Does Volkswagen fail to manage the crisis? A managerial argument

Within the last weeks the front pages of business journals have been filled with numerous articles about the unethical behavior of Volkswagen’s group in the United States, where they admitted they cheated on the exhaust-emissions tests for some of their car brands.

Since the very first headline, the company has been losing heavily. The share price has decreased significantly (VW’s shares value less than half they valued before the scandal burst) and clients started to lose their confidence (VW’s owners begun lawsuits against the company unhappy with the fact that their cars turned out not to be environmentally friendly as the manufacturer claimed in the first place).

Having in mind the management principle according to which “any decision is better than no decision at all”, the group made the first changes and announced that they allocated a budget of € 6.5 billion to cover the costs related with the issue. According to Credit Suisse, the emission scandal could cost Volkswagen anywhere between € 23 billion and € 78 billion depending on recall costs, engine performance post repair and fines that VW will have to deal with. However, these do not seem to be the only problems that VW faces these days. According to a forthcoming article (“Investor perceptions of CEO successor selection in the wake of integrity and competence failures: A policy capturing study”), the company made a mistake when it chose one of its own, Matthias Muller as new group chief executive officer. Muller, who was previously in charge with the prestigious Porsche unit argued that there is an utterly need for change in the company’s culture.

The authors of the article that is to be published in the Strategic Management Journal claim that stakeholders and investors as well are much more favorable to an outside CEO, rather than to an insider, especially if that appointment comes after an integrity failure. The problem when promoting from within is that consumers will tend to assimilate the new CEO with the culture where the unethical behavior prolonged earlier.

Willing to repair the image, VW did not waste any time when it named the new CEO. It did not take into consideration the possibility of an interim CEO as they wanted to move fast and minimize the damages as much as possible. Still, the research findings suggest that going to rush with such a decision is not the best thing to do. Instead, they should had concentrated on convey a clear message to wide public that they are ready to leave past conduct aside and embrace change by having someone from outside running the company.

Assoc. Prof. Ovidiu Bordean, PhD

Babes-Bolyai University of Cluj-Napoca/Faculty of Economics and Business Administration/ Department of Management

References:

Connelly, B.L., Ketchen, D.J., Gangloff, K.A., and Shook, C.L. (2015), Investor perceptions of CEO successor selection in the wake of integrity and competence failures: A policy capturing study, Strategic Management Journal (forthcoming).

http://harbert.auburn.edu/news/Volkswagen.php#sthash.9g7e6aRE.dpuf

http://www.hl.co.uk/shares/shares-search-results/v/volkswagen-ag-ordinary-npv/share-news

Anunțuri

What’s this?

Good question my fellows from UBB-EE…well, from my perspective it’s payback time!  I mean making  public, here,  the fact that Andy and Tibi and roughly said the whole Board of UBB-EE decided by  vote during our business meeting on a Friday morning that I  and nobody else, would be the one to express a few thoughts in this blog, UBB-EE side. Not very democratic, indeed!

Well, beyond cooling my ego by having the previous words written down, I find myself  right now in a sort of  deadlock: what could I write and be relevant to the EMBA students of our UBB-HUBS programme or any stakeholder that supposedly are reading this blog? After all I am a Professor of Macroeconomics, not exactly the favourite topic of this class, so I hear…but I was involved for so many years in the higher educational area  that maybe a bit of personal history could be food for thought within the  overall story of this not  only academic endeavour.

Most of you are probably too young to remember how blessed seemed to be the early 1990s for the Romanian society.  Not only because we were  witnessing  of  new dawn for the country, region  and Europe  after almost half a century of communism, but also because of the complete new perspectives for professions like mine – that of economist. Since I always wanted an academic career, I joined the university staff and, guess what, I got my first scholarship abroad, which happened to be a Fulbright scholarship at the University of Tennessee in Knoxville, USA. There, I  was lucky again to be able to join the team  of the Center for Business and Economic Research (CBER) a place where one could really do formal, but also informal, training as an economist, taxpayer, entrepreneur,  etc.

