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Be prepared

25 September 2015 by Alexandra Jones

Reputation is fragile and can have serious long-term financial impact

At the time of writing, the chief executive of Volkswagen Mike Winterkorn has announced his resignation. This follows revelations about the alleged manipulation of emission test results of its diesel cars.

According to reports, VW misled US testing authorities by using software which altered the emissions readings of its cars. At this point there is also media scrutiny of all new VW car readings, across several markets. Other manufacturers’ emissions test results are also being called into question.

The results have been catastrophic. As well as resignations at the top, numerous senior technicians have been fired for their supposed involvement.

Crucially, however, damage to the VW brand has caused investors to run: its share price fell by 35% in the first two days after the story broke, wiping out at least 25 billion Euros in market capitalisation. German Chancellor Angela Merkel called for those at the top of VW to take urgent action amid fears that it could impact the country’s economy.

The biggest aftershock likely to be felt by VW for some time is the extensive reputational damage. Despite being considered one of the most reliable manufacturers after decades of quality cars, its worthy history has been undone. Reputation is fragile and can have serious long-term financial impact when it is damaged.

This month’s issue touches upon this topic. As Kasper Nielson in his article, 'Protecting reputation', explains: ‘Your company’s reputation underpins everything it stands for and the importance of finding a systemic approach to address reputational risk cannot be overstated.

'Company secretaries already work within a strong governance framework which includes building trusted relationships with stakeholders. By managing the process of reputation risk; understanding and preparing for the impact; and monitoring perception with key stakeholders, you can help to ensure that the board meets this challenge.’

Being prepared to act in times of crisis is essential. A polluted reputation is something VW will have to contend with for many years – companies will underestimate the gravity of such risks at their peril.

Alexandra Jones is Editor of Governance and Compliance

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