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Reputational Risk
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VOLKSWAGEN EMISSION SAGAAN INCURSION ON REPUTATIONAL RISK AND CRISIS MANAGEMENT
OBJECTIVES
• Provide an overall knowledge of classical reputation management and its evolvement
• Supply an overarching knowledge on VW’s hard-built image
• Brainstorm on the crumbling of that images with a focus on the devastating effects
• What has been done by VW so far to react to this scandal?
• What can people take away from the case of VW? What changes can be expected?
AGENDA
• Reputational Risk & current development by Hieu, Hoang
• VW established Image by Hoang, Vu Tuan
• The crisis and its crushing effects by Hai, Truong Hoang
• VW mitigation efforts & their impacts by Nguyen, Cao Dang
• Lessons learned & impacts on future RM practices by Tung, Tran Minh
customer
• willingness to purchase & pay
• recommendation• competitor
resistance
investor
• willingness to invest
• confidence
• ratings
employee
• talent attraction
• loyalty
• commitment
media
• favorabletreatments
• marketing support
business partner
• favorable treatments
• commitment• competitor
resistance
CORPORATE REPUTATION
Hieu, Hoang, FA2012 – B - 41
REPUTATION –THE MORE IMPORTANT, THE RISKIER
• 2 types
• Direct reputation risk: from scandal and crises
• Indirect reputation risk: as a result of other risks
• Difficult to gain and easy to lose
• Possible arise from any event – more severed if mishandled
• Prolonged external & internal influences
• Specifically in VW case: loss of market leader position to competent competitors, de-credit of “Made in Germany”
Hieu, Hoang, FA2012 – B - 41
REPUTATION RISK
THEN• Limited media: easily contain
and resolve risks
• Less important: limited world-trade and competitors
• Less sensitive brand awareness: (VW case) pollution was not a significant issue
NOW• Mainstream media:
news spread quickly, hard to be contained and handled properly
• Increasingly important: accessible alternate products from worldwide
• More sensitive brand awareness: (VW case) pollution is a major problem
Hieu, Hoang, FA2012 – B - 41
ESTABLISHED IMAGE
Employees
• Working environment
• Salary
Hoang, Vu Tuan FA2012 – B – 11
ESTABLISHED IMAGESuppliers
• Profit
• Credibility
Hoang, Vu Tuan FA2012 – B – 11
ESTABLISHED IMAGE
Customers
• Price & Quality
• Environmental friendly
Hoang, Vu Tuan FA2012 – B – 11
ESTABLISHED IMAGE
Shareholders
• Company’s structure
• Management
• Performance
Hoang, Vu Tuan FA2012 – B – 11
FEELING THE SCANDAL’S IMPACT
Lies
Untrustworthy
Air pollution
Bad service
Hai, Truong Hoang FA2012 – B – 09
WHO GETS HURT FROM THIS?
INTERNAL
Employees Shareholders
Fund Managers
Hai, Truong Hoang FA2012 – B – 09
WHO GETS HURT FROM THIS?
EXTERNAL
Customers Creditors
Business partners
Competitors
CSR
Hai, Truong Hoang FA2012 – B – 09
CRISIS MANAGEMENT – VW’S EFFORTS
Formal acknowledgement
• September 3rd, 2015, during a conference call
• Came after the EPA threatened to withhold approval for the company’s 2016 diesel models
Formal announcement to deal with crisis
• 11 million cars were involved: recalling plans
• Set aside 6.5 billion euros to cover the cost of the scandal
• Reduce 1 billion euros in annual investments.
Management activities
• Martin Winterkorn, Volkswagen AG CEO since 2008 resigned
• Two top managers in research and development of Volkswagen were dismissed
Nguyen, Cao Dang FA2012 – B – 21
MITIGATION EFFORTS
• The company suffers with money, sales, reputational damage.
• Many Germans still regard Volkswagen as an excellent car manufacturer and the scandal was exaggerated.
• Crisis communication helps consumers aware of the event and affirm that management would not allow these types of events occur again.
• U.S Environment Protection Agency announced tighter auto emission tests, while some major countries call for further investigation to reassure the public.
Impacts
Nguyen, Cao Dang FA2012 – B – 21
LESSONS LEARNED
• For companies
• Sustainability
• Pressure of objectives alignment:
A mere Nash approach
• Processes and Procedures vs. Culture
Tung, Tran Minh FA2012 – B – 37
LESSONS LEARNED (CONT’D)
• For regulators
• “Trust No One”?
• Use of public NGOs
• Reactionary efforts vs. Improvements?
Tung, Tran Minh FA2012 – B – 37
IMPACTS ON REPUTATION MANAGEMENT
• Mitigation lesson:
• Cost of the truth: brand vs. litigation?
• Social media: a double edge?
• Prevention lesson:
• Adoption of metric for sustainability?
• Proper enforcement?
• Culture is at its heart
Tung, Tran Minh FA2012 – B – 37
DISCUSSION POINTS
• What would you do if you are VW PR Manager?
• In crisis
• After crisis
• Is Reputational risk important?
• In comparison with other risks?
• In a statistical approach?
• Is it being treated seriously?
• Why?
Tung, Tran Minh FA2012 – B – 37
REFERENCES
• Reports by Bloomberg
• Hopper, Duke University, (2015) Lessons Learned from Volkswagen Scandal
• Schrage, Harvard Business Review, (2015) Is VW’s Fraud the End of Large-Scale Corporate Deception?
• VW Sustainability reports
• Alain et al. (2015) What Can Companies Learn from Volkswagen Business Unethical Behaviour?
• Steinzer (2015) Federal White Collar Crime: Six Case Studies Drawn from Ongoing Prosecutions to Protect Public Health, Worker and Consumer Safety, and the Environment
• Goel et al. (2015) VOLKSWAGEN: THE PROTAGONIST IN DIESEL EMISSION SCANDAL
• Mark Chong, Singapore Management University (2012), “Importance of Corporate Reputation”
• Tim Heberden, Griffith Hack (griffithhack.com) (2015), “Volkswagen: quantifying the reputational damage”
• Peter W. Roberts, Grahame R. Dowling, Strategic Management Journal (2002), “Corporate Reputation and Sustained Superior Financial Performance”