It has been interesting to watch the VW saga unfold. Like many of these things, it is also pretty sad for many of those involved. It will be equally interesting to see where it takes us – and whether VW can actually recover.
At the time of writing VW, a company with a history going back close to 8 decades (admittedly the first 12 years of its life were not beyond reproach) is sitting on a loss in its share market value of 1/3rd or €25 billion. As recently as May 2015 Forbes valued the VW Brand at $126 billion.
VW had appeared to be a well-run company – financially stable, producing quality cars (OK Jeremy Clarkson may not always agree – but he has his own reputational problems to resolve) at reasonable prices, with a reputation for reliability.
There are a dozen different aspects I could alight on, but let’s just take a look at it from what does this sort of an error (if we are kind) mean for an organisation.
Well here are the basic problems they (and maybe you) will suffer when reputation is put on the line:
- Immediate costs of dealing with fallout: VW is now in the middle of an immediate storm, and like most tropical storms its fallout will take years if not decades to tidy up after the initial impact. Not only will VW have a plethora of PR and regulatory issues to sort it will be handling complex legal claims for years to come.
- Immediate loss of business: Until people know exactly what they are buying, VW will have a huge downtick in business, or margins. Where this involves Government procurement or regulation of the consumer this may well be mandated rather than optional.
- A brand which has taken years of hard work and reliability to build is on the rocks. If it can be pulled back it will be a long and laborious exercise … for years there will be an inherent mistrust to overcome. Reputation takes years to build and hours to destroy.
- Access to funding: A complex mix of problems have hit VW’s capability to fund itself going forward. Its share price has dived, making equity more expensive to raise, both as a result of that and on a stand-alone basis debt has suddenly become hugely harder to raise – and short term trading impacts may well put it in breach of its banking covenants (and some quasi-governmental lenders may withdraw funding).
- Staff: Hiring and retention of staff just got hugely harder. People like to work in organisations they are proud to be associated with, whose standards and values they can identify with. How many of us want to spend our days labouring in an organisation in a battle to survive litigation, regulatory scrutiny and customer opprobrium.
I hope VW recovers. I actually quite like its cars (although I have never owned one), but how long will it be before claims it makes about “We put the consumer first”, “we care about the environment”, “we are socially responsible” are accepted again?
What does this mean for the rest of us? Well I suggest that if you value your brand, your reputation, your staff, your customers, then doing a reality check on reputational risks you face would be a great starting point.
- What could cause really major damage to our organisation or those we serve?
- Are we aware of all material or key risk areas?
- If we are not absolutely sure we are aware of all major risk areas, have we made sure that those who could tell us are empowered to (I am guessing that at least 50 people in VW and its suppliers knew something was amiss – but did not feel empowered to raise it).
- Have we taken all appropriate and proportionate steps to mitigate relevant risks.
So perhaps it’s time to check up on the risks in your organisation – and whether you have the above areas covered – after all who wants to be in an avoidable car crash.