Martin Winterkorn has resigned after finding himself in a real-life CEO nightmare. A relentless (and talented) NGO finds out an inconvenient truth – putting into question Volkswagen’s legal and moral obligations – authorities confirm corporate misconduct, the story goes viral, criminal charges are pending and the share price drops dramatically. Added to the mix is the fact that the planet is experiencing its hottest year on record, undoubtedly a situation that is not helped by what appears to be emissions-fraud.
It is an amazingly fast fall from grace: less than ten days previously, VW was named by the Dow Jones Sustainability Index as the industry group leader for sustainability in Automotive and Components. In the evaluation report, DJSI said: “Sustainability is the foundation of the Group’s corporate policy, and focuses on integrating the company’s anticipated risks and opportunities.” It’s a statement that now rings more than a little hollow.
As one would expect, VW was proud to be recognised for its best in class performance. Winterkorn responded to the accolade: “This distinction is a great success for the entire team. It confirms that the Volkswagen Group is well on the way to establishing itself long-term as the world’s most sustainable automaker.”
How wrong can a chief executive (and rating system) be? VW’s admission that they used a “defeat device” to game the emissions testing system lends itself to charges of greenwashing: purposefully not walking its sustainability talk. If only the company had had the courage of its convictions.
The fact is, Volkswagen has long touted itself as a paragon of sustainability virtue. But the company would not find itself in this situation if it had listened to its own advertising messages. For instance, in 2011 the company launched an endearing ad in North America entitled: “Drive Until You Find the Courage”.
Courage, in this setting, meant watching a 30-something year old man drive around in his VW until he found the courage to propose to his girlfriend. The beauty of the ad is that we’ve all been there – feeling fearful in the face of the most important priorities in our life, and gaining courage when we spend some time alone with our conscience. It’s a timeless story of how man digs deep, faces fear, becomes hero – and hopefully gets the girl.
Fast forward to the VW boardroom. We definitely don’t have the same storyline here. It’s a safe bet to say that the VW boardroom – like most boards – probably had many discussions about greenhouse gas emissions and the implications of climate change on the VW product line. And Winterkorn is on record as saying: “Every gram of CO2 reduction costs the VW Group €100m per year, and we don’t know when they will pay off … Companies can only invest in environmental protections if we can afford it.”
CEO statements on climate change set the tone for the whole organisation, so if the tone is on affordability, this value will permeate decision-making perhaps in surprising ways.
Few of us, except those most closely involved, know exactly how much discussion (if any) the C-suite of top executives had about the software designed to falsify emissions-testing on diesel cars. We don’t know if the VW board and executive team knew that there was widespread cheating going on to avoid compliance with tough environmental standards. In his resignation, Winterkorn accepted responsibility for the irregularities that were found in VW diesel engines, but maintains he was unaware of any wrongdoing on his part.
The fact that people cheat is not new. But understanding the cultural contexts where “cheating” is perceived to be an accceptable form of behaviour can help us unpack instances of corporate misconduct. Research shows that organisational culture and leadership practices can influence the alignment of business ethics throughout the company. At the same time, the trust-worthiness of companies (and individual actors) often depends upon the context – and research shows there needs to be consistency in managerial behaviour over time in avoiding opportunism.
Behavioural insights from other gaming contexts provocatively shows that individual actors will regularly use things like cheat-codes, particularly if they perceive that this behaviour helps to level the playing field, keep the game or task in play, and if they don’t like or are bored with the rules of the game.
Even the words “defeat devices” emphasise the win-lose paradigm related to revenue at play. The implication is that emissions standards, which cost the company money, are the enemy.
Employees did not have the necessary skills to deal with their fears and face the reality that tough emission standards put significant pressure on business-as-usual. And that’s why business-as-usual needs to stop.
Cutting corners may be endemic in many companies, and VW is not the first company to have been found out for using underhand tactics in pursuit of profit – even if it was not ordained from the top. Companies in many industries have faced steep fines and reputational damage in the past.
Lessons for business
The outstanding question is: what can we learn about business culture from VW’s fall from grace?
The obvious answer is the need for improved governance – both inside and outside the company. A less obvious answer is the need for more C-suite courage on climate action.
A sustainability industry leader is not simply an organisation that builds a good policy or set of processes on emissions – although these things help, as Siemens CEO, Joe Kaeser has shown with the initiatives he is taking. Rather, sustainability leadership rests upon how well the C-suite builds a culture of courage in the face of the tremendous challenges of emission reductions.
Employees at all levels need to have the courage to think big, to speak up, to go the extra mile. They also need the courage to accept when current performance is simply not good enough. And then find a better way to do the impossible. That’s the stuff that everyday corporate heroes are made of.