We were two students coming from “the new Europe”, me and another fellow, Lubos Res from Czechoslovakia, still one country at the time. As Fulbright research scholars we were free to choose more or less what to accomplish during our year in the US. No wonder,  I took the typical academic track, basically re-living my student days and “grasping” capitalism in a 100%   theoretical  way, mostly spending all my time in the 6 million books library.  Lubos, much more aware of how things worked in the real world, was struggling to get enrolled in an MBA programme, which he ultimately succeeded. And to make short a long  story, because that peculiar MBA was split in two groups, which were patterned to compete one against the other, I was invited to join the other group, firstly as an observer, just for the sake of having in mirror another “brand new capitalist” aboard, lately as a full graduate student.

This was evidently my first encounter with such a different  educational approach at a time when I was not even sure what the acronym MBA really meant. Keep in mind that during those days we did not have a master system in place over here. So, Goddess Fortune opened for me a window of opportunity, out of  which I squeezed  quite  a lot in relatively short time: we were learning how the business worked,  also  by doing it effectively, interacting with businesspeople, visiting companies, quarrelling among us, having fun together (which in a crowd  of US students translates by lots of pizza and even more beer!) so one and so forth. Me and Lubos were offered the chance of a free ride through the first year and provided the fact we perform decently, generous scholarships for the second.

Guess what we did? Well, my Czech pal did whatever it took, and I must say it took a lot of effort to complete in two years his MBA and consequently he would be today a successful business consultant, self-employed, located  in Prague. I occasionally chat online with him and share opinions on various issues.  I dropped the programme, not without some regrets, after one semester  and returned to my beloved study of Economics, Macroeconomics and International Economics. I felt this is the right thing to do at the time and all my background pushed me towards this outcome. Now, you probably already guessed there is a sort of moral blueprint here, a lesson to be learned from such a story, and I am trying to balance really well my words in the following lines, to avoid at all costs being pathetic.

Since the early 1990s, lucky as I am, I had the opportunity to move in various environments, in different cultures, in academic and non-academic milieus, and gradually became wiser and why not, I will say it anyway, smarter.  I taught at various levels and interacted with people doing all sorts of jobs for a living, I researched several business domains, briefly I acquired relevant experience along the years. So,   I gradually realized how limitative and bluntly said stupid I acted when turning down the chance to be part of an educational framework representing the nexus of instruction for the business life, namely an MBA programme.  I still regret it occasionally, ever since.

So, changing angles, no wonder that from the early 2000s I became one of the champions of adopting an MBA programme in UBB. Of course, aware of the limitations of the Romanian higher education legislation, and not only that, I could not foresee anything but an internationally established programme which could become a domestic, adapted and UBB branded,  only in a couple of  years, and after absorbing knowledge, skills, procedures, whatever makes a genuine, full  internationally accredited  MBA. At this point, along with several colleagues we started scouting for enthusiastic suitable partners,   partners who would acknowledge our dedication to move towards such a target and meanwhile to find in UBB a competitive place for more comprehensive academic cooperation.

To be honest, we struggled quite a lot but nothing became ripe until we managed to team up with relevant entities of the local business environment, and to convince them we could provide a solid, professionally sound  and dynamic vehicle for an experience that would be an important asset  for the whole business community of Cluj and gradually the region, country and even beyond. Then came the scouting of experienced international MBA providers, followed by really tough negotiations, because such an approach is anything but  a simple business: it is mainly about sharing the same view on business education and business practice but also about human and societal ethical values and ideals. The rest is history.

Whoever is reading these lines must know that just as this history of the UBB-HUBS EMBA programme was presented here exclusively in my personal coordinates, I could also easily recollect those of several people I know that contributed to a larger extent than myself to this project. Nowadays other personal dimensions would and should shape and influence the foreseeable future of this challenging project.  Make sure you are a part of this future!

