VW’s Cheat Was Not Ingenious

Flickr/Kenny Louis
Flickr/Kenny Louis

An article by Jeffrey Liker over on the HBR site “Assessing the Sins of Volkswagen, Toyota, and General Motors,” got under my skin, so I thought I ought to respond to a few of the ideas/claims made therein.

Here’s the first one:

It does seem to me that if one were keeping score, Toyota got a more serious punishment than GM for a far lesser crime. It even appears that the relative cost to VW of its nefarious manipulation of emissions is disproportionate compared to the cost to GM when so many lives were lost. -Jeffrey Liker

Two points here:

  1. We won’t know what the costs to VW will be for a long time.
  2. We’ll get to a discussion of lives lost in just a moment.

A bit further down:

VW’s case is a different animal entirely. It did not involve a failure to recall defective vehicles that could cause safety issues. Rather, the company’s engineers intentionally added software designed to allow its diesel engines to evade emissions standards and then, in normal driving, emit 40 times the acceptable levels. This was a deliberate, and quite ingenious, way to break the law and avoid detection.

Point of order: Young Einstein’s splitting of the beer atom was ingenious. Deliberately manipulating emissions tests to evade regulators and mislead consumers is insidious. (Splitting hairs, I know, but with Yahoo Serious on the brain, it was a foregone conclusion.)

As a counterpoint to my intuition, I’ve included the following thought from the Marginal Revolution blog:

We are more outraged by deliberate attempts to break the law, compared to stochastic sloppiness leading to mistakes and accidents.  But it is far from obvious that the egregious violations should be punished more severely in a Beckerian framework.  In fact, if they are harder to pull off, compared to sheer neglect, perhaps they should be punished less severely, at least from a utilitarian point of view.  I am not saying we should discard our intuitions about relative outrage, but we ought to look at them more closely rather than just riding them to a quick conclusion -Tyler Cowan

I’m not sold, but it’s a point that’s at least worthy of consideration.

Now, back to the regularly scheduled skewering.

There was no immediate harm to individual drivers in the VW case, but the disclosure of the excessive emissions comes at a time when there is grave concern about climate change. -Jeffrey Liker

As an engineering professor, who teaches (and has written extensively) about the automotive sector, I assume Liker has at least a cursory understanding of the health effects of vehicle emissions.  So what I think we have here is a very carefully worded statement which suggests that no one died in a horrible crash due to the emissions cheat (Something something ingenious efforts to evade…), in an attempt to redirect attention to the climate change “debate.” Folks, don’t fall for that banana in the tailpipe.

A couple of clips from related articles might help fill this seemingly intentional gap.

David Bach in the Financial Times:

First, whereas Enron’s fraud wiped out the life savings of thousands, Volkswagen’s has endangered the health of millions. The high levels of nitrogen oxides and fine particulates that the cars’ on-board software hid from regulators are hazardous and detrimental to health, particularly of children and those suffering from respiratory disease.

And Brad Plumer for Vox:

Volkswagen’s 482,000 problematic US cars are currently emitting between 5,800 to 14,200 additional tons of nitrogen oxide pollution (NOx) each year, assuming the cars are driven the US average.* This is over and above the pollution the cars would have emitted if Volkswagen had adhered to the legal limit.

Extrapolating that to 11 million cars around the world, and assuming the rest of the cars are driven the European average, we get somewhere between 86,800 and 212,500 additional tons of NOx emissions per year.

Now, there are lots of assumptions and simplifications embedded in those estimates, particularly around how many miles VW’s cars are actually driven. But that’s … potentially a large amount of extra NOx pollution. At the high end globally, it’s 20 times what a typical coal plant without emission controls puts out in a year.

Further down Plumer suggests the potential damages these emissions might cause:

the extra pollution from Volkswagen’s US cars can be expected to lead to an additional 5 to 27 premature deaths per year. If we extrapolated worldwide to all 11 million vehicles, that would come to somewhere between 74 and 404 premature deaths each year.

