VOLKSWAGEN

EMISSION SAGA
AN INCURSION ON REPUTATIONAL RISK AND CRISIS MANAGEMENT

OBJECTIVES
Provide an overall knowledge of classical reputation management and its
evolvement
Supply an overarching knowledge on VWs hard-built image
Brainstorm on the crumbling of that images with a focus on the devastating effects
What has been done by VW so far to react to this scandal?
What can people take away from the case of VW? What changes can be expected?

AGENDA
Reputational Risk & current development by Hieu, Hoang
VW established Image by Hoang, Vu Tuan
The crisis and its crushing effects by Hai, Truong Hoang

VW mitigation efforts & their impacts by Nguyen, Cao Dang

Lessons learned & impacts on future RM practices by Tung, Tran Minh

CORPORATE REPUTATION

customer
willingness to
purchase & pay
recommendation
competitor
resistance

investor
willingness to
invest
confidence
ratings

Hieu, Hoang, FA2012 B - 41

employee
talent attraction
loyalty
commitment

media
favorable
treatments
marketing
support

business partner
favorable
treatments
commitment
competitor
resistance

REPUTATION
THE MORE IMPORTANT, THE RISKIER
2 types
Direct reputation risk: from scandal and crises

Indirect reputation risk: as a result of other risks

Difficult to gain and easy to lose

Possible arise from any event more severed if mishandled
Prolonged external & internal influences

Specifically in VW case: loss of market leader position to competent competitors, decredit of Made in Germany

Hieu, Hoang, FA2012 B - 41

REPUTATION RISK
THEN

Limited media: easily contain

and resolve risks
Less important: limited worldtrade and competitors
Less sensitive brand awareness:
(VW case) pollution was not a
significant issue
NOW

Mainstream media:
news spread quickly,
hard to be contained and handled
properly
Increasingly important: accessible
alternate products from worldwide

More sensitive brand awareness:

(VW case) pollution is a major
problem
Hieu, Hoang, FA2012 B - 41

ESTABLISHED IMAGE
Employees
Working environment
Salary

Hoang, Vu Tuan FA2012 B 11

ESTABLISHED IMAGE
Suppliers
Profit
Credibility

Hoang, Vu Tuan FA2012 B 11

ESTABLISHED
IMAGE
Customers
Price & Quality

Environmental
friendly

Hoang, Vu Tuan FA2012 B 11

ESTABLISHED IMAGE
Shareholders
Companys structure
Management

Performance

Hoang, Vu Tuan FA2012 B 11

FEELING THE SCANDALS IMPACT

Lies

Bad service

Untrustworthy

Air pollution

Hai, Truong Hoang FA2012 B 09

WHO GETS HURT

FROM THIS?
INTERNAL
Employees

Shareholders

Fund
Managers

Hai, Truong Hoang FA2012 B 09

WHO GETS HURT

FROM THIS?
EXTERNAL
Customers

Creditors

Business
partners

Competitors

CSR

Hai, Truong Hoang FA2012 B 09

CRISIS MANAGEMENT VWS EFFORTS

Formal acknowledgement
September 3rd, 2015, during a conference call
Came after the EPA threatened to withhold approval for the companys 2016
diesel models
Formal announcement to deal with crisis
11 million cars were involved: recalling plans
Set aside 6.5 billion euros to cover the cost of the scandal
Reduce 1 billion euros in annual investments.
Management activities
Martin Winterkorn, Volkswagen AG CEO since 2008 resigned
Two top managers in research and development of Volkswagen were dismissed
Nguyen, Cao Dang FA2012 B 21

MITIGATION EFFORTS
The company suffers with money, sales, reputational
damage.
Many Germans still regard Volkswagen as an excellent car
manufacturer and the scandal was exaggerated.

Impacts

Crisis communication helps consumers aware of the event

and affirm that management would not allow these types
of events occur again.

U.S Environment Protection Agency announced tighter

auto emission tests, while some major countries call for
further investigation to reassure the public.

Nguyen, Cao Dang FA2012 B 21

LESSONS LEARNED
For companies
Sustainability
Pressure of objectives
alignment:
A mere Nash approach

Processes and Procedures

vs. Culture

Tung, Tran Minh FA2012 B 37

LESSONS LEARNED (CONTD)

For regulators
Trust No One?
Use of public NGOs
Reactionary efforts vs. Improvements?

Tung, Tran Minh FA2012 B 37

IMPACTS ON
REPUTATION
MANAGEMENT
Mitigation lesson:
Cost of the truth: brand vs. litigation?
Social media: a double edge?

Prevention lesson:
Adoption of metric for sustainability?
Proper enforcement?

Culture is at its heart

Tung, Tran Minh FA2012 B 37

DISCUSSION POINTS
What would you do if you are VW PR
Manager?
In crisis

After crisis

Is Reputational risk important?

In comparison with other risks?
In a statistical approach?

Is it being treated seriously?

Why?

Tung, Tran Minh FA2012 B 37

REFERENCES
Reports by Bloomberg
Hopper, Duke University, (2015) Lessons Learned from
Volkswagen Scandal

Alain et al. (2015) What Can Companies Learn from

Volkswagen Business Unethical Behaviour?

Schrage, Harvard Business Review, (2015) Is VWs

Fraud the End of Large-Scale Corporate Deception?

Steinzer (2015) Federal White Collar Crime: Six Case

Studies Drawn from Ongoing Prosecutions to Protect
Public Health, Worker and Consumer Safety, and the
Environment

VW Sustainability reports

Goel et al. (2015) VOLKSWAGEN: THE PROTAGONIST IN

DIESEL EMISSION SCANDAL

Mark Chong, Singapore Management University (2012),

Importance of Corporate Reputation
Tim Heberden, Griffith Hack (griffithhack.com) (2015),
Volkswagen: quantifying the reputational damage
Peter W. Roberts, Grahame R. Dowling, Strategic
Management Journal (2002), Corporate Reputation and
Sustained Superior Financial Performance