You are here


The making of Volkswagen's aggressive ambitions

Its management culture comes under scrutiny as potentially enabling its lawbreaking behaviour

Some critics say the scale of the problem suggests the involvement of separate engineering teams. VW said this month that 50 potential whistle-blowers had come forward, hinting at wider knowledge of the cheating.
"A company of our size, international reach and complexity cannot be managed with structures from the past." - Volkswagen chief executive Matthias Mueller


ALL cars at the headquarters should, according to the rules, be parked facing the same way. The firm is controlled by a tight-knit troika of a billionaire family (Ferdinand Porsche's descendants), a German state government (Lower Saxony) and powerful labour unions. The corporate jet is not just any jet, but a full-size Airbus.

Volkswagen (VW), by any standards, has an unusual corporate culture.

As the car giant struggles to explain a globe-spanning emissions-cheating scandal, its management culture - confident, cutthroat and insular - is coming under scrutiny as potentially enabling the lawbreaking behaviour, according to current and former employees, analysts and academics who study the 78-year-old institution.

"They only know one way of management," said a high-ranking executive who has worked in several countries for the carmaker and who requested anonymity for fear of losing his job: "Be aggressive at all times."

On Thursday, VW's chief executive, Matthias Mueller, publicly acknowledged the problem and promised to make changes, including selling the Airbus. "A company of our size, international reach and complexity cannot be managed with structures from the past," he said.

During a historic public statement, Mr Mueller and Hans Dieter Poetsch, chairman of VW's supervisory board, gave the first in-depth public accounting of VW's admission, made about three months ago, that it had installed special software in millions of cars in the United States and Europe designed to deceive emissions-testing procedures. Mr Poetsch said that the evasion had begun earlier than previously thought, in 2005, and that nine executives so far, one more than disclosed earlier, had been suspended.

VW has blamed a small group of engineers for the misconduct, and has said that members of its management board did not know of the decade-long deception.

Some critics say the scale of the problem suggests the involvement of separate engineering teams. VW said this month that 50 potential whistle-blowers had come forward, hinting at wider knowledge of the cheating. Its own investigation has disclosed that the illegal diesel software was installed in VW, Audi and Porsche models using several engine designs that went through numerous updates over 10 years.

The idea that a few engineers are responsible "just doesn't pass the laugh test", said John German, a former official at the Environmental Protection Agency and a senior fellow at the International Council on Clean Transportation, an environmental group that played a role in uncovering VW's cheating.

The company, briefly the world's biggest carmaker before the emissions scandal struck, claims a unique history that has defined its leadership for generations. Founded by the Nazis with the help of Mr Porsche, the inventor of the Beetle, today the company is 50 per cent owned by his descendants. The state of Lower Saxony and Qatar's sovereign wealth fund own most of the rest. Independent shareholders control just 12 per cent.

VW's factory was built with money confiscated from trade unions, which after World War II were granted a say in management as compensation.

Today, by law, labour holds half the 20 seats on VW's board, as with every major German company. But at VW, two more seats are occupied by Lower Saxony, which in practice cannot vote against labour. So the union effectively controls the board.

The two men who have led VW and shaped its culture much of the past 20 years are Ferdinand Piech, the chief executive from 1993 until 2002, and Martin Winterkorn, the chief executive from 2007 until his resignation after the scandal became public.

Mr Piech, a grandson of Mr Porsche, is an engineer who made his name shaping Audi to take on BMW and Mercedes-Benz. His tenure came to be defined by his toughness and willingness to demote or dismiss people who were not performing well.

"My need for harmony is limited," he wrote in his 2002 autobiography, titled Auto.Biographie. Mr Piech, who fathered 12 children, including two with his cousin's ex-wife, has acknowledged he was not a typical manager. "Only when a company is in severe difficulty do they let in someone like me," he wrote. "In normal, calm times I never would have gotten a chance."

Some critics argue that after 20 years under Mr Piech and Mr Winterkorn, VW had become a place where subordinates were fearful of contradicting their superiors and were afraid to admit failure.

"There is a self-righteousness which led down this terrible path," said David Bach, a senior lecturer at the Yale School of Management who has followed the VW case.

Bernd Osterloh, chairman of the VW workers council, wrote a letter to the staff suggesting flaws in company culture. "We need in the future a climate in which problems aren't hidden, but can be openly communicated to superiors," he wrote.

With Mr Piech's rise, rivals noticed a more aggressive approach from Wolfsburg. In a VW scandal during his tenure, in 1993, Mr Piech recruited Jose Ignacio Lopez de Arriortua, a star purchasing manager from General Motors (GM) known for his ability to bargain with suppliers.

