Home Golden RulesEthics 5 Years after Dieselgate: Volkswagen Revisited

5 Years after Dieselgate: Volkswagen Revisited

by Nigel Kendall
image of Volkswagen logo drawn in the sand, being washed away by the sea, representing the impact of the dieselgate emissions scandal

Five years after the Dieselgate scandal, we look at what has happened at the world’s no. 1 car manufacturer, to see if anything has really changed after more than $26bn in fines and a series of arrests.

How well have they survived the accident?

In September 2015, the roof fell in on VW. Shortly afterwards, we wrote about the emissions scandal that came to be known as Dieselgate (An accident waiting to happen, October 2015). We also considered some of the consequences that seemed likely, and the implications for corporate governance changes most observers deemed imperative. So what has happened in the past four and a half years, and how well has VW survived the major accident?

The situation in October 2015

The respected CEO of VW, Martin Winterkorn, had just resigned, saying that, while he wasn’t aware of any wrong-doing on his part, he was standing down in the interests of the company. He was replaced by Matthias Müller, CEO of Porsche, whose head of R & D also resigned.

The company set up a provision of €6.5bn to cover potential costs of correcting up to eleven million affected vehicles and related fines and legal costs, and appointed a US law firm to investigate how the emission cheating happened.

There was strong criticism of VW’s corporate governance from bodies such as MSCI, pointing to the tight centralised control through the controlling shareholdings of the Piëch and Porsche families and the local state government of Lower Saxony, and demands that this should change.

By mid-October, the shares were down by 40% in a matter of days, and questions were being asked about the size of the potential liabilities VW faced. Amongst other threats was the €100bn of customer loans outstanding in its finance operation, facing possible significant reductions in the second-hand values of the cars representing the underlying security. Furthermore, VW had some €67bn of corporate debt, on which the interest rate had doubled.

There was also the likelihood that the authorities would now direct their attention to CO2 emissions and the potential gap between lab test figures and real-life road performance.

So this major global company, which had recently achieved its target of becoming the world’s biggest manufacturer of motor vehicles, was faced with reputational and financial catastrophe.

What happened next?

In October, doubts were being expressed about the ability of two VW establishment figures to change the culture, the recently appointed CEO, Matthias Müller, and chairman, Hans Dieter Pötsch, formerly VW’s Finance Officer. Comparisons were made with the actions of Siemens in 2003, which replaced both chairman and CEO by outsiders, enabling clear-out at the top, and a radical change of culture. It was increasingly plain that the management culture over the previous ten to twenty years had discouraged challenge by junior ranks to the executive, and hence encouraged suppression of doubts about the development and roll-out of the emissions defeat software.

At the same time, headlines became increasingly dramatic, for instance comments by a US politician “VW tests scandal …on the scale of Enron”, and “fears for the future of Wolfsburg” by a UK newspaper. And criticism became intense of the governance of VW by organisations like Moodys and Hermes, citing the supervisory board structure with only one independent director out of twenty, and three shareholders holding 90% of the votes.

Thus, the board directorships were:

  • Porsche and Piëch families 5
  • Lower Saxony state 2
  • Qatar fund 2
  • Workers and Unions 10
  • Independent 1

The effect of the strong union and labour influence was deemed to account for the poor productivity of VW in Germany compared with Toyota in Japan, or even of VW’s subsidiaries in other countries. It was also used to explain the tensions between a CEO trying to improve output per worker and a very strong chairman, with close relations with the unions and with the controlling families, which was said to have led to the departure of the previous CEO, Bernd Pischetsrieder, and to the 2005 scandal involving prostitutes.

By December 2015, 500 lawsuits had been filed in the US, but it was estimated that fixing the “fault” was likely to prove much cheaper than the $6bn provision. However, in January 2016, the US Justice Dept announced that it planned to sue VW for $45bn. Notwithstanding, a bullish analyst forecast an increase in the share price from $120 at that point to a target of $200.

