Vorsprung durch realpolitik – what VW power games say about German CEO culture

I am distancing myself from Winterkorn.

With this short sentence, the powerful chairman of Volkswagen’s supervisory board, Ferdinand Piëch, expressed his misgivings about CEO Martin Winterkorn, who has led Europe’s largest car manufacturer to unprecedented heights since 2007.

Lobbed into the German media landscape out of the blue ten days ago, Piëch’s verdict exploded like a hand grenade. Frenzied coverage in national papers and TV bulletins soon came to the conclusion that, irrespective of his corporate achievements, Winterkorn would have to resign.

Equally soon, events proved them wrong. A week after Piëch had launched his attack, an emergency meeting of the supervisory board backed Winterkorn, promising to extend the CEO’s contract.

While this episode may appear as little more than a corporate power struggle, it sheds light on far broader issues. Indeed, the motives behind Piëch’s attempt to remove a successful CEO, the manner in which Winterkorn secured backing and the intense media interest highlight important aspects of Germany’s business culture.

Family ties

To some extent, the media focused on the conflict at VW because of the personalities involved. The expectation that Winterkorn would have to go reflected Piëch’s reputation as a ruthless power broker. In particular, the German public remembered how Piëch had fought off a hostile take-over bid from luxury car manufacturer Porsche in 2008. Initially standing with his back to the wall, he launched a determined counter attack that resulted in a gleeful public humiliation of Porsche’s management.

Many German observers were also aware that Piëch has an exceptionally personal and intriguing stake in VW. With other family members, Piëch owns a holding company that, in turn, controls the majority of VW’s shares. He owes this good fortune not only to an illustrious career that included success as a CEO at Audi and Volkswagen; he is also a member of one of Europe’s premier auto dynasties. Ferdinand Piëch’s grandfather was no other than Ferdinand Porsche, who designed the legendary Volkswagen Beetle in the 1930s and thus laid the foundation for today’s corporate giant. His uncle was Ferry Porsche, who established the eponymous sports car firm.

Its infighting has entertained the German public for years, not least during the aforementioned take-over bid of 2008, which – among other things – was a family spat writ large. While most global enterprises are clad in a largely anonymous aura, VW attracts unusual public attention because important company developments can be told as a family drama – in which Piëch plays the towering corporate patriarch.

Weather vane

At the same time, many Germans regard VW as far more than an over-sized family firm. It is Germany’s largest company by a considerable margin. In 2014, VW employed almost 600,000 people who worked in 118 factories in 31 countries. Moreover, the German public has long viewed Volkswagen as an enterprise whose fortunes are symbolic of wider national economic trends.

The company gained this cultural resonance during the so-called “economic miracle” of the 1950s and 1960s, when average incomes quadrupled. Then, VW embodied a country under dynamic reconstruction. Its best-known product – the Beetle – stood for an affordable consumer boom. VW’s workers received West Germany’s highest wages and most generous benefits, in part due to cooperative industrial relations between management and trade unions. While the economic miracle is a thing of the distant past, Volkswagen’s status as a national weather-vane of “Made in Germany” remains intact.

That is why the German public tried so hard to decipher what Piëch might have meant when he “distanced himself” from his CEO. In March, VW had presented impressive annual figures. Profits stood at €11 billion; most employees, including assembly line workers in Germany, received substantial bonuses. With its 10m cars sold that year, the firm was on track to become the world’s biggest auto maker. Just like the country itself, Volkswagen seemed to be in rude economic health.

Expansion pact

Given that, Piëch’s attack was widely read as impatience with longstanding problems that Winterkorn had failed to solve. In particular, the CEO had not expanded Volkswagen’s market share in the US, where the VW brand remains stuck in a tiny niche. Although the company posted impressive results in Asia, Winterkorn had not arrested falling sales in Brazil, which auto circles see as a crucial emerging market.

It is also probable that Piëch saw the need for a new approach to a key structural problem. You see, the group consists of brands ranging from high-end Lamborghinis to budget Skodas. Within this range, the Volkswagen brand (Golf, Passat, Polo etc.) is stuck between highly profitable luxury marques and the high-volume economy range. This awkward mid-market position has left the Volkswagen brand struggling to reach the profitability levels of other parts of the VW concern.

Piëch, commentators reasoned, wants to install a new CEO who makes VW’s core brand more profitable. That he did so at a time of good results showed him drawing on decades of experience to anticipate crises. Indeed, when Piëch was VW’s CEO in the mid-1990s, one of his main tasks had been boosting the core brand’s results.

Blessed union

The emphasis that German coverage placed on VW’s potential problems indicates that observers there are attuned to the tenuous nature of economic success, but still, the public had little sympathy for Piëch’s initiative. Indeed, the CEO emerged from the power struggle with the promise of an extended contract because the powerful trade union representatives, who make up half the members of VW’s supervisors boards, unanimously backed Winterkorn.

The message was clear: whoever wants change at a substantial German company needs to consult the trade unions first. Germany’s prosperous economic results (including substantial pay awards for large sections of the workforce) highlight that the country’s pervasive approach to industrial relations, which requires employers and trade unions to work together to resolve problems, may have a lot to recommend it. On this occasion, it shored up a CEO who is Germany’s highest-paid manager on about €15m.

