Preventing Crisis

Did Volkswagen kill diesel for everyone? Or just its own reputation?

Posted Jan. 13 2017, 09:26:54 pm

Linda Locke

Senior Vice President, Partner


The VW scandal affected its corporate reputation and raised many questions, including:

  • Is diesel dead?
  • Do corporate green claims require greater scrutiny?
  • Have car dealers and owners been betrayed?
  • Does self-regulation ever work for the auto industry?
  • Is this a wake-up call for investors?

VW is still struggling with an ongoing FBI investigation. And the head of its Engineering and Environmental Office in Michigan was arrested for misleading regulators (see the Wall Street Journal). In addition, VW has agreed to pay up to $17.5 billion in the U.S. alone to settle claims, and could be facing several billion dollars in additional criminal settlements.

Regulators, car owners, environmentalists, VW lovers, prosecutors, and casual observers continue to be shocked by the behavior of a much-loved brand’s indifference to the environmental impact of a car marketed as green.

In August 2015, South Korea blocked sales of 80 VW models (see Automotive News Europe), and, in December of that year, it levied a record fine for false advertising. In January 2017, South Korea fined three brands nearly $6 million and banned the sale of nearly a dozen models built by Nissan, BMW and VW’s Porsche brand.

The history of corporate reputation scandals is long. VW and some of its brethren are joining BP, FIFA, Arthur Andersen, Walmart Mexico, Petrobras and others. VW is on a sad journey – sad in that a much-loved brand squandered trust and esteem built over many decades.

The word car owners and dealers used when the scandal broke was “betrayal.” Once a company betrays the trust of stakeholders, the road back is uphill and unpaved. When an individual betrays your trust, you likely have a hard time recapturing the sentiment that made you loyal to that individual. For a brand, the road back is equally as difficult for several reasons:

  • Cynicism about business values and ethics is high.
  • The assumed role of greed confirms stereotypes of business decision-making.

Organizations that build their brand on trust and positive social impact are expected to operate their business in the same manner. When they don’t, authenticity and trust are destroyed, and the organization’s reputation and the financial value of its brand declines. Since the scandal broke, VW stock price has faltered, and lost as much as 20 percent of its share value in a single day.

The VW situation reminds us of the basics of reputation management:

  • Reputation is built or destroyed in every business decision.
  • A positive reputation begins with a strong internal culture of ethics.
  • Organizations are judged on how management handles crises.
  • Planning for organizational resiliency should include reputation.
  • To protect reputation, an organization should build enterprisewide reputation competency.

In our new e-book, available for free, we explore issues that are essential to maintaining reputation – trust and resiliency. We also explore issues around food safety, data breaches and supply chain vulnerability. Click here to download your copy.

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