VW head of staff Peter Hartz resigns after scandal

FRANKFURT -- Volkswagen board member Peter Hartz, the carmaker's personnel chief and the architect of Germany's controversial labor reforms, resigned on Friday over a bribery affair involving his department.

The scandal, currently under official investigation, has damaged the image of Europe's largest automotive group and called into question Germany's consensus-based system of corporate management, known as co-determination.

"This is about more than just me. This is about the reputation of Volkswagen, for which I feel especially responsible," the 63-year-old manager said in a statement sent out by Volkswagen. "To prevent any further damage to the company, I have offered my resignation to the supervisory board today."

The state prosecutor's office in Brunswick, near Volkwagen's Wolfsburg headquarters, is investigating two former staff members for suspected fraud and breach of trust. One of the two was a close adviser to Hartz.

Volkswagen has hired consultancy KPMG to conduct an independent audit.

In his first public statement on the matter, VW's Chief Executive Bernd Pischetsrieder said: "We respect the offer of Dr. Hartz to assume the political responsibility for the events and to resign from his position as head of personnel."

"WATERSHED"

"It's a watershed, the best thing that could happen to VW -- and it should have happened 10 years ago," said Global Insight's Christoph Stuermer.

"Ideally, this could lead to Lower Saxony ceasing its political involvement in VW, the end of the VW Law and raising the interest of the financial markets in VW," the industry analyst continued.

The so-called VW Law was passed when the company turned private and effectively prevents any one shareholder from gaining majority control by capping voting rights at 20 percent.

Volkswagen is the only company in Germany to have its own federal legislation.

Chancellor Gerhard Schroeder, a former VW board member, picked Hartz to help draw up labor market reforms which dented support for his Social Democrats.

The company's close ties to Germany's political leaders -- its main shareholder is the state government of Lower Saxony -- and its consensus-oriented labor relations, have made VW an icon of the country's postwar "social market" system.

Schroeder said after a meeting of Group of Eight leaders in Scotland on Friday that Hartz had done "very, very much" for Volkswagen and Germany but declined to comment further.

The affair has already forced Klaus Volkert, the powerful head of the group's works council, to step down from his post. Volkert had worked with Hartz for years to help secure VW's more than 100,000 jobs in Germany.

At first the chairman of the VW supervisory board, Ferdinand Piech, had defended Hartz by maintaining that he was and would continue to be the head of personnel at VW.

But on Friday the VW works council said: "If the supervisory board accepts the resignation of Dr. Hartz, then we in the supervisory board will jointly determine a successor -- as has always been the case at Volkswagen."