The Morgan Stanley news ticker in New York reports on the Volkswagen emission scandal. Richard Levine/Demotix. All rights reserved.Das Auto is causing angst. The Volkswagen scandal is undoubtedly disastrous on many levels. Arguably, no other company is so linked or advertises so widely with the label "Made in Germany," as the Wolfsburg carmaker. That Volkswagen now, of all companies, got caught cheating to the detriment of people's health and the environment, could tarnish Germany's political and corporate reputation.
But whereas the storm of critique is only too understandable in light of the magnitude of the scam, it's misguided to cast aspersions on Volkswagen's model of corporate governance. The patriarchal corporate culture surely needs to change, but the insider system of corporate governance in many ways embodies the core of the German economic model.
The current scam and a scandal-ridden past propel Volkswagen's model of corporate governance to the centre of attention. The Financial Times demands an upgrade of the "whole corporate structure," given Volkswagen's historically undervalued stock. And indeed, the firm's ownership structure and internal power balance are an external investor's worst nightmare. The state of Lower Saxony holds a 20 per cent blocking minority. This government ownership is enshrined in the so-called VW law, which the EU Commission challenged unsuccessfully, not least due to Angela Merkel's support of the status quo. Labour union representatives are so powerful within Volkswagen's corporate governance arrangement that observers call it "co-management" rather than co-determination (the long-standing arrangement that ensures labour's say in corporate decision-making through works councils and half the seats on supervisory boards). The two owner families, Porsche and Piëch, control more than half the shares with voting rights. With Qatar’s sovereign wealth fund holding a 17 per cent stake, just above 10 per cent of Volkswagen's shares are free floating or subject to potential speculation.
