Weitere ähnliche Inhalte Ähnlich wie Who failed Volkswagen, is it Corporate Governance or Management Quality? (20) Mehr von JAYARAMAN IYER (20) Kürzlich hochgeladen (14) Who failed Volkswagen, is it Corporate Governance or Management Quality?1. Who failed Volkswagen, is it Corporate
Governance or Management Quality?
Picture courtesy: Volkswagen
IBCM© Research 2015 Volkswagen #2 Page 1 of 21
2. In continuation of my offering a measuring device for Corporate Management
Operating System I am pleased to post this second one in the series what gets
measured gets managed. This post guides you on the two corporate processes
Creative Process and Action Process.
Synopsis of the first in the series is given below. Please do comment and would
appreciate your feedback.
Thanks and Regards
Jayaraman Rajah Iyer
Copyright:
Inactivity Based Cost Management - Copyright c REGN. NO. L- 27490/2006 DATED December 1, 2006
Govt. of India, Copyrights Office, by the Author, Jayaraman Rajah Iyer
IBCM© Research 2015
IBCM© Research 2015 Volkswagen #2 Page 2 of 21
3. What gets measured gets managed #2
Synopsis of #1: "Management Operating System; Tussle between Profit Motive and
Ethical Motive; Lockheed in 1976 to Siemens in 2008 to Rafale, Augusta Westland in
2015 an unending scandals with no respite and with no solution; Knee-jerk
reactions; FCPAs, UNCACs despite qualitative initiatives ignored as ―read, laughed
and filed code; Volkswagen fiasco; between product acceptance and product liability
profits motive wins over ethical motive leaving big gap in risk management; will
Volkswagen also continue with the corporate Houdini act?; what gets measured gets
managed; KPMG-EIU survey findings where 380 global organisations: Many firms are
grappling with the problem of deciding exactly what and how to measure; Deciding
how to measure is more difficult than deciding what to measure; Volkswagen fault
lines is at the centre of corporate structure; not designed to guide the company to
avoid the pitfalls of Profits Motive bereft of Ethical Motive; the limits of a
spreadsheet corporate structure; besides the structure is entirely Object oriented;
'cheat device' or 'read, laughed and filed code' is the handiwork of the Subject;
whereas material events left unmeasured are huge really huge in Corporate CREAM
Report - Corporate Governance, Risk Management, Earnings, Accounting Quality and
Management Quality; upgrade corporate structure - Taking the cue from the dictum
set by Galileo Galilei: “Measure what is measurable, and make measurable what is
not so.”, Corporate Atomic Structure satisfying what Kant inquired whether a science
of metaphysics with a logical structure like that of the well-established mathematical
and natural sciences is possible; Return on Intangible displacing Return on
Investment for corporate decisions; structured approach by defining Intangible; An
Index of Inactivity by each process-block signifying the shortfall in targets; Creative
Process and Action Process; backed by Metrics everlasting; Corporate Management
Operating System Profit Motive aligned with Ethical Motive; Correcting the situation
of chasing the data as outcome of a weighted average of quantitative benefits
multiplied by quantitative probabilities that leads to nothing, none wiser, when
Subject is not brought as the denominator:" For the full article - Click Here
IBCM© Research 2015 Volkswagen #2 Page 3 of 21
4. Volkswagen #2
Atomic Structure:
A proton has 1836 times the rest mass of an electron. According to condition,
proton's and electron's kinetic energy will be same but their velocity will be
different as their masses are different. Neutrons don't influence an atom's
identity, but they do add to its mass.
Corporate Atomic Structure
Creative Process
Ethical Motive triggers a few to initiate establishing a plc, stating clearly
through AA and MoA how the joint-stock company would be useful to
the Society. The moment Registrar of Companies registers the company
the whole burden of addressing the legal enterprise rests on the Board
of Directors to whom the power is conferred. It is a huge responsibility a
few undertake. The neutron of the organisation, the public enters the
organisation straight. They come with a load of rules and regulations
legally enforceable bringing in the government and the judiciary as a
formidable defender of Ethical Motive for the said organisation.
The Board develops slowly and steadily as and when operations start
gaining momentum. The wise and independent Directors bring in a
good element of authority, complying to laws, good order, a great
institution. Besides mandatory requirements they bring in non-
mandatory rules and regulations that would give the power entrusted
to the Board stability. The Board and the public form a nucleus, protons
and neutrons of the Corporate Atomic Structure, a business partnership
established.
