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The Volkswagen Scandal from the Viewpoint of Corporate Governance

Published online by Cambridge University Press:  20 January 2017

Raymonde Crête
Raymonde Crête*
Affiliation:
Financial Services Law Research Group, Faculty of Law, Université Laval (Quebec)
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Extract

Like some other crises and scandals that periodically occur in the business community, the Volkswagen (“VW”) scandal once again highlights the devastating consequences of corporate misconduct, once publicly disclosed, and the media storm that generally follows the discovery of such significant misbehaviour by a major corporation. Since the crisis broke in September 2015, the media have relayed endless details about the substantial negative impacts on VW, on various stakeholder groups such as employees, directors, investors, suppliers and consumers, and on the automobile industry as a whole.1 The multiple and negative repercussions at the economic, organizational and legal levels have quickly become apparent, in particular in the form of resignations, changes in VW's senior management, layoffs, a hiring freeze, the end to the marketing of diesel-engined vehicles, vehicle recalls, a decline in car sales, a drop in market capitalization, and the launching of internal investigations by VW and external investigations by the public authorities.

Type
Mini-Symposium on the VW Scandal
Information
European Journal of Risk Regulation , Volume 7 , Issue 1 , March 2016 , pp. 25 - 31
Copyright
Copyright © Cambridge University Press 2016

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References

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2 Ibid.

3 Volkswagen, News: “Volkswagen making good progress with its investigation, technical solutions, and Group realignment”, Dec. 10, 2015: Online: http://www.volkswagenag.com/content/vwcorp/info_center/en/news/2015/12/VW_PK.html (last accessed Feb. 9, 2016).

4 This Article refers to the crucial role assigned to the board of directors in a one-tier board structure, as prescribed under American and Canadian corporation law as well as to the management board and supervisory board in a two-tier board structure, as prescribed under German stock corporation law.

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11 Jim Puzzanghera and Jerry Hirsch, ibid. See also the testimony of Michael Horn, President and CEO of Volkswagen Group of America, Inc. before the House Committee on Energy and Commerce Subcommittee on Oversight and Investigations, October 8, 2015, Online: http://docs.house.gov/meetings/IF/IF02/20151008/104046/HHRG-114-IF02-Wstate-HornM-20151008.pdf (last accessed Feb. 9, 2016).

12 Jim Puzzanghera and Jerry Hirsch, “VW exec blames ‘a couple of’ rogue engineers for emissions scandal”, supra note 10.

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15 On the role of the board of directors under U.S. corporation law, see Bainbridge, Stephen M., Corporation Law and Economics, (New York : Foundation Press), 2002, pp. 191 and ff.Google Scholar ; in Canada, see Crête, Raymonde and Rousseau, Stéphane, Droit des sociétés par actions, 3rd ed., (Montréal : Éditions Thémis), 2011, pp. 326–329, 355-367Google Scholar ; in the EU Member States, the law of business corporations provides for a one-tier board structure or a two-tier board structure : see Carsten Gerner-Beuerle, Philipp Paech and Edmund Philipp Schuster, Study on Directors’ Duties and Liabilities, Report prepared for the European Commission DG Markt, London, April 2013, Online : http://ec.europa.eu/internal_market/company/docs/board/2013-study-analysis_en.pdf (last accessed Feb. 27, 2016). In Germany, stock corporation law provides for a mandatory two-tier board structure which includes a supervisory board and a management board. On German company law, see the Study on Directors’ Duties and Liabilities, ibid, pp. 15 ; Grit Tüngler, “The Anglo-American Board of Directors and the German Supervisory Board – Marionnettes in a Puppet Theatre of Corporate Governance or Efficient Controlling Devices?”, Vol. 12, iss.2, Article 7 Bond Law Review (2000), Online : http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1194&context=blr(last accessed Feb. 27, 2016) ; Government Commission, German Corporate Governance Code, as revised on May 5, 2015, Online : http://www.dcgk.de//files/dcgk/usercontent/en/download/code/2015-05-05_Corporate_Governance_Code_EN.pdf (last accessed Feb. 27, 2015).

