Is Volkswagen’s New CEO The Best Person For The Job?

WOLFSBURG, GERMANY - SEPTEMBER 25:  Matthias Mueller, head of German automaker Porsche, speaks to the media after the governing board of Volkswagen announced he will succeed former Volkswagen CEO Martin Winterkorn on September 25, 2015 in Wolfsburg, Germany. Winterkorn resigned on Wednesday following charges by the U.S. Environmental Protection Agency that Volkswagen had installed software into its diesel cars sold in the U.S. that manipulates emissions test results. Volkswagen has since admitted that 11 million cars sold worldwide contain the software. The company faces up to USD 18 billion in fines in the U.S. and prosecutors in both the U.S. and Germany have launched investigations.  (Photo by Alexander Koerner/Getty Images)

When a company is beset by scandal and compelled to fire its top boss, should it really promote a trusted insider rather than breaking from the past and bringing in an untainted outsider with no institutional loyalty?

Volkswagen, which admitted last month that it had lied to regulators by rigging engines in 11 million of its heavily polluting diesel cars, had to confront that question with no time to spare. At first CEO Martin Winterkorn, 68, refused to resign, saying he was “endlessly sorry” for the scheme but insisting he had known nothing about it. Shortly thereafter, on Sept. 23, he took responsibility and fell on his sword. (The German magazine Der Spiegel reports that Winterkorn was the highest-paid German executive, earning $85 million over five years. Winterkorn is demanding he be paid the $11 million left on his contract.)

Just two days later the 78-year-old automaker announced it was appointing a longtime, well-respected VW veteran, Matthias Müller, who has headed Volkswagen’s luxury sports-car brand, Porsche, for the last five years. Müller has the support of both labor unions and Volkswagen’s controlling shareholders, including ex-chairman Ferdinand Pch, the grandson of Porsche’s founder.

Müller started at Volkswagen 38 years ago as an apprentice toolmaker for the Audi division. He left to study computer science at Munich University of Applied Sciences, returning to Audi in the IT department in 1984. He rose to product manager for Audi, and kept moving up the ranks. Close to Winterkorn, who appointed him head of VW’s product strategy, he ascended to the top job at Porsche, which owns a 51% stake in VW. Müller won praise for steering Porsche through the recession, almost doubling the delivery of new cars last year to nearly 200,000. Profit margins at Porsche are reportedly 18%.

Müller recently told Süddeutsche Zeitung that he felt he was an “approachable team player,” adding that “I do not like it when things get talked to death.”

He has also been praised for his outspokenness on controversial issues. A refugee who fled Eastern Germany as a three-year-old, he has been vocal about Germany’s response to the migrant crisis, a topic most German executives avoid. In an interview withSüddeutsche Zeitung published in early September, he recalled his own struggle to readjust to a culture similar to the place he had left, saying, “The people who are now arriving completely out of their culture. . . . We have to help.” He spoke about his feelings during a visit to a Porsche subsidiary in Schwarzenberg, a region that has been hostile to migrants. “We have to take a stand against extremism,” he said.

He’s also criticized his bosses’ interest in self-driving cars, tellingAuto Motor und Sport, a German car magazine, “I ask myself in an emergency, an autonomously driven auto is going to steer to the right into a truck or left into a compact car.”

But he has not distanced himself from Winterkorn. “It’s important to me to thank Dr. Winterkorn for everything that he has done for Volkswagen,” he said, according to a summary of his remarks provided by Volkswagen and reported in The New York Times.

Müller’s inside credentials are strong, but is he the best person to take Winterkorn’s place?

Rebecca Harris, a Green Party member of the European Parliament, told the Times that she was “disappointed” in the decision to promote Müller. Harris comes from the German state of Lower Saxony, which owns 20% of VW’s stock and is home to VW’s headquarters in the town of Wolfsburg. “What I would have loved would be now to go for a real shift, to bring in new people, not protecting the old way,” she said.

The Center for Auto Safety’s Dan Becker, director of the safe-climate campaign at the Washington, D.C.-based organization, told the Times that VW needed “to scour the house with an outsider who’s not afraid to get to the heart of this huge fraud and its perpetrators, however high. . . . Instead they’ve chosen a longtime VW crony.”

Likewise the Düsseldorf-based business paper Handelsblatt, calling the emissions scandal “Dieselgate,” says, “The time is ripe for a new beginning, but the supervisory board in Wolfsburg apparently didn’t have the courage to turn the page.” The Matthias appointment, it writes, “does not send a signal of fundamental change.” Handelsblatt goes on: “Müller is simply too closely tied to the old system.” He is indebted to Winterkorn and Piëch, the paper says. They are the people who turned VW into what it is today, “a complex, hierarchically organized power structure that’s nearly impossible to control.” Handelsblatt says that nothing happens at VW without board member Piëch’s support, but Müller will never get to the bottom of Dieselgate unless he distances himself from his longtime allies.

Several observers, including Handelsblatt, and Forbes contributor Neil Winton, have argued that VW should have picked VW brand chief Herbert Diess, a recent hire from BMW, who would have brought an outsider’s perspective and who was surely not involved in Dieselgate.

Longtime Forbes staffer Joann Muller, who has been doing excellent coverage of the VW saga, equates Müller’s appointment to “a shuffling of the deck chairs on the Titanic.” She reports that Volkswagen installed a new North American chief above U.S. President Michael Horn, and that sales and marketing head Christian Klinger is leaving the company, “not related to recent events,” according to VW. Jürgen Stackman, head of VW’s European SEAT brand is taking Klinger’s place on the board of management, and Audi sales and marketing boss Luca de Meo will lead SEAT.

VW’s decision to promote Müller also has its defenders. Stefan Bratzel, who directs a research group near Cologne called the Center of Automotive Management, told the Times that Müller stood out at Volkswagen because he spoke his mind, an attribute not shared by most VW executives.

Manuela Kasper-Claridge at German broadcaster Deutsche Welle, also praises Müller’s candor. He “doesn’t shy away from conflicts, doesn’t beat about the bush when it comes to identifying mistakes and appreciates working in a team.” Since he’s already been a successful executive for years, she writes, “He looks well suited to steer VW into calmer waters.” Still, she adds, he must be prepared to fire colleagues and shake up VW’s management structure. “The old boys’ network doesn’t count anymore,” she writes.

Müller seems like a capable CEO who has stepped into a vacuum. But he would do well to keep in mind that his company has illegally made use of so-called defeat devices in the past, as have other carmakers. In 1974, VW paid $120,000 to settle an EPA complaint that VW failed to disclose devices that tampered with emission controls on 25,000 1973 models. VW didn’t admit wrongdoing at the time, but the EPA’s complaint was similar to the current scandal: The devices deactivated emissions control systems. VW agreed to remove the devices. Cadillac, Ford and American Honda have also settled defeat device charges brought by the EPA.

Müller has a huge challenge before him. He has to investigate and fire the perpetrators of Dieselgate, he must contend with possible criminal charges in both the U.S. and Germany, a raft of likely class action suits brought by car owners and dealers, and serious damage to the VW brand. At 62, he may only be a CEO placeholder until VW finds a capable outsider to take on the daunting challenge of righting one of the worst corporate scandals ever. And maybe that’s all he should be.

http://www.forbes.com/sites/susanadams/2015/10/02/is-volkswagens-new-ceo-the-best-person-for-the-job/?utm_source=followingimmediate&utm_medium=email&utm_campaign=20151002

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