What We Can Learn About Corporate Risk Management from Volkswagen
It seems like a new corporate scandal is in the news daily, so if one of them makes it into a lunch or dinner conversation, you know it’s high on the severity chart. The Volkswagen emissions scandal did make it into conversation over lunches and dinners with different friends this weekend. We were all disappointed that a brand most of us thought relatively highly of could betray the public’s trust in such an overt way.
So Richard Chambers’ perspective on the IIA’s website this morning, “Volkswagen Scandal: The Undoing of a Corporate Icon” caught my eye.
Volkswagen has taken a hit. Chambers points out the material consequences for Volkswagen:
- $18 billion in fines (conservative estimate)
- An earnings charge of at least US $7 billion.
- Negative impact on stock price
But Chambers also discusses that these actions have had a far-reaching and instantaneous negative impact on their corporate reputation. Not to mention what it’s done for the phrase “German Engineering.”
It’s clear this a severe and “catastrophic” risk that someone at Volkswagen decided to take. Every day our customers in Risk and Audit teams have to assess corporate risk and the damage it will do materially as well as to the company’s reputation. Tough decisions get made. These decisions are often influenced by outside pressures to perform. Chambers puts it well:
Internal auditors must be keenly aware of the pressures associated with performance within their organizations. In a nutshell, they must understand that what gets measured/rewarded also can get manipulated.
What are your organization’s pressure points? As internal auditors and risk professionals, do you have an eye towards possible manipulation in these areas?
Common pressures among our customers include financial performance and compliance. Also common among our customers is the understanding that a spreadsheet is ripe for manipulation. Spreadsheet management software helps reduce that temptation, and creates transparency throughout an organization. If Volkswagen is to have a future, transparency as they rebuild trust is critical.