who failed volkswagen, is it corporate governance or management quality?

Who failed Volkswagen, is it CorporateGovernance or Management Quality?

Picture courtesy: Volkswagen

IBCM© Research 2015 Volkswagen #2 of 21

In continuation of my offering a measuring device for Corporate Management Operating System I am pleased to post this second one in the series what gets measured gets managed. This post guides you on the two corporate processes Creative Process and Action Process.

Synopsis of the first in the series is given below. Please do comment and would appreciate your feedback.

Thanks and Regards

Jayaraman Rajah Iyer

Copyright:

Inactivity Based Cost Management - Copyright c REGN. NO. L- 27490/2006 DATED December 1, 2006Govt. of India, Copyrights Office, by the Author, Jayaraman Rajah IyerIBCM© Research 2015


What gets measured gets managed #2

Synopsis of #1: "Management Operating System; Tussle between Profit Motive and Ethical Motive; Lockheed in 1976 to Siemens in 2008 to Rafale, Augusta Westland in 2015 an unending scandals with no respite and with no solution; Knee-jerk reactions; FCPAs, UNCACs despite qualitative initiatives ignored as ―read, laughed and filed code; Volkswagen fiasco; between product acceptance and product liability profits motive wins over ethical motive leaving big gap in risk management; will Volkswagen also continue with the corporate Houdini act?; what gets measured gets managed; KPMG-EIU survey findings where 380 global organisations: Many firms are grappling with the problem of deciding exactly what and how to measure; Deciding how to measure is more difficult than deciding what to measure; Volkswagen fault lines is at the centre of corporate structure; not designed to guide the company to avoid the pitfalls of Profits Motive bereft of Ethical Motive; the limits of a spreadsheet corporate structure; besides the structure is entirely Object oriented; 'cheat device' or 'read, laughed and filed code' is the handiwork of the Subject; whereas material events left unmeasured are huge really huge in Corporate CREAM Report - Corporate Governance, Risk Management, Earnings, Accounting Quality and Management Quality; upgrade corporate structure - Taking the cue from the dictum set by Galileo Galilei: “Measure what is measurable, and make measurable what is not so.”, Corporate Atomic Structure satisfying what Kant inquired whether a science of metaphysics with a logical structure like that of the well-established mathematical and natural sciences is possible; Return on Intangible displacing Return on Investment for corporate decisions; structured approach by defining Intangible; An Index of Inactivity by each process-block signifying the shortfall in targets; Creative Process and Action Process; backed by Metrics everlasting; Corporate Management Operating System Profit Motive aligned with Ethical Motive; Correcting the situation of chasing the data as outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities that leads to nothing, none wiser, when Subject is not brought as the denominator:" For the full article - Click Here


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Volkswagen #2

Atomic Structure:

A proton has 1836 times the rest mass of an electron. According to condition, proton's and electron's kinetic energy will be same but their velocity will be different as their masses are different. Neutrons don't influence an atom's identity, but they do add to its mass.

Corporate Atomic Structure

Creative Process

Ethical Motive triggers a few to initiate establishing a plc, stating clearly through AA and MoA how the joint-stock company would be useful to the Society. The moment Registrar of Companies registers the company the whole burden of addressing the legal enterprise rests on the Board of Directors to whom the power is conferred. It is a huge responsibility a few undertake. The neutron of the organisation, the public enters the organisation straight. They come with a load of rules and regulations legally enforceable bringing in the government and the judiciary as a formidable defender of Ethical Motive for the said organisation.

The Board develops slowly and steadily as and when operations start gaining momentum. The wise and independent Directors bring in a good element of authority, complying to laws, good order, a great institution. Besides mandatory requirements they bring in non-mandatory rules and regulations that would give the power entrusted to the Board stability. The Board and the public form a nucleus, protons and neutrons of the Corporate Atomic Structure, a business partnership established.