To highlight their alliance, Winterkorn and the head of VW’s trade union sat next to each other during the Europa League match of VfL Wolfsburg, the club sponsored by VW. Neither of them looked too happy; Wolfsburg lost that first leg of the tie to SSC Napoli 1-4. Winterkorn may have had more than football on his mind. Immediately after the board meeting that saved his neck, commentators were predicting that Piëch was setting himself up for a second leg of his own.

The Conversation

This article was originally published on The Conversation. Read the original article.

Bernhard Rieger's research places European history since the late nineteenth century in global contexts. He pays particular attention to the relationships between culture, society and economy to understand how humankind has dramatically reshaped the natural and the social worlds over the last century. Since these issues cannot be explored within the confines of the nation state, his work has drawn on comparative and transnational approaches.

Bernhard has published on Germany, Britain, the USA, and Mexico. His first book examined the fascination for technology that swept Europe between the 1890s and World War II. His most recent book is entitled "The People's Car: A Global History of the Volkswagen Beetle" (2013) and traces the VW Beetle's journey from failed National Socialist prestige project to lasting prominence in Western Europe, the United States and Latin America. Bernhard's work has received several awards including the Hagley Prize in Business History and the Binkley-Stephenson Prize from the Organization of American Historians. He has featured on BBC television and radio programmes and regularly works with museums including the British Museum and Victoria and Albert Museum.

Beyond continuing his interest in the global history of the automobile, Bernhard is currently pursuing a project that places the history of unemployment since the 1970s in global contexts. He has supervised research students on twentieth-century German, British, and American history and welcomes inquiries in these areas.

