Governance Issue and Solution of Volkswagen Case

GOVERNANCE ISSUE AND SOLUTION OF VOLKSWAGEN CASE
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Governance Issue and Solution of Volkswagen Case
Introduction
Volkswagen’s success in globalization and competitiveness before the scandal was attributed to its ability to use technology, such as turbocharged direct injection (TDI) and clean-diesel technology, to meet emission standards in Europe and the United States (US) (Schuetz 2016, p.4-5). However, just when Volkswagen was about to become the world's largest auto manufacturer, a scandal broke, tainting its image and contributing to the decline in sales and profits. This paper highlights the governance issues that contributed to the scandal and subsequent fall from glory and discusses a potential solution to help the company move forward.
Volkswagen Governance Challenges
Volkswagen had a governance problem portrayed through its ownership, supervisory board, and voting rights structure. The supervisory board, responsible for monitoring and approving corporate decisions, had only one independent member among the twenty members (Schuetz 2016, p.6). Most board members were union officials, Porsche and Piech families, and state officials. This composition made the board ineffective in executing its function. For instance, there was insufficient oversight from the board members. The management had the freedom to do what it wanted as long as it met the needs (greater employment) of the union and state officials on the supervisory board (Schuetz 2016, p.6). The supervisory board failed to effectively exercise its control, which might have contributed to the company's culture of cutting corners to secure its interests, especially in the US market.
Further, there was a lack of transparency within the company. After the scandal became public, it was reported in the media that a supplier and an employee in the company had written internal reports to the supervisory board about the software that w...