In Corporate Atomic Structure 3 Ps Policies, Practices and the Public represent the Protons, Electrons and Neutrons respectively. Proton and Neutron form a nucleus and the electron spins around the nucleus. So is


the case where Policies and the Public form a nucleus and Practices spin around the corporate nucleus. Neutron does not influence the identity of the atom but adds mass to it. Corporate neutron i.e. the public does not influence the identity of the corporate but adds mass to it. Policies are the protons of the Corporate Atomic Structure but the mass added to it by the public is very substantial. All mandatory regulations have come forth to corporate by the influence exerted by the public as well as the voluntary initiatives by the corporate. That is to say, mass added to the corporate nucleus by the public is indeed formidable.

The corporate nucleus consisting of policies represented by The Board and the public is a mass that has grown linearly to a level it attains similar to an atomic structure, 1836 times of rest mass of corporate electron - the practices. The 10 principles of UNGC of 4 issue areas - Human Rights, Labour Rights, Environmental Rights, Anti-corruption besides UNCAC, Code of Conduct, Conflict of interest, conflict of personal interest, insider trading, conflict of conscience, whistleblower policy are some of the policies that add to the mass of the corporate nucleus. These policies go through the rigours of 6 stages from nowhere to a stage called a substance of quality. From Exposure Draft to public participation the policies become part and parcel of Corporate Nucleus. The six stages of creative process deliver a qualitative written tangible document that collectively is the Management Quality. The Board is the custodian of the Management Quality, of policies that remain intangible for corporate.

The end product of Creative Process, made up of mandatory as well as non-mandatory ethical standards, rated by each written Policy for Quality, is the Management Quality.

Management Quality in Volkswagen:

Quote: Annex to the Code of Conducti:

International Conventions

In addition to the laws and regulations of individual countries, a seriesof conventions and recommendations of international organisationsalso exist. These are, however, primarily addressed to memberstates and not directly to individual companies.


The following is a list of the most important conventions of this kind:

– The General Declaration on Human Rights issued by the UN in 1948 and the European Convention on the Protection of Human Rights and Fundamental Freedoms (1950)– International Covenant on Economic, Social and Cultural Rights (1966)– International Covenant on Civil and Political Rights (1966)– The International Labor Organization’s (ILO’s) Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy (1977) as well as the ILO Declaration on Fundamental Principles and Rights at Work (1998) – concerned primarily with the issues of banning child labor, abolishing forced labor, banning discrimination, the freedom of association and the right of collective negotiation.– The OECD Convention Combating Bribery of Foreign Public Officials in International Business Transactions (1997)– “Agenda 21” on sustainable development (Declaration Environmentand Development adopted at the UN Conference on Environment and Development held in Rio de Janeiro in 1992)– The principles of the Global Compact for a more social and ecological form of globalization (1999)– The OECD Guidelines for Multinational Enterprises (2000)

Furthermore, we commit ourselves together with the “Declarationon Social Rights and Industrial Relationships at Volkswagen” (theVolkswagen Social Charter) and the “Charter on Labor Relations” tothe basic social rights and principles. Unquote

Comment:

It is clear Volkswagen has not adopted any of these above quoted conventions as part of their Management Policy. In this paper what we emphasise and differentiate is between mandatory and non-mandatory policies, later adding value to the Management Quality. The conventions said above include UNGC that is adopted by very many global companies [12500+ from different countries] as part of their non-mandatory initiatives but not by Volkswagen.

So is the case for UNCAC that stands ratified by Germany as on 12 Nov. 2014. UNCAC once ratified shall be included as Management Policy of a company as it applies to private sector too. Volkswagen has not mentioned at all on UNCAC, although internal anti-corruption officer is


available. The anti-corruption officer is available to advise every employee but also to business partners and third parties on questions pertaining to corruption, such as the permissibility of accepting gifts. Zimbabwe had also ratified UNCAC as long back as 8 Mar 2007. Then what is the difference between the two nations. Germany as a nation is proud of their products Quality and it high time they look into the Management Quality. Checklist of conventions have no meaning. UNGC and UNCAC should have been part of the Management Quality.

