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The Volkswagen Settlement: The Price of Accountability Failures

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Posted by Rick Lepsinger July 12, 2016

volkswagen-settlement

No matter how fast its engines go, Volkswagen can’t outrun its emissions scandal.

The latest developments in the Volkswagen settlement illustrate just how costly accountability failures can be. We wrote a blog last year about what the scandal can teach us about managing accountability, but the latest news shows the impact on the bottom line is much worse than anyone imagined.

Here’s what we know now and what we’ve learned about the far-reaching consequences of the scandal since it was brought to light late last year.

An Unprecedented Sum: $14.7 Billion

So far, the settlement is going to cost Volkswagen $14.7 billion. You read that right: $14.7 billion. Up to $10 billion of that is earmarked for fixing or repurchasing cars, plus cash payments to owners who have their cars fixed instead of buying new ones. The additional $4.7 billion is reparations for "the most flagrant violations of our consumer and environmental laws in our country's history,” according to Deputy Attorney General Sally Yates. Those payments will be split between investing funds to promote green automotive initiatives and establishing an environmental remediation fund after years of cars spewing nitrogen oxide emissions at harmful levels.

A Ripple Effect: Pending Criminal Charges and A Battered Reputation

In addition to this unprecedented sum, there are still pending criminal charges, civil penalties for Clean Air Act violations, and separate negotiations for additional vehicles beyond the more than 480,000 vehicles included in the settlement. None of this includes the severe market decline and the long-term impact of reputational damage. To make matters worse, the company has yet to even identify an EPA-approved solution to the compliance problem, and the sunk cost of reaching that answer is yet to be determined.

A Broken Company Culture

Along with the details of the settlement, we have begun to learn more about the culture at Volkswagen and what could have driven such reckless behavior. The New York Times has spent months investigating the scandal, attempting to understand how it happened. Many blame competition, aggressive ambition and a hostile environment that allowed red flags to go unreported by so many employees for so long. The company has tried to blame the decisions on small groups of engineers, but as many as 50 potential whistleblowers appear to have tried to correct the illegal behavior before being silenced.

This highlights the need to re-examine Volkswagen’s entire organizational culture, including its core values and leadership competencies.

The culture should be one that centers around ethical behavior, transparency, effective decision making and accountability, among other things. It must begin with leaders at the very top of the organization and be integrated throughout the company, from the way managers hire and promote individuals to the type of training and development initiatives they implement.

Ethics violations and poor decisions must be addressed immediately, and employees need to feel comfortable reporting them. If Volkswagen had fostered accountability and transparency from the beginning, the company could have potentially avoided multi-billion dollar losses.

It’s a hard lesson to learn but an important one for all organizations to heed. Given the high costs of accountability failures, leaders at all levels need to take steps to ensure transparency, manage accountability and mitigate risk.

Do you need guidance on managing accountability within your organization? Join us for a free webinar hosted by OnPoint and HRDQ-U at 2 p.m. EST July 20. The webinar will discuss how to measure accountability, how to enhance accountability and what tools can help support your efforts. Space is limited, so register now to secure your spot.

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Topics: Enhance Execution, strategy execution

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