Photo courtesy of Mariordo via Wikimedia Commons
Wouldn’t you like to be a fly on the wall listening to discussions in the Volkswagen corporate headquarters about how to contain the fallout from the emissions testing scandal?
You might imagine that VW executives are trying to develop strategies and tactics to minimize costs and legal liability. That’s the wrong approach. What VW really needs is to restore the trust of customers and government regulators.
U.S. regulators said VW deliberately programmed diesel-powered vehicles to cheat on government emissions tests. Software made the engines run more cleanly during testing. During operation, emissions were up to 40X greater than during testing. There are about 500,000 affected VW and Audi vehicles in the U.S.
The company acknowledged that 11 million cars worldwide have software that tricks emissions tests. The company faces the costs of recalls worldwide, billions of dollars in fines, reparations to customers who purchased the diesel-powered vehicles, and possible indictments of company executives.
The PR Crisis Management Playbook
The standard PR crisis playbook calls for corporations to:
Follow a previously prepared crisis management plan that defines the decision-making process, spokespersons, outlets to contact, communications channels, and which stakeholders to update.
Act quickly. Quickly disseminating information and responding to media inquiries is essential in crisis communication. The first 48 hours are critical. Silence enables speculation and reflects badly on the brand, as media outlets will publish stories and the public will reach conclusions whether the company comments or not.
Be open and transparent. Release all the information you have in an open dialogue with the press and the public, using both traditional and social media channels, including the organization’s website and other owned media.
Apologize. Delivering an appropriate, timely and sincere apology is a vital part of responding to a crisis. PR and business executives can learn from previous corporate apologies.
Quickly cut ties with company employees, employees of affiliated firms or celebrity spokespeople accused of wrongdoing.
Make amends. Provide help for any victims and their families. Demonstrate that the company is taking steps to protect the public. Actions speak louder than words in these situations.
Monitor the situation. Employ a media monitoring service to obtain up-to-the-minute reports, identify media mentions that call for responses and gauge the effectiveness of corporate communications.
The Shenanigans Category
The VW crisis falls into the general PR crisis category of scandals and shenanigans that entail often-shocking revelations about a company. They often implicate specific corporate executives or managers. They can involve any type of aberrant behavior including accounting mischief, safety practices, and sexual activities.
Other types of crisis include:
Accidents and disasters. These cover terrorist activities, plant fires and explosions, vehicle crashes, disease outbreaks, and other man-made catastrophes or natural disasters. Corporate crises in this category can be “no fault” for the company or the organization may bear full responsibility. The BP oil spill on the Gulf of Mexico is an example.
Product, service or staff snafus. These are negative customer experiences caused by employees, usually reported on social media or captured by citizen journalists. The category also involves product defects.
Antagonistic attacks. These involve online or offline actions initiated by customers, competitors, activists or regulators who have a bone to pick with your business.
Not a Standard Crisis
While the standard PR crisis playbook can apply to most crises, the Volkswagen emissions scandal is far from typical. It involves intentional government rule breaking, rather than straightforward mistakes involved in other recalls. The wrongdoing almost certainly involves many VW engineers and decision-makers, not just a few people as in many other PR crises.
The emissions test fraud was one of the most egregious examples of corporate misconduct in recent times, perhaps exceeded only by Enron’s financial fraud in the previous decade. Unlike most other examples of corporate maleficence, the emissions test rigging impacts most everyone in the world by causing more pollution. While VW’s misbehavior may seem an isolated incident, the auto industry has a history of bypassing environmental regulations or faking emissions test results, as explained in a New York Times article.
The scale of its impact is massive. The future of Germany’s largest corporation, with 600,000 employees worldwide, is at stake. The scandal strikes an enormous blow to the corporation’s reputation.
The YouGov BrandIndex, which tracks daily consumer perception, found that Volkswagen’s score in the U.S. as of Monday reached its lowest point since at least 2009, reported AdAge. The automaker’s “buzz” score had been hovering in the 10 to 11 range and now it is at -2 and “most likely to drop even further,” according to YouGov.
