VW‑ company engine failure should lead to cockpit restructure

By Dennis Larsen

The coverage on VW emission test cheating again raises alarm bells about the state of corporate governance and risk management practices of ‘leading’ firms. It is reasonable to assume that the temptation to use advanced technology to foil regulators’ emission tests is more widespread than the US diesel tests VW has admitted to having cheated on. Even if confined to this one area at VW, Monday’s €13bln loss of its market capitalisation raises serious questions about the soundness of VW operational decision making and viability of its internal culture in today’s increasingly transparent operating environment. The loss to the VW brand and reputation value will undoubtedly turn out to be a far greater loss in real terms even after its current damage limitation work is complete.

Had VW employed more robust oversight and control over its corporate reputation risks, the operational decision making culture would more likely safeguard stable sustainable long term shareholder returns rather than allowing short term wins dictate the way. Embedding reputation risk governance at the board of director level not only helps pick up early warnings on risky internal practices through better monitoring and oversight, but also importantly signals to all stakeholders a clear intent to second-guess business decisions through the increasingly important lens of what is not only legally required but what is expected by wider stakeholders. After yet another scandal it truly is time to take reputation issues seriously at the highest levels of corporate governance.

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