Corporate Nucleus made up of Corporate Protons the Board and Corporate Neutrons checklist of conventions via the public ought to obtain a mass of its own many many times the rest mass of Corporate Electron the Executive to make the CEO to spin around the Corporate Nucleus, lest CEO goes off the path.

Action Process

Looking at the corporate electron, the practices, one shall focus on the Action Process. Whereas Creative Process starting point is subtler than the subtle for Action Process it is gross. Whereas the end product of Creative Process is a substance, the end process of Action Process is task accomplishment. Whereas Creative Process is identical to every man-made or Natural Substance, made up of 6-stages of linear movement, Action Process is unique to the Quality of its substance with the same 6-stages of movement towards task accomplishment beginning from a state of insentience. Whereas Creative Process needs the effort of an individual so is the case for Action Process, as both deal with an inanimate Object which does not move forward without the effort put in by the Subject. Whereas the end product of Creative Process remains for long-time for the entire Corporate life, the end product of Action Process has a limited life-cycle.

Action Process also triggers Creative Process with the end product such as IPR, patents, Assets subject to depreciation, Market Share, Brand, Strategy, Project Management etc. Each is tracked and rated by six-stages during Action Process by a uniform Creative Process from a state of Quiescence to a tangible substance every such substance is measured.

Action Process is action on an Object by the Subject. The end result of


an Object by six stages is task accomplishment by the Subject. In an organisation a team of 5 keeping their independence even while performing the tasks yoked with another, enables accomplishment of each task by controlling each goal. Spreadsheet organisation structure differentiates each columnar task by the Object whereas Corporate Atomic Structure fuses together every task by the Subject. Each process block of an organisation is owned by a team of 5 people, with multi-tasking for the people or multi-team for a task. Each process block reflects the Corporate Atomic Structure the corporate nucleus, Policies and the Public and the corporate electron for practices. Each process block is isolated and made accountable.

During Action Process beginning from the state of insentience each stage is tracked as to the movement of the concerned Object. Action Process is a series of task accomplishments in infinite succession of finite purposes unique to the Quality of the Substance it acts upon. dT/dT - series of Tasks accomplished in respective Time gets measured accordingly. At any time the status is measured by each team by each member of the team as to Action or Inaction thereby measuring the performance, resulting in a binary value of 1 or 0. A process block is measured by averaging the 5 performance metrics taking into consideration but only the integer value. Collectively every process block is measured. The organisation as a whole has the status available by completed stage of measured value between 0 to 5 in 6-stages.

The rating by each process block is a measure of Corporate Governance of an organisation.

Volkswagen Group Strategy 2018ii:

Quote:Our Strategy 2018 focuses on positioning the Volkswagen Group as a global economic and environmental leader among automobile manufacturers. We have defined four goals that are intended to make Volkswagen the most successful, fascinating and sustainable automaker in the world by 2018:

• Volkswagen intends to deploy intelligent innovations and technologies to become a world leader in customer satisfaction and quality. We see high customer satisfaction as one of the key requirements for the Company's long-term success.


• The goal is to generate unit sales of more than 10 million vehicles a year; in particular, Volkswagen intends to capture an above-average share of growth in the major growth markets.

• Volkswagen's aim is a long-term return on sales before tax of at least 8% so as to ensure that the Group's solid financial position and ability to act are guaranteed even in difficult market periods.

• Volkswagen aims to be the most attractive employer in the automotive industry by 2018. To build the best vehicles, we need the best team in the sector; highly qualified, fit and, above all, motivated.

Unquote

Volkswagen Group Strategy 2018, how many process-blocks did it consider while targeting 2018? Each process-block moves forward linearly, isn't it? Did any single process-block try a quantum jump? Are they moving in the intended direction? How many such process-blocks are in the right direction, by dT/dT at optimised level today? What does the Index of Inactivity show as of now, a year that passed by, since the Strategy 2018 released?

Who failed Volkswagen, is it Corporate Governance or Management Quality?

Sustainability

Sustainability of efficiency provides profits, whereas sustainability of value system provides sustainability of profits. The corporate value system is defined herein by defining Corporate Social Responsibility.

