Corporate governance is relatively straightforward when you boil it down to the essentials: safeguard the company’s future, protect its reputation and at all times abide by the law. When crisis strikes, a board must spring into action and take charge to quickly restore confidence.
So when Audi's Rupert Stadler made history as the first German CEO to be arrested, denied bail and thrown behind bars for allegedly attempting a cover-up of the diesel scandal, the supervisory board at Audi parent, Volkswagen Group, should have gone straight to damage control mode.
Ensuring a smooth, continuous transition to a new interim Audi boss within hours while simultaneously putting as much distance between the company and Stadler would have been the smart move.
Instead, the 20 men and women serving as nonexecutive directors debated for six hours on Monday before postponing further discussions as old loyalties took precedence over common sense -- yet again providing a textbook example of how not to run a company. VW Group is an industry behemoth but continues to behave as if it’s a family-run midsize company from a German province where this lack of professionalism and accountability is acceptable.
When VW finally announced a decision to suspend Stadler and appoint its sales chief Bram Schot as interim CEO, it botched the messaging. VW said the board had accepted Stadler’s request to be released from his duties which, if true, they should never have admitted. In doing so the board forfeited a golden chance to demonstrate backbone and resolve, compounding its errors further.
Rather than simply informing Stadler that he would be placed on leave for however long it would take until his name could be cleared, they relinquished the task of making the obvious choice to the Audi boss.
Some media reported officials claiming the board simply needed the appropriate amount of time to take a sound decision. This however lends further credence to suspicions the very same board that replaced CEO Matthias Mueller essentially overnight only two months ago is passive, sedentary and in over its head when it comes to the scandal.
Evidence mounted for the better part of a year that Stadler either did not have a grip on the situation or worse was actively covering his tracks. Last week he was officially made a suspect. By the time Stadler was finally detained pending trial, it was hard to see how his reputation could ever recover barring a full exoneration by a court. CEOs have fallen on their sword for far less.
The unprecedented move by Munich prosecutors to put an acting CEO behind bars awaiting trial was daring by German standards. Instead of answering with bold reply of its own, Volkswagen Group’s board came across as weak and indecisive, more interested in protecting the Stadler’s reputation than that of the company.