Prof Mircea Maniu, Babeș-Bolyai University Cluj-Napoca

Mining the Human Resource…

In a world of high performance working practices (HPWP), where training and development resources are being increasingly focused upon those employees defined as having the highest potential, what are the consequences for the meaning of work and leadership?  Furthermore what are the wider consequences of such strategies?

HPWP is increasingly being applied by multinational companies as a result of both attempts to structure the search for “excellence” and the desire by HR Managers to be perceived as more strategic.  The so-called best practice approach to HR fits well with the existing business lexicon, whilst its manifestation in “talent management”, hints at the underlying emphasis on those with unequally large amounts of talent.

For those chosen few, of course, this emerging new world offers opportunities aplenty.  Training, education, placements; all designed to help succeed on the path to a global career and excellent reward package.  However, what about those not defined as sufficiently “talented” to join this elite group?  Very little research has been undertaken into the consequences of the implicit inequality at the heart of practices like HPWP into the behaviour of those left behind.

The behaviour of employees within organisations is highly influenced by the realities they face outside of the organisation.  HPWP implicitly downgrades the status of those not part of the select few.  More importantly, by reducing access to educational resources, it limits their ability to change their position.  Thus the question is to what extent is HPWP limiting social mobility?  A highly political question, but one, which, in the context of debates about leadership, is hard to ignore.

In the UK the position of those excluded from the benefits of HPWP is most clearly seen through so-called zero hours contracts, which promise employees no fixed amount of working hours per week.  The consequences of this are both to make it hard to access credit and a high dependence upon state benefits.  Will Hutton recently wrote that zero hours contracts are effectively a subsidy, as such employees simply could not survive without that state support.

As currently constituted HPWP and its associated tools and structures are delivering increasingly hard outcomes for those outside of the chosen few.  It is quite the opposite of what those early Quakers, like Cadbury’s and those who challenged Taylorite mass production would have envisaged.  However, HPWP is both creating and embedding a two tier world and not just in the work place.

In the UK the consequences of this can been seen in the recent general election.  The three major parties all offered varying shades of managerialism that is focused upon the individual.  The role of the state, as an organisation capable of delivering change directly, continues to be in retreat.  However, the key reason that people supported nationalists in Scotland and the Greens in England, is because they offer a vision of society based upon an activist role for the political economy in delivering more equal outcomes.  In many ways the current election campaign reflects the inability of mainstream politicians to respond to the need for a vision that delivers something on Pinks three drivers of motivation: autonomy, mastery and purpose.

In terms of leadership an almost paradoxical situation is being created.  On the one hand enormous effort is going into develop the business knowledge, strategic thinking and soft skills of high potential employees.  Whilst on the other hand, those that they are supposed to lead are being asked to make greater commitment to a deal which offers increasingly few benefits in long term development (company pensions gone, training now functional and not aspirational) and delivers a harsher reality in their material status and social standing.

The lesson here is very much that all the theory and clever process will not inspire, motivate or drive people to excel at anything that matters beyond money.  In short, if we want a world that is about more than just money we need to consider to what extent work is a means and or an end.  As E. F. Schumacher put it, work should offer” man a chance to utilise and develop his faculties; to overcome his egocentredness by joining with other people in a common task; and to bring forth the goods and services needed for a becoming existence”.

Whatever happened to the idea that leadership at work was supposed to be about enabling people to achieve their potential and express their humanity through a form of cooperation that is inclusive, rather than exclusive and ruthlessly self-centred?

What’s this?

A place where business lecturers, students and alumni join up theoretical ideas with trends, practices and events in the real world. Contributions may come from a wide variety of business school and related disciplines and will describe, evaluate, analyse and provide meaning to actions and behaviors.  Submissions may be controversial, unusual or unexpected, but all will seek to use knowledge to shine a light on events that encourages readers to think in new ways and question existing assumptions.