Volkswagen Case - Risk, Audit & Complaince

Running Head: RISK, AUDIT & COMPLAINCE
RISK, AUDIT & COMPLIANCE
Name of the Student
Name of the University
Author Note

1RISK, AUDIT & COMPLAINCE
Table of Contents
Part A.........................................................................................................................................2
Volkswagen Case...................................................................................................................2
Four Areas of Focus...............................................................................................................2
Part B..........................................................................................................................................6
Reflection...................................................................................................................................6
Expectation of Effective Head of Audit.................................................................................6
Leadership Style.....................................................................................................................7
Reference & Bibliography.......................................................................................................10

2RISK, AUDIT & COMPLAINCE
Part A
Volkswagen Case
Volkswagen Group is the multinational automotive manufacturing company, which is
headquartered in Walfsburg, Germany. This company is the world’s leading manufacturers of
the automobiles as well as commercial vehicles. However, since Volkswagen has set the
target for becoming largest auto manufacturer of world, industry has seen unprecedented
blitz. At end of year 2015, the company was about to meet its goal two years prior of
schedule. The key portion of this growth level was the market of US. The moment when
company seemed invincible to various shareholders and public, the “United States
Environmental Protection Agency” makes the revelation regarding rigging emission test by
company. It was the biggest scandal of automotive emission the world has seen ever. This has
shattered the brand all over the world, which developed threat to formerly pristine reputation
of the “made in Germany” products (Siano et al. 2017).
There was lax in the controls of boardroom and the corporate culture was peculiar.
The scandal in Volkswagen clearly has to do with the structural issues. There were lack of
diversity of the expertise and opinion on supervisory board of company. The company has
been warned several times regarding the corporate governance, but they ignored all those
warnings and now the result is known to all. Hence, following are the four distinct areas of
the focus for the consideration by board and senior management of Volkswagen in
strengthening of the corporate governance of board (Blackwelder et al. 2016).
Four Areas of Focus
Leadership style
The grandson of Ferdinand Porsche, Ferdinand Piech was CEO of Volkswagen Group
in 1993. In this leadership, the goal was set to for the company to become top automaker of

3RISK, AUDIT & COMPLAINCE
world in terms of sales and outplay its long-time competitors such as Toyota and General
Motors. He was known for toughness as well as willingness for dismissing or demotivating
the underperforming employees. He was highly criticized for the nepotism, after he secured
nomination for his wife onto the supervisory board of Group. Later, the engineer Martin
Winterkorn, who become CEO of the Volkswagen adopted the aggressive demanding style of
leadership and he would not accept the failure. Hence, this kind of leadership style will have
adverse effect into the company. The company needs to focus on the leadership style, which
will be supportive towards growth of the company and its employees (Ewing, 2017).
Corporate Governance
The Group has declared itself to have complied with German Corporate Governance
Code that was required by German Stock Corporation Act with some kind of exceptions such
as there was requirement of independence of Audit Committee Chairman by self-regulated
governance code, but this was expressed ambiguously by Volkswagen Group regarding
independence meaning and believed that it will not constitute conflicts of interest or impair
the ability of Audit Committee Chairman for performing their duties, even there is possible
absence of the independence in this particular aspect (Jung, Chilton and Valero 2017).
Further, the other issues were power struggles within the board and top management.
Moreover, ethical issues within company include that some directors were serving on the
various boards and as long as top management of Group delivers on the jobs, they were given
free hand for managing company. Hence, in this company, independence of directors is major
concern. There should be appropriate number of independence directors, who could have
independence opinion on the company’s operations (Schiermeier 2015).
The company admitted that scandal was caused by the chain of error within
organization, rather than merely by some engineers’ action. This “chain of error” was started