(Please do go read Plumer’s full post to see his methodology and the statements around its limitations.)

Liker then suggests that contrition will win the day, while taking a swipe at government and attorneys. (Hey, who doesn’t hate attorneys, amirite?!)

So crime clearly does not pay. That said, it seems that if a company apologizes and carries on, it can survive and prosper in the long term. (For the most part, automakers have been quick to recall vehicles and contrite when accused of taking too long to do so.) In the meantime, many lawyers and the U.S. government are making a lot of money from the auto industry.

What is less clear is why there have been record numbers of U.S. recalls, and the United States has become so vigilant in going after automakers. In the Toyota recall, NHTSA, which had previously had been criticized for being soft on automakers, seemed to want to prove how tough it could be.  In this relatively hostile environment in the United States, Volkswagen will now pay dearly for brazenly cheating on diesel-engine emissions.

Liker would seem to suggest that if we don’t stop strictly enforcing the laws, maybe automakers will take their cars and go home. (Good riddance.) Meanwhile, others are suggesting that the industry needs better oversight, and while I’m guessing the firm will find a way to survive (If BP is still around…), I’m also guessing they’ll take a solid hit to customer retention.

I’ll close with a thought from Henry Mintzberg, a clear-headed, humane thinker if there ever was one:

“What was Volkswagen thinking?” This question makes a big assumption: that the Volkswagen people were thinking, about anything beyond their greed. About decency, about our environment, about their progeny.



The CSR Commitment Pyramid – A Refresher for the Folks at VW


I drew up the CSR Commitment Pyramid a few years ago in trying to give order to the ideas expressed in a Harvard Business Review article by Michael Porter and Mark R. Kramer.  The revelations around Volkswagen’s emissions fiasco felt like a good impetus for a refresher.

Here’s a quick overview of the model.

Level 1:  License to Operate – This is table stakes. It’s the answer to the question: “What are the bare minimum requirements necessary for a firm to not get run out-of-town on a rail by the local community?” Firms working at this level are attempting to stay one step ahead of issues which would force them to close their doors.

Level 2: Reputation – This takes the further step of working to protect the firm’s reputation.   Making choices like using dolphin safe nets for tuna fishing may not make an operation sustainable, but a good reputation can help  minimize the damage when issues crop up.

Level 3: Sustainability – This, along with related financial needs, is where those of us looking to transform business typically focus. We work to find ways to reduce our impacts and restore benefits, while at least maintaining (preferably improving) profitability through these programs.

Level 4: Moral Obligation – These are things that businesses aren’t required to do, but which its leaders think it ought to be doing.  Few companies choose to operate at this level, but those who do are highly respected and they are believed to command loyalty premiums due to their efforts. An example here would be a firm going beyond regulatory requirements, regardless of the direct financial impacts, to make sure that their environmental impacts are fully mitigated.

I’d love to write more stories about firms that are climbing the pyramid, but the examples of such are still too few.   Instead, we keep learning about firms that are trying to move down to Level 0: No Longer a Going Concern. Volkswagen is the latest contestant in this game of reverse limbo.  (Queue the Chubby Checker song…)

Prof Henry Mintzberg gets at the heart of matters, which is far broader than VW.

In Europe, the U.S., Japan, and most everywhere else, something is going on. There is a level of sheer corruption that transcends the automobile industry. How about banking in the U.S. and Europe? How about politics, most everywhere? Now Brazil is receiving a lot of attention, while the utter corruption of U.S. politics—private money in public elections, a level of lobbying out of control—carries merrily along.

But VW is the impetus for this post, so we’ll set the broader issues aside for now. The initial response from VW’s CEO on 9/20 included the following statement:

We do not and will not tolerate violations of any kind of our internal rules or of the law.

-Prof. Dr. Martin Winterkorn, CEO of Volkswagen AG

Then there was a generic statement that was released  on 9/22:

Volkswagen is working at full speed to clarify irregularities concerning a particular software used in diesel engines.

