In the cutthroat environment of multinational corporations, where decisions can spell success or failure in an instant, a solid risk management program is essential. It is a strategic goal and a heavy task for Chief Risk Officers (CROs) to guide their companies through the uncertainty maze. Join us on an adventure that will show you how important risk management is by using a real-life example of how a mistake led to valuable lessons and new ideas.
An Overview of Progress in the Prologue
In the thriving corporate metropolis of Volksburg, Volkswagen (VW) stood out as a model of innovation and success. The soaring headquarters of VW, a symbol of the company’s technological prowess and economic dominance, towered over the cityscape. VW’s ambitious plan to become the top automaker in the world, fueled in large part by its ground-breaking diesel engines, drove their strategic expansion.
The First Chapter: The Illusion of Achievement
Environmentally conscious consumers were enticed by their diesel engines, which they dubbed “clean diesel,” due to their minimal emissions and remarkable fuel efficiency. The company’s worldwide market share soared, and sales skyrocketed. But behind this prosperous facade was a dark secret that only a select few in the firm knew about.
Second Chapter: The Review
In 2015, the US Environmental Protection Agency conducted a review of VW’s clean diesel claims. The review found VW rigged their diesel engines with “defeat devices” to cheat pollution tests. The cars seemed to conform to regulations while under testing, but when driven on public roads, they produced far more pollutants than were allowed. The result: crisis management.
Third chapter: The crisis and fallout
The once-lauded clean diesel engines had become symbols of corporate wrongdoing and deceit. The event damaged the confidence of stakeholders and customers and had monetary and legal ramifications as well.
https://money.cnn.com/2015/11/13/news/companies/volkswagen-sales-emission-scandal/index.html
Fourth chapter: The Contemplation
Executives and the Board from VW reviewed what went wrong. It was discovered that there were systemic flaws in their risk management program including:
1. Ethical Supervision: The defeat devices were installed without thinking about the long-term effects because there was no ethical governance.
2. Regulatory Compliance: VW was fined heavily because it failed to comply with regulations.
3. Internal controls: Unethical activity went undetected and prevented due to flaws in these systems.
Fifth chapter: The Metamorphosis
After reflecting on their past errors and making the appropriate adjustments, they put into action a thorough risk management approach.
1. Boosting Ethical Governance: VW has a robust code of ethics that permeates the entire company. To guarantee that every employee grasped and acted upon ethical principles, training programs were instituted.
2. Compliance Management: They established a specialized compliance t to keep an eye on regulatory changes and conduct comprehensive audits of compliance, both of which improved regulatory risk management. To guarantee real-time conformity to standards, the firm invested in state-of-the-art compliance systems.
3. Risk Management: VW strengthened their operational risk management by implementing more stringent checks and balances into their internal control systems. The success of these measures was ensured by regular reviews and audits, which led to a culture of responsibility and openness.
3. Risk Culture: VW encouraged a risk-aware culture by asking all workers to look out for and report any problems they saw. Proactive risk management is now deeply ingrained in the company culture as a result of training programs’ emphasis on its importance.
Sixth chapter Conclusion: A Fresh Start
As a result of the lessons learned from the crisis, their approach to risk management has been fundamentally changed. What was once a dark secret is now a culture of openness, ethics, and sustainable development.
The VW tragedy is a powerful message for chief risk officers and other executives of companies. An effective risk management program serves as a catalyst for growth rather than a just defensive mechanism. Adopting ethical governance, maintaining regulatory risk management, developing operational and fraud risk programs, and fostering a risk-aware culture can help organizations turn potential risks into opportunities for resilience and success.