21 Jul Sustainable Brands: The Real Lesson of the VW Scandal
This past week, Volkswagen agreed to an almost 15 billion-dollar settlement for its emissions scandal. The company basically deceived customers, dealers and regulators by creating a software that lowered emissions only when the cars were being tested, but not in actual road use. There are still 90,000 vehicles not yet addressed as several states continue to pursue lawsuits against the company, so the final figure is likely to be much higher. The stock has lost half its value since the crisis became public. The real lesson of this scandal however is likely being lost on most leaders. The company failed to focus on their higher purpose.
I recently left Barcelona, Spain after speaking at the 19th International Symposium on Ethics in Business hosted by the business school IESE Business School. From across the globe, they presented numerous research studies showing that customers, employees and investors are increasingly putting ethics and social responsibility near the top of their screening list.
There is little doubt that VW was aware of the fact that customers care about lowering their emissions, especially those that contribute to global warming, but they paid a heavy price by being out of integrity and deceiving their customers. It was apparently in part, because of Toyota’s success with hybrids like the Prius, that the company felt pressure to show that their line of diesel cars could compete in the “feel good” marketplace. Though we may never know where the idea of cheating came from in their chain of command, it is hard to believe that the people at the top were unaware of the practice.
The Moral Mandate & Sustainable Brands
For many years, I have been writing about purpose driven companies and why a higher purpose leads to business success. The leaders of VW failed in the most basic duty of those who lead a business: the moral mandate to care about the well-being of all of their stakeholders including shareholders. When I talk about the Purpose Revolution, it is at its most basic level about leaders connecting to the moral mandate in business.
It is quite likely that the leaders at VW viewed cleaner vehicles as a business strategy rather than a moral crusade. There is nothing wrong with seeing purpose as good business, which it is, but purpose can’t be just a business strategy. It apparently would have cost more money to make the diesel vehicles produce lower emissions so the company decided it wasn’t worth the price. If the company had been connected to the moral mandate to create more sustainable transportation for the future of the world, they might have redoubled their efforts to solve whatever technology problems faced them. Instead they took a shortcut.
Morality is a strong word to use in the context of business but we need to use it more often. When leaders truly connect with their moral responsibility to all stakeholders, only then will businesses succeed in the emerging world. This true moral compass is what will excite customers, employees and investors. Being purpose driven can’t just be a means to recruit millennials or to get the organization on a list of sustainable companies, it has to be driven by a true desire to contribute more value to the world.
The leaders of VW failed in their responsibility to almost every stakeholder. Their dealers lied to customers erroneously believing they were telling the truth. The fallout was severe. Customers bought cars whose value plummeted. Shareholders bought into the story of clean diesel and then t spit out the tailpipe along with the extra carbon the vehicles were emitting. Employees who were once proud to work for the company might now hang their heads a bit lower.
A sustainable brand is a moral brand. Its leaders may see purpose, social responsibility and sustainability as good business but the driver is about doing the right thing.
What Does Employee Engagement Teach Us About Purpose?
The employee engagement movement has much to teach us about creating sustainable brands. Those companies that had the most engaged employees were companies like Southwest Airlines where the leaders felt a moral responsibility to treat people with dignity. Doing the right thing is an old fashioned idea. It was one of the values of Synovus Bank based in Columbus, Georgia when they were named the best company to work for in America by Fortune Magazine in 1998. When I asked the former CEO Jimmy Blanchard what it took to be the best place to work for in America he said “you have to want to be a great place to work as much as you want everything else including market share and profits. And you have to want it as an end in itself.”
The VW scandal is a wake-up call to the movement to create purpose driven sustainable brands. Purpose and social responsibility are great business strategies just like employee engagement is. But just like engagement, you can’t really win through purpose if it doesn’t come from a deep well of moral responsibility.
Mortality and Social Responsibility
In Barcelona, there was some fascinating research presented by Morela Hernandez from the University of Virginia. She has been studying what factors make leaders more likely to display what she calls “stewardship behaviors.” These would include leaders feeling a moral responsibility to present and future generations.
It turns out that mortality is strongly related to stewardship behavior. When leaders confront their own mortality they start to ask different questions. She discovered that people were much more likely to be motivated by ensuring their personal legacy than they were by altruism alone. I wonder if Kenneth Lay at Enron wondered about his legacy or if the senior leaders at VW considered how they might be known by future employees and students of business.
For many years, we have asked leaders what I call the legacy question: When you are no longer running this company years from now, what do you want your legacy to be? When you ask that kind of question few leaders say record profits, more mergers, better productivity, or share value. They are much more likely to talk about innovation, contribution, and making a mark that makes things fundamentally better. This is the soil in which companies will grow to thrive in the purpose revolution.
I can’t help but wonder what might have happened if the legacy question had been on the table when the decisions were made to put that deceiving software in the cars at VW?