The Biggest Lesson from Volkswagen: Culture Dictates Behavior

Culture is a powerful force that can cause employees to make conscious or unconscious decisions that aren’t in their companies’ best interests. And when the culture doesn’t allow for failure, it can set-up for an even greater disaster. Consider what happened with Volkswagen’s “no-failure” culture and its emissions-test scandal.

At the heart of the scandal was VW’s now-infamous diesel engine. At the time it was being developed, VW promised that it would be both low emission and highly efficient, a holy grain combination that would command a price premium. So what went wrong?

After the company finished developing the engine, VW engineers realized that they could not meet their targeted numbers. Rather than admit that the engine could not meet the lofty goals, engineers at VW covered up the problem by installing software in 11 million diesel-powered vehicles worldwide, including almost 500,000 in the United States, that were designed to beat emissions tests by using phony data.

These “defeat devices” made the cars appear safer for the environment than they actually were, when in reality, the software would shut off during regular driving, causing the emissions to far exceed legal standards.

Why would employees at such a venerated brand make such a poor decision that put the entire company at risk? The answer lies in the type of culture its leaders cultivated.

CEO Martin Winterkorn was a demanding boss who abhorred failure. Former executives described his management style as authoritarian and aimed at fostering a climate of fear. Winterkorn also set ambitious growth goals, including becoming the world’s largest carmaker. To achieve this, he set his sights on breaking into the U.S. market in a big way.

Initially, his ambitions were realized. Volkswagen sold 5.04 million cars in the first half of 2015. Holding on to the success, however, proved to be much more difficult and led to even more unscrupulous behavior. Ultimately, it led to a notice of violation from the Environmental Protection Agency, a criminal investigation by the U.S. Department of Justice and dozens of class-action lawsuits against VW.

After briefly becoming #1, VW’s sales are now plummeting and many observers are wondering if the VW brand can survive. In an ironic twist, the culture that Winterkorn created produced the exact inverse result he was looking to achieve. Cultivating a culture that guides employees to make decisions that aren’t actually in the company’s best long-term interest is a classic “reap what you sow”, scenario. So, what can we do to build a culture that avoids the mistakes at VW?

Consider failure to be a mechanism to encourage dialogue and debate.

A culture that discourages debate and limits checks and balances often encourages cutting corners which leads to even greater failure as people will just keep moving forward at all costs. A culture with high standards that accepts failures as growth opportunities benefits both the company and employees.

Volkswagen’s leadership would have been wise to heed the sentiments of Thomas Edison, who said, “I have not failed. I’ve just found 10,000 ways that won’t work.” At his core, Edison was an engineer, a vocation that attracts people who love to solve problems. Chances are high that fixing the emission issue would have been a challenge that the smart and talented engineers at VW would have been enthusiastic about solving. Unfortunately, VW’s culture and the CEO’s goals likely discouraged them from using their problem-solving skills. Instead, their engineering prowess was used to lie and cheat multiple governments with a very clever software system.

The lesson here is to be a leader who is transparent and approachable. You’ll not only build trust among your team members, you’ll also empower them to open up about pain points instead of covering them up and withholding critical information.  

Encourage regular two-way feedback

Strong leaders know that, to be successful, they need all the information they can get – the good and the bad. They also understand that punishing the messenger when the information isn’t favorable will only serve to truncate that knowledge sharing.  

A more productive approach is to promote and embrace feedback in your company culture. The more this is done, the more confidence team members will have to try new things, examine their failures, adjust and move forward. For example, one thing we do at our company to encourage regular, two-way feedback is to provide our team members access to an online platform that allows them to share their thoughts, issues, concerns, triumphs, ideas for improvements and really anything else that might be on their mind related to what we could be doing better as a company. 

We also communicate with our team members about how we are acting on their feedback. This has led to some important and valuable changes across all aspects of our company.

Diversify the talent pool.

With its senior management dominated by male German engineers, VW likely suffered from the drawbacks of "group-think" when individuals decided to engage in a massive cover-up rather than come clean with the truth. Had VW had more gender and ethnic diversity on their teams and embraced differing points of view, I’d argue that the outcome would have been different.

Not only does hiring a more diverse workforce bring valuable perspectives and ideas to your company, it also improves financial performance.

Decentralize decision-making and share information.

To give them credit, VW is making a lot of changes since their emissions scandal. They’ve put more power into the hands of their regional brands, namely ?koda and Seat in Europe, and their U.S. operations will now report to a new North American group, making it much more difficult for one group to make and control all of the decisions.

To decentralize decision-making and information-sharing, we’ve found it helpful to hold bi-weekly company calls where our Leadership team reports on key wins, company news, and respectfully addresses questions or thoughts that team members contributed anonymously on our online platform. In addition, all managers hold weekly team calls and talk openly and honestly about key issues and opportunities as they unfold.

The Schooling of a Scandal

Volkswagen’s leadership team fostered a culture of blind obedience and fear of failure. Let their misguidance be something we learn from, not repeat.  The rewards gained from cultivating a culture that embraces failure far outweighs the consequences. Moreover, it is a fundamental component of success. At the end of the day, we reap what we sow.

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Robert Glazer is founder and managing director of Acceleration Partners, a leading digital strategy and affiliate program management agency focused on profitable online customer acquisition for high-growth consumer businesses. Acceleration Partners has been ranked #5 on the list of the 100 Best Workplaces for Women by Great Place to Work? and Fortune. The company has also been ranked on Inc 500’s Fastest Growing Companies for 3 years in a row and ranked #3 on the Boston Business Journal Pacesetters list of fastest-growing private companies in Massachusetts. Representative clients include Tiny Prints, Shutterfly, adidas, Reebok, ModCloth, Blurb, the Honest Company, Warby Parker, Bonobos, Rent the Runway, and Target.