Volkswagen Family Business: Critical Challenges and Solutions Analysis

This case study examines the critical challenges facing the Volkswagen family business, dividing them into issues related to the family itself and those impacting the business operations. Family-related challenges include management crises due to centralized family control, a leadership void following a key figure's departure, and principle-principle agency conflicts between family owners and other stakeholders. Proposed solutions involve restructuring decision-making, appointing a new CEO, and fostering better relationships with shareholders. Business-related challenges encompass fixing cars affected by emission scandals, adapting to new emission measurement systems, and addressing failures in corporate social responsibility. The suggested approaches include developing technical solutions for emission issues, complying with new emission standards, and re-engineering production processes to prioritize environmental responsibility. The analysis underscores the need for Volkswagen to address these multifaceted challenges to restore its reputation and ensure long-term sustainability. Desklib provides a platform for students to access similar case studies and solved assignments.

Family Business Management

Table of Contents
Critical challenges faced by family at Volkswagen.....................................................................3
Critical challenges faced by business at Volkswagen..................................................................3
REFERENCES................................................................................................................................1

Critical challenges faced by family at Volkswagen
A family business faces several challenges from time to time despite being format or
industry. In the family business there are extended unique issues which own to family dynamics.
Business decisions and business emotions intermingle which create challenges to team and
company's detriment in a family business (Volkswagen with its failure in Corporate Social
Responsibilities, 2018). The challenges faced by family at Volkswagen are following:
Management crises
The management of the company is the hands of family. The supervisory and
management board members of Volkswagen lack process tolls to prevent future wrong doings.
The family has been controlling decisions by the board form many years. The company have a
overly large board with many stakeholders and warring family. Proper corporate governance was
evident from the managerial problems which gave rise to many scandals. There is also lack of
independent directors for making ethical and effective decisions. These factors have created the
environment which contributes majorly towards the misbehaviour of company. These factors
have created many management crises for the company. The management lacks monitoring and
control which reflected in inefficient detection of fraudulent behaviours of employees within the
company (Zellweger, 2017). This also raised questions to the responsibility of board of directors
for their corporate governance issues which resulted in scandal. Due to the elements such as
warring family infighting, fraudulent behaviours of employees and lack of freedom to board to
directors, the family of Volkswagen faces uphill war to deliver a board which fits for its main
purpose.
Approach for dealing with challenge
The company can re-structure its control in decision making. For many years, the control
has been centralized i.e. in the hands of family. It has raised many issues for the many and
management as well. The company can employ a decentralized structure as the centralized
structure have caused man internal issues between the board and the management which is
family. It has created an ineffective culture at company. A decentralized decision making can
lead the company to deal with persisting issues.
2. Leadership void
Family control is usual in European carmakers which can bring long term thinking to a
cyclical industry but it can create dysfunctional and management succession issues (Ahmad,

2020). The chairman Ferdinand Piech, gave resignation to the company almost 2 decades ago,
but it has left a void in the leadership till now. The chairman of Volkswagen have left the
company power struggler at top of carmaker. He was responsible for creating a no-nonsense
culture at VW. The situation of an executive board's falling out damages the image of the
company and raised questions regarding how the company is being operated and run. It
amplified the organization's dirty laundry publicly. The stakeholders raised questions to the
management and family about the stake of the company when the men who guided the company
is suddenly ousted in a disagreement with the CEO. It gave rise to in between family conflicts.
The whole situation damaged the reputation of Volkswagen and the family hierarchy as well.
The relationship was shattered by the leadership battle.
Approach for dealing with challenges
Although there is no chance for return of Ferdinand Piech in the company back, as he
was put in situation where he had to resign. The best approach for the situation is to appoint a
new CEO so that the company could make a new start and also take this an opportunity to
upgrade the company's whole corporate culture. The company can find someone who have
experience of leading a large company throughout the crises or it can choose one of its internal
candidates who have least enemies in the family which controls that group.
3. Principle-principle agency conflict
The family of Volkswagen is also facing the conflicts arising between the family owners
and the other stakeholders at the board. The family has the majority of control in the company as
well as centralised ownership which neglects the control and monitoring mechanisms of block-
holders. The power of family coming from controlling the stakeholders has created struggles
between the firms in the company (Kristanti and Nuradhi, 2021). This struggle is one of the
major reason for creating problems in the company. The issues have further caused major issues
of conflicts between the management and the ownership. The imbalance between the short term
objectives and long term objectives were found due to these conflicts at Volkswagen. The family
control majority of voting rights which complicates the ownership structure and create conflicts
of interest with the stakeholders. All these factors makes it difficult for the family to manage the
interest of its customers, workers and stakeholder along with the term term profit adjusted
objectives of the management. This reflects the boardroom politics between the company and its

