By Mengqi Sun and Jack Hagel
Volkswagen AG is betting that a reformed compliance culture and
an expanded whistleblower program that helped the German car maker
clear a critical U.S. regulatory milestone this month will also
help prevent another scandal and go a long way in restoring its
The car maker has spent the past few years trying to resolve
issues related to its 2015 admission that it rigged about 11
million of its diesel vehicles world-wide with software to dodge
government emissions tests, a revelation that came after U.S.
regulators alleged that Volkswagen installed software to make cars
appear to run cleaner.
The company says its yearslong, multipronged transformation and
ongoing surveillance are essential to its survival. Getting that
point across to employees is easier when you can put a price tag on
noncompliance: EUR32 billion ($37.56 billion) in fines, penalties
and compensation to customers, said Hiltrud D. Werner, the member
of Volkswagen's board of management in charge of compliance, risk
management and legal affairs.
"Then you can explain, 'Look, we don't want another scandal. We
cannot survive another scandal,' " she said in an interview.
Some investors and analysts say they remain cautious about
whether the kind of cultural transformation described by the
company can be fully realized in a global enterprise with more than
"You can't guarantee a change of culture," said Philippe
Houchois, an analyst at Jefferies Financial Group Inc. "It's not up
to the regulators to change the aspect of governance; it's up to
shareholders to decide if they are happy with the governance or
For Volkswagen, it has been a long journey from when the
emissions scandal first surfaced. At that time, it took the German
car maker months to provide a clear explanation of how the cheating
happened and identify those in the company responsible for it. It
called on employees to come forward and volunteer information for
its internal investigation.
A "culture of tolerance" for rule-breaking internally allowed
the deception to continue for a decade, Hans Dieter Pötsch,
chairman of the Supervisory Board of Volkswagen, said at the
Volkswagen settled with the U.S. Justice Department in 2017 in
connection with the emissions-cheating scandal, pleading guilty to
criminal charges and agreeing to pay billions of dollars in
penalties. An independent corporate compliance monitor was
appointed by U.S. authorities to oversee Volkswagen's compliance
overhaul, according to the settlement agreement. The monitor, Larry
D. Thompson, a lawyer at Finch McCranie LLP and a former U.S.
deputy attorney general, certified earlier this month that
Volkswagen has completed the three-year monitorship.
The company said that under the monitorship it improved its
workplace culture, focused on improving its whistleblower program
and set up a network of compliance officers within each business
"There was an area where we had a shared goal, which is to make
Volkswagen a better company," said Scott Marrah, a partner at
Kilpatrick Townsend & Stockton LLP who acted as the deputy
monitor for antifraud, ethics and compliance in Volkswagen's
monitorship. "We're focusing on long-term, sustainable change."
Volkswagen's chief executive, Herbert Diess, is expected to make
mention of the end of the monitorship during the company's
shareholder meeting Wednesday.
A spokesman for the U.S. Justice Department confirmed the
completion of the monitorship but declined to comment further.
The company's revamped whistleblower program, designed for
reporting serious violations of policies and law, was central to
the compliance turnaround, executives said.
Volkswagen had a channel for reporting such violations before
the emissions scandal. But the whistleblower program wasn't very
employee-friendly, said Ms. Werner, the Volkswagen board member. It
accommodated two main languages -- German and English -- and
employees often had to wait 20 minutes to leave a tip. "People did
not feel that such technical issues or violations of the regulatory
framework was an issue that the whistleblower hotline would deal
with," Ms. Werner said.
The company has made the hotline a 24-hour-a-day,
seven-day-a-week operation that now accommodates 19 languages,
enabling more than 90% of the company's 670,000 employees to report
tips in their native language, Ms. Werner said.
Getting employees to trust the program, however -- particularly
in Germany -- presented a cultural hurdle. There was skepticism of
anonymous reporting, a possible holdover from when secret police
operated in the country, said Kurt Michels, Volkswagen's chief
compliance officer who joined the car maker in April 2017. In
general, there can be unease with whistleblower systems, he said.
"But with the German history, it's an even more sensitive topic,"
Volkswagen has sought to build employee trust by making the
system more transparent, holding question-and-answer sessions and
roadshow presentations, increasing training and improving access to
information about the program on the company website. Volkswagen
has sought to demystify its investigative process for employees and
it has shared lessons from internal probes, executives said.
Already, the whistleblower program is seeing an increase in tips
over the past few years, Mr. Michels said. About 80% of
whistleblowers attached their names and contact information to tips
in 2019, up from 15% in 2017, according to the company.
Investors and analysts are encouraged by the changes.
It is promising to see the steps Volkswagen has taken, said
Richard Hilgert, a senior equity analyst for automotive at
Morningstar Inc. But he still held some concerns: "It's extremely
difficult for a massive empire like Volkswagen to ensure compliance
from every person that works for the organization."
The conclusion of the monitorship isn't the end of the company's
efforts to improve compliance, executives said.
Volkswagen still has open legal issues around the world related
to the diesel scandal, including in the U.K. and Austria. And there
are cases tied to individuals that are unresolved. The company's
former CEO Martin Winterkorn was ordered this month in a German
court to face trial on charges of defrauding customers.
Volkswagen is also turning its attention to ethical, legal and
regulatory issues related to technologies such as autonomous
vehicles and artificial intelligence. The company will continue to
monitor and change its compliance programs based on evolving risks,
Mr. Michels said.
"The compliance work in the company is never finished," he
Write to Mengqi Sun at email@example.com and Jack Hagel at
(END) Dow Jones Newswires
September 29, 2020 20:39 ET (00:39 GMT)
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