Family And Board Divisions At Heart Of Volkswagens Problems

The Volkswagen emissions scandal, which saw the company fudge emissions tests to make its cars appear less polluting, has resulted in a new CEO appointment, the suspension of key executives and a proposed group restructure.

But has it solved the German automaker’s governance issues? “For a long time the German boards were held up as models of long-termism in contrast to the Anglo-Saxon alternative,” states Ian McVeigh, head of governance at fund management group Jupiter. “But at VW, it was an overly large board with far too many stakeholders and a warring family. If you put all those elements together, the fact there have been managerial problems shouldn’t come as a surprise.”

Feuding within the controlling Porsche family has simmered for years. It resulted in the departure of chairman Ferdinand Piech in April.

Because the car industry, with its global economies of scale, is so big, it is phenomenally hard to control, McVeigh says, and strong leadership is a must. “You need to make sure you have the right executives on the board, with no other directorships, because the time commitment is vast,” he adds. “You want a board of between six to 10, with a high-degree of industry knowledge, and you don’t want different political angles, but people really focused on holding the company to account. It’s about the organizational structure and the caliber of the people on the board. In other words, does the board consist of people with the time, determination and knowledge to hold the executive management to account?”

McVeigh doesn’t believe Volkswagen’s restructure will help matters much: “Decentralization doesn’t address the family infighting … or the differentiation of stakeholders.”

Indeed, he does not think the family and board will be able to put in place a structure to head off government involvement. “With a warring family, a legal requirement for worker directors and local politicians who all want their say, the company faces an uphill battle to deliver a board that is fit for purpose.”