsibility that later had to be retracted. Barra did the opposite, commissioning and releasing a damning independent report, acknowledging faults, and paying victims and their families almost immediately, even before lawsuits were filed. Last week, in a video deposition in another civil suit, she admitted GM’s mistakes, saying GM engineers “misdiagnosed [the problem] as a customer satisfaction issue and not a safety issue,” for example.

I’m guessing that Müller behaved as his lawyers advised him to, and Barra didn’t. Müller managed conservatively, and Barra took risks. On any given day, Müller likely had good reasons for everything he did. But I don’t think there’s any question who has emerged as the better leader.

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What We're Reading Today

Trump lays out anti-terrorism plans 
In a subdued speech, Donald Trump read from a teleprompter, blaming the rise of terrorist groups like ISIS on President Obama and Hillary Clinton. He called for "extreme vetting" of Muslim immigrants, including a litmus test to screen ideologies before they could enter the country, citing the Cold War as precedent. Much of the speech used ideas from previous speeches, and specifics were limited.  Washington Post

Justice Department finds evidence VW committed criminal acts
Volkswagen is reportedly in conversations with the Justice Department over new evidence of criminal acts in the emissions cheating scandal. The result could be another costly settlement for Matthias Müller's company, possibly exceeding the $1.2 billion Toyota paid in a similar case in 2014. It's unclear if Justice will charge individual employees. WSJ

Peter Thiel on Gawker: I'd do it again
The billionaire co-founder of PayPal said he financed Hulk Hogan's civil suit against Nick Denton's Gawker to deter invasions of privacy by the media. The $140-million judgement, which Gawker plans to appeal, has forced the company to  auction its assets. Univision and Ziff Davis are reportedly among the bidders.  Fortune

BHP Billiton reports a $6.4-billion loss
The mining company's 12-month results reflect its struggles with low commodity prices plus $7.7 billion in charges and write-downs, mostly related to a dam collapse in Brazil. It's the worst loss in the 165-year history of Andrew Mackenzie's company. 

Building a Better Leader

One reason employee productivity has stagnated...
...could be a dearth of technological innovations. Computers revolutionized work in the 1980s and 1990s, followed by the Internet in the late 1990s and early 2000s. Workers need a new innovation. The Atlantic

To create better passwords...
…dump the typical mix of words and characters, like Mercede$7, and adopt passphrases, like iwanttodriveaMercedesthroughthestreetsofBerlin. They're easy to remember and hard to predict. Fortune

Don't ghost job applicants
A note saying they didn't get the job is better than no message at all. Failure to close the process can damage your employer brand. Quartz

Political Problems

Obama releases 15 Guantanamo detainees
It's the largest transfer of detainees from Guantanamo prison since Obama became president. The 12 Yemenis and 3 Afghans will be sent to the United Arab Emirates. Obama has speeded the removal of detainees from Guantanamo in his last year in office, having promised in 2008 to close the prison if elected; 61 inmates remain. Guardian

Aetna to pull out of most health care exchanges
Mark Bertolini's company will withdraw from 11 of 15 Obamacare exchanges, continuing to offer policies on exchanges in Delaware, Iowa, Nebraska, and Virginia. Bertolini had warned that the company was reviewing its plans after finding that customers on the exchanges were sicker than expected. The decision also comes a month after the Justice Department blocked Aetna's merger with Humana. CNNMoney

UPS to Congress: Approve TPP
While both presidential candidates have vowed to stop the Trans-Pacific Partnership, UPS CEO David Abney believes Congress should ratify it now. UPS has increased its lobbying efforts to get the deal approved before year-end. Fortune

Up or Out

Bart Nabbe, who worked on computer vision, navigation, and artificial intelligence in Apple's secret self-driving car project, has left to join electric car startup Faraday Future.  Fortune

Fortune Reads and Videos

Dropbox is looking to go public in 2017
But the company, valued at $10 billion two years ago, still isn't profitable. Fortune

Warren Buffett ups stake in Apple
Berkshire Hathaway has increased its stake in the tech company by 55% while cutting its Walmart holdings 27%. Fortune

Google releases its Duo app
It enables video calls across Android and iOS phones and uses end-to-end encryption so no one can listen in. Fortune

A couple in Michigan has filed suit against...
...Pokemon Go creator Niantic, claiming the game has ruined their neighborhood.  Fortune

Quote of the Day

"In the Cold War, we had an ideological screening test. The time is overdue to develop a new screening test for the threats we face today. . . . I call it extreme, extreme vetting." -- Donald Trump in a speech on his plans to counter terrorism Washington Post

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Produced by Ryan Derousseau