In Corporate Atomic Structure 3 Ps Policies, Practices and the Public
represent the Protons, Electrons and Neutrons respectively. Proton and
Neutron form a nucleus and the electron spins around the nucleus. So is
IBCM© Research 2015 Volkswagen #2 Page 4 of 21
5. the case where Policies and the Public form a nucleus and Practices spin
around the corporate nucleus. Neutron does not influence the identity
of the atom but adds mass to it. Corporate neutron i.e. the public does
not influence the identity of the corporate but adds mass to it. Policies
are the protons of the Corporate Atomic Structure but the mass added
to it by the public is very substantial. All mandatory regulations have
come forth to corporate by the influence exerted by the public as well
as the voluntary initiatives by the corporate. That is to say, mass added
to the corporate nucleus by the public is indeed formidable.
The corporate nucleus consisting of policies represented by The Board
and the public is a mass that has grown linearly to a level it attains
similar to an atomic structure, 1836 times of rest mass of corporate
electron - the practices. The 10 principles of UNGC of 4 issue areas -
Human Rights, Labour Rights, Environmental Rights, Anti-corruption
besides UNCAC, Code of Conduct, Conflict of interest, conflict of
personal interest, insider trading, conflict of conscience, whistleblower
policy are some of the policies that add to the mass of the corporate
nucleus. These policies go through the rigours of 6 stages from nowhere
to a stage called a substance of quality. From Exposure Draft to public
participation the policies become part and parcel of Corporate Nucleus.
The six stages of creative process deliver a qualitative written tangible
document that collectively is the Management Quality. The Board is the
custodian of the Management Quality, of policies that remain intangible
for corporate.
The end product of Creative Process, made up of mandatory as well as
non-mandatory ethical standards, rated by each written Policy for
Quality, is the Management Quality.
Management Quality in Volkswagen:
Quote: Annex to the Code of Conducti
:
International Conventions
In addition to the laws and regulations of individual countries, a series
of conventions and recommendations of international organisations
also exist. These are, however, primarily addressed to member
states and not directly to individual companies.
IBCM© Research 2015 Volkswagen #2 Page 5 of 21
6. The following is a list of the most important conventions of this kind:
– The General Declaration on Human Rights issued by the UN in 1948
and the European Convention on the Protection of Human Rights and
Fundamental Freedoms (1950)
– International Covenant on Economic, Social and Cultural Rights (1966)
– International Covenant on Civil and Political Rights (1966)
– The International Labor Organization’s (ILO’s) Tripartite Declaration of
Principles Concerning Multinational Enterprises and Social Policy (1977)
as well as the ILO Declaration on Fundamental Principles and Rights at
Work (1998) – concerned primarily with the issues of banning child
labor, abolishing forced labor, banning discrimination, the freedom of
association and the right of collective negotiation.
– The OECD Convention Combating Bribery of Foreign Public Officials in
International Business Transactions (1997)
– “Agenda 21” on sustainable development (Declaration Environment
and Development adopted at the UN Conference on Environment and
Development held in Rio de Janeiro in 1992)
– The principles of the Global Compact for a more social and ecological
form of globalization (1999)
– The OECD Guidelines for Multinational Enterprises (2000)
Furthermore, we commit ourselves together with the “Declaration
on Social Rights and Industrial Relationships at Volkswagen” (the
Volkswagen Social Charter) and the “Charter on Labor Relations” to
the basic social rights and principles. Unquote
Comment:
It is clear Volkswagen has not adopted any of these above quoted
conventions as part of their Management Policy. In this paper what we
emphasise and differentiate is between mandatory and non-mandatory
policies, later adding value to the Management Quality. The
conventions said above include UNGC that is adopted by very many
global companies [12500+ from different countries] as part of their non-
mandatory initiatives but not by Volkswagen.
So is the case for UNCAC that stands ratified by Germany as on 12 Nov.
2014. UNCAC once ratified shall be included as Management Policy of a
company as it applies to private sector too. Volkswagen has not
mentioned at all on UNCAC, although internal anti-corruption officer is
IBCM© Research 2015 Volkswagen #2 Page 6 of 21
7. available. The anti-corruption officer is available to advise every
employee but also to business partners and third parties on questions
pertaining to corruption, such as the permissibility of accepting gifts.
