An Extensive Firm Analysis Of Volkswagen

I am going to provide an extensive firm analysis of the German automotive giant Volkswagen. It all started in 1937 with their first project vehicle known as Beetle. Through out the world they are known as Volkswagen group and their main business is designing, manufacturing and distributing automotive such as cars, motorcycles, engines, commercial vehicles and other services. Volkswagen group was founded and headquartered in Wolfsburg and they are owned partially by the Austrian family called Porsche-Piech. Volkswagen can easily be termed as one of the largest automobile manufacturing force in the world. To prove this they have over taken Toyota in 2016 and kept their reputation strong for the next two years as the highest selling automotive company. Volkswagen carries out operations in over 150 countries of which more than 100 production facilities are available. Volkswagen group has a number of subsidiaries and brands, starting from famous automotive companies like Audi, Porsche, Lamborghini, Bentley, Bugatti, Ducati to commercial brands like Scania, SEAT, TRATON and Skoda. All in all Volkswagen has been dominating the automobile industry of Europe for decades and surely they have the largest share of the market in Europe. Their group’s flagship is Volkswagen and some of their famous vehicles include Passat and Golf.

Volkswagen is a publicly listed company and they are primarily listed in the Frankfurt Stock Exchange market. They were listed in Luxemburg, swiss, London as well as in American stock exchange. Porsche holds the most percentage of shares in the company however Volkswagen still holds a strict law to dominate decision making power over the company. Other share holders include foreign investors, local investors, the state of lower Saxony, few private shareholders and Qatar Holding LLC. With great power comes great responsibility and it was the same for Volkswagen too. They faced various challenges through out the years and went through scandals which had taken them one step back, through out my analysis in this paper I will point out all the factors that affected the company through out the years, the different styles in which they run their board and their structures. I will also enlighten their shareholder policies and how they are treated. Letэs find out how Volkswagen took the breath away of the world’s automotive industries for such a prolonged period. Moving into the second part of the analysis I am going to focus on four major aspects of Volkswagen along with evidence.

• The first aspect which I am going to emphasize on is the company’s board structure, its models of governance and its complex corporate structure.
• Secondly, I am going to focus on how the company addresses and treats their shareholders. Putting light upon the shareholder rights and activism, and whether they receive the deserved honour and respect.
• Thirdly, I am going to focus on the company’s strategic decisions over the years which made them stand apart from the other companies in the industries. Their core competencies and the risk management during their emission scandal. • Lastly, I am going to glance through Volkswagen’s various marketing techniques which help them strive through out the years.

Board Structure

Throughout the 20th century a major focus for all business has been professional management. It is very important in today’s business that how the businesses are governed. Usually there is a hierarchy in management operations, but board is not a part of management structure, nor it’s a hierarchy. All the members of the board are equally powerful by the law, no one is superior to the other. There are two major types of boards, Unitary boards and two tier boards. Unitary board consists of a single governing body where as two-tier board consists of a management board as well as a supervisory board. There are different types pf unitary boards as well such as majority independent non-executive director board or majority non-executive director board. The board structures can be illustrated by the following figures.

Unitary Board Two-Tier Supervisory Board

We usually need boards for few very important functions. One of the major roles of the board is providing accountability. Other important board activities include strategy formulation, monitoring, supervising and making policies for the company. So the question is what kind of a board does Volkswagen group have? Volkswagen group has a two tier supervisory board. On top is their supervisory board with 20 members and distinct functions and their management board consists of 8 members, one of which is the chairman of the board of management. The eight different members of the board of management has a distinct function of their own in the company. The chairman of the board of management Dr. Herbert Diess is also the chairman of Volkswagen passenger cars brand. He is also responsible for the management board of the Volkswagen China operations. Similarly all the other seven members of the board of management has their own function. On the other hand the supervisory board is their to monitor this management board and approving the various decisions proposed by the management board. It consists of 20 members a lot of whom are independent non executives where as some are directly linked with the company. They are also responsible in hiring and appointing these management board of directors in the first place. In accordance to Volkswagen’s Article of Association half of their supervisory board members are shareholder representatives. Under this supervisory board Volkswagen consists of sub committees so that the management of the board is supervised efficiently. These committees include executive committee, mediation committee, audit committee, nominating committee and special committee on diesel engine. For example this is the special committee on diesel engine-

