The Issues of Corporate Governance at Volkswagen

Corporate governance issues at Volkswagen.

Case 13 brings out corporate governance issues at Volkswagen (Clarke 2017). The article raises two major corporate governance issues that led to the scandal at Volkswagen. The first corporate governance issue arises out of the composition of the board. The second issue arises out of boards laxity and control by a few investors. The first corporate governance issue that faced Volkswagen is its lack of diversity on its board.

Its board of directors is male-dominated hence resulting in the challenges that faced the company.

The lack of diversity kills the ability to inject in new ideas for the organization. The lack of diversity tends to propagate status quo at Volkswagen. It eventually led to Volkswagen inability to respond to early signs that had emerged. The issue of male dominance could have been resolved by adopting measures that promote diversity by including women in its boards.

According to Al-Rahahleh (2017), board’s diversity improves the effectiveness of a firm and leads to better performance of companies.

Volkswagen also should have adopted measures aimed at promoting diversity regarding age to ensure diverse ideas hence leading to different approaches for the firm.

The second corporate governance issue raised by the case is laxity on the part of the board of management. The firm was so much confidence in its market lead and did not anticipate of a shocker that would come their way. The laxity made the board of management overlook its primary role of promoting compliance with the industry regulations. It is reckless for the board to assume that they were unaware of the over 11 million vehicles that were fitted with a technological gadget aimed at beating laboratory tests on emissions.

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The laxity has further been complicated by the majority control by two families that influence major decision-making. According to Bebchuk and Hamdani (2017), controlling shareholders with majority shares tend to interfere with the independence of directors. To overcome such challenges the board ought to be allowed to run independently and managers should take full responsibility for their mismanagement.

Volkswagen failure occurred from the scandal that adopted the use of a technological gadget to beat industry regulators on emission. The scandal points to corporate governance issue at Volkswagen. Its organizational structure lacks inclusivity since it is paternalistic hence killing injection of progressive ideas. The board also requires some degree of independence in decision making because of control by two families thus resulting in laxity and lack of accountability.