VW Group's new CEO Diess may have too much power

Like Martin Winterkorn (left), Herbert Diess is CEO of both the VW Group and VW brand.

Photo credit: Reuters

When Matthias Mueller took over as CEO in September 2015, Volkswagen Group faced an "existential crisis" in the words of company Chairman Hans Dieter Poetsch. With VW facing enormous fines, many industry pundits anticipated the company would need a taxpayer bailout to survive if it couldn't raise enough cash by selling some key assets.

While the scandal resulted in overall charges of 25.8 billion euros, VW needed neither a government handout nor a fire sale to survive. Despite the backlash from its admission to cheating on emissions tests, VW sold more vehicles last year than any other automaker in the world, generated record revenue and improved underlying income to an all-time high. This company is in good health with a strong balance sheet even before any possible proceeds from a partial sale of its Scania-MAN truck business.

Mueller deserves much of the credit for this. Weeks after he started as CEO, he started tearing down a stifling corporate hierarchy cultivated by disgraced predecessor Martin Winterkorn. In its stead he forged a new climate for critical thinking and encouraged greater transparency.

"In the past, no one had the courage to speak up and ask a question at internal events," Mueller told Der Spiegel in March. Now they regularly run out of Q&A time. "That shows the willingness to discuss and criticize has grown enormously." Nonetheless he admitted freely in March that changing VW's corporate culture was still an elusive goal that required more time.

Mueller also instituted a separation between the group and the brands to give the VW brand more space to grow, opting symbolically to move group leadership out of VW's administrative building. For the first time VW became a true entity in its own right in the minds of employees.

He sped up decision-making, pruning group regulations and reducing the number of committees, and delegated key product decisions to series group leaders to spare discussions at a senior management level. Finally, he embraced electrification and mobility services, two megatrends that won little more than lip service under Winterkorn.

When VW needed it most, Mueller stepped up and delivered. The company's board thanked the CEO by abruptly firing the 64-year-old German national in April, replacing him with VW brand chief Herbert Diess, 59. Part of this change was motivated by the desire to rejuvenate senior management when the company's underlying foundation was robust. It's clear though that Mueller's brusque nature and limited patience for debating issues such as his pay had angered key boardroom directors representing the family owners and VW's home state of Lower Saxony.

Too much power?

Few can doubt Diess' qualifications. He has delivered results at the VW brand. Yet it is deeply concerning that the board may inadvertently be creating a second Winterkorn, reversing the progress made under Mueller. Like Winterkorn, Diess wants to be CEO of both the VW Group and VW brand in addition to leading all engineering. Power will be further concentrated in his hands since he will additionally head up the new volume brand group, whose purpose remains cloudy.

His authoritarian reputation was a leading reason why former employer BMW decided he was not the best fit to lead the consensus-driven Bavarian automaker. Since arriving at VW in 2015, he has repeatedly clashed with unions, which even boycotted a board meeting en masse to protest his methods. This prompted one former top executive to complain privately that Diess made no effort to hide his intolerance of their oversized influence at VW.

Judging by the stock price bump the day he became CEO, Diess' outsider status appeals to investors. It would be foolish, however, to believe the former BMW veteran can change VW's long-standing governance issues, which ultimately rest with the stakeholders on the supervisory board. Diess aims to raise the tempo at VW, but it's unclear how he plans to achieve this when he must wear three different hats. Diess will get an operations chief to help run VW, but this seems like a weak compromise. Diess should simply appoint a full-blown successor as VW brand CEO. Perhaps he may still do this, but for now it looks like a return to the days of old under Winterkorn.

You can reach Christiaan Hetzner at christiaan.hetzner@gmail.com.