The Board Structure of Volkswagen

Volkswagen’s Board structure is based on continental European Napoleonic Civil law which is Management board very different from US, UK and common Consists of 8 members wealth countries. They always keep their management under strict supervision.

Model of Governance

There are five basic models of context and culture of corporate governance. They are - US rules based model UK/Commonwealth principles-based Continental European two-tier based Japanese Stakeholder-oriented networks Asian family based model. Volkswagen falls under the continental European two-tier based model of corporate governance. This model is very typical and usually rule based, for instance Napoleonic law or further legislation. Germany specifically requires two tier boards. Recent years they focus more on shareholder value maximisation. Management board is strictly dominated by the top management, the supervisory board controlling the management board most of the time. By analysing Volkswagen AG we have also found identical evidence that the supervisory board of 20 members are in charge of revising and choosing what decisions to accept which are delegated by the management executives. They also appoint these management board members, and are also in charge of replacing them.

Pros: It helps to keep the power centralized and a strong hold over the business, preventing any kind of fraud or embezzlement down the chain.

Cons: Domination on the management board often leads to lack of information inputs, advise and wise counsel that can be provided by INED or Unitary boards. The emissions scandal which VW was involved with can be used as a classic example for this case as a lot of members of the lower management hierarchy probably saw it coming but could not help due to their business model.

Complex Corporate Structure

The governance of complex corporate structures consists of three different types of structures. Pyramid structure in which the holding Company sits on top of a pyramid of Subsidiary and associate companies. Chain in which one company or shareholder Group holds an interest in a string of companies Networks, set of companies owns shares in each Other. Studying more about Volkswagen it can be easily derived that Volkswagen falls under the pyramid structure. From October 2008 there was a feud going on between Porsche and VW to buy out the company leading to court battles, family arguments and share price fluctuations. Finally in 2012 VW put an end to this feud by buying out the remaining parts of Porsche in the company which is 50.7% to 100%, thus sitting on top of the Pyramid as the holding company.

Volkswagen’s Relations with its Shareholders

When we think about share holders the first thing that comes to mind is shareholder rights and shareholder activism. Shareholder rights are the various rights the shareholders of a company are entitled to, such as receiving notice for shareholder meetings which states their time and location, vote on shareholder meetings or approval of accounts, auditors or removal of a director. On the other hand shareholder activism is more a forceful change in the board or company. It normally involves either communication and negotiation directly with the management or through media campaigns and other such measures. These happen mainly due to social or environmental reasons. By reading the study illustrated by Vivian, Sheri and Thomas it is clear that the higher the stock market liquidity, the better is the company’s performance. This is usually due to higher profitability in the company as well as incentive effects of managerial pay per performance contracts.

Comparing this to Volkswagen’s annual report of 2018, we can deduce that they have a high liquidity. Which enables them to provide strong dividends to their shareholders which is usually what all shareholders want. Volkswagen provides 4.80 pounds per ordinary share as dividends per fiscal year and 4.86 per preferred share. This distribution ratio is determined by the company’s end of the year earnings. At the end of 2018 the earning per ordinary share was almost 24 euros which is very satisfying for any shareholder. However VW’s cheating on emissions lead to a 35 billion euro expense which lead to a liquidity shortage throughout the company leading to a lot of feud in 2018 with the investors, demanding billions of euros in compensation due to their failure to anticipate this issue. In September 10, 4000 thousand share holders demand 9 billion euro at a court in Braunschweig, just 20 miles away from their headquarters. Finally in the year end letter to shareholders shows how apologetic VW was for the whole scandal, to compensate for their mistakes they increased the dividends and share their future prospect of on electric cars which gave an incentive for the shareholders to still be a part of the company.

