Weak governance at Volkswagen contributed to the 2015 emissions-cheating scandal, which cost the company billions of dollars and the trust of its stakeholders. Explain.

Question

What will be an ideal response?

Answer 1

See Illustration Capsule 2.4. The key feature of Volkswagen's board that appeared to have led to the emissions scandal was its lack of independent directors.

German corporations operate with two-tier governance structures, a management board, and a separate supervisory board that does not contain any current executives. In addition, German law requires large companies like Volkswagen to have at least 50 percent supervisory board representation from workers. This structure is meant to provide more oversight by independent board members and greater involvement by a wider set of stakeholders.

In Volkswagen's case, these objectives were effectively circumvented. The company continued to elevate management to the supervisory board even though they had presided over past scandals.

Volkswagen also had a unique ownership structure where a single family, Porsche, controlled more than 50 percent of voting shares.

The company lost numerous independent directors during the most recent decade, leaving it with only one nonshareholder. nonlabor representative.