The Biggest Lesson from Volkswagen: Culture Dictates Behavior
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Culture is a powerful force that can cause people to make decisions that aren’t in their companies’ best interests. And when the status quo doesn’t allow for honest internal communication, businesses can end up facing 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. It was developed internally, and its technology failed to meet required emissions standards. Rather than fix the issue, however, VW covered up the problem by installing software in 11 million diesel-powered vehicles worldwide, including almost 500,000 in the United States. Designed to beat emissions tests by using phony data, these “defeat devices” made the cars appear safer for the environment than they actually were.
Why would such a venerated brand make such a poor decision? 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 goals for public growth -- including that of becoming the world’s largest carmaker. He aimed to do this by breaking into the U.S. market in a big way: The company sold 5.04 million cars in the first half of 2015, thereby briefly holding the title.
But achieving Winterkorn’s goal at all costs had a big price, which eventually included 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.
A culture that discourages open dialogue and limits checks and balances can prompt cheating and fraud. A culture with high standards that accepts failures as growth opportunities, on the other hand, benefits both the company and employees. Here’s how to build the latter:
1. Consider failure a mechanism to encourage dialogue and debate.
As Thomas Edison said, “I have not failed. I’ve just found 10,000 ways that won’t work.” The smart engineers who work at VW love to solve problems like that emissions issue. But they were stymied by the management style of their CEO, who likely discouraged them from amplifying the defect. Instead of fixing the engine, they were tasked with developing clever software that deceived emissions tests.
The lesson here is that when you’re a leader who's transparent and approachable, you’ll build trust among your team members and empower them to open up about pain points and ways the company can improve.
2. Embrace continuous learning.
In a culture that embraces continuous learning and creative destruction, employees will have the confidence to try new experiences and opportunities. This allows them to examine their failures, adjust and move forward.
My own company, Acceleration Partners, puts this philosophy into practice, fostering in-house talent to step into leadership roles by providing formal training and mentoring to help employees improve their skills.
3. Diversify the talent pool.
With its senior management dominated by male German engineers, VW likely suffered from the drawbacks of "group-think" in the course of deciding to engage in that massive cover-up. Had more gender and ethnic diversity and differing personalities and points of view already existed at the company, the same decisions might never have been made.
Not only does hiring a more diverse workforce bring valuable perspectives and ideas to your company, it also improves financial performance.
4. Decentralize decision-making and share information.
VW today is wisely making changes: It's putting more power into the hands of its regional brands, such as Škoda and Seat in Europe, while its U.S. operations will report to a new North American group. Similarly, my company shares information via a biweekly call where we encourage team members to ask questions about what’s happening at a high level or to express any other concerns.
We’ve also started a new optional company call in the off weeks, where we talk about key issues and opportunities; anyone can listen in.
The leadership approach of VW’s CEO offers valuable lessons on how powerful culture can be. Increasingly, though, people are choosing to work with companies not just because of the work that they do, but because of their culture and leadership.
That means it’s more important than ever to cultivate a culture that promotes learning. And that includes a willingness to encourage failure in the name of growth, and to support employees in their personal development.