Zimbabwe had also ratified UNCAC as long back as 8 Mar 2007. Then
what is the difference between the two nations. Germany as a nation is
proud of their products Quality and it high time they look into the
Management Quality. Checklist of conventions have no meaning. UNGC
and UNCAC should have been part of the Management Quality.
Corporate Nucleus made up of Corporate Protons the Board and
Corporate Neutrons checklist of conventions via the public ought to
obtain a mass of its own many many times the rest mass of Corporate
Electron the Executive to make the CEO to spin around the Corporate
Nucleus, lest CEO goes off the path.
Action Process
Looking at the corporate electron, the practices, one shall focus on the
Action Process. Whereas Creative Process starting point is subtler than
the subtle for Action Process it is gross. Whereas the end product of
Creative Process is a substance, the end process of Action Process is
task accomplishment. Whereas Creative Process is identical to every
man-made or Natural Substance, made up of 6-stages of linear
movement, Action Process is unique to the Quality of its substance with
the same 6-stages of movement towards task accomplishment
beginning from a state of insentience. Whereas Creative Process needs
the effort of an individual so is the case for Action Process, as both deal
with an inanimate Object which does not move forward without the
effort put in by the Subject. Whereas the end product of Creative
Process remains for long-time for the entire Corporate life, the end
product of Action Process has a limited life-cycle.
Action Process also triggers Creative Process with the end product such
as IPR, patents, Assets subject to depreciation, Market Share, Brand,
Strategy, Project Management etc. Each is tracked and rated by six-
stages during Action Process by a uniform Creative Process from a state
of Quiescence to a tangible substance every such substance is
measured.
Action Process is action on an Object by the Subject. The end result of
IBCM© Research 2015 Volkswagen #2 Page 7 of 21
8. an Object by six stages is task accomplishment by the Subject. In an
organisation a team of 5 keeping their independence even while
performing the tasks yoked with another, enables accomplishment of
each task by controlling each goal. Spreadsheet organisation structure
differentiates each columnar task by the Object whereas Corporate
Atomic Structure fuses together every task by the Subject. Each process
block of an organisation is owned by a team of 5 people, with multi-
tasking for the people or multi-team for a task. Each process block
reflects the Corporate Atomic Structure the corporate nucleus, Policies
and the Public and the corporate electron for practices. Each process
block is isolated and made accountable.
During Action Process beginning from the state of insentience each
stage is tracked as to the movement of the concerned Object. Action
Process is a series of task accomplishments in infinite succession of
finite purposes unique to the Quality of the Substance it acts upon.
dT/dT - series of Tasks accomplished in respective Time gets measured
accordingly. At any time the status is measured by each team by each
member of the team as to Action or Inaction thereby measuring the
performance, resulting in a binary value of 1 or 0. A process block is
measured by averaging the 5 performance metrics taking into
consideration but only the integer value. Collectively every process
block is measured. The organisation as a whole has the status available
by completed stage of measured value between 0 to 5 in 6-stages.
The rating by each process block is a measure of Corporate Governance
of an organisation.
Volkswagen Group Strategy 2018ii
:
Quote:
Our Strategy 2018 focuses on positioning the Volkswagen Group as a
global economic and environmental leader among automobile
manufacturers. We have defined four goals that are intended to make
Volkswagen the most successful, fascinating and sustainable automaker
in the world by 2018:
• Volkswagen intends to deploy intelligent innovations and
technologies to become a world leader in customer satisfaction
and quality. We see high customer satisfaction as one of the key
requirements for the Company's long-term success.
IBCM© Research 2015 Volkswagen #2 Page 8 of 21
9. • The goal is to generate unit sales of more than 10 million vehicles
a year; in particular, Volkswagen intends to capture an above-
average share of growth in the major growth markets.
• Volkswagen's aim is a long-term return on sales before tax of at
least 8% so as to ensure that the Group's solid financial position
and ability to act are guaranteed even in difficult market periods.
• Volkswagen aims to be the most attractive employer in the
automotive industry by 2018. To build the best vehicles, we need
the best team in the sector; highly qualified, fit and, above all,
motivated.
