With news breaking over the past several days, we all now know that Volkswagen is suffering a major corporate disaster. Not the equivalent of a reputational fender-bender, but an all-out drive into a wall. This is a corporate disaster that could and should have been avoided.
While the investigations and probes are only getting underway, it is a good bet that when the autopsy on this corporate disaster is complete, corporate culture will be revealed as the culprit.
This much is known: Volkswagen has admitted that for years it has cheated on emission tests for several of its diesel engine models across several brands. Software was programmed to allow cars to pass emission tests, when in fact the vehicles were spewing significantly higher levels of greenhouse gases under normal driving conditions.
The company—Germany’s largest auto firm—has set a charge of $7 billion to cover costs of recalls to fix the cars. It faces a reported $18 billion in fines and penalties by the U.S. government, is under scrutiny all over the world, and its reputation has taken a huge blow.
Yesterday, the company sacked its CEO. More terminations are likely to follow. Criminal investigations are getting underway in various countries. The U.S. Department of Justice recently announced new guidelines for corporations to avoid prosecution. These guidelines require companies to serve up individuals. One thing is for sure: some VW executives will see the inside of a federal prison. This will turn out to be a corporate disaster of epic proportions.
How could it happen? A look at two other corporate disasters in the news this past year offers a clue. At GM, its own internal investigation determined that a corporate culture dominated by silos and an attitude of “it’s not my job” was largely responsible for its disastrous handling of the defective ignition switches, which caused several deaths and injuries.
And in Atlanta earlier this year, in a non-profit setting, a culture that exalted improvement in standardized test results above all else was largely responsible for a widespread teacher cheating scandal.
Did corporate culture cause VW crash? Looks like a it did.
Board members and top execs at big companies, many with MBAs from prestigious B schools, can be unknowingly blind to warning signs in their company cultures. Obviously, that was the case at GM and now VW. But owners and managers at smaller companies need to be mindful of culture as well.
The VW disaster should be a wakeup call for executives at companies of all sizes to spend some time assessing their cultures. Corporate culture is a double-edged sword. It can make companies very successful, and builds powerhouse brands. But it can also lead historically ethical and honest executives and employees to unknowingly and unintentionally cross ethical and even legal lines.
Signs of silos, aggressive alpha cultures, and toxic cultures should be pursued for the potential disasters that lurk within. When it comes to corporate culture, leaders should run to, not from, problems.