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A Brand at Risk: Watching Leadership in Crisis

by Richard McGourty on

It is not often that a famous business school case is being written right before one’s eyes, but that is precisely what is happening with Volkswagen. The facts of the case are still being sorted out, but we know this much from an NPR report filed on November 8, 2015 by Jim Zaroli:

 Volkswagen has been mired in controversy since acknowledging that software sold in Golf, Jetta, Beetle and Passat models had been programmed to cheat on emissions tests. The company has denied claims by U.S. regulators that some larger diesel vehicles also had software that was not allowed.

What is beginning right now at Volkswagen will be studied for many years. We are talking about a historic mistake on a massive scale. While we don’t know yet all the causes that contributed to this problem, and therefore it’s not clear what exactly the next course of action should be, it’s fascinating to watch. It seems clear that as many as 500,000 cars may be involved, and some say the final number will be much higher and the scandal may widen to include other makes and models. Jack Ewing filed a report in the New York Times outlining the scale of the problem and some early efforts by Volkswagen to respond to the anger and disillusionment of its customers and dealers.  

Although it is almost certain that the company will face a tsunami of law suits, it is too early to estimate the full financial impact of the company’s failure to deal honestly with emissions testing.  But, that is not to say they are doomed—other companies have taken a huge financial hit and survived.  Think of BP’s crisis after the 2010 Deepwater Horizon oil spill, or the Exxon Valdez spill in 1989 – both these brands made it through.

We’re watching this situation closely, thinking of The Power of Humility in Leading Through Difficult Times, and asking:

  • Most broadly, what kind of leadership is needed to protect the Volkswagen brand?
  • What is a Board’s responsibility in the face of a failure that threatens the whole enterprise?
  • Long term, how do leaders protect the brand and secure the loyalty of their best customers?
  • What about the employees at assembly plants, service workers at the dealerships and other front line people whose jobs/income will be affected by a downturn in the business? What will their leaders need to do?

The answers may not fully be apparent for some years, but surely someday they will be used by business school professors. And, in the meantime, we await Volkswagen’s response as the situation unfolds.

 

 

 

 

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