An Open Letter to VW Monitor on Rebuilding the Compliance Program

Dear Kurt: Congrats on the new gig. You have a big job ahead of you, so we made a checklist for you on how we'd approach it.

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Corporate Counsel reported last week that VW has a new monitor from Daimler-Benz AG, Dr. Kurt Michels. The world has watched VW's case unfold like a slow-moving train wreck.

VW's emissions cheat was inexcusable. For people who buy diesel cars and overlook the clattering engine and weird yellow fuel pump at the gas station, they like to think that their good gas-mileage cars are not some portable coal mine.

But the company paid big. More than U.S. automakers that killed people (and lied about it). More than companies convicted of bribery and terrorism-related offenses. And VW settled various civil and criminal inquiries for billions, immediately before the new administration came in and began planning to roll back many of the existing environmental regulations.

In January, U.S. authorities arrested VW's former head of U.S. compliance, who served as liaison for the Environmental Protection Agency and the California Air Resources Board, for knowingly providing false information to U.S. regulators, but who did not appear (by public accounts) to benefit personally or professionally from the scandal. Last month after settling with U.S. regulators, German authorities raided the offices of VW's outside law firm.

The VW brand deserves better. With brands like VW, Audi, Bugatti and Porsche, the company has a long history of automotive innovation, building standard-setting cars (e.g., the Porsche 911, VW's Golf and Beetle and the Audi Quattro), and leading the way on technology (e.g., BlueMotion technologies). Recently, the company announced a joint effort with Audi, VW and Porsche to develop autonomous cars.

After the scandal broke, VW brought in Matthias Müller (former CEO of Porsche) to right the ship. Müller correctly understood that the first thing he had to do was restore trust with customers. Müller just gets it. He should—Porsche has a storied history of building loyalty and trust with customers (the brand makes over three times what rivals Mercedes or BMW make on a car). The company generally listens to its customer when building its products. Look at the new Porsche GT3—4.0-liter, naturally aspirated engine and a manual transmission—a purist's sports car if there ever was one.

While the engineers will continue to turn out mechanical marvels like the GT3, Michels and the compliance folks have their work cut out for them. Engineering cheats to trick the government are not good for compliance culture. Because we love the brand, we have some advice for Müller and Michels.

Dear Kurt:

Congrats on the new gig. You came from Daimler-Benz AG, so you likely understand the company and the industry. That's important. If we're honest, we have never been crazy about Daimler's cars compared to the VW Group, so you made a good move. You have a big job ahead of you, so we made a checklist for you on how we'd approach it. You are a busy guy, so we came up with three areas for you to consider...

1. Get the program organization and talent right.

Compliance will always be a people business. VW must have a good compliance organization structure. Last year, VW delivered 10.3 million vehicles to customers under eight different brands. With over 626,000 employees, the company operates 120 production facilities in 31 countries and sells cars in 153 countries.

The first order of business in a compliance program is to understand which areas compliance will handle across the business and how it will manage the program across the different markets. Which experts will advise the compliance program across these subject matters? How will compliance work with other functions, including audit and the legal department, to support the program? Which subject matters have policies and procedures in place? Are any compliance resources available in the different markets? These core questions will help shape the organizational change and the "design" of the program.

2. Understand where the company is going and why.

The second task is to develop a strategic vision. Moving past the emissions scandal, over the next three to five years, where does VW see its compliance program moving? The key driver here will be the business. What will the VW business look like in five years? If it's autonomous cars, what is the compliance risk? Product safety? Privacy? How will the company utilize technology? And how will the compliance program? What sort of metrics for success does the business use? Can compliance develop similar metrics to show the program is working? How will you work with the business to escalate and resolve compliance issues? Good people can drive a good compliance culture, but the program should follow the business.

3. Evaluate how risk and the regulatory environment will change with the business landscape.

Companies typically organize compliance around markets and subject matters, which vary depending upon the structure of the business (e.g., product safety, consumer protection, privacy, anti-corruption, trade, etc.). The program consists of core elements—organization, policies/procedures, risk assessment, training/awareness, monitoring/audit and response to compliance failures.

After understanding the internal business strategy, the compliance program must understand how that strategy fits into the regulatory environment. Where will compliance risk come from? This external and internal view of risk will help shape the strategy of the compliance department's initiatives, such as developing and implementing new procedures and training and deciding where to allocate program resources. Understanding the regulatory landscape will help you develop a program that is proactive and has the key core elements. This basic framework will work across any subject matter and industry.

If the company can get these three things right at the outset, the rest of the program will fall into place. And the culture will change. Consumers haven't lost faith in the brand. They are still buying the cars—and they're amazing.

P.S. It would be great if any changes in resources do not impact Porsche's GT division—a lot of magic happens over there, and it would be a shame to slow that group down.

Originally published on Corporate Counsel. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Contributing Author

Ryan McConnell

Ryan McConnell is a lawyer at R. McConnell Group — a compliance boutique law firm in Houston, Texas with Fortune 500 clients across the globe....

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Contributing Author

Meagan Baker

Meagan Baker is a lawyer at R. McConnell Group — a compliance boutique law firm in Houston, Texas with Fortune 500 clients across the globe....

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