Unquote
Volkswagen Group Strategy 2018, how many process-blocks did it
consider while targeting 2018? Each process-block moves forward
linearly, isn't it? Did any single process-block try a quantum jump? Are
they moving in the intended direction? How many such process-blocks
are in the right direction, by dT/dT at optimised level today? What does
the Index of Inactivity show as of now, a year that passed by, since the
Strategy 2018 released?
Who failed Volkswagen, is it Corporate
Governance or Management Quality?
Sustainability
Sustainability of efficiency provides profits, whereas sustainability of
value system provides sustainability of profits. The corporate value
system is defined herein by defining Corporate Social Responsibility.
Corporate Social Responsibility
Aman Singh Das wrote at the Vault’s CSR blog: Quote: “At a recent
breakfast hosted by the Global Reporting Initiative (GRI) and NYSE
Euronext, the Conference Board’s David Vidal asked an insightful
question: What are the top three reasons for your company’s reluctance
IBCM© Research 2015 Volkswagen #2 Page 9 of 21
10. to embrace sustainability—and to adopt sustainability reporting? The
responses that came from an audience representing the glitterati of the
corporate social responsibility world might surprise. What these
responses point to, however, is the continued sense of reluctance across
senior leadership toward combining the social and environmental with
corporate.‘
The 11 challenges indicated were:
i. Doubt
ii. Liabilities
iii. Denial
iv. Resources
v. Causality
vi. Lack of Global Standards
vii. Benchmarking
viii. Lack of comparative credibility
ix. Uncertainty
x. Fear of the unknown
xi. Fear of the known UNQUOTE
There is a good difference between KPMG-EIU survey findingsiii
where
380 global organisations were considered in arriving at the conclusion:
Many firms are grappling with the problem of deciding exactly what
and how to measure; Deciding how to measure is more difficult than
deciding what to measure;
and
the 11 challenges quoted above the reluctance across senior leadership
toward combining the social and environmental with corporate.
In the analysis of Creative Process and Action Process where do these
11 challenges fit in to conclude what the senior leadership had arrived
at?
Anti-bribery UNCAC is one of the finest social responsibility instrument,
far superior to Bill of Rights, for its two clauses - Article 13 -
Participation of Society and Article 10 - Public Reporting. Freedom of
speech empowers an individual to yell and freedom of press write what
one feels to write. UNCAC makes the government to bring in the Society
for consultation and corrective measures taken by the government
IBCM© Research 2015 Volkswagen #2 Page 10 of 21
11. UNCAC expects reporting back to the public. In countries where UNCAC
is ratified it is also compulsory for private sector to adopt UNCAC and
particularly these two Articles 13 and 10. Since the countries
themselves ignore despite ratifying UNCAC, private sector is taking it
easy. However UNCAC template can be adopted by companies during
Creative Process for internal policies.
The 11 challenges arise out of various points raised by the corporate
and their reluctance toward combining the social and environmental
with corporate. Call a policy instrument by any name CSR or otherwise,
if it has not gone through a Creative Process to be called a Policy
statement it will be difficult to implement let alone measuring it.
However, social aspects and environmental requirements need to be
separated. United Nations Global Compact UNGC of 10 principles in 4
issue areas Human Rights, Labour Rights, Environmental Rights and
Anti-corruption are readily in vogue and there shall be no reluctance to
accept the same should any company leadership is faced with the said
11 challenges.
This leaves 'Social' aspects of what any company leadership wants to
deploy.
IBCM© Research 2015 Volkswagen #2 Page 11 of 21
12. Measuring Corporate Social Responsibility
Galileo Galilei: “Measure what is measurable, and make measurable
what is not so.”
Following illustration explains the CSR enabling measurement by
splitting into two issue areas: Corporate Ethical Responsibility and
Corporate Fiscal Responsibility.
Volkswagen Corporate Social Responsibility reflects the title question
Who failed Volkswagen, is it Corporate Governance or Management
Quality?
In our Corporate Atomic Structure CSR is present in every Process Block.
The moment share application money is received from the public,
profits motive as brought out by the company becomes the primary
aspect of the Corporate Atomic Structure. With the empowerment from
the Corporate Nucleus, Executive Action Process starts i.e. Practices.
IBCM© Research 2015 Volkswagen #2 Page 12 of 21
13. As Kaushik Basu says: Data organisation is as important as data
collection. Or else it is as useful as a library where books are
uncatalogued and stacked anywhere.