Browse articles by author

More Current Affairs

Added 23.05.2018
The good news is that the United States and China appear to have backed away from the precipice of a trade war. While vague in detail, a May 19 agreement defuses tension and commits to further negotiation. The bad news is that the framework of negotiations is flawed: A deal with any one country will do little to resolve America’s fundamental economic imbalances that have arisen in an interconnected world.
Added 21.05.2018
The cryptocurrency revolution, which started with bitcoin in 2009, claims to be inventing new kinds of money. There are now nearly 2,000 cryptocurrencies, and millions of people worldwide are excited by them. What accounts for this enthusiasm, which so far remains undampened by warnings that the revolution is a sham? One must bear in mind that attempts to reinvent money have a long history. As the sociologist Viviana Zelizer points out in her book The Social Meaning of Money: “Despite the commonsense idea that ‘a dollar is a dollar is a dollar,’ everywhere we look people are constantly creating different kinds of money.” Many of these innovations generate real excitement, at least for a while. As the medium of exchange throughout the world, money, in its various embodiments, is rich in mystique. We tend to measure people’s value by it. It sums things up like nothing else. And yet it may consist of nothing more than pieces of paper that just go round and round in circles of spending. So its value depends on belief and trust in those pieces of paper. One might call it faith.
Added 19.05.2018
The protests that rippled across Russia ahead of Vladimir Putin’s fourth inauguration as president followed a familiar script. Police declared the gatherings illegal, and the media downplayed their size. Alexey Navalny, the main organizer and Russia’s de facto opposition leader, was arrested in dramatic fashion, dragged out of a rally in Moscow by police. On May 15, he was sentenced to 30 days in prison. More than 1,600 protesters across the country were beaten and detained.
Added 16.05.2018
Many knowledgeable people dismiss the prospect of advanced AGI [=Artificial General Intelligence]. Some, ..........,argue that it is impossible for AI to outsmart humanity........Yet other distinguished scholars........do worry that AGI could pose a serious or even existential threat to humanity. With experts lining up on both sides of the debate, the rest of us should keep an open mind.
Added 15.05.2018
The world’s most important bilateral relationship – between the United States and China – is also one of its most inscrutable. Bedeviled by paradoxes, misperceptions, and mistrust, it is a relationship that has become a source of considerable uncertainty and, potentially, severe instability. Nowhere is this more apparent than in the brewing bilateral trade war.
Added 15.05.2018
Viewed from Palestine, it’s hard to disagree that we’ve perhaps seen one of the most inflammatory weeks in recent memory. In just a few days, several extremely sensitive events have coincided to devastating effect: the culmination of weekly protests in the Gaza Strip, the relocation of the US embassy from Tel Aviv to Jerusalem, the 70th anniversary of the 1948 Nakba (from the Arabic, “Immense Catastrophe”) and the start of the holy month of Ramadan. Throw in for good measure Israel and Iran’s recent clash over the occupied Golan Heights and it seems that more than ever, the region is something of a tinderbox.
Added 14.05.2018
The irony, of course, is that this is exactly the type of “grand bargain” Iran proposed to the Bush administration in May 2003. Bush rejected the offer, vowing never to talk with a member of the “axis of evil.” As Vice President Dick Cheney put it in reference to North Korea – another member of that fanciful “axis” – Americans “don’t negotiate with evil; we defeat it.” But by trading diplomacy for saber-rattling, the Bush administration slammed the door on a solution with Iran. Today, as Trump embraces the same tactics, it’s hard to fathom how the outcome will be any different.
Added 12.05.2018
Quote: "If you take out a piece of paper and put 10 political issues that are important to you on one side and the words “Republican” or “Democrat” on the top, then categorize them, most of you are likely to find that you, too, are a hybrid of both. If my contention is correct, and enough voters get fed up enough with the political status quo in the mid-terms and the next presidential election to say that neither Party actually represents their belief system, we may just find that the 40% of American voters who are already Independent turns into 50% or 60% in the near term. I am willing to bet that in spite of all the hype about most Americans being firmly in one political camp or the other, that most Americans are actually middle ground voters who form part of the emerging hybrid political class. Whether they choose to remain affiliated with either the Democrat or Republican Parties in the future remains to be seen. Stay tuned".
Added 10.05.2018
Quote: "China, clearly, is emerging as a world power, even more quickly than it otherwise would, to the extent that the US is coming to be seen as an unreliable partner concerned only with advancing its own interests – at the expense, if necessary, of other countries. But the belief that China will continue growing at mid-single-digit rates for an extended period violates the first rule of forecasting: don’t extrapolate the present into the future. At some point, China will hit bumps in the road, and there is no guarantee that its leaders will admit their failures and adjust policy accordingly."
Added 08.05.2018
The decertification of the Joint Comprehensive Plan of Action (JCPOA) by Trump is most unfortunate. It seems that Trump was not swayed by either France’s President Macron or Germany’s Chancellor Merkel to preserve the deal. Instead, he appears to have taken Israeli Prime Minister Netanyahu’s advice to decertify the deal, even though Iran continues to fully adhere to all of its provisions. It is dangerous that neither Trump nor Netanyahu appears to fully grasp the dire regional and international implications of the unilateral decertification of the deal by the US.
Added 04.05.2018
Quote fromthe article: "Iran has been instrumental in the survival of the Assad regime since the Syrian uprising began in March 2011. Since then, Israel has used its air power to disrupt weapons supplies to Hezbollah and maintain a buffer zone in the southwest, near the Israeli-occupied Golan Heights. But now it seems things are heating up. Is this now a far bigger, more direct confrontation in the Syrian arena?"
Added 03.05.2018
As signs of an incipient slowdown in the European economy begin to multiply – coincident indicators suggest that industrial production has slowed sharply in 2018 – the case for agreeing on a Brexit deal and refocusing attention on capital markets union is becoming more powerful and more urgent. The commissioner now responsible, Valdis Dombrovskis, said in London in late April that the “building blocks” will be in place early next year, to “help our companies to better cope with the departure of Europe’s largest financial center from the single market.” That is a laudable goal, but it could well be too little, too late.
Added 03.05.2018
Gaza has often been invaded for its water. Every army leaving or entering the Sinai desert, whether Babylonians, Alexander the Great, the Ottomans, or the British, has sought relief there. But today the water of Gaza highlights a toxic situation that is spiralling out of control. A combination of repeated Israeli attacks and the sealing of its borders by Israel and Egypt, have left the territory unable to process its water or waste. Every drop of water swallowed in Gaza, like every toilet flushed or antibiotic imbibed, returns to the environment in a degraded state.
Added 24.04.2018
Renewable electricity costs have fallen faster than all but the most extreme optimists believed possible only a few years ago. In favorable sunny locations, such as northern Chile, electricity auctions are being won by solar power at prices that have plummeted 90% in ten years. Even in less sunny Germany, reductions of 80% have been achieved. Wind costs have fallen some 70%, and battery costs around 80%, since 2010.........[The] estimate that the cost of going green will be very small has proved too pessimistic – the cost will actually be negative.
Added 23.04.2018
Electric Vessels, EVs don’t rise or fall on Tesla — Nissan and the Chinese brands are arguably way ahead, and the Chevy Bolt is comparable to the Tesla 3. But it is unarguable that a price spike in petroleum would certainly help the company get past its current Tesla 3 production problems by substantially bolstering investor and consumer confidence.
Added 20.04.2018

As the US, Russia and China test each other’s patience and strategic focus, speculation about the chances of a world war has hit a new high.

Added 18.04.2018

HONG KONG – At the beginning of this century, when China launched its “going out” policy – focused on using foreign-exchange reserves to support overseas expansion and acquisitions by Chinese companies – few expected the country quickly to emerge as a leading economic player in Latin America.

Added 18.04.2018

BEIJING – Last month, US President Donald Trump enacted steel and aluminum tariffs aimed squarely at China. On April 2, China retaliated with tariffs on 128 American products. Trump then announced 25% tariffs on another 1,300 Chinese products, representing some $50 billion of exports.

Added 17.04.2018

WASHINGTON, DC – Last week was a most unusual one for President Donald Trump’s administration.

Added 16.04.2018

All the attention being given to Facebook and Cambridge Analytica regarding their breach of public trust and exploitation of personal data is richly deserved.