Escalation is the word that describes best what happened in recent weeks within Volkswagen, and it’s an escalation that is not helpful for CEO Herbert Diess, the Volkswagen Group, our society, Germany, or the environment.
It is not helpful, but much more than what happened to a single automaker, it’s a symptom of how German society deals with change. Escalation is considered a negative word, and change a positive, but that is as correct as calling the daylight a positive and the night darkness a negative. It’s an incorrect simplification that we are used to.
Every escalation has its beginning. Therefore, let’s go to the start and review what happened, why it happened, and where this all may lead.
Herbert Diess so far has had two roles within Volkswagen Group, the CEO role for the Group and the CEO role for the Volkswagen brand. Volkswagen Group has a lot of brands and CEOs, and the influential ones include responsibility for a brand where the money is coming from, while the Group CEO defines the strategy and has a more representative role.
In 2015, Diess joined VW after 15 successful years at BMW in order to transform the largest German automaker, with 660,000 employees, and make it fit for the BEV future. Over the years, he hired many ex-BMW colleagues for key roles (e.g., Audi CEO) and changed with high pressure a company that, like Daimler and BMW, did not believe in a future where vehicles with electric drivetrains would dominate the product line.
Despite his friendly and almost soft appearance in public, he is known to fire people with different opinions in a second, and by doing that, he streamlined the management for a new future in which sustainable transportation takes a core role. You can criticize this but it’s a way to make happen what he promised, a revolution instead of evolution.
His communication style is very direct, speaking the unpleasant truth and, like many top managers, never acknowledges any mistakes on his side, instead making others accountable for not achieving company goals. In that respect, he developed, like many top managers, strategies to get rid of barriers and people if they were in his way.
Not surprisingly, over the years, his restless push and pressure to move ahead and change, combined with his management style, frustrated and annoyed a growing group of managers who built a silent alliance against an alien CEO and his alien network. They kept waiting for the Group CEO to either hold his bold promises or not, and if the latter happened, they considered that an opportunity may appear.
While scandals hit VW over the years — be they cheating devices, PR mistakes, or never-ending lawsuits that cost the company billions — Herbert Diess and his network within VW have remained an outsider group that still needs to show success before they can justify their measures and actions. The company is split into a small group of top managers demanding unpleasant changes against the other 660,000 who until today are only partly convinced that the strategy is the right one.
The question Volkswagen Group is trying to answer is not how to build good fully electric vehicles (BEVs) or accelerate the advent of sustainable transportation, but how to continue to make good profits, grow, and keep its market share and jobs. The mélange of interests in the Volkswagen board room is completely different from the interests you will find in the board room of Tesla. An intention to accelerate sustainable transportation does not necessarily stand in the way of market share, profits, and jobs, but to focus on profits, market share, and jobs stands in the way of succeeding in inventing breakthrough technology for BEVs. That simple relationship is often overlooked.
From the outside, the visible change in the top management of the former customer-cheating automaker VW turned into the hope of a generation. The hope is that aside from the undisputed global leader in BEVs, Tesla, the #2 will be self-declared contender Volkswagen Group. A new technology platform, a new battery strategy, and the Battery Center of Excellence, as well as a promising new fully electric passenger car model line (ID.X), did prove change is a realistic possibility.
Supported by the 50.7% company voting rights of the Porsche–Piech family, Diess did not make compromises within or outside the group and stepped on many feet, including those of politicians. As an automaker, you always do that, since it’s a part of the business, but the situation of VW is different in that respect, as the Lower Saxony government owns 20% of VW’s voting rights, has a seat in the advisory board, and with that has a veto right.
Angela Merkel, the Chancellor of Germany, did not like the feeling of pressure from Herbert Diess to initiate incentives for ICE (internal combustion engine) vehicles to help German automakers through the economic crisis. Minister-President Stephan Weil of Lower Saxony, who has a seat on the Volkswagen Advisory Board, did not like that as well and turned against Diess, shrinking his supporter group even more.
The unions, traditionally a strong power factor in Germany, are within the Volkswagen Group supported by a special Volkswagen act and are particularly powerful. They turned against the CEO many times openly and were at the forefront of the opposition.