The chart reflects the Corporate Atomic Structure with Ethical
Responsibility in one side and Fiscal Responsibility at the other,
representing Creative Process and Action Process respectively. Creative
Process represents Corporate Nucleus of Policies and the Public
whereas Action Process the Practices.
Immediate reaction to the Volkswagen fiasco from Hermes EOS, the
stewardship division of Hermes Investment Management, was calling
for an overhaul of the management and corporate governance culture
at Volkswagen.
When Toshiba's chief executive resigned recently, taking responsibility
for doctored books that inflated profits at the Japanese technology
manufacturer by $1.2 billion over several years LA Times mentions
Japan is still struggling to improve corporate governance despite recent
steps to increase independent oversight of companies.
Everything seems to go wrong only by Corporate Governance, Is it?
Creative Process ends in a tangible substance of Quality whereas Action
Process is unique to the Quality of the substance from where it derives
its legitimacy. In case of Volkswagen the cheat device is part of Action
Process without a written policy on the matter whereas Toshiba's
doctoring books is the result of breaking the Accounting Quality norms,
similar to Siemens' 'read, laughed and filed code'.
In case of Volkswagen lack of Management Quality led to Executive
Intransigence whereas Toshiba's is sheer audacity to outwit the Audit
profession with impunity. Toshiba acknowledged a systematic coverup,
which began in 2008, LA Times states.
IBCM© Research 2015 Volkswagen #2 Page 13 of 21
14. Sustainability of Ethical Responsibility
Management Quality:
Beginning with AA and MoA a company adds mass to the Corporate
Nucleus by incorporating several policies. Volkswagen possibly may
come out with the corrective action on the incalcitrant CEO. It is a
surprise the major shareholder State of Saxony, holding 12% of shares
with 20% of voting rights was unaware of what was happening when a
cheat software was put in motion. The cheat software would not have
been certainly tested in the State of Saxony. Then why test in US, which
is not a third-world country?
The cheat software, has it damaged the Management Quality of
Volkswagen? Which of it, UNGC 3rd issue area of Environmental rights
or Volkswagen Group Strategy 2018 of a global environmental leader
among automobile manufacturers?
Accounting Quality
The financial damage could go further. Hidden within the German firm
is a big finance operation that makes loans to car buyers and dealers
and also takes deposits, acting as a bank. Its assets have more than
doubled in the past decade and make up 44% of the firm’s total.iv
On 7th October 2015 Frank Witter (56) has been appointed Member of
the Board of Management of Volkswagen AG with responsibility for
Finance and Controlling with immediate effect. Witter was previously
Chairman of the Board of Management of Volkswagen Financial
Services AG.v
On the face of it Volkswagen had not resorted to tampering with the
Accounting Quality as Toshiba had done but let go with just NOx
emission, realising the damage it has done to their lungs coughing up in
$billions. Tokyo's prospects dwindled after Fukushima disaster for
Nuclear Power which is one of its core businesses that had hit them
hard. What about Volkswagen's Accounting Quality after the tsunami of
NOx emission? Watch out!
IBCM© Research 2015 Volkswagen #2 Page 14 of 21
15. What Toshiba has done is a clear tampering of Accounting Quality. But
from Enron to Worldcom to Toshiba the circle is complete. There is no
such thing as Accounting Quality. Balance Sheet is an instrument that
can be tampered with any time by any tom, dick and harry. Corporate
Ethical Responsibility is burdened with Accounting Quality ab initio,
however good the effort to compose a company with effective
Management Quality. Improving the Accounting Quality seems not
possible. In reality it suits the CEOs.
Corporate Fiscal Responsibility
Corporate Governance
In the Government Auditing Standards January 2007 Revision, issued by
the United States Government Accountability Officevi
, the word
Governance has been used sixty times and barring two, the word
Governance is prefixed with the words “Those charged with”. It implies:
Governance is a staff function and there are individuals who are
charged with especially and there are individuals not entrusted with
Governance.
Governance is a dynamic function but is being used to connote lack of it
ex post-facto occurrence of mismanagement. Governance ought to be
instant. Illustratively, a passenger in an aircraft is provided with the
video display of the real-time information on the flight path, a map
covering the route, the position on dot, altitude, cruising speed,
distance to destination, time from origination point and time to reach
the destination.
