Volkswagen Failure Essay

773 Words 4 Pages
Corporate Failure Analysis of Volkswagen

This article will analyze the Volkswagen case in the viewpoint of corporate governance. As the scandal

came up to the scene, Volkswagen defrauded in emission tests and make the improper cars pass from

the tests in the “normal mode” rather than the “best case” scenario which also is not suitable for US

emission standards. As a result, 11million cars were recalled, VW lost 20 billion dollars and especially 80

years of good reputation of the brand is suddenly collapsed. 1

This reputational loss is a big issue on which means the cost of excluding from the industry and be the

one who doesn’t want to be traded with. This requires some down actions to the company like

decreasing the prices,
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But the reality of the

numbers is opposite to these explanations since a very huge number of cars were delivered for 7 years.

Company is claiming that senior management couldn’t recognize the 7-year period of corruption which

seems not possible. The situation seems like a “passive management”.

According to the many C-level or board member sayings that it is true that corporates in Germany

generally have corporate governance problems. Germany corporate governance problem is an globally

known term which is called as “co-determination”. Co-determination is a governance method which

means representatives of workforce must have place in the supervisory board and also their votes are

counted as twice in case of conflict. 2 The aim of codetermination is minimizing labor tension by the

power of representation on the board but in many years, experts claiming that this method is decreasing

the company’s productivity in case of unbalanced distribution of votes. This makes an environment

which creates many problems in case of supervisory board make a mistake. As a more brief explanation,

Germany governance model formed by dual board structure. This integrated board does not
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experiencing the less effective nature of crowded decision-making meetings, co-determined companies

found a way to two-layered discussions meetings of which labor-representatives firstly discussed the

issue among themselves and then came to the supervisory board.

As an overall summary, dominant shareholder percentage of Porsche and Piech families comes to the

stage with a big and powerful conflict of interest. Other than this, governmental share is the major part

of the organization. And lastly, co-determination method of governance totally pressured the labor

representation power which at the end leads the company to the single-way viewpoint dominance.

One of the most important lesson in the VW case is keeping the “conflict of interest between managers

and shareholders” and “corporate governance issues” separate is crucial. And one of the key weakness

at the company is the lack of diversity of

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