logo-newlogo-newlogo-newlogo-new
  • Home
  • Blog
  • Audit Trail Academy
  • Advisory Services
  • Books
✕
  • Home
  • Chambers on Internal Audit
  • Uncategorized
  • Volkswagen Scandal: The Undoing of a Corporate Icon

Volkswagen Scandal: The Undoing of a Corporate Icon

Internal Auditors Can Learn a Lot From the Wit and Wisdom of Yogi Berra
September 24, 2015
From Trusted Adviser to Double Agent: Are Regulators Trying to Redefine Internal Audit?
October 5, 2015
September 28, 2015

My first car was a used 1967 Volkswagen Beetle. It was a great little “starter” car, but only a couple of months after I bought it, the car was stolen. Last week, I relived that loss when Volkswagen was stolen from all of us.

The venerable automaker’s shocking admission that it developed and installed software designed to circumvent U.S. emissions rules will forever change how the company is perceived by the public. The phrase “German engineering,” once synonymous with quality, will now be the butt of jokes on late-night talk shows.

What’s more, the scandal once again raises serious questions about the inner workings, and possibly ethical practices, of a respected corporation. As with FIFA, Hertz, and Toshiba, we can expect details of this debacle to trickle out in a painful and public unveiling of failure in corporate culture.

It remains to be seen how pervasive the scheme was to make Volkswagen’s diesel vehicles appear to run cleaner in emissions tests than they do on the road. But one thing is perfectly and immediately clear: This is an extraordinary example of how a company’s reputation, particularly one built over many decades, can be severely damaged — if not decimated — in mere days.

Already, Volkswagen has seen the resignation of its CEO against the backdrop of criminal and U.S. Environmental Protection Agency investigations, which could lead conservatively to fines of as much as US $18 billion. The company already announced it would take a charge to earnings topping US $7 billion. Not surprisingly, Volkswagen’s stock price has plummeted.

On the horizon, one can expect to see lawsuits from car owners, shareholders, and others directly and indirectly affected by Volkswagen’s actions. And one thing is certain, the impact won’t be limited to Volkswagen. Like a devastating tsunami after an earthquake, the scandal’s ripple effect already is striking stock prices of other automakers and parts suppliers.

The fallout conceivably could spread to other consumer sectors, where claims about product performance or quality will understandably be viewed more cynically. Is gluten-free really free of glutens?

Ultimately, the consequences of this misdeed might topple the world’s second largest car company, according to some analysts. Whether Volkswagen can survive the storm, from an internal audit perspective, the scandal must be placed at the catastrophic end of the risk spectrum.

It remains to be seen if Volkswagen’s top managers knew about the scheme or contemplated the risk of its discovery. But the lesson for internal audit is that virtually all risk carries a component of potential reputational damage to the organization. In the case of Volkswagen and many other failures of iconic companies, it would seem unimaginable that management or the internal audit function would condone potentially criminal behavior in support of boosting the company’s value. The risks associated with such behavior — reputational, share value, corruption, fraud, corporate culture — are unacceptable to me, and presumably unacceptable to most shareholders and consumers.

This brings up another lesson to be drawn from the Volkswagen episode: Internal auditors must be keenly aware of the pressures associated with performance within their organizations. In a nutshell, they must understand that what gets measured/rewarded also can get manipulated.

Whether it’s about profits, bonuses, or reducing the emission of nitrogen dioxide, internal audit must be attuned to pressures that management, regulators, or stakeholders place on measurable metrics. Typically, this is where an organization is most vulnerable to bending or breaking the rules.

I am encouraged by the comments of new Volkswagen CEO Matthias Müller upon his being named to the top post. Müller, who worked his way up the corporate ladder over a 38-year-career that began with Audi, a unit of Volkswagen, said winning back trust is his most urgent task. He promised to accomplish this, “by leaving no stone unturned and with maximum transparency, as well as drawing the right conclusions from the current situation.”

It will be a good first test for Müller to see if he can truly determine whether creation of the emissions “defeat device” was an isolated instance of overzealous engineers succumbing to compliance pressures — or a product of a broader corporate culture willing to do anything to achieve results. 

Share

Related posts

March 13, 2023

New IIA Report Is a Timely Benchmarking Resource for Internal Auditors


Read more
May 16, 2022

THE STAGGERING TOLL OF COVID RELIEF FRAUD: WHERE WERE THE THREE LINES?


Read more
February 3, 2022

To Live a Life in Color, You May Have to Change Channels


Read more

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

What’s Trending

03-20-23

New Report Reveals Surprising Insights from Internal Audit Executives


03-13-23

New IIA Report Is a Timely Benchmarking Resource for Internal Auditors


03-02-23

6 Things Audit Committee Members Often Won’t Say to Internal Audit


Read More

Archive

  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • September 2009
  • August 2009
  • July 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • February 2009

Contact Us

PO Box 1441
New Smyrna Beach, FL 32170

+1-407-463-9389
rchambers@richardchambers.com

About AuditBeacon.com

AuditBeacon.com is a resource center for internal auditors and risk professionals from around the world. In addition to more than 500 blogs authored by Richard Chambers, the site includes links to news and insights on internal audit and other information that illuminates the value of this important profession. AuditBeacon.com is provided as a service by Richard F. Chambers and Associates, LLC.

Copyright © 2023 Richard F. Chambers & Associates. All Rights Reserved.
  • Home
  • Blog
  • Audit Trail Academy
  • Advisory Services
  • Books