A company that manufactures energy-efficient, or “green,” products like clean-diesel automobiles attains reputational benefits. Those benefits disappear with the loss of trust. The reputation of German manufacturing and the diesel engine product category have also suffered.
Can VW follow the standard playbook?
Following the standard playbook, or at least elements of it, will likely help the company. VW has responded well to the crisis so far, acting quickly, apologizing and pledging to restore damage done to customers and regulators, PR commenters say. In addition, the established strong brand reputation will cushion the damage to an extent. Strong brands can better weather disasters. For instance, after a Virgin Galactic spacecraft crashed last year, the Virgin brand and the actions of its leader Richard Branson helped preserve its reputation.
However, VW may need more than just the textbook PR response to recover.
Any apology may fail to restore goodwill, given the extent of the misconduct. Volkswagen chief executive Martin Winterkorn said in a statement: “I personally am deeply sorry that we have broken the trust of our customers and the public. We will cooperate fully with the responsible agencies, with transparency and urgency, to clearly, openly, and completely establish all of the facts of this case. We do not and will not tolerate violations of any kind of our internal rules or of the law.”
Winterkorn pledged to reverse the damage caused but provided no details. The statement covered the “crisis apology” bases.
Acting quickly to dismiss employees involved in wrongdoing was not possible. It’s not yet clear who or many employees were involved in the fake emissions results. Winterkorn himself resigned over the scandal, saying the move would provide the company “a fresh start,” although he had not personally committed wrongdoing.
In a statement accepting the CEO’s resignation, the company said it expected “further personnel consequences in the next days.”
“The Executive Committee is aware that coming to terms with the crisis of trust will be a long-term task that requires a high degree of consistency and thoroughness,” the release stated.
The Legal Playbook
The legal playbook in a PR crisis says “don’t admit wrongdoing” in order to limit legal liability. It seems, however, that the regulators caught VW red-handed with plenty of proof of malfeasance. Given the facts as known now, it seems unlikely that denials or stone-walling will limit liability or improve VW’s corporate reputation. Being forthright may help.
VW’s public statement recognizes that limiting legal liability is not its primary goal. The statement said: “We at Volkswagen will do everything that must be done in order to re-establish the trust that so many people have placed in us, and we will do everything necessary in order to reverse the damage this has caused.”
Damage has been done to the regulatory environment, owners of VW diesel vehicles and, to some unknown extent, the level of air pollution.
In VW’s case, admitting guilt may not increase liability and litigation costs. Government regulators have no desire to put a company such as VW out of business. Too many jobs and too much tax revenue are at stake. Fines and required make-good payments to customers are likely to be substantially the same whether or not VW admits guilt at this early stage of investigation. The cost to VW is expected to range from $7 billion to $18 billion. Admitting guilt, conducting a thorough investigation, and identifying the processes and decision-makers that enabled the “misrepresentation” are likely to persuade regulatory and justice departments to be less aggressive in establishing fines and make-goods.
The VW emissions crisis will find a place in the pantheon of egregious corporate behavior – alongside the BP oil spill and the Enron financial fraud. With proper handling of the crisis, VW can regain the trust of regulators and consumers. Stonewalling or litigating won’t earn trust.
Bottom Line: Although Volkswagen initially followed the standard PR crisis playbook by apologizing quickly and pledging to make amends, the textbook crisis reaction may not be adequate considering the nature of the issue.
How would you recommend VW proceed to resolve the crisis and restore trust in its brand? Please comment below.
William J. Comcowich founded and served as CEO of CyberAlert LLC, the predecessor of Glean.info. He is currently serving as Interim CEO and member of the Board of Directors. Glean.info provides customized media monitoring, media measurement and analytics solutions across all types of traditional and social media.
A Jetta owner in California, I am appalled by this finding. I only hope the recall is swift and painless and does not affect the excellent gas mileage this car gets, as that was a primary factor in our decision to purchase the vehicle. Shame on Volkswagen.