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Aileen
Ionescu-Somers on the VW scandal
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The broadsheets and social media are currently rife with commentary about the
dramatic fall from grace of one of the world's largest and most trustworthy
automotive brands; Volkswagen. The fallout is massive. This means billions in
losses for the company. The CEO has resigned and it remains to be seen what the
legal and long-term consequences are for the decision-makers involved in this
debacle and even for the brand, no matter how resilient it might be. As a
result of the scandal, even "brand Germany" reputed its for
trustworthy, squeaky clean engineering excellence, is coming under scrutiny.
The economic and political clout of the global corporation is growing
constantly, going well beyond regional or national boundaries. With
globalization, a company's purpose defined solely around profit is inadequately
articulated since it does not reflect the world's vastly changing dynamic. Like
it or not, companies are fundamentally social institutions, playing their own
explicit and defined role within society. For a long time, their purpose was
defined – not so much as promoting the common good, but as meeting market needs
while making a profit as an indicator that they added more value to society
than the resources they used up. However as of late, some prominent business
leaders – but by far not enough – have realized that companies simply cannot do
business as usual on a failing planet with dwindling resources and rising
social inequity.
Volkswagen, as an industry leader had – at least on paper – recognized that.
The very name of the brand exudes a societal purpose: Volkswagen after all, is
the "People's car". But the company went further, defining its
corporate purpose in a more meaningful way, seemingly taking a holistic view of
its role in and contribution to society: "make Volkswagen the most
successful, fascinating and sustainable automaker in the world by 2018".
Its Strategy 2018 puts environment, its clients and its people at the center of
the company's strategic vision.
There can be no doubt that Volkswagen clients and the public at large now
perceive its lofty purpose to lack authenticity. Greenwashing would be putting
it mildly. Right now, Volkswagen's reputation lies in tatters. How could it
have gone so wrong?
Let's surmise basing
ourselves on IMD's "Keeping
it real: How authentic is your corporate purpose?," empirical research
carried out in 2015 in partnership with Burson Marsteller, a top public
relations firm. First, the hundreds of executives we surveyed had great
difficulty identifying a single company with a truly authentic corporate
purpose. This means that while many companies "talk the talk" on
corporate purpose, they do not necessarily "walk the walk". This also
means that strategies and linked internal and external communications efforts
need revision across industries. Our survey also indicated that executives do
not generally rely on their own company's stated purpose to guide their
decision-making processes. There is a serious disconnect. It is highly likely
that similar scenarios were playing out at Volkswagen.
In fact, stating purpose is actually the easy part and only the first step. It
is important that purpose also be embedded in the organization. It's may not
seem like rocket science but so often important aspects are ignored that allow
companies to take a holistic perspective on purpose and strategically align
values, organizational culture, activities and operations around it; in other
words, ensuring that one hand knows what the other is doing and above all,
keeping it real. Taking a holistic approach helps avoid any disconnect between
what companies say they do and what changes are truly being made to how they
operate. It also helps avoid the substantial risks to brand and reputation that
Volkswagen is currently experiencing. In other words, companies absolutely have
to– and particularly in today's digitally connected world– mercilessly walk
their talk before they talk their walk. This starts within the company, top
down and bottom up.
That said, much as walking the talk is crucial for any corporation, too few are
shifting away from the sole short-term profit focus dictated by capital
markets. The managerial mindset this promotes has clearly fundamentally
affected the way Volkswagen operated in some of its key markets. We can deduct
from the mayhem around Volkswagen this week that there are a increasing number
of external factors requiring companies to adoptable broader purpose-driven
strategies that are also authentic. Currently it's a perfect storm where on the
one hand we are reaching planetary boundaries and simply running out of
resources, feeling the impact of climate change as never before, while on the
other, issues around social equity need urgently to be addressed and this
includes by corporations also. Now more than ever, companies have power to
effect change both internally and externally by acting out and communicating
purpose more holistically and effectively. If they can keep it real, better
business is the result.
Dr
Aileen Ionescu-Somers is the director of IMD's Global
Center for Sustainability Leadership (CSL) Learning Platform.
