(Bloomberg Businessweek) -- Volkswagen AG just can’t seem to catch a break. Since the company acknowledged cheating on emissions tests almost two years ago, it has struggled to get beyond the scandal. The latest setback: On June 15, German authorities ordered fixes to the pollution control systems on 24,000 Audis, in addition to the 11 million vehicles VW has acknowledged it equipped with software designed to circumvent environmental regulations. Hans Dieter Poetsch says it’s time to reinvent the company so such trickery can never be repeated.
Appointed Volkswagen’s chairman in the chaotic weeks after the cheating was revealed, Poetsch says the company must become more international and diverse. While the automaker’s senior managers now include a woman—Hiltrud Werner, who headed VW’s audit team—the profile of the executive suite remains little changed since the scandal was made public in September 2015. Top management is still dominated by aging German engineers: The average age is 59, and only one wasn’t born in Volkswagen’s homeland.
His goal is to nurture a culture where employees are encouraged to speak up when they see wrongdoing—both to head off the ethical lapses that led to the diesel crisis and to help the company shift to electric cars and autonomous driving. “We’ve embarked on a fundamental change,” says Poetsch, a 14-year veteran of Volkswagen who served as chief financial officer during the affair but says he had no involvement in it.
The key for Poetsch will be revamping VW’s management without endangering what fueled the company’s success in the first place: a focus on engineering, a global vision that resulted in an early investment in China and factories in more than two dozen countries, and a bottom-to-top brand strategy ranging from budget Skoda and SEAT to the luxury Audi and Porsche nameplates.
“It’s not enough anymore to develop a great car and then expect people to buy it.”
One step could be abandoning a long-standing edict that the CEO be a multi-decade veteran of the company with a strong technical background. When Chief Executive Officer Matthias Mueller’s contract expires in 2020, Poetsch says he’ll consider a much broader range of qualifications on the resumes he examines. Poetsch says new skills and perspectives are needed as Volkswagen adapts to the challenges of an era of electric-powered robo-taxis and faces new competitors like Tesla Inc., Uber Technologies Inc., or Google’s Waymo.
“I’ve been working in the car industry for a long time, but I’ve never seen such a comprehensive transformation,” Poetsch, 66, said in an interview at Bloomberg’s headquarters in New York. “It’s not enough anymore to develop a great car and then expect people to buy it.”
Though the scandal has cost the company 22.6 billion euros ($25.5 billion) in fines, repairs, and other penalties, Poetsch says he’s optimistic. There’s been no fire sale of assets, and despite the image damage, criminal investigations and hundreds of lawsuits, Volkswagen last year managed to surpass Toyota Motor Corp. as the world’s biggest automaker. In the first quarter, Volkswagen’s margin widened to 7.8 percent from 6.1 percent thanks to robust profit from Porsche and cost-cutting at the VW brand.
“We have all it takes to play a significant role,” Poetsch said. With the likes of Google and Apple developing an automotive strategy, it “shows that there is an attractive business opportunity to be seized.”
Under Mueller, Volkswagen is gradually redefining itself. While he has spent four decades at the automaker, Mueller has taken a sharply different approach from his predecessor, Martin Winterkorn. Rather than maintaining the previous politburo-like structure, Mueller, 64, has shifted decision-making away from Wolfsburg. To ensure greater independence, a new mobility services division—aimed at taking on ride-hailing services like Uber—is located in Berlin.
“The strategy overhaul is going in the right direction,” said Frank Biller, an analyst at Landesbank Baden-Wuerttemberg. “But it's a long-term process.”
Redirecting VW—with more than 600,000 employees and 120 factories—is tough. And the leadership is strikingly lacking in diversity. Fewer than 10 percent of top managers are women, though in its 2016 annual report the company said it aims to raise that to 13 percent within five years. While the auto industry is hardly a paragon of equality, VW lags rival Daimler, where two members of the eight-seat management board and about 16 percent of middle and upper managers are women.
The short tenure of the first woman on VW’s management board shows how difficult it can be for outsiders to find their way at the company. Shortly after the scandal erupted, Christine Hohmann-Dennhardt joined VW from Daimler to take on the newly created role of compliance and integrity chief. Just a year later, she was out after an internal power struggle, replaced by Werner.
“Changing the culture of such a large organization is a huge undertaking,” said Sascha Gommel, an analyst at Commerzbank AG in Frankfurt. “It can take years to really filter through to the rank and file.”
Poetsch’s comments about a successor to Mueller already indicate a shift in thinking at the board level. Before the crisis, Volkswagen was essentially in management paralysis, struggling for years to identify a replacement for Winterkorn, who was 68 when he was ultimately forced out in the aftermath of the scandal. VW managers these days must have more international experience and language skills as the company aims to foster a culture that reflects its global footprint.
Top managers, Poetsch says, will need to “take a step back and analyze broader strategic developments, as our individual brands and operations gain more independence.”
To contact the author of this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.net.
To contact the editor responsible for this story: David Rocks at drocks1@bloomberg.net, Chris Reiter
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