Volkswagen Internal Politics Erupt Again As Diess Future Is Questioned

It’s less than 6 months since Volkswagen was last shaken up by a plot to remove its chief executive, so it’s clearly time for another episode of this hardy perennial.

The Volkswagen Group’s executive committee has convened a meeting Tuesday to discuss the future of CEO Herbert Diess, according to a report from Reuters. Diess has allegedly sought an extension to his contract after feeling undermined by internal pressures in his bid to modernize the company.

Last June, Diess lost his other job as head of VW brand after a boardroom scuffle when he was forced to apologize for accusing fellow board members of leaking crucial information.

Investors have long worried that VW is held back by its weird and unwieldy management structure, where unions control half the votes on the 20-seat supervisory board. The balance is held by the state of Lower Saxony with two seats and often they side with the unions.

Diess apparently apologized at a supervisory board meeting in the summer for saying it had leaked news of software failings which had delayed the introduction of its first vehicle designed from the ground up to be electric, the ID.3. There were also problems under Diess’s watch from a video perceived as being racist, and problems with the launch of the latest version of the best-selling little family car the Golf 8.

The ID.3 is now on sale across Europe and was the biggest selling electric car in Europe in October.

Diess’s contract expires in 2023, and in Germany, negotiations about extensions usually start about a year before. Diess has reportedly been frustrated over key reforms to VW governance and is using this tactic in a “back-me or fire-me” move.

Bernstein Research published a plea earlier this month to key shareholders of VW, referring to the June incident with Diess which it said undermined his ability to reform the company.

Bernstein analyst Arndt Ellinghorst said the board should either back Diess, or fire him and appoint someone else to carry out the reforms. He addressed his plea to Hans-Michel Piech, Wolfgang Porsche, the Porsche and Piech families.

“If indeed Dr Diess has your full backing, then this needs to be made clear. If not you should waste no time and nominate a new CEO,” Ellinghorst said.

“We understand the merits of the German co-determination model. However, at VW this goes too far. It is very disturbing to see the ongoing public infighting between the works council and management. It is impossible to run a company when every controversial management decision is being undermined from within the organization,” Ellinghorst said.

“They should work together, not against each other. The company loses too much time and allocates too much capacity dealing with these political power games,” he said

VW has made strong profits, despite paying huge sums because of the dieselgate scandal. Investors have long despaired of the company’s future because competitors have structures more conducive to efficient working. 

For instance, Toyota of Japan sells roughly the same amount of vehicles globally as VW, with a workforce about half the size.

Professor Ferdinand Dudenhoeffer, director of the Center for Automotive Research (CAR) in Duisberg, Germany has seen it all before too.

“The same old problem pops up again and again. VW is a kind of state-owned company with a stake in the stock exchange. IG Metal (the union) and the state of Lower Saxony rule the supervisory board,” Dudenhoeffer said.

“This has been the fundamental problem for 50 years, and it keeps bringing up scandals. Shareholders are the minority at VW strategic decision committee, the supervisory board. The company lives and makes decisions from the union, so now again. So we have no balance of power between shareholders and union. Unions dominate VW,” he said.