You might have heard that Volkswagen (VW) installed illegal software in the engine management systems of the diesel cars sold by the group – VW, Audi, Skoda, SEAT – to cheat emission tests over the past six years. It is estimated that worldwide, 11 million cars have had this software installed in them, and to recall the cars to rectify the problem, not only is going to be extremely costly – in the hundreds of millions of dollars, if not billions – but the company’s reputation has been put on the line. Immediately after the news of the scandal broke, the company’s share price took a tumble of 34 percent. As a result, the chief executive of VW, Martin Winterkorn, lost his job, and was replaced by Porsche boss, Matthias Mueller. But what is worse are the PR and branding nightmare that VW has put itself in, and the long road it has to travel to shore-up its battered image. It just goes to show how important compliance and governance are in supporting your brand promise.
The pain of compliance
All of us understand the pain of compliance. Sometimes, we feel that regulations overcomplicate matters, and seem to be anti-business. Yet, what we have seen is when we take a totally pro-business stance, as had Volkswagen, we can turn the tide against many decades of brand building. Compliance is an essential matter because it prevents us from getting too big for our breeches, with the concomitant need to dial it in before we have it has blown up in our face, as had happened to VW. So the first thing we need to understand is that compliance helps us do the right things, painful as it may be.
Linked to a credible standard
Compliance with credible standards is important; hence the need to be certified. While we know that this adds additional layers on an already complex operation, compliance with world standards is a badge of honour which we can use to build our brand. After all, customers do not have the ability to audit our processes before they purchase from us, hence, they will abdicate this role to a neutral third party, if that party is seen as competent. Hence becoming certified is not simply a means to an end, but it is truly part of the end in itself, especially when it comes to our branding.
Governance props up compliance
Governance is the collective responsibility of senior management, and the Board. All officers must hold each other accountable to meeting compliance requirements. Brand integrity is at stake here, and we must ensure that executives do not take the easy way out for the sake of market share. Hence, executive level incentives must be tied to keeping within the bounds of corporate governance, and not to wander from it. It is highly unlikely that all senior management in VW were unaware of the illegal software, and it would have been incumbent on them to place brand reputation above business results. Clearly, that didn’t happen.
VW’s broken promise impacts more than its customers
The reason why people shun from diesel vehicles is the impact of emissions on the environment. Hence, the company that can solve this problem, and provide clean burning diesel engines will win a major battle. In this case, VW had enjoyed “winning” the market through its “ultra-clean” TDI engines. We now know that the engines have not been burning clean and that owners have been adding pollutants into the environment unknowingly for the past 6 years. This will come as a huge shock to VW owners who take pride in being green, and who had spent a little more to get the car to meet their philosophy. To now suddenly know that they have put their faith on the wrong marque, and that they were cheated into thinking that they were being green, is a betrayal of the highest order. That one aspect of the car would have put paid on all the other great aspects of the vehicle. Suddenly, everything about the car will be suspect; suddenly, everything the company says and does will be distrusted; suddenly, VW will be synonymous with lies, not German precision. In fact, with this one act of betrayal, VW put the whole German economy in suspicion. After all, if it can happen in one German company, why not at another, like SAP, which runs all aspects of major corporations? The repercussions are huge.
Picking up the pieces
It is early days yet to see what VW would do to pick up the pieces. Needless to say, they have to rectify the situation by going above and beyond the problem. This will no doubt cause them to be in the red for some time. They must also go on the compliance and governance confidence building process. After all, it was this that let them down in the first place, so this must first be built up. Appointing a new CEO is the first step, but not enough. As customers see their efforts in putting their house in order, and to form better policies and decisions, confidence might slowly be won back.
Compliance and governance – we never really saw these are artefacts of brand promise until now. We have always assumed that major brand names like VW will be true to their promise, but we have been hoodwinked. Hence, major efforts will be needed, not just for VW, but for all businesses, to build on a solid compliance and governance framework so that all stakeholders will feel comfortable that the company will be guided by best-practices, and best-values. These will become the bedrock of your brand promise.