At this point in the proceedings I was ready to write off the venerable auto maker. They’d been caught with their hands in the cookie jar and it appeared their response would be internal finger-pointing fingers and/or downplaying the problem.

When you’re in this sort of situation, leadership needs to take responsibility. And they need to be open and honest to begin regaining credibility. Fortunately for VW, Dr. Winterkorn stepped up to that challenge today.

I am shocked by the events of the past few days. Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group.

As CEO I accept responsibility for the irregularities that have been found in diesel engines and have therefore requested the Supervisory Board to agree on terminating my function as CEO of the Volkswagen Group. I am doing this in the interests of the company even though I am not aware of any wrong doing on my part.

Volkswagen needs a fresh start – also in terms of personnel. I am clearing the way for this fresh start with my resignation.

By taking the fall, Dr, Winterkorn may have saved the firm. We’ll see what’s revealed over the coming weeks and months, but this move gives the firm a chance to stop the bleeding on the stock price.


But here’s the thing, firms that align themselves around climbing the pyramid are a lot less likely to have to deal with these “life or death” situations. Tech created to circumvent regulations is  unlikely to be deployed in a firm where fair play and higher aspirations came before profits. That may seem a tall order, but ask VW shareholders how they feel about the firm’s near death experience and whether they’d like to see them aim a bit higher. (I know what I’d recommend.)


Disrupt the Corporate Immune System!

Flickr/Bernard Spragg
Flickr/Bernard Spragg

In the name of efficiency, the corporate mantra runs like this: “find an issue. Solve the problem. Document the process. Require adherence. Reward obedience. Punish deviance.” This is the corporate immune system and it will not tolerate deviance. Because deviance is inherently bad, right?


The danger with the rigid orthodoxy of the Corporate Immune System is that policies, procedures, and culture work to confine our efforts to help us arrive at planned outcomes. Surprises become unwelcome guests. Meeting expectations gives you the chance to do the same thing, the same way, over and over again – until, that is, you don’t meet expectations. On first hearing this sounds pretty enticing. But it turns out there is plenty to question about the Corporate Immune System model.

The first clue to the dangers of an inflexible approach comes when we look at Startups, which are known for their loose, open cultures. That nature allows them to avail themselves of opportunities. Those that become successful often do so at things that are very different from what they set out to do. Robert Safian, the managing Director of Fast Company, writes that: “Things rarely go as planned, and that’s just the way it is. Rolling with the changes will often take you to a better place than you could have predicted.” Stories of firms doing just this, pivoting from their initial business plans, to adjacent possibilities, are essential elements of Silicon Valley lore.

But, as they succeed, the nature of the firm changes. It starts to calcify, and the resulting rigidity becomes self-reinforcing. As a culture gels, it starts to defend itself. In essence, businesses negate their ability to evolve with the changing circumstances in which they operate. Today’s answers become tomorrow’s anachronisms. Unique solutions become rote processes. Methods become rules. Ideas become distractions.

As John Kenneth Galbraith wrote: “In any great organisation it is far, far safer to be wrong with the majority than to be right alone.” And why not? Change is risky. But choosing not to change is making a choice of planned obsolescence. Those who are unable, or unwilling, to adapt to evolving circumstances will suffer the consequences.

Titanics can’t pivot to open water and so they sink.

‘Why not’ people

Esko Kilpi wonders if the system itself is broken as “it leaves organizations unable to fully utilize the potential of human beings.” I think he’s onto something. We need to find people who are willing to drive change, and then we have to create the conditions which ask them to do so. Henry Mintzberg suggests that, “Hope lies with the ‘Why not?’ people of the world, who keep searching for new and better ways.” And Seth Godin adds that: “Some people go to work or school and do nothing except the things that they are sure about. The other path is to do things that might not work. Work, projects designed to land on the spectrum of not sure… But all the good stuff comes from leaping. From doing the things that might not work.”