Corporate Social Responsibility

Aman Singh Das wrote at the Vault’s CSR blog: Quote: “At a recent breakfast hosted by the Global Reporting Initiative (GRI) and NYSE Euronext, the Conference Board’s David Vidal asked an insightful question: What are the top three reasons for your company’s reluctance


to embrace sustainability—and to adopt sustainability reporting? The responses that came from an audience representing the glitterati of the corporate social responsibility world might surprise. What these responses point to, however, is the continued sense of reluctance across senior leadership toward combining the social and environmental with corporate.‘

The 11 challenges indicated were: i. Doubt ii. Liabilities iii. Denial iv. Resources v. Causality vi. Lack of Global Standards vii. Benchmarking viii. Lack of comparative credibility ix. Uncertainty x. Fear of the unknown xi. Fear of the known UNQUOTE

There is a good difference between KPMG-EIU survey findingsiii where 380 global organisations were considered in arriving at the conclusion: Many firms are grappling with the problem of deciding exactly what and how to measure; Deciding how to measure is more difficult than deciding what to measure;

and

the 11 challenges quoted above the reluctance across senior leadership toward combining the social and environmental with corporate.

In the analysis of Creative Process and Action Process where do these 11 challenges fit in to conclude what the senior leadership had arrived at?

Anti-bribery UNCAC is one of the finest social responsibility instrument, far superior to Bill of Rights, for its two clauses - Article 13 - Participation of Society and Article 10 - Public Reporting. Freedom of speech empowers an individual to yell and freedom of press write what one feels to write. UNCAC makes the government to bring in the Society for consultation and corrective measures taken by the government


UNCAC expects reporting back to the public. In countries where UNCAC is ratified it is also compulsory for private sector to adopt UNCAC and particularly these two Articles 13 and 10. Since the countries themselves ignore despite ratifying UNCAC, private sector is taking it easy. However UNCAC template can be adopted by companies during Creative Process for internal policies.

The 11 challenges arise out of various points raised by the corporate and their reluctance toward combining the social and environmental with corporate. Call a policy instrument by any name CSR or otherwise, if it has not gone through a Creative Process to be called a Policy statement it will be difficult to implement let alone measuring it. However, social aspects and environmental requirements need to be separated. United Nations Global Compact UNGC of 10 principles in 4 issue areas Human Rights, Labour Rights, Environmental Rights and Anti-corruption are readily in vogue and there shall be no reluctance to accept the same should any company leadership is faced with the said 11 challenges.

This leaves 'Social' aspects of what any company leadership wants to deploy.


Measuring Corporate Social Responsibility

Galileo Galilei: “Measure what is measurable, and make measurable what is not so.”

Following illustration explains the CSR enabling measurement by splitting into two issue areas: Corporate Ethical Responsibility and Corporate Fiscal Responsibility.

Volkswagen Corporate Social Responsibility reflects the title question Who failed Volkswagen, is it Corporate Governance or Management Quality?

In our Corporate Atomic Structure CSR is present in every Process Block. The moment share application money is received from the public, profits motive as brought out by the company becomes the primary aspect of the Corporate Atomic Structure. With the empowerment from the Corporate Nucleus, Executive Action Process starts i.e. Practices.


As Kaushik Basu says: Data organisation is as important as data collection. Or else it is as useful as a library where books are uncatalogued and stacked anywhere.

The chart reflects the Corporate Atomic Structure with Ethical Responsibility in one side and Fiscal Responsibility at the other, representing Creative Process and Action Process respectively. Creative Process represents Corporate Nucleus of Policies and the Public whereas Action Process the Practices.

Immediate reaction to the Volkswagen fiasco from Hermes EOS, the stewardship division of Hermes Investment Management, was calling for an overhaul of the management and corporate governance culture at Volkswagen.

When Toshiba's chief executive resigned recently, taking responsibility for doctored books that inflated profits at the Japanese technology manufacturer by $1.2 billion over several years LA Times mentions Japan is still struggling to improve corporate governance despite recent steps to increase independent oversight of companies.

