Can a company’s culture foster unethical behavior?
That’s a question at the heart of the Volkswagen emissions controversy that prompted its CEO to step down in September.
In the wake of the news that the German automaker installed software intended to defeat emissions testing, CEO Martin Winterkorn’s character and management style were called into question. Although Winterkorn claimed not to know about the technology, he’s been classified as a hard-driving perfectionist bent on securing the top spot among global car manufacturers.
In a new report by the New York Times, it appears Winterkorn’s leadership was in concert with the company’s overall management, which is described as "confident, cutthroat, and insular." Starting at the top, such an corporate environment may have been enabled such a massive breach of ethics.
The company’s current CEO, Matthias Müller, and Hans Dieter Pötsch, chairman of Volkswagen’s supervisory board, have now admitted publicly that the technological evasion began in 2005, earlier than originally reported. Nine executives were suspended, even though Volkswagen maintains that management was not aware of any wrongdoing, and has since said that a small group of engineers was responsible for the breach.
However, experts point to a long history of unethical behavior that could have influenced the present cheating—from its Nazi founders to the tight hold of current ownership by billionaire Porsche family descendants, German state government, and labor unions. Given this history, it’s hard to believe just a few engineers are responsible, says John German, a former official at the Environmental Protection Agency and a senior fellow at the International Council on Clean Transportation who spoke to the Times. (The latter group played a role in uncovering Volkswagen’s cheating).
There was the long tenure of Ferdinand Piëch (a Porsche grandson), the chief executive from 1993 until 2002, who preceded Winterkorn. Piëch was a tough leader who once wrote, "My need for harmony is limited," and touted the fact that he was only called to the helm when the company was in "severe difficulty."
An accomplished engineer, Piëch was said to be able to point out flaws that designers had missed and was responsible for many innovations. Likewise, Winterkorn walked around with a gauge to measure car door gaps and criticized employees publicly.
Between the two chiefs, it’s not hard to see why staff might have withheld information that could have led to their termination. But whether the executives knew of the cheating is still in question.
As Volkswagen’s new CEO, Müller is working to change the company culture, eschewing "yes" men in favor of people who "follow their instincts, and are not merely guided by the possible consequences of impending failure," the Times reports.
But theirs is a for-profit business, and money can change the ethical temperature of a culture pretty quickly. More than a dozen studies found that just thinking about money can lead to dishonest behavior, and the term "moral muteness" has been coined to define the way managers will make an economic case to justify a certain decision they made based on ethics.
The problem with leaders using such rationales for the bottom line is that unethical behavior can actually stand in the way of profitability. As recent research from KRW International, a leadership consultancy revealed, CEOs whose characters were highly rated by employees had an average return on assets of 9.35% over a two-year period, almost five times as much as CEOs with low scores whose return on assets averaged just 1.93%.
If Müller can make good on his pledge to shift VW’s culture to one where workers aren’t afraid to act ethically, the automaker might just find itself at the top of the heap once again.