Volkswagen, whose reputation is based on trust and reliability, faces an enormous challenge as it responds to the emissions scandal.
In assessing VW’s prospects of emerging with its business and reputation intact, there are some positive factors to cling on to. The first is the intrinsic strength of its brand; carrying reputational credit into a crisis can help to cushion a negative event. We witnessed this when the Virgin Galactic spacecraft crashed in the Mojave desert late last year. The strength of the Virgin brand and the actions of its leader Richard Branson ensured that its reputation remained intact.
There are some good signs in the company’s initial response too. VW’s swift admission of guilt, summed up in the words of its North American chief as “we screwed up”, provide it with a foundation to move on. Much more dangerous would have been denial: an organisation which fails to admit its problems can never resolve them. The words of Sepp Blatter in 2011 when asked about corruption – “Crisis? What is a crisis? Football is not in a crisis” – come to mind.
A third positive comes with the immediate actions taken by VW, especially the removal of chief executive Martin Winterkorn and the launch of an internal investigation. A deep commitment to understand the issue and take whatever steps are necessary to prevent it from happening again are essential to reputation recovery.
On the debit side, VW faces a series of hurdles. The first is that this crisis was internally generated. Organisations are more easily forgiven for crises which emerge from outside such as natural disasters, terrorism, even cyber-crime. Internally generated crises strike at the heart of the organisation and pose major questions about its culture and values. As witnessed by the closure of the News of the World, crises of this type can have far reaching consequences.
Whilst VW’s brand is a strength, in another sense it creates a bigger challenge for the company’s recovery. When a crisis cuts across everything we believe about a brand, the damage can be greater than would otherwise be the case. Trust is one of the most intangible but precious business assets; VW has been a hugely trusted brand, but that position is now in serious jeopardy.
Another issue which must be quickly addressed is installing the successor to chief executive Martin Winterkorn. Successful crisis management requires strong and courageous leadership from a trusted figure. In VW, there is a leadership vacuum which creates a mini-crisis all of its own. In the long term, changing the culture which allowed the emission fixing to occur is the most important step of all. Again, this will depend on the leadership of the new chief executive and so their swift appointment is a top priority for the business.
It’s too early to say what the long term damage for VW will be, but their words and actions now will play a large part in shaping their destiny. Having issued an initial apology and committed to a full and transparent investigation they now need to deliver against this.
It is in VW’s best interests to search out and put into the public domain any examples of company wrongdoing. Adopting this approach will enable it to control the timing of the bad news and allow it to get to the worst place (the place from which recovery can begin) most quickly. Much better to do this itself than allow investigative reporters or whistleblowers to gradually reveal more and more bad news. Death by a thousand cuts is no crisis communication strategy.
Time alone will tell whether VW is able to address its immediate problems, change its culture and thereby regain the trust of its stakeholders. It’s not impossible as Toyota (which suffered its own global crisis not so long ago) has shown. What’s for certain is that the journey will be long, expensive and painful.
Jonathan Hemus is managing director of crisis management company Insignia