In March, the president of VW USA, Michael Horn, suddenly resigned, supposedly related to publication of a 2014 email purporting to alert him to the threat of fines following testing issues. And in May, the Norwegian Sovereign Wealth Fund said it planned to sue VW over the emissions scandal.

By June, VW was able to announce a settlement of $15bn with the Dept of Justice, though the threat of criminal investigation still hung over it. But by now, analysts were speculating on a total global liability of as much as €24bn.

In January 2017, a fine of $4.3bn was announced to settle criminal investigations in the US regarding three felonies, and six executives were indicted. Oliver Schmidt, head of US compliance, was arrested while on holiday in Florida. But, on the plus side, sales in 2016 were 4% higher than in 2015.

In February, the head of compliance, hired from Daimler after the 2015 scandal, resigned 13 months into a 3-year contract, saying she had finished the job. Controversy followed, though, over her pay-out for the full three years. And also in February, an offer of $1.2bn was made to large car owners in the US to close the books on their claims.

What progress on corporate governance? No changes in the supervisory board, but the pay of top managers was cut by 37% in 2016, and the CEO publicly went on record targeting an increase in diversity, and, more significantly, a future focus on nice clean electric vehicles.

And in March, VW announced a further fine of $157m regarding “green” claims, bringing the total US payments to $24.5bn to that point. Note that there had been no fines in the EU so far, partly as a result of VW’s defence that its defeat software didn’t break any EU rules regarding emissions testing.

In April, the towering figure in VW for so many years, Ferdinand Piëch, resigned at the age of 80, selling all his shares. His parting shot was to accuse five board members of knowing about the diesel issue months before it became public – an accusation denied by the board.

By May 2017, VW was able to announce strong Q1 results with net profit up 44% on the same period in 2016. And in July Q2 showed sales up 2%, revenues up 4.7%, and operating profit up 3.7%.

In September, drama: the ex-head of Research at Porsche, Wolfgang Hatz, was arrested; he had been suspended after the 2015 scandal, and in December, Oliver Schmidt was sentenced to seven years imprisonment by the US courts and fined $400,000.

However, in January 2018, VW was able to announce record deliveries for 2017, nearly reaching its 3-year profit target for VW three years early. Sales in the US had risen 5.2%, and the resulting cash flow enabled VW to pay most of its $25bn fines without tapping its reserves.

Bad news for the corporate reputation continued to arrive, however, with the disclosure that prior to the emissions scandal, VW had been conducting tests with live monkeys using exhausts from VW Beetle vehicles.

In April 2018, it was announced that Matthias Müller was stepping down to be replaced by ex-BMW recruit, Herbert Diess. The comment was made that with BMW’s more decentralised management style, described as “divide and rule” the new CEO might make serious changes to VW’s centralised “command and control” style (described earlier as North Korea without the labour camps).

In May it was reported that VW was considering legal action against Martin Winterkorn for negligence – he was, of course, facing criminal charges in the US. And in June, Munich prosecutors raided the private apartment of Audi’s chief officer, Robert Stadler, who was later arrested for fear that he was suppressing evidence. He was fired by the board in September on the grounds that he could no longer do his job. It was argued that, regardless of innocence or guilt, he should have stepped down years earlier like Winterkorn, and VW was criticised for keeping him on after his arrest, again being unfavourably compared with Siemens. Also in June, Wolfgang Hatz was released on bail of €3m, after nine months in custody, and VW agreed a fine of €1bn to settle criminal charges in Germany.

And in August, VW was able to announce record results for Q2.

By January 2019, the wheels of justice slowly turned again, and the US Justice Dept charged four former US Audi engineers, citing internal discussions going back to 2006, describing the “dosing strategy” as illegal and indefensible. And, most damning, evidence was released recording Audi’s former head of technical development, Stefan Knirsch, back in 2013, apparently asking for an assessment of the risks of being caught cheating. And in 2015, Oliver Schmidt was reported as asking for help after “our worst fears have come true”.

By March 2019, the Norway SWF had cut its stake in VW out of continuing frustration with its governance.