In Corporate Atomic Structure a process block is a full-fledged
operational goal owned by 5 individuals entrusted with the assigned
task. The 5 individuals are : 1 representing Ethical Responsibility and the
remaining 4 representing Fiscal Responsibility.
Let me illustrate on a possible scenario - Volkswagen had entrusted a
team of 5, for each centre, to load a cheat software @ 60 vehicles per
hour. The work starts with the German precision. Hardly a few minutes
IBCM© Research 2015 Volkswagen #2 Page 15 of 21
16. go by then there is a call to the CEO from a Board member why the
optimum level of achievement of the previous day 5 is now running at 4
because of one process block entrusted with installing some software.
The four Fiscal Responsibility group had done their job independently
and certified the installation job order, vehicle by vehicle but not by one
Ms. CER, who has not certified as to the ethical standards adopted by
the team. One person has assigned a 0 and the rest have given 5 each
for this process block. This results in a rating of 4 that can be seen
online. The online figure of 4 for the company is seen by one Arvind
Thiruvengadam from a small lab in West Virginia University who
discovers the lacuna in the said process block. He phones up the field
operators who had been collecting the data on Volkswagen's emissions.
In the meantime the CEO who had been cautioned by a Board Member
goes into a huddle with senior executives. The brain behind the cheat
software, previously Director of R&D, offers to come with a software to
suppress the non-cooperation of Ms. CER to show optimum level of 5
for the collective display of all process blocks. Executive Director CER
refuses to oblige and warns someone within can invoke Whistleblower
policy. In the meantime CEO gets a message from the market that
Volkswagen is trying to install a cheat software thanks to the
intervention of a non-entity from West Virginia University Emission
control Lab. CEO instructs the withdrawal of cheat software from
installation in all the centres immediately. Day's damage for removal of
the cheat software came to 600 vehicles from 10 centres within an
hour.
Quote: BERLIN/WASHINGTON, Oct 8 (Reuters) - Volkswagen's rigging of
diesel emissions tests was not a company decision but the result of
actions by a small number of engineers, its top U.S. executive said on
Thursday. "To my understanding, this was not a corporate decision; this
was something individuals did," Michael Horn, President and CEO of
Volkswagen Group of America, told a panel of U.S. lawmakers
investigating the German carmaker's wrongdoing... The carmaker has
previously said the software could be installed on up to 11 million
vehicles: Unquote
Quote: “It is not necessary to change. Survival is not mandatory.” W.
Edwards Deming: Unquote:
IBCM© Research 2015 Volkswagen #2 Page 16 of 21
17. Risk Management
COSO Framework of Sarbanes-Oxley states: Control environment factors
include the integrity, ethical values, and competence of the entity’s
people;
- COSO’s internal control framework describes internal controls as
consisting of five interrelated components. These are generally called
“layers,” and the controls within each must be included in
management’s assessment. The five layers are described by COSO as: I.
Control Environment, ii. Risk Assessment, iii. Control Activities, iv.
Information and Communication, and v. Monitoring.
In our Corporate Atomic Structure each process block, owned by 5
people, includes one from Ethical Responsibility wing of the
organisation. In Subject–Object distinction of Corporate Management
each Process Block and every other Block represents the values in the
Corporate Atomic structure that risk management and internal controls
are governed most efficiently with a single denominator – the Subject.
Ethical obligation in each Process Block ensures sustainable value
system, insures sustainable efficiency and assures sustainable profits.
Looking at Volkswagen and Toshiba we find the enormity of 'risk
appetite'. Risk appetite is from the higher echelon of the organisations.
Having the strategy white-paper to introduce diesel vehicles in US at a
considerable investment Volkswagen found itself in a quagmire half-way
through. Volkswagen had gone by the traditional Return on Investment
calculation whereas what we find ultimately is the tame plea, "To my
understanding, this was not a corporate decision; this was something
individuals did". Had Volkswagen used the Return on Intangible
methodology of Subject-Object distinction of Corporate Management
risk factors would have come forth with the integrity, ethical values, and
competence of the entity’s people intact at every turn of events.
IBCM© Research 2015 Volkswagen #2 Page 17 of 21
18. Volkswagen Code of Conduct states:
Quote:
Management Culture and Collaboration
In the context of leadership responsibility, the superiors guard against
unacceptable conduct. They bear responsibility for ensuring that no
violations of rules occur in their area of responsibility that could have
been prevented or made more difficult through appropriate
supervision.