16 In US, see S.M. Bainbridge, ibid, p. 194, 195 ; Martin Lipton, Daniel A. Neff, Andrew R. Brownstein, Steven A. Rosenblum, Adam O. Emmerich, supra note 9 ; in Canada, see R. Crête and S. Rousseau, ibid, pp. 326-328 ; in Germany, see Government Commission, German Corporate Governance Code, ibid.

17 For details on VW's corporate governance, see Volkswagen, Annual Report 2014, Group Management Report¸ Online: http://annualreport2014.volkswagenag.com/group-management-report/structure-and-business-activities.html (last accessed Feb. 27, 2016).

18 Volkswagen, News: “Volkswagen making good progress with its investigation, technical solutions, and Group realignment”, supra note 3; Graham Ruddick, “VW admits emissions scandal was caused by ‘whole chain’ of failures”, The Guardian, Dec. 2015, Online: http://www.theguardian.com/business/2015/dec/10/volkswagen-emissions-scandal-systematic-failures-hans-dieter-potsch (last accessed Feb. 9, 2016); Graeme Wearden and Julia Kollewe, “VW emissions scandal: misconduct, process failure and tolerance of rule-breaking blamed – as it happened”, The Guardian, Dec. 10, 2015, Online: http://www.theguardian.com/business/live/2015/dec/10/volkswagen-vw-grilling-emissions-scandal-bank-of-england-business-live (last accessed Feb. 9, 2016).

19 Volkswagen, News: “Volkswagen making good progress with its investigation, technical solutions, and Group realignment”, ibid., pp. 1, 2.

20 Volkswagen, “The Volkswagen Group is moving ahead: Investigation, customer solutions, realignment”, Conference Press, Dec. 10, 2015, at 14.

21 Volkswagen, News: “Volkswagen making good progress with its investigation, technical solutions, and Group realignment”, supra note 3, at 2.

22 Ibid.

23 Jack Ewing, “Volkswagen C.E.O. Martin Winterkorn Resigns Amid Emissions Scandal”, supra note 1; for other comments on VW’ corporate governance, see James B. Stewart, “Problems at Volkswagen Start in the Boardroom”, New York Times, Sept. 24, 2015, Online: http://www.nytimes.com/2015/09/25/business/international/problems-at-volkswagen-start-in-the-boardroom.html?_r=0 (last accessed Feb. 9, 2016);

24 Volkswagen, News: “Volkswagen making good progress with its investigation, technical solutions, and Group realignment”, supra note 3, at 3.

25 Ibid.

26 Ibid.

27 Volkswagen, News: “Volkswagen making good progress with its investigation, technical solutions, and Group realignment”, supra note 3, pp. 3, 4.

28 Ibid., at 4.

29 Volkswagen, Annual Report 2007 – Driving Ideas, at 22, Online: http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2008/03/Annual_Report_2007.bin.html/binarystorageitem/file/VW_AG_GB_2007_en.pdf (last accessed Feb. 9, 2016).

30 Volkswagen, Annual Report 2009, at 198, Online: http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2010/03/Annual_Report_2009.bin.html/binarystorageitem/file/Y_2009_e.pdf (last accessed Feb. 9, 2016.

31 Volkswagen, Annual Report 2014, Online: http://annualreport2014.volkswagenag.com/group-management-report/goals-and-strategies.html (last accessed Feb. 9, 2016).

32 Volkswagen, Annual Report 2014, see the Corporate Governance Report.

33 Volkswagen, “The Volkswagen Group is moving ahead: Investigation, customer solutions, realignment”, supra note 20, at 14.

34 See notes 18-22 and accompanied text.

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38 L.D. Ordóñez et al., ibid, at 9.

39 L.D. Ordóñez et al., ibid, at 10.