(photo credit: INGIMAGE PHOTOS)
The stink generated by the revelation that Volkswagen diesel engines were designed to cheat on their obligatory emission tests is much greater than the fumes these engines emitted. Indeed, at this stage in the scandal’s unfolding, it is impossible to even estimate how much damage will be done to Volkswagen and to the auto industry in Germany and globally – let alone how much damage has been caused to “the environment” and the creatures, including human beings, that inhabit it.
One of the few certain things is that this scandal will become required study in business schools everywhere.
MBA students, who aspire to senior positions at major multinationals such as Volkswagen, will learn about the German giant’s efforts to contain the crisis: the specialized field of “crisis management,” which, despite VW’s effort winning accolades as a “textbook” response, is still proving unable to prevent a major corporate disaster.
Indeed, the VW corporate machine proved unable even to save its boss, Martin Winterkorn. After a brief effort to brazen out the crisis triggered by the cheating reports, the company’s biggest shareholders “received” Winterkorn’s resignation on Wednesday. What sealed his fate was not that the company he headed – thanks to winning a nasty boardroom power struggle – had deliberately set out to deceive regulators and the general public, but rather that the revelations had triggered a collapse – of some 35 percent at one stage – in its shares.
In other words, while lies and deceit could be dealt with via “textbook crisis management,” the massive losses being meted out to shareholders (including regional governments) have overwhelmed the executives and outside consultants tasked with keeping VW on the road. The implication is perfectly clear: The greatest corporate crime is not to lie, cheat, distort or even cause injury and death to your customers (e.g., the GM scandal and recall). It is to be discovered and thereby cause financial loss to your shareholders.
Parenthetically, note also that the financial press and blogosphere has been engaged in discussing why the earlier GM (and Toyota) scandals did not result in their bosses quitting, whereas VW did. See Fortune for the mainstream version and ZeroHedge.com for a decidedly conspiratorial approach.
That is the tip of the iceberg in the coverage of one aspect of the scandal: the corporate level. But beyond VW, the entire global auto industry is threatened by the investigations now under way around the world – unless, unusually, there is only one cockroach this time. Finally, there is a very serious macro issue, namely that VW and its supply chain, along with the auto sector as a whole, are a key component of the German economy in terms of manufacturing, employment and exports – and, as Germany is supposed to be the “locomotive” pulling the whole EU economy out of the swamp, the effect of a serious blow to Germany will be dire for the entire EU.
But, despite the undoubted importance of the corporate, sectoral and macroeconomic impact of the VW affair, there is a much larger and even more serious issue at stake. Sadly, it is the one that MBA students are likely to pay least attention to – because doing so would harm their zeal for their studies and might even cause some of them to see their imagined career path in a different light.
The Volkswagen scandal is, for a large swathe of the general public, far worse than the GM scandal and, perhaps, even more confidence shattering than the Toyota scandal. After all, for non-Americans and even for intelligent Americans outside of the Midwest, the discovery that GM was either incompetent or criminal was hardly shocking. It merely confirmed that the former icon was just that – a fallen idol, ruined by its own prolonged mismanagement.
Toyota was much worse, because people around the world had enormous respect for Japanese cars (and other products).
The scandal therefore highlighted how far corporate Japan had fallen and strengthened the case of those who believe that the decline is irreversible.
But for consumers around the world, from Chicago to China, the degree of respect for German engineering, professional integrity and workmanship is in a different league.
That Germans should deliberately fake performance tests – not just make shoddy parts, but rather plan and manufacture an engineering fraud built into the product – is hard to swallow.
Yet such are the facts. The conclusion is inescapable and will be drawn by ordinary people everywhere. You cannot trust “them” – i.e., large corporations – with anything: not your money, not your personal data and certainly not your wellbeing and very life. Whether “they” are banks, pharmaceutical companies, auto manufacturers or cellphone operators, they will screw you whenever and however they can.
That is why the corporate Establishment around the world is working so desperately hard to hold the current system of corporate crony capitalism together – because if and when this effort fails, the result will not be a mere market meltdown, but rather a socioeconomic revolution. No one knows what will replace it, but what is abundantly clear is that it is so rotted as to be vulnerable to collapse from any external shock.www.pinchaslandau.com