Mr Lopez was later accused of taking confidential GM documents with him. That led to a criminal investigation of accusations of corporate espionage and a legal dispute that was eventually settled. VW denied wrongdoing, and criminal charges against Mr Lopez were dropped after he agreed to resign and give several hundred thousand dollars to charity.

Some rivals view the episode as the emergence of the modern, hard-charging VW. "VW set out to destroy Opel," said David Herman, who was chairman of GM's Opel unit in the 1990s.

Mr Piech pursued growth and doubled the number of brands by bringing into the fold marques such as Bentley, Lamborghini, Bugatti and Porsche.

Even critics of Mr Piech, who remained chairman until this year, consider him an outstanding engineer. He could find product flaws that the designers themselves had missed, and was given credit for numerous innovations such as the four-wheel-drive sedans that led to the Audi Quattro series.

One of the technologies he promoted energetically was TDI, which stands for turbocharged direct injection, which remains VW's trademark technology for diesel engines. It represented a leap in efficiency and acceleration that helped make diesel more practical for passenger cars.

Under Mr Piech, VW became Europe's dominant carmaker, and Mr Winterkorn - who, like Mr Piech, is an engineer - rose to prominence. He held key positions under Mr Piech including head of quality control, head of research and development, and chief executive of the Audi division.

When Mr Winterkorn took over as VW's chief executive in 2007, he adopted a similar leadership style. He carried a gauge in his jacket to measure the gaps between car doors and bodies, which he considered an indicator of quality. At car shows, he was introduced as Professor Doctor Martin Winterkorn, reflecting a VW institutional preference for formal titles.

According to four current and former executives who witnessed his management style, Mr Winterkorn was known for publicly dressing down subordinates and occasionally banging car parts on tables to emphasise a point.

Arndt Ellinghorst, a former management trainee, said that he witnessed an episode where technicians were showing Mr Winterkorn the infotainment system on a luxury Phaeton, which was in development at the time before going on sale in 2002. Mr Winterkorn, he said, mistakenly thought the push-button console was a touch screen, and became critical when it did not respond. When the technicians explained, he said, Mr Winterkorn accused them of treating him like he was stupid.

Mr Ellinghorst, now a car industry analyst at Evercore ISI, an investment advisory firm, said that he decided not to stay at VW in part because of its management style. "VW had this special culture," he said. "It was like North Korea without labour camps," he added, quoting a well-known description of the company by Der Spiegel magazine. "You have to obey."

A lawyer for Mr Winterkorn did not respond to a request for comment. Through a spokesman for the Porsche family company, Mr Piech declined to comment.

The emissions scandal has led to investigations in Germany, the US and other countries, as well as dozens of lawsuits filed by customers, shareholders and car dealers. VW has set aside 6.7 billion euros (S$10.4 billion) to cover the cost of making the cars legal again. Its in-house investigation is being led by Wolfgang Porsche, another descendant of the founder.

A central question of whether VW's top management knew of the deception remains. Mr Winterkorn has said that he did not know, and even some of his critics are not persuaded that he and other top executives were in the loop.

In 2012, for instance, Greenpeace activists wearing T-shirts spelling out "Das Problem" - a spoof of VW's slogan "Das Auto" - managed to unfurl a banner from the rafters at a VW shareholder meeting as Mr Winterkorn spoke. "Honest Climate Protection Now!" it read, blocking a video screen of his speech.

Afterwards, Mr Winterkorn and Mr Piech seemed genuinely wounded, according to Joerg Bode, a German politician and board member at the time. "They said, 'But we're clean!'" recalled Mr Bode, who is a critic of Mr Winterkorn's stewardship of VW. "If they were just acting, they did a pretty good job."

In October, in a letter published in the Corriere della Sera newspaper in Italy, an engineer who works for VW offered her view of the work atmosphere. She did not know how the deception had happened, she wrote, and doubted her bosses knew.

She described a hard-charging culture in which highly educated and motivated engineers competed for approval and promotion. The engineer, Emanuela Montefrancesco, said: "Here at Volkswagen in the last few years, we have forgotten to say, 'I won't do this. I cannot. I am sorry.'"

Mr Mueller, the new chief executive, has pledged to change VW's culture, saying he does not want to be surrounded by "yes" men but rather by people who "follow their instincts, and are not merely guided by the possible consequences of impending failure."

Perhaps change is already happening. While it remains the rule in some areas of the factory that cars should be parked facing the same way (it protects the building from pollution, a VW official explained), on a recent visit it appeared that many employees were following their instincts and parking however they liked. NYT

For more of BT's year-in-review stories: