Another Morality Tale for Compliance Officers

By David Dodge, CEO
Sports Officiating Consulting, LLC

Jack Ewing’s recently published book titled Faster, Higher, Farther: The Volkswagen Scandal chronicles the decline and fall of Volkswagen, once the largest automaker in the world and now the object of derision and scorn and struggling for its life under the weight of nearly $22 billion in fines and settlements.

As readers may be aware, Volkswagen has pleaded guilty to charges it equipped its diesel engines with software – dubbed “defeat devices” – which enables an engine to meet emissions standards when tested in a lab, while on the road the diesel engines continue to emit nitrogen oxide in amounts as high as 40 times the legal limits.

The ingenious subterfuge solved several issues for Volkswagen: it was spared the expense of cumbersome pollution-control systems, and drivers enjoyed better mileage and performance. By mid-2015, Volkswagen had reached its coveted goal of surpassing Toyota as the world’s largest automaker.

The triumph was short-lived because only a few months later the U.S. Environmental Protection Agency accused Volkswagen of installing illegal software to bypass emissions testing.  As it turned out, playing by the rules would have been less expensive and much simpler for Volkswagen.

“Media reports on the scandal have usually focused on Volkswagen’s original sin: the company’s decision in 2006 to equip its diesels with illegal software.  But the most-costly aspect of the wrongdoing for Volkswagen may have been the cover-up that the company orchestrated after regulators first became suspicious.,” writes author Ewing.

He lays the blame for the company’s cataclysmic troubles on top management who “wanted total dominance,” and in their drive to the top created a culture in which there were few clear guidelines.   This is a familiar story to compliance professionals, many of whom can recall the similarly stunning collapse of Enron in 2001 and the defacto dissolution of Arthur Andersen, one of the five largest audit and accounting partnerships in the world.

Enron’s stock price, which achieved a high of $90.75 per share in mid-2000, fell to less than $1 by the end of November 2001.  Outraged shareholders filed a $40 billion lawsuit.  The engrossing story is detailed by Kurt Eichenwald in the aptly titled Conspiracy of Fools, published in 2005.

Young compliance professionals could do worse than adding to their library the two books mentioned above.  Both narratives remind us how a poisonous company culture can lead to devastating consequences.

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