Managing in Troubled Times Case Study

Unrest at Volkswagen: Who Takes the Decisions?

OR

Abstract:
For decades Volkswagen, Europe's largest carmaker, had enjoyed a reputation for having one of Germany's most highly-developed systems of labor/management co-operation, with managers involving employee representatives in crucial decisions. Germany's co-determination law, under which VW functioned, started out conceptually as a law to ensure a balance between the interests of management and labor in the company but had morphed into an insidious alliance aimed at “keeping appearances”, “being the favorite” and “not rocking the boat”. CEOs and top managers depended on votes from labor representatives to be reappointed. Instead of making tough decisions on restructuring or job cuts, VW managers were inclined to delay or avoid change and instead curry favor with union bosses sitting on their boards, often to the detriment of the company. And with the resignation of Bernd Pischetsrieder, the chief executive of VW it seemed that life in Germany for corporate bosses seemed to have become treacherous. Pischetsrieder was forced out after lengthy struggles with Ferdinand K Piech VW’s Chairman and chief of the company's supervisory board and a highly influential figure (being the grandson of Ferdinand Porsche). Piech had an agenda of his own and Pischetsrieder was caught between aggressive investors and VW’s set of problem. VW had been hobbled by anemic sales, deteriorating quality, and unnaturally close relationships between management and employee leaders. Piech, a powerful shareholder with his “Faustian pact” was all out to get his way. Despite having hired groomed and nurtured Pischetsrieder (to streamline the company in the face of withering global competition) to take his place at VW when he himself moved up as the Chairman of the supervisory Board, he axed him. Before being forced to resign Pischetsrieder was given a five year extension till 2012. Volkswagen shares dropped as investors took in the depth of problems facing the company. There was unrest at VW. Was there more to be read between the lines of Pischetsreider’s resignation? Was there an undue union influence at Volkswagen? Who took the decisions?

Pedagogical Objectives:

• To understand the dynamics of corporate governance, by evaluating its merits and demerits and the impact on managerial behaviour in German automobile companies
• To evaluate the importance of shareholder and stakeholder-oriented governance systems
• To evaluate the various management styles adopted in automobile companies
• To discuss and understand the impact of executive intelligence on business leaders.

Keywords : system of cross-holding;industrial co-determination; company-centric management; inflexible workforce; history of intransigent leaders; union bureaucracy; co-opted with insiders; state ownership; dynamics of corporate governance in VW; managerial behaviour in VW; Ferdinand Piech; Volkswagen’s supervisory board, shareholder /stakeholder-oriented governance; Unrest and organisational instability at VW; impact of executive intelligence