The law allows, for instance, the unions alone to block any new production facility, which means that without the unions’ support, you cannot manage the company. On top of that, the law allows the state of Lower Saxony a veto right on the extra powerful Advisory Board too. To summarize, it is fair to say that Volkswagen Group is not managed by managers but very much by politicians and unions.
That is a problem if not the problem. All larger projects in which Germany politicians have been involved, like the Berlin Airport or the Symphony Hall in Hamburg, to name just two projects that failed in all aspects: timing, budgets, and results. If you want to succeed in business, don’t allow politicians to interfere.
In February 2020, when the delay of the ID.3 — a flagship product and extremely important vehicle for VW — was announced, the CEO of Porsche Oliver Blume as well as the CEO of Audi Markus Duesmann prepared themselves as possible successors, but the strongest shareholders, the Porsche and Piech families, owning more than 50% of Volkswagen Group, supported Herbert Diess and gave him some backbone and justification to continue his course.
Last Thursday, in a management meeting, the Group CEO informed his peers of some more unpleasant truths — intended just for a small management group and declared as confidential. Quote:
“One of the unpleasant truths is that in China our market leadership is not a law of nature. (…) In China, the leader in electric cars is now called Tesla.
“It will be years before we have reached the necessary level of expertise in software to be able to compete at the forefront. (…) Even today, hardly a line of software code comes from us.”
Despite confidentiality agreements (and as top managers you trust that information is kept in a small group), it was leaked to the press instead and created negative, not wished for attention about the true situation of VW in comparison to, for instance, Tesla.
That negative attention did what it was intended to do and harmed Herbert Diess further, who in an uncontrolled moment of anger in front of 3,200 employees — and diverting from his speech script — called the leak a “criminal offense” and “legal infringement” done by the presidium of the advisory board.
As a result, a special advisory board meeting was called in which the representative of the unions, Osterloh, used the opportunity Diess presented to him and asked to fire Diess from all of his positions. The official justification was to make Herbert Diess accountable for the Golf 8 and ID.3 software disaster, since those are longtime known facts. The true reason, though, is that the advisory board members felt accused from Herbert Diess of being criminals, which did not feel right for them and was an open offense too.
While Herbert Diess did what he learned in his career, and what top managers do in these situations, which is trying to make another person accountable for the software issues with the Golf 8 and ID.3, it backfired and he had to give the important VW brand CEO role to the person he wanted to be seen fired, Ralf Brandstätter.
In the next act of this ridiculous Greek drama, Herbert Diess was not permitted to announce an apology, but the advisory board did it instead, making him look like he is not in control anymore. Diess and Brandstätter, who do not get along very well, had to record a video to pretend unity was there, which they published via LinkedIn. It shows a humiliated Herbert Diess trying to find a justification for giving the CEO role to Brandstätter — again, the person he wanted to fire. On top of that, Brandstätter thanked him in the video for the promotion — again, knowing Diess wanted to fire him.
All of this can only be described as a gradual “teardown” of Herbert Diess that sooner or later will result in him leaving Volkswagen Group one way or another. It is in my opinion just a question of time, as I do not believe that the harm done can be repaired. The group of selfish top managers, politicians, and managers from the unions that are longing for titles and reputation do not care if this will hinder the company from succeeding in its urgently needed transformation into a successful BEV company. They are too busy with themselves instead of making any progress on the company goals.
What happened to VW is like a mirror of what happens to the German society that on the one hand is asking for clean, cheap energy, but on the other hand demonstrates against renewable energy projects, be they wind turbines, solar farms, or the urgently needed high-energy transmission lines from the north of Germany where a lot of wind energy is produced to the industrial areas in the south. Years and years long lawsuits, a never-ending protest, and demonstrations against, for instance, a factory that intends to produce emission-free vehicles with renewable energy to make all of our lives better. These things make me ask what is wrong with Germany, with Germans and our society.
Change is what we all need — be it to support the, as of today, not-at-all-guaranteed survival of Volkswagen Group, or how we in Germany generate and consume energy.
Change is needed for how we deal with our environment, where every day more animals are extinguished forever than in any time in history before.
Change is always welcome if it’s the others that must change, but change impacts us all and only together do we have a chance of accomplishing a better future.
A bend in the road is not the end of the road, but gives a new perspective of what is behind it and in front of us — the future.
I wish people would be more good at heart and unite to make a positive difference, to support change that benefits us all.