Everything seems to go wrong only by Corporate Governance, Is it?

Creative Process ends in a tangible substance of Quality whereas Action Process is unique to the Quality of the substance from where it derives its legitimacy. In case of Volkswagen the cheat device is part of Action Process without a written policy on the matter whereas Toshiba's doctoring books is the result of breaking the Accounting Quality norms, similar to Siemens' 'read, laughed and filed code'.

In case of Volkswagen lack of Management Quality led to Executive Intransigence whereas Toshiba's is sheer audacity to outwit the Audit profession with impunity. Toshiba acknowledged a systematic coverup, which began in 2008, LA Times states.


Sustainability of Ethical Responsibility

Management Quality:

Beginning with AA and MoA a company adds mass to the Corporate Nucleus by incorporating several policies. Volkswagen possibly may come out with the corrective action on the incalcitrant CEO. It is a surprise the major shareholder State of Saxony, holding 12% of shares with 20% of voting rights was unaware of what was happening when a cheat software was put in motion. The cheat software would not have been certainly tested in the State of Saxony. Then why test in US, which is not a third-world country?

The cheat software, has it damaged the Management Quality of Volkswagen? Which of it, UNGC 3rd issue area of Environmental rights or Volkswagen Group Strategy 2018 of a global environmental leader among automobile manufacturers?

Accounting Quality

The financial damage could go further. Hidden within the German firm is a big finance operation that makes loans to car buyers and dealers and also takes deposits, acting as a bank. Its assets have more than doubled in the past decade and make up 44% of the firm’s total.iv

On 7th October 2015 Frank Witter (56) has been appointed Member of the Board of Management of Volkswagen AG with responsibility for Finance and Controlling with immediate effect. Witter was previously Chairman of the Board of Management of Volkswagen Financial Services AG.v

On the face of it Volkswagen had not resorted to tampering with the Accounting Quality as Toshiba had done but let go with just NOx emission, realising the damage it has done to their lungs coughing up in $billions. Tokyo's prospects dwindled after Fukushima disaster for Nuclear Power which is one of its core businesses that had hit them hard. What about Volkswagen's Accounting Quality after the tsunami of NOx emission? Watch out!


What Toshiba has done is a clear tampering of Accounting Quality. But from Enron to Worldcom to Toshiba the circle is complete. There is no such thing as Accounting Quality. Balance Sheet is an instrument that can be tampered with any time by any tom, dick and harry. Corporate Ethical Responsibility is burdened with Accounting Quality ab initio, however good the effort to compose a company with effective Management Quality. Improving the Accounting Quality seems not possible. In reality it suits the CEOs.

Corporate Fiscal Responsibility

Corporate Governance

In the Government Auditing Standards January 2007 Revision, issued by the United States Government Accountability Officevi, the word Governance has been used sixty times and barring two, the word Governance is prefixed with the words “Those charged with”. It implies: Governance is a staff function and there are individuals who are charged with especially and there are individuals not entrusted with Governance.

Governance is a dynamic function but is being used to connote lack of it ex post-facto occurrence of mismanagement. Governance ought to be instant. Illustratively, a passenger in an aircraft is provided with the video display of the real-time information on the flight path, a map covering the route, the position on dot, altitude, cruising speed, distance to destination, time from origination point and time to reach the destination.

In Corporate Atomic Structure a process block is a full-fledged operational goal owned by 5 individuals entrusted with the assigned task. The 5 individuals are : 1 representing Ethical Responsibility and the remaining 4 representing Fiscal Responsibility.