And in the US, the SEC charged Martin Winterkorn, VW and two subsidiaries with misleading consumers in the 13 months to May 2015 when issuing bonds and securities in the US markets. VW denied these charges, saying the securities were sold to sophisticated investors, and no-one lost any money, and this was a blatant attempt to jump on the bandwagon of getting money out of VW.

But in April 2019, Winterkorn and four others were charged by the German prosecutors for failing to disclose illegal acts after they had become aware of them – the issue that Piëch had alluded to.

In August, Ferdinand Piëch died suddenly, at the age of 82, and an era ended. He was a legendary figure, who had created Porsche as a world-leading sports car, transformed Audi’s reputation, and rescued VW from a dire situation. So a charismatic leader and world-ranking engineer, but no great advocate of contemporary ideas of corporate governance.

In September, the German justice machine ground on, with Herbert Diess, Martin Winterkorn and Dieter Pötsch being charged with market manipulation for withholding market sensitive information for months before September 2015, and in January 2020, six managers were charged with fraud for misleading the authorities and customers in the lead-up to September 2015.

In February, things were looking up, as VW announced a settlement of €830m to close a class action in Germany, and was able to report record pre-tax profits for 2019, up 17% on 2018, at €18.4bn. Herbert Diess promised a huge drive to build electric cars, with an investment of €33bn over the next nine years to produce 26m vehicles.

Then the coronavirus hit Europe, shutting down manufacturing, though production in China was reported to be picking up.

So, what has changed?

The short answer appears to be very little in the way of compliance governance, at least in terms of the operation of the supervisory board, but a major shift in strategy away from polluting diesel to clean electric.

So if we look at VW from the analysis point of view of our Five Golden Rules of holistic good corporate governance:


The culture is still the hard-driving results-oriented one initiated by Piëch and perpetuated by Winterkorn. Herbert Diess is as committed to VW’s goals as were his predecessors. Lessons have presumably been learned, but are these about the “can we, should we” debate or a reassessment of the financial and reputational risks of being caught? It’s too early to say at this stage. VW’s actions in focusing on the re-orientation towards electric vehicles serves the double objective of showing a “green purpose” to the world, but also hedges against the potentially mortal threat posed by the impending technology revolution associated with driverless electric cars. In reputational terms, notwithstanding continued criticism of VW’s corporate governance, it doesn’t seem to have suffered lasting damage, as the sales figures show, even in the USA. Actions by management during the current coronavirus shutdown will do much to improve VW’s reputation, or, alternatively, confirm sceptics’ views.


The goal of being number one in the world in car production hasn’t changed, and the drive is still to maintain that position. Though now there is a renewed focus on bringing the efficiency of production at the core VW brand up to the standard of the global best, and it has been making some progress in that direction. There is no reason to suppose that the main stakeholder groups disagree, with the proviso that labour relations at Wolfsburg will still make the efficiency targets more difficult to achieve quickly.


The former focus on diesel, driven by the political climate in Europe, has changed radically, for the reasons mentioned above. Probably all stakeholder groups will agree with this major promised investment in an electric future, though green targets and long-term corporate survival will have to compete with near-term dividends and labour rates of pay.


 Here we have to question whether the pressures and incentives arising from the earlier driven culture have now been balanced by a degree of decentralisation and more openness which will expose unethical ideas and practices before they can take root and do lasting damage. There hasn’t been any published feedback from the main stakeholder groups, particularly the workforce, so again, it’s too early to say.

Accountability and transparency

 Since the balloon went up in September 2015, VW can be seen as having been relatively open with the authorities, and by extension, with the public and stakeholders generally, about what went on. The puzzle about how much was known at the highest levels is still, by and large, a puzzle, but what went on is now fairly well known, and those immediately responsible for allowing it to happen have been punished in one way or another.

Whether there exist mechanisms for alerting the supervisory board to potential misconduct must be more doubtful. Without major changes in the constitution of the supervisory board, it’s unlikely that there will be much pressure from that source to remedy the earlier deficiencies, so their vulnerability to charges that “if they didn’t know, they should have done” would appear to remain undiminished


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