Strategic Decisions

Through out the year Volkswagen’s soul strategy was to grow bigger and bigger. We can notice this first when they exceed Toyota in 2016, and sell maximum number of vehicles in the whole world. They prove that again when they take over Porsche and buy them out. Through out the timeline VW never faced any set back until 2015 when they where shocked with their emissions scandal.

This scandal was a major set back, causing them to loose billions of dollars and customers as well as had to recall millions of vehicles. But Volkswagen managed to overcome this set back with a very strong strategic decision. They approached to a greener future, they started with using renewable resources in their vehicles as well as promoting more and more electrical cars which completely eliminates CO2 emission. Another very important strategy was their on site saving initiative where their efficiency led to 1430 tonnes of less CO2 each year. In their annual report of 2016 they come up with strategy 2025 to a better future, which clearly stated they will minimalize their carbon footprint, harmful emissions and resource consumption. I think their could not be a better comeback by Volkswagen after their diesel scandal, and this has been a major strategic decision by the business which still kept them afloat even after billions of dollars spend due to this emissions scandal. They made environment their ultimate quest and soon became a role model, from emissions scandal to environmental role model what an irony.

Risk Management

Volkswagen works through the governance, risk and compliance approach. To elaborate this they are always very concerned about the risks they might anticipate in the future and they start on working on its prevention as soon as they detect it. They operate around three pillars, the first being compliance which states that sustainable economic performance can only be achieved by maintaining and following their existing rules and regulations. Their second and the most important pillar is their RMS/ICS system based on internationally recognised COSO framework for enterprise risk management. This functions in various ways starting from promoting risk open culture to regularly examining RMS/ICS for accuracy and efficiency. Lastly, they have a whistle blower technology to prevent any kind of fraud in the company.

The question which arises is why did the emissions scandal go unanticipated and was not prevented from happening in the first place. By the “Dieselgate” scandal we found that there was a set of cultural values and politics embedded in VW’s core. Crime and deviance can be predicted but it cannot be detected by any risk management system. It was adeliberate attempt to increase revenue. Similar behaviour has also been anticipated by VW in the past as they were accused in 1973 by EPA in the Cadillac case for integrated illegal devices. However, this case amplified way lot due to cultural biases, structures and interests in Germany and the US. Volkswagen was charged under US SEC lawsuit for cheating emission scandal. As a result of this scandal Volkswagen has been paying billions over the past 10 years. Starting from the 475000 TDIs which have to be fixed before June 2019, $2.7 Billion on the nitrogen oxide reduction operations and $2.0 billion in their latest manufacturing and infrastructure of electrical cars.

Marketing

As a for profit organisation there are two things that are very important for marketing that is mission statement and vision statement. VW’s current statement states mobility for everyone and environmentally safe and attractive vehicles which is class apart respectively. VW deals with twelve different brands thus it’s very important for them to perfect their segmentations and target markets for the different brands. They segment their vehicles on the basis of middle-upper income class, upper-income class. Volkswagen’s three marketing competencies which we learn about from Bhasin’s article is their strong brand portfolio, financially strong group and low operational cost. This has helped VW gain comparative advantage over other car makers. The “dieselgate” scandal took VW a step back but they overcame this setback through a brilliant marketing strategy to shift their focus towards environmentally friendly electric cars. All in all one of the very important aspects of a company’s corporate governance is its interaction with its stakeholders and its shareholders. Through thick and thin Volkswagen has always been with its shareholders still delivering healthy dividends Though in many cases VW has failed its customers, but their ongoing efforts show that they are guilty for their deeds and their future vision proves they are trying to pay for their sins. Everyone deserves a second chance and so did Volkswagen after their ‘dieselgate’ scandal.