EPA 'Slug Bug' of VW Highlights Need for Crisis Prevention

Photo by Mark R. Kennedy

As VW is finding out, the political, regulatory, media, and activist actors that I call shapeholders may have little stake in its success but can significantly shape its opportunities and risks.

VW has already taken a $7.27 billion charge to earnings only days after the U.S. Environmental Protection Agency (EPA) alleged the company used software to circumvent emission standards. And the fines from the EPA alone could total $18 billion. Both numbers are billions with a "B." Ouch! That is quite a slug for a digital bug. While VW's crisis management technique of immediately expressing regret and committing to finding answers is a textbook perfect response, the company would have been far better off investing a bit more in crisis prevention instead.

Part of the shortsightedness of corporations in engaging societal shapeholders is that while they are highly responsive to addressing a mess, they are less attentive to taking deliberate steps to prevent stepping in the mess in the first place. My Seven Steps for Shapeholder Success help companies to avoid missteps, capture profitable opportunities for collaboration, and win the political face-offs essential to success. If VW had even executed the first two steps of Align and Anticipate, it could have avoided the turmoil it now faces.

Align. Society demands that companies deliver benefits to preserve their license to operate. Committing to what is expedient given current pressures on the business without ensuring it is delivered is a path to disaster. A company is more likely to fulfill its commitments if they are aligned with a purpose for the company that benefits both society and its bottom line. A review of the closest thing VW lists as a purpose statement presages its current calamity.

On a company web page titled Sustainability and Responsibility, VW devotes three lines to its purpose statement. The first line is filled with platitudes such as being "beneficial for everyone." The second line says, "As we see it, advancing digitization is not a threat but a major opportunity that we aim to and indeed will leverage." Leverage for what? VW seized the "opportunity" to "leverage" "digitization" to sanitize its EPA reporting and discovered that its idealization of "digitization" could indeed be a "threat." Its statement is well engineered but should be more actionable and directional to VW's employees.

Its Sustainability and Responsibility web page goes on to list press releases, the first three of which address "Cooperation for greater cybersecurity in Germany," "Federal Chancellor [Angela Merkel] is Volkswagen's guest at the IAA," and "Audi [a VW unit] CEO Stadler meets G7 ministers: 'Artificial intelligence can save lives.'" It seems Google wants to be a car company, and VW wants to be Google.

A casual observer could easily get the impression that the VW translation for "sustainability and responsibility" is "digitization." That makes it perhaps a bit easier to understand how someone at VW could have even thought about taking a proactive step to deliver compliance with EPA standards through digital deception. Did VW's preoccupation with all things digital cause it to become distracted from delivering environmentally responsible mobility?

If VW had better aligned with an actionable purpose statement that focused more on the benefits delivered (sustainable mobility) and less on the process (digitization), it may have avoided its current troubles.

Anticipate. Seneca, the stoic philosopher and advisor to Nero, opined, "There is nothing so wretched or foolish as to anticipate misfortune." Nero took his advice and fiddled while Rome burned. How did this philosophy work for Seneca? He was forced to commit suicide for a potentially false change that he colluded to assassinate Nero. Perhaps if he had anticipated this misfortune, he could have avoided his fate.

A key part of the corporate strategic planning process needs to include brainstorming all the company's vulnerabilities. Too often, a company's strategic planning focuses almost exclusively on market issues and gives only scant attention to anticipating the nonmarket shapeholder issues that could result from the actions of politicians, regulators, reporters, or activists.

Certainly more than one person at VW knew of this digital duplicity. Were they included in the planning process, especially the brainstorming of possible societal exposures? If VW's planning process did not anticipate this bug in their compliance, it should be broadened. If it did and it was not addressed, VW faces even more fundamental challenges.

VW's lesson for every organization: Take the time now to practice crisis prevention. This begins with aligning to a purpose that benefits both society and the bottom line with a keen eye on the benefits, not an infatuation with the process you are deploying to achieve those benefits. Then, investigate yourself to discover your susceptibilities before someone else (like the EPA) does.

Seneca also believed that "a gem cannot be polished without friction, nor a man perfected without trials." I am certain VW will emerge stronger from this ordeal. Yet one meets enough friction, trials, and slug bugs in life without needlessly stepping into a sharp punch to the face because you failed to align and anticipate.

Hon. Mark R. Kennedy (@HonMarkKennedy) leads George Washington University's Graduate School of Political Management and is Chairman of the Economic Club of Minnesota. A member of the Council on Foreign Relations, he previously served three terms in the U.S. House of Representatives and was Senior Vice President and Treasurer of Federated Department Stores (now Macy's).