If there was an award for a “corporate executive with absolute worst sense of timing”, my nominee would be Volkswagen AG’s chief executive Herbert Diess.
The German carmaker poached Diess from BMW AG to take over as head of its struggling mass market VW brand in December 2014 after he was disappointed to have been passed over for the top job at BMW. The initial plan was that Diess would start work at VW’s Wolfsburg headquarters on October 1, 2015.
However, Diess and BMW agreed he could shorten his gardening leave and take up his new job on July 1 instead.
Boy, was that a mistake on his part.
In September 2015, barely two months after Diess landed, VW admitted rigging some 11 million vehicles worldwide to cheat diesel emissions tests — an admission that would lead to 30 billion euros ($33 billion) of penalties, provisions and recall costs.
On Tuesday German prosecutors charged Diess, who has since become CEO of the entire VW group, with stock market manipulation. They allege he was told about the cheating shortly before the end of July, some four weeks after he started work, but that he didn’t immediately inform the market as he’s obliged to do.
Martin Winterkorn, who stepped down as VW boss when the cheating was revealed, and Hans Dieter Poetsch, VW’s then finance director who is now the company’s chairman, have been charged with the same offence. VW’s position all along has been that it didn’t recognise how financially serious its problems would prove to be with US regulators (who got the ball rolling on uncovering and investigating the scandal).
It reiterated that it thinks the latest allegations are groundless. Lawyers for the three men said similar.
If the case goes to trial, which wouldn’t be until next year at the earliest, things could get awkward for VW. The news is particularly unhelpful for Diess, who has spearheaded the car giant’s effort to leave behind the diesel scandal and embrace electric vehicles.
Diess has bet the farm on his electric strategy and VW needs him to finish the job.
The charges are a reminder too that VW was perhaps a little cavalier in confirming Poetsch’s elevation to the chairmanship even though he had the market manipulation allegation hanging over him. In view of his role in overseeing VW’s recovery from the scandal, a VW shareholder once branded Poetsch the “personification of a conflict of interest”. He certainly wasn’t the fresh start VW probably needed.
Given the abject panic that any inkling of a US criminal or regulatory investigation typically sparks in corporate boardrooms, it seems bizarre that VW executives failed to recognise the severity of the trouble the company was in back in 2015 and didn’t communicate promptly to investors.
Anyone who bought VW stock in the months before September 2015 can feel aggrieved that they weren’t in possession of the same information that executives had. More than 30 billion euros of market value went up in smoke when US regulators went public with their accusations about VW’s use of “defeat devices”, which hid diesel emission levels during tests, though it’s since recovered much of that ground. A finding against the executives would provide fodder to investors pursuing civil claims for compensation. The stocks’s 2.5 per cent drop on Tuesday suggests today’s crop of VW investors are worried, but not excessively.
In hindsight, Diess would have been better off staying in his garden in Bavaria a little longer. Rarely can such eagerness to show up to work have turned out so badly.