Intrapreneurs, the folks who naturally look to drive needed changes, can help here. They’re already in our midst, but they’re rarely encouraged to ply their gifts.

Instead, they’re beset with challenges from all corners. Imagine Hercules trying to perform his labors, while simultaneously fighting off marauding hordes.

Why is this the case?

Let’s look at it from the perspective of business leaders. Should they expect strict adherence? I think the answer to that question depends on the outcomes they’re looking for. If they’re trying to maximise short-term returns, they’re probably more likely to reward obedience while killing off new ideas. Experiments and long- term investments don’t normally pay off quickly. But if they’re trying to balance short and long-term interests, then we might see them leaving a bit more slack in the reins. This is crucial for those who want to be successful over time, rather than at a specific point in time.

Space to grow

Businesses leaders need to get comfortable with uncertainty. If we want our people to learn and grow, we have to give them the space to do so. Allowing people to try new things and embracing failure are both critical. You can either learn to embrace failure, or failure will eventually show up to embrace you.

Charles O’Reilly, a professor at the Stanford Graduate School of Business, writes about the value of “adaptive cultures.” According to professor Reilly, adaptive cultures encourage: risk-taking, a willingness to experiment, innovation, personal initiative, fast decision-making and execution, and the ability to spot unique opportunities. He adds that these cultures put less emphasis on: being careful, predictability, avoiding conflict, and making numbers.

I think of this in terms of the BCG Matrix. Businesses tend to be based on cash cows, but those don’t last forever. Just think about Kongo Gumi, a Japanese temple building firm; it lasted 14 centuries before closing its doors in 2007 due to slumping demand. As such, firms need to continually seek new stars which will eventually transition over to the cash cow quadrant of the matrix. A balanced portfolio of old and new will give the firm a chance to meet current expectations, while also tending to future needs.

Leaders are responsible for keeping the pipeline filled with opportunities, but they also need to maintain performance with existing business lines. My advice on meeting the delicate balance needed here would be to hark back to the chorus of an old song by the old Florida rock band .38 Special: “Hold on loosely, but don’t let go. If you cling too tightly, you’re gonna lose control.”


This post originally appeared in Salt Magazine.

Volkswagen shares plunge on emissions scandal, U.S. widens probe

Volkswagen shares plunged more than 20 percent on Monday, their biggest one-day fall, after the German carmaker admitted it had rigged emissions tests in the United States, and U.S. authorities said they would widen their probe to other manufacturers.

one-way trip
Read the full story:

I keep writing about reputational risk and maintaining the social license to operate, and people keep saying, “Not now, Cato. Not now!” Here’s the problem with that. You can’t fix a social license issue after it occurs. The ferry man only takes companies one way.

The Research Is Clear: Long Hours Backfire for People and for Companies

In a study of consultants by Erin Reid, a professor at Boston University’s Questrom School of Business, managers could not tell the difference between employees who actually worked 80 hours a week and those who just pretended to. While managers did penalize employees who were transparent about working less, Reid was not able to find any evidence that those employees actually accomplished less, or any sign that the overworking employees accomplished more.

-Sarah Green Carmichael

Source: The Research Is Clear: Long Hours Backfire for People and for Companies

If your work is knowledge based, the concern should be for the value you create, rather than the hours you work. If the concern is for hours worked, the employer is implying that the work is a commodity. Given that, I’d worry that they were looking to replace me with software. Once the algorithms are capable, and the price is cheaper, what’s to stop them? How far off is that?

Dark side to Open? — Medium

We must understand and respect the intimate scales & journeys of openness — and host the spaces which allow contrarian perspectives, encourage the paradox, conflicting ideas, disagreeing ideologies, in-completeness, weakness, doubt, vulnerability and uncertainty whilst maintaining and accelerating empathy.

Our current notion of OPEN is at risk of destroying the space & place of creativity and invention.
-Indy Johar


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