Supervisory Board Members Versus CEO’s Responsibility in Volkswagen Scandal
The article by Christopher Rauwald provides an in-depth analysis of the complexity surrounding the management of Volkswagen (Rauwald 2018). The supervisory board ought to have taken responsibility since it could resolve the scandal that hit Volkswagen. Following the Volkswagen emission scandal, the CEO, Mathias Muller took responsibility and stepped aside, but the supervisory board remained intact (Rauwald 2018). The question seeks an analysis of the conflicting interests of management board versus the supervisory board and the responsibility placed upon each of them. To answer the question, the essay uses stakeholders’ theory.
Stakeholder’s theory argues that the interests of various actors in an organization ought to be considered by executive management (Mena 2016). Stakeholders do not only include shareholders, but incorporates employees, customers, and regulators. It is the responsibility of the board to ensure that the interests of all stakeholders are taken into account since they are the major decision makers. Additionally, the board of directors should have a thorough understanding of both internal and external environment of a firm to ensure that its decision-making process is informed by the environmental circumstances.
Volkswagen has a two-tier board of management structure that is aimed at improving efficiency. The first part of management consists of the management board which comprises of the CEO while the second part consists of other stakeholders such as labour relations and investors that come together to form the supervisory board (Volkswagen 2018). The management board reports to the Supervisory board, which provides recommendations to be executed. According to Dienes and Velt (2016), two-tier management system helps to promote compliance and effectiveness. This, therefore, implies that the supervisory board ought to take full responsibility for corporate governance failure of Volkswagen since it has the ultimate responsibility of providing leadership. On the other hand, the CEO engages in the daily running of Volkswagen and is therefore meant to implement the decisions of the entire board. This, therefore, implies that the CEO should only take responsibility in instances of failure to implement board’s decisions. In this case, both the CEO and supervisory board ought to have taken responsibility since they both participate in decision-making and implementation.
The scandal that hit Volkswagen is an indicator of corporate governance failure in the firm. This failure points out a failure by the organization’s board of management to address the issue of non-compliance with regulations hence leading to reputational damage. The CEO took responsibility and resigned following the scandal. The CEO decided since he is involved in daily operations and failed to arrest the situation. The supervisory board also ought to have taken responsibility because of their failure to exercise their oversight over the firm despite preliminary reports that emerged.