As CEO resignations go, this one didn’t come as much of a surprise. On Wednesday, Volkswagen Group announced that its embattled chief executive, Martin Winterkorn, would be stepping down. The news followed the German car giant’s admission that it had cheated on U.S. emissions tests, leading the company to take a 6.5 billion euro charge to cover losses and say that as many as 11 million vehicles could be affected.
Who will follow Winterkorn, however, isn’t yet known. The company did not immediately name a successor, and a statement from the supervisory board’s executive committee said recommendations for a replacement will be considered at a board meeting Friday.
The potential reputation and monetary damage the company is facing is enormous, say leadership and governance experts. “Warren Buffett has often noted that you build a reputation over years and decades, but you destroy it in a blink of an eye,” said Wharton professor of legal studies and business ethics Thomas Donaldson. “Well, Volkswagen just blinked.” He said the nature of Volkswagen’s scandal had few parallels: “I’ve never seen a corporate Watergate of this stripe.”
As a result, spelling out how Winterkorn’s successor can begin repairing the wreck isn’t a simple application of crisis management 101. Any incoming CEO will need to be adept not only at rebuilding a culture where this sort of deception occurred, but at managing the global legal and regulatory fallout and massive fines the company is likely to face.
Hanging over it all, leadership experts say, is the political rift that played out earlier this year between Winterkorn and former chairman Ferdinand Piech, who is patriarch of the family that owns just over 50 percent VW’s voting rights.
The company’s next leader will also need to take many of the more traditional crisis management steps, albeit facing particularly high stakes. The challenge ahead is extraordinary, from overhauling personnel to rebuilding the company’s culture to setting realistic expectations and bringing in untainted outsiders who can send strong signals to investors. Says Donaldson: “The way back is up a mountain that’s very tall. It’s a crawl up a very steep slope, where at this point you can’t even see the top.”
Several governance experts suggested that an outside CEO—or the naming of an interim CEO from the board—would be a good first step. Some even cited dream candidates for the job like former Ford CEO Alan Mulally, who achieved rockstar CEO status with what he turned around the U.S. automaker.
But an outsider would be “highly, highly unusual” at the German car company, says Korn Ferry vice chairman Steve Mader. With a multi-generational family involved, and given Volkswagen’s importance to the national economy, he doesn’t see it as likely.
“I think an interim setup could be argued as being ideal under these circumstances,” Mader said. “If I was a board member, I’d sure be thinking about a ‘buy time’ strategy.” Press coverage, meanwhile, has listed both Matthias Müller, who runs the Volkswagen division that makes Porsche sport cars, and Herbert Diess, who just joined VW from BMW in July, as potential successors.
Once the new CEO is named, or even before then, it will be important to make clear that others beyond Winterkorn will also be shown the door. That will not only allow the new CEO to start with a clean slate, but will send signals to outsiders—customers, investors, suppliers—that significant change is underway.
Dennis Carey, another senior executive recruiter for Korn Ferry, said that he worked with Tyco International following the company’s accounting scandal, helping to rebuild its senior management team and board. Jerome York, the respected former Chrysler and IBM executive, was recruited “basically to send a signal to investors,” Carey said. “Not only cleaning house, but signals are very important from here on out.”
In its statement on Wednesday, the executive committee of Volkswagen’s supervisory board indicated there would be more changes, noting that it “is expecting further personnel consequences in the next days. … all participants in these proceedings that has [sic] resulted in unmeasurable harm for Volkswagen, will be subject to the full consequences.” The board also said it “recognizes not only the economic damage caused, but also the loss of trust among many customers worldwide.”
The statement proposed a special committee that would turn to outsiders for advice, noted Winterkorn’s contributions to the company as well as that he did not have knowledge about the emissions manipulations, and made a point to say that “coming to terms with the crisis of trust will be a long term task that requires a high degree of consistency and thoroughness.”
Setting those sorts of long-term expectations will also be crucial for the new CEO. Michael Useem, a professor at Wharton who has worked closely with boards managing crises, says that the first year after a crisis is often a matter of triage, and that emphasizing the slow nature of the turnaround is important. “You’ve got 12 months of extremely heavy lifting,” he said.
During that time—and for years afterward—the most critical work may be overhauling the culture. Charles Elson, a governance expert who worked with HealthSouth in the aftermath of its accounting scandal and who remains on its board, says it took years for the company to remove the old vestiges of its culture and rebuild itself with new management. The same, he believes, will happen at Volkswagen.
“It’s important to separate the company from the old culture as dramatically as possible and be extraordinarily transparent throughout the process,” Elson said. “It’s going to take a long time to redo this.”