Let me illustrate on a possible scenario - Volkswagen had entrusted a team of 5, for each centre, to load a cheat software @ 60 vehicles per hour. The work starts with the German precision. Hardly a few minutes


go by then there is a call to the CEO from a Board member why the optimum level of achievement of the previous day 5 is now running at 4 because of one process block entrusted with installing some software. The four Fiscal Responsibility group had done their job independently and certified the installation job order, vehicle by vehicle but not by one Ms. CER, who has not certified as to the ethical standards adopted by the team. One person has assigned a 0 and the rest have given 5 each for this process block. This results in a rating of 4 that can be seen online. The online figure of 4 for the company is seen by one Arvind Thiruvengadam from a small lab in West Virginia University who discovers the lacuna in the said process block. He phones up the field operators who had been collecting the data on Volkswagen's emissions. In the meantime the CEO who had been cautioned by a Board Member goes into a huddle with senior executives. The brain behind the cheat software, previously Director of R&D, offers to come with a software to suppress the non-cooperation of Ms. CER to show optimum level of 5 for the collective display of all process blocks. Executive Director CER refuses to oblige and warns someone within can invoke Whistleblower policy. In the meantime CEO gets a message from the market that Volkswagen is trying to install a cheat software thanks to the intervention of a non-entity from West Virginia University Emission control Lab. CEO instructs the withdrawal of cheat software from installation in all the centres immediately. Day's damage for removal of the cheat software came to 600 vehicles from 10 centres within an hour.

Quote: BERLIN/WASHINGTON, Oct 8 (Reuters) - Volkswagen's rigging of diesel emissions tests was not a company decision but the result of actions by a small number of engineers, its top U.S. executive said on Thursday. "To my understanding, this was not a corporate decision; this was something individuals did," Michael Horn, President and CEO of Volkswagen Group of America, told a panel of U.S. lawmakers investigating the German carmaker's wrongdoing... The carmaker has previously said the software could be installed on up to 11 million vehicles: Unquote

Quote: “It is not necessary to change. Survival is not mandatory.” W. Edwards Deming: Unquote:


Risk Management

COSO Framework of Sarbanes-Oxley states: Control environment factors include the integrity, ethical values, and competence of the entity’s people;

- COSO’s internal control framework describes internal controls as consisting of five interrelated components. These are generally called “layers,” and the controls within each must be included in management’s assessment. The five layers are described by COSO as: I. Control Environment, ii. Risk Assessment, iii. Control Activities, iv. Information and Communication, and v. Monitoring.

In our Corporate Atomic Structure each process block, owned by 5 people, includes one from Ethical Responsibility wing of the organisation. In Subject–Object distinction of Corporate Management each Process Block and every other Block represents the values in the Corporate Atomic structure that risk management and internal controls are governed most efficiently with a single denominator – the Subject.

Ethical obligation in each Process Block ensures sustainable value system, insures sustainable efficiency and assures sustainable profits.

Looking at Volkswagen and Toshiba we find the enormity of 'risk appetite'. Risk appetite is from the higher echelon of the organisations. Having the strategy white-paper to introduce diesel vehicles in US at a considerable investment Volkswagen found itself in a quagmire half-way through. Volkswagen had gone by the traditional Return on Investment calculation whereas what we find ultimately is the tame plea, "To my understanding, this was not a corporate decision; this was something individuals did". Had Volkswagen used the Return on Intangible methodology of Subject-Object distinction of Corporate Management risk factors would have come forth with the integrity, ethical values, and competence of the entity’s people intact at every turn of events.


Volkswagen Code of Conduct states:

Quote:

Management Culture and Collaboration

In the context of leadership responsibility, the superiors guard against unacceptable conduct. They bear responsibility for ensuring that no violations of rules occur in their area of responsibility that could have been prevented or made more difficult through appropriate supervision.

Unquote:

CSR leads the organisation equating the highly paid executives and the lowest paid workers by a common denominator - ethical obligation. Leadership responsibility on ethical obligation can arise from the lowest paid. Volkswagen Group Code of Conduct mentions on conflict of interest. Conflict of interest and conflict of personal interest such as insider trading arises from the individuals who have access to confidential information. They are invariably from the top echelon of the organisation. Whereas conflict of conscience is from the persons who may not have access to the confidential information but able to observe the irresponsible leadership. Self-governance is easier done at the lower level if and only if, top leadership follows the principle of ethical obligation.