Unquote:
CSR leads the organisation equating the highly paid executives and the
lowest paid workers by a common denominator - ethical obligation.
Leadership responsibility on ethical obligation can arise from the lowest
paid. Volkswagen Group Code of Conduct mentions on conflict of
interest. Conflict of interest and conflict of personal interest such as
insider trading arises from the individuals who have access to
confidential information. They are invariably from the top echelon of
the organisation. Whereas conflict of conscience is from the persons
who may not have access to the confidential information but able to
observe the irresponsible leadership. Self-governance is easier done at
the lower level if and only if, top leadership follows the principle of
ethical obligation.
Self-governance
By controlling each process block by a manageable number of people a
sense of ownership arises and at the same time it develops self-
governance at the lower level of operations. Self governance and
accountability system has the Subject as the denominator whereas
Object related system loses track of the Subject. The need for a CER
personnel for each process block slowly gets superfluous once the rest
of the team members i.e. 4 in number integrate CER concept within
each process block. That is self-governance sans conflict of conscience.
IBCM© Research 2015 Volkswagen #2 Page 18 of 21
19. Sustainability of Profits
Ethical obligation in each Process Block ensures sustainable value
system, insures sustainable efficiency and assures sustainable profits.
The hiccup in both the cases Volkswagen and Toshiba deprives the
Society of continued profits from the companies in question.
In order to ensure sustainable profits our age-old Financial Accounting
methods need to be changed. Not profits but energy should be the
criterion of measuring Corporate performance. CREAM Report -
[Corporate Governance, Risk Management, Earnings, Accounting
Quality and Management Quality] by Return on Intangible, including
every item in the Balance Sheet and P&L, is a measure of the energy
created by individuals moving inanimate objects from one space to
another. The process of changing is e = mc². The corporate nucleus, i.e.,
Corporate Protons and Corporate Neutrons, consisting of Policies and
the public has a bigger mass than the Corporate Electron the Corporate
Practices. Corporate Electron, the Practices when goes astray the
Corporate Nucleus guides the Executive Electron to spin around it, lest it
goes off tangent uncontrolled completely. That is a major disaster. This
is exactly what Volkswagen did, going off tangent from the prescribed
path.
Whereas Toshiba did not escape from the prescribed path but damaged
the path itself. In case of Volkswagen Management Quality can be
brought in to restrict the Executive intransigence once found out. For
Toshiba it would take a longer time, as the damage caused is at the root
level of shaking the Accounting Quality.
By Corporate restricting oneself with just Financial Accounting as the
basis of corporate measurement almost 90% of corporate actions and
inactions are left unmeasured.
IBCM© Research 2015 Volkswagen #2 Page 19 of 21
20. Conclusion
1. Volkswagen Code of Conduct states: Each superior ensures that
the employees in their area know and comply with the Code of Conduct.
Furthermore, Group Auditing will review compliance on a case by case
and/or random basis as part of the auditing program approved by the
Chairman of the Board of Management of Volkswagen AG.
Self-governance is the ultimate in decentralisation not instruction from
the Chairman of the Board. Chairman initiating an Audit program as to
ensure code of conduct is complied by all below sounds hierarchical,
assumes the organisation has one call centre. Risk culture should
emanate from below. Knowledge should emanate from the superiors.
2. Invariably Corporate Protons do not form a Nucleus with the
Corporate Neutron - the public but with the Corporate Electron the
Executive. Management Quality emanates primarily from the public
institutions. How many companies in the world would file a quarterly or
annual Balance Sheet if not made mandatory?
Management Quality is an imperative part and parcel of a strong
Nucleus. Volkswagen, like many other organisations during 2008
financial crisis, had not given due respect to the Nucleus. State of
Saxony being a major shareholder and the other major stakeholders
should spearhead establishing a strong Nucleus with a robust
Management Quality.
3. As to the question of Who failed Volkswagen, is it Corporate
Governance or Management Quality?, the answer is:
My vote is: Management Quality failed Volkswagen.
Jayaraman Rajah Iyer
jayar@ibcm.in
+9194873900439
On the Vijayadashami Day
22nd October 2015
Kodaikanal, India
IBCM© Research 2015 Volkswagen #2 Page 20 of 21