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The Volkswagen Scandal Has No End

The astonishing Volkswagen emissions scandal yesterday took another expensive step down its extremely long path to eventual resolution, as the company agreed to pay $4.3 billion to resolve the Justice Department’s criminal and civil investigation of the matter. That’s on top of $14.7 billion it previously agreed to pay to settle civil claims in the U.S. and $1.2 billion it agreed to pay to settle claims by U.S. dealers. Yet this mess is still nowhere near over. German prosecutors are investigating the company for criminal violations, and other European nations plus South Korea could still take action. Last weekend the F.B.I. arrested a VW executive, Oliver Schmidt, in Florida and charged him with conspiracy in the effort to mislead U.S. regulators. This debacle is 16 months old and could drag on for years more.

How come? Giant corporations make all kinds of terrible mistakes and typically put the matter behind them much faster than this. Why can’t VW do the same? The answer is that VW’s mistake and the company’s handling of it are highly unusual in today’s business and social environment, and this difference from other scandals hasn’t been sufficiently remarked upon.

It’s this: VW’s engineers, with the approval of managers, set out to do on a massive scale something that was clearly illegal and ethically wrong. There is no innocent explanation. The plan to make VW vehicles cheat on emissions tests didn’t start out small and get out of hand, nor was it some kind of technical error that took time to track down. It was an explicit, carefully planned, years-long scheme to deceive regulators as well as the buyers of 11 million vehicles. We know that higher-level managers knew about the scheme; we just don’t yet know how high up they were.

Once U.S. authorities had accumulated so much evidence of the deception that VW could no longer deny it, the company behaved in exactly the opposite of the proper way. It should have acknowledged its mistakes, pledged to root out and remedy the causes of the scandal, and acted as fast as it could to start making things right with consumers, dealers, and regulators. That course would have served its shareholders and employees much better. Instead, it grudgingly admitted only what could not be denied. When regulators later accused VW of installing the so-called defeat devices in more vehicles than originally thought, the company flatly denied doing so – until authorities produced the evidence. VW wasn’t behaving like a responsible modern company. It was behaving like the Soviet Union.

Long ago, CEOs didn’t like to talk about corporate culture. It was soft, squishy, unmeasurable – not the kind of thing a CEO could be concerned with. Today virtually every CEO knows that culture is central to an organization’s success or failure. Volkswagen is already one of the all-time great case studies in how not to manage a scandal. In the years ahead it will also be an even more important case study in how to transform – or not – a rotten culture.

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What We’re Reading Today

Russia denies it has compromising information on Trump
Intelligence officials informed President-elect Trump that a former Western intelligence official, working for Trump’s political opponents, concluded that Russian operatives conspired with Trump employees and campaign advisers to influence the election, and that Russians have explosive evidence of Trump involved with prostitutes. The Kremlin denies it has such information. Trump tweeted that it was “FAKE NEWS;” he will host his first news conference since winning the election today. WSJ

Rex Tillerson faces the Senate today
In a hearing on confirming him as secretary of state, Tillerson will take questions about his relationship with Russian President Vladimir Putin and Iran. It could be rough going for Tillerson, as some Republicans, including Marco Rubio and John McCain, have expressed concerns over his ties with those countries, which he established as CEO of ExxonMobil. USA Today

Obama says farewell
In an emotional speech in Chicago, President Obama stressed solidarity and vigilance, urging followers to keep fighting for causes they believe in. The speech marked the end of a months-long farewell tour. CNN

Walmart to cut hundreds of jobs 
Most of the cuts will be in the human resources departments at headquarters and regional offices. Doug McMillon‘s company is investing heavily in e-commerce and raising wages, pressuring profits. Some 7,000 accounting position layoffs began in September. Fortune

Building Better Leaders

Downside to higher minimum wages
A new study finds that when companies offer higher wages to hourly workers, those workers are often more productive. They achieve their goals in fewer hours, resulting in little additional take-home pay. NYT

If you make a big mistake…
…own it and learn from it as fast as possible, says Vacasa CEO Eric Breon. The speed of business will compound the error if you’re afraid to acknowledge it and test new solutions.  Fortune

To determine if a new hire is fitting in…
…check his or her email. Employees who fit the company culture match the firm’s  lingo in emails quickly. WSJ

Controversial Movements

Samsung leader named a suspect in political probe
Samsung Electronics vice chairman Jay Lee has been embroiled in the investigation of the scandal that could force out South Korean President Park Geun-hye. A special prosecutor will question him about a payment by Samsung to foundations backed by a Park confidant and whether the payment coincided with a 2015 decision by the national pension fund to support a merger between two Samsung affiliates. Lee is a member of Samsung’s founding family. Reuters

Volkswagen to plead guilty in latest emissions scandal settlement
Matthias Müller‘s company will likely admit guilt and settle criminal and civil charges for $4.3 billion. The deal would differ from other auto scandal settlements in that VW will admit wrongdoing when it fooled regulators and consumers by installing emissions cheating devices. Washington Post

Anti-vaxxer Kennedy may lead vaccine commission
Robert Kennedy, Jr. is a vocal critic of vaccines, believing they’re a cause of autism, and he met with President-elect Trump to discuss the issue. The theory lacks scientific support, but Kennedy has alleged a government coverup to hide the link. Trump‘s team says the president-elect is exploring creating a commission on autism but has made no decision on who would serve. Fortune

Up or Out

Sonos co-founder and CEO John MacFarlane has stepped down and resigned from the board of directors. He will remain at Sonos to work on projects and mentor employees. Patrick Spence will be CEO.  Engadget

Ellen Pao, former Reddit CEO, will become chief diversity and inclusion officer at the Kapor Center for Social Impact and serve as a partner in Kapor’s venture capital business.  CNET

Tesla has hired Apple veteran Chris Lattner as v.p. of Autopilot software.  Fortune

Fortune Reads and Videos

Wells Fargo to make ATMs card-free
Customers would use an access code sent via a mobile app, along with their PIN, to get cash. Fortune

Amazon gives away almost 5,000 bananas a day
Just over a year after launching the Community Banana Stand, the company has handed out over a million bananas in Seattle. Fortune 

The Dutch rail network…
…is now 100% fueled by wind power. Fortune

Here are seven name changes even worse…
…than Yahoo’s plan to recast itself as Altaba. Fortune

Quote of the Day

“Democracy does not require uniformity…Our founders quarreled and compromised and expected us to do the same. But they knew that democracy does require a basic sense of solidarity — the idea that for all our outward differences, we are all in this together; that we rise or fall as one.” — President Obama in his farewell speech  CNN

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@ryanderous
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