Volkswagen and the Emissions Scandal

Volkswagen and the emissions scandal

7. a) The new CEO of Volkswagen Mathias Müller is indeed a well-prepared leader and has a very deep knowledge of the industry, and he has been in the company for a very long time. Do you think that appointing Müller as the new CEO was a right move for Volkswagen? If so, how could he help the firm on the scandal? If not, which type of leader would have been better for VW?

In 2015, Volkswagen was on the its way to become the largest car producer in the next near, when in September  the International Council on Clean Transportation (ICCT) and the Environmental Protection Agency (EPA) published its studies about the ecological impact of Volkswagen’s diesel  motors. The results showed that the group used a microchip in order to falsify the polluting emissions of 11 million cars worldwide produced between 2009 and 2015. The software developed, detected only when the cars were tested, lying about the real cars performance on the streets. On the 18th of September, Volkswagen admitted its responsibilities, with a consequent negative impact on public image, share prices and brand reputation which affect indirectly all the car industry.

The technical aspect is important to understand how the scandal is not due to a mistake or a production defect that sometimes happen: the software was created in order to falsify intentionally the test and reach a better performance, as a real fraud. The days following the scandal, the Volkswagen CEO, Martin Winterkorn, resigned. Matthias Müller was appointed Chairman of the Board of Management of Volkswagen Aktiengesellschaft by the Supervisory Board of the Volkswagen Aktiengesellschaft with effect from September 25, 2015.

In our opinion, a change of CEO was absolutely necessary, at least to give a strong signal to the market and to the stakeholders. In fact, even if, in the extreme hypothesis, he was in the dark of the technical manipulations, a CEO has the responsibility of the firm and he has to control that all the standards are followed. Moreover, it is more likely that he was informed about the plan which has been acting for several years. However, the main point regards the decision of appointing Mr Müller as new CEO. Looking at Müller’s curriculum vitae, he has a very deep knowledge of the industry and, more important for our assumptions, a very long relationship with the company, starting from his apprenticeship as a toolmaker in AUDI AG when he was a student, to the nominee as Chairman of the Executive Board of Dr. Ing. h.c. F. Porsche AG. Moreover, Müller has the full trust of the ownership, a strong attachment to the firm and he knows the mechanisms of the group in terms of organization, mission, vision, corporate culture and so on. His background depicts him as a good CEO in a moment in which the company needs to react to the scandal immediately in order to avoid further negative effects and an additional lose in stock market value. In fact, the scandal affected heavily the price of shares, which fell more than 30%. Of course, Mr Müller had no big problems in integrating himself in the new frim, but was he really the right choice?

One of the key aspects regards the fact if the creation of the software was known by all the main chiefs of the group. As CEO of Porche (the main shareholder of Volkswagen), maybe also Mr Müller was aware of the manipulated test. Overlooking this doubt, which some investors could have thought, it was a right choice appointing someone who worked already for the group? Or on contrary, choose an external person for giving a strong signal of change? In our opinion, even if Mr Müller was able to implement new initiatives for resolving the situation in little time, Volkswagen should have done a more determined choice, appointing someone else who was external to the group, with a strong reputation and ethical values acknowledged by the market. In this way, Volkswagen could have demonstrated a strong stance on the scandal, bringing new resources and ideas in the firm and a cutting with the past. In our opinion, a leader with a long experience in the market, enterprising initiative, fresh ideas and good reputation would have been better for the group.