Self-governance

By controlling each process block by a manageable number of people a sense of ownership arises and at the same time it develops self-governance at the lower level of operations. Self governance and accountability system has the Subject as the denominator whereas Object related system loses track of the Subject. The need for a CER personnel for each process block slowly gets superfluous once the rest of the team members i.e. 4 in number integrate CER concept within each process block. That is self-governance sans conflict of conscience.


Sustainability of Profits

Ethical obligation in each Process Block ensures sustainable value system, insures sustainable efficiency and assures sustainable profits. The hiccup in both the cases Volkswagen and Toshiba deprives the Society of continued profits from the companies in question.

In order to ensure sustainable profits our age-old Financial Accounting methods need to be changed. Not profits but energy should be the criterion of measuring Corporate performance. CREAM Report - [Corporate Governance, Risk Management, Earnings, Accounting Quality and Management Quality] by Return on Intangible, including every item in the Balance Sheet and P&L, is a measure of the energy created by individuals moving inanimate objects from one space to another. The process of changing is e = mc². The corporate nucleus, i.e., Corporate Protons and Corporate Neutrons, consisting of Policies and the public has a bigger mass than the Corporate Electron the Corporate Practices. Corporate Electron, the Practices when goes astray the Corporate Nucleus guides the Executive Electron to spin around it, lest it goes off tangent uncontrolled completely. That is a major disaster. This is exactly what Volkswagen did, going off tangent from the prescribed path.

Whereas Toshiba did not escape from the prescribed path but damaged the path itself. In case of Volkswagen Management Quality can be brought in to restrict the Executive intransigence once found out. For Toshiba it would take a longer time, as the damage caused is at the root level of shaking the Accounting Quality.

By Corporate restricting oneself with just Financial Accounting as the basis of corporate measurement almost 90% of corporate actions and inactions are left unmeasured.


Conclusion

1. Volkswagen Code of Conduct states: Each superior ensures that the employees in their area know and comply with the Code of Conduct. Furthermore, Group Auditing will review compliance on a case by case and/or random basis as part of the auditing program approved by the Chairman of the Board of Management of Volkswagen AG.

Self-governance is the ultimate in decentralisation not instruction from the Chairman of the Board. Chairman initiating an Audit program as to ensure code of conduct is complied by all below sounds hierarchical, assumes the organisation has one call centre. Risk culture should emanate from below. Knowledge should emanate from the superiors.

2. Invariably Corporate Protons do not form a Nucleus with the Corporate Neutron - the public but with the Corporate Electron the Executive. Management Quality emanates primarily from the public institutions. How many companies in the world would file a quarterly or annual Balance Sheet if not made mandatory?

Management Quality is an imperative part and parcel of a strong Nucleus. Volkswagen, like many other organisations during 2008 financial crisis, had not given due respect to the Nucleus. State of Saxony being a major shareholder and the other major stakeholders should spearhead establishing a strong Nucleus with a robust Management Quality.

3. As to the question of Who failed Volkswagen, is it Corporate Governance or Management Quality?, the answer is:

My vote is: Management Quality failed Volkswagen.

Jayaraman Rajah [email protected]

+9194873900439On the Vijayadashami Day

22nd October 2015Kodaikanal, India


i 20150930_Verhaltensgrundsatze+-+update_coc_englisch_digital.pdfii http://www.volkswagenag.com/content/vwcorp/content/en/the_group/strategy.htmliii EIU report_v2_A4_Apr14. dated 15th April 2011, KPMG International in cooperation with EIU on Corporate Sustainability - A Progress Report - (page29)iv The Economist - A Mucky Business - http://www.economist.com/news/briefing/21667918-systematic-fraud-

worlds-biggest-carmaker-threatens-engulf-entire-industry-andv Volkswagen http://www.volkswagenag.com/content/vwcorp/info_center/en/news/2015/10/Frank_Witter.htmlvi GAO, United States Government Accountability Office, By the Comptroller General of the United States, Government Auditing Standards January 2007 Revision.

who failed volkswagen, is it corporate governance or management quality?

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