firms. Lack of board expertise and its diverse opinions have led to the principle-principle
conflicts.
Approach for dealing with challenge
The company should focus more on undertaking suitable activities as a family business
so that it could enhance its corporate culture. It should focus more on fostering good
relationships with the family and the management. It should develop a culture where ownership
structure is capable of generating growth capital with remaining the key control in the hands of
the family. It should encourage voicing the opinions of the shareholders in every meeting to
encourage them to participate and establish positive relationships among them.
Critical challenges faced by business at Volkswagen
The company Volkswagen has been successful for many years as it is worlds second
largest auto-maker. But, there are many challenges faced by Volkswagen business which are
explained as follows:
1. Fixing the cars
The company faced a major challenge of emission scandal which damaged the reputation
of the company. It has to repair diesel powered cars which do not comply with emission
regulations in certain countries. Its shares fell as the shareholders struggled to overcome the
terms over its emission testing. The company lost its value on a large rate. The company had sold
a large number of cars till that and how the problem arises that the company do not know how
will it fix all the sold cars. The most important aspects of the situation are when and how will its
fix those cars and how much it will cost to the company (Hamilton, Cruz and Jack, 2017). The
company faces intense pressure to solve the problem it could not resolve earlier. The challenge is
facing the affected cars as soon as possible without hurting their performance of cars which it has
promised to its customers. The company is in major crises as the pressure is increasing with the
time. Some countries have already pursued criminal investigations to the company and others
and thinking about that. It will become more hard for the company if it does not resolve it now.
There are many questions that the company needs to answer, until then it will stand accused for
deliberately breaking the legislation on a major level.
Approach for dealing with challenge

The engineers of the company are under intense pressure to meet performance targets and
meet mileage so that it can keep the emissions below legal levels. The cars sold need to be fixed
so that they can comply with the emission regulations in the countries where the those cars were
sold. The company needs technical solution to the problem so that it could keep the cars clean
enough to pass the regulatory tests in all the conditions.
2. New emission measurement system
The European unions have implemented new emission measurement systems enforced in
auto-maker industry (Hastenteufel and Staub, 2020). The procedure has led to greater additional
costs as the companies had to rectify their old models too. Volkswagen suffered the most of this
challenge as the corporate brands of the company takes longer times to pass the tests. Another
reason can be that the engineers of the company were busy in dealing with the issue of emissions
till that time. The auto-maker industry is going under major changes which has also create issues
for Volkswagen. The company has to undergo fundamental changes as well. Many auto-makers
are estimating that those changes will impact for more than 5 decades. It is putting the company
and the suppliers in large part to three parallel developments.
Approach for dealing with challenge
The company have to follow up the emission measurement systems and create its
products accordingly. There is no other solution to this challenge. The company has to work on
its technologies and create a product which is compatible with the new emission measurement
systems in various countries as per their legislation. The company's engineers need to focus on
this challenge more as Volkswagen is the most effected company from this system in the entire
auto-maker industry.
3. Failure of corporate social responsibility:
Volkswagen has a major failure in following up its customer social responsibility in last
few years. The company has tried to save its low market shares which were considered
embarrassing through creating clean diesel market push to compete with environment friendly
alternatives. In the tests the cars of Volkswagen failed miserably as it emitted more poisonous
nitrogen oxide than what was allowed by the law. When the CEO Martin Winterkorn resigned,
he stated that he was unaware of the situation of defrauding the government and as well as
violating the Clean Air Act. This default activities of the company costs a lot to its consumers,
environment and the company itself. Corporate social responsibility concentrates upon creating

safe products for the customers and the environment as well (Fritsch, 2017). However,
Volkswagen failed to fulfil this responsibility. It is impossible to believe that the company's staff,
CEO and the departments had not noticed what was going on in the company. The company was
chasing its profit targets and in doing so it failed in fulfilling its corporate social responsibility.
Approach for dealing with challenge
The company needs to concentrate upon fulfilling its corporate social responsibility
through creating products which are environment friendly and are safe for tits customers as well.
The company need to re-engineering its production process and structure and a team who could
focus on what is going in the company otherwise the company will damage its image in the
market for forever. The company can create a committee which will concentrate upon assessing
if the company is fulfilling its corporate social responsibility or not.
Apart from the discussed challenges Volkswagen also faces various other challenges such
as price pressure, quality assurance, IT risk, financial risk and structure risk in the company. The
company to address these issues as well.

REFERENCES
Books and journals
Ahmad, T., 2020. Universities preparing students for future challenges of family business
enterprises. World Journal of Entrepreneurship, Management and Sustainable
Development.
Fritsch, T., 2017. Challenges of a female successor of a family business.
Hamilton, E., Cruz, A.D. and Jack, S., 2017. Re-framing the status of narrative in family
business research: Towards an understanding of families in business. Journal of Family
Business Strategy. 8(1). pp.3-12.
Hastenteufel, J. and Staub, M., 2020. Current and future challenges of family businesses.
Managerial Economics. 20(2). pp.119-132.
Kristanti, L. and Nuradhi, M., 2021. The Challenges Of Family Business Succession Process: A
Case Study Of Two Major Batik Peranakan Entrepreneurs In Pekalongan And Solo.
Zellweger, T., 2017.Managing the family business: Theory and practice. Edward Elgar
Publishing.
Online references
Volkswagen with its failure in Corporate Social Responsibilities. 2018. [Online]. Available
through <https://blogs.baruch.cuny.edu/henrykhant/?p=73>. [Assesses on 16 October
2021]
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