Managing a Mammoth Task
Volkswagen Group, the German carmaker with 670,000 employees worldwide and brands such as Volkswagen and Audi, is currently in the final stages of its monitorship, imposed by the US Department of Justice (DoJ) to oversee the implementation of new ethics and
compliance controls after the company pled guilty to an array of misconduct in relation to diesel emissions testing fraud. Since mid-2017, Larry D. Thompson, a former United States Deputy Attorney General, has overseen the company in its efforts to improve its compliance and ethics program in response to the diesel issue that came to light in September 2015. Dr. Thomas Meiers, who leads the Central Coordination department for the Monitor at the headquarters of VW Group in Wolfsburg, Germany, talks about challenges and factors for successful cooperation with a monitor.
[Listen to Meiers’s exclusive conversation with Ethisphere expert Leslie Benton.]
A monitorship is an extremely serious matter. Companies typically do not seek to have monitors. However, when settling a major case with US authorities, corporations are often obliged to engage a third party to independently oversee their compliance with the terms of the agreements designed to address and reduce the risk of recurrence of the misconduct. In fact, over the last 20 years, other large German and European corporations have been under a US compliance monitor’s oversight for violations of anti-corruption, antitrust, and other laws and regulations.
Volkswagen recognized that the appointment by the US Department of Justice (DoJ) of an Independent Compliance Monitor was a critical step in the company’s change effort following the emissions scandal.
For Volkswagen, Larry D. Thompson, the Independent Compliance Monitor and Auditor (the “Monitor”) under the settlements with the DoJ Criminal and Civil Divisions, is an integral part of the company’s wholehearted commitment to renew its anti-fraud and environmental compliance program and fulfill the obligations towards US authorities.
With the help of the Monitor, Volkswagen wants to become a company that is distinguished by both its high performance and its high integrity.
The Starting Point: A Shaken Company
When I joined VW to become the Chief Coordinator for the monitorship in early 2017, I expected a long path to help improve VW’s compliance and ethics program to prevent a recurrence of something like the diesel issue. I knew that regaining trust and effecting true change is a matter of years, not months. What I did not know much about was the journey VW had already taken, involving an extensive investigation and immeasurable public scrutiny. In early 2017, VW was on the brink of ending the investigation with US authorities and continuing remediation across the company.
While the compliance department had started to renew the Code of Conduct, the whistleblower system, and compliance training programs, to name just a few areas, the company also fundamentally reorganized the technical development departments, which had been at the heart of the diesel misconduct. The disciplinary process seeking to suspend or dismiss wrongdoers was still underway, creating a tense atmosphere of uncertainty across the organization. Internal and external counsel were working on numerous cases initiated by customers and public prosecutors worldwide.
In this situation, I was asked by the Group Board of Management to set up an organization that should serve as the central interface between the company and the Monitor. A few months later, the Monitor and his core team commenced their work.
Selecting the Monitor: A Joint Process with the DoJ
Following the process described in the settlement agreement, VW proposed a limited number of qualified candidates. Out of these, the DoJ selected a candidate at their sole discretion. In retrospect, I believe that the most important qualification when proposing a monitor is proven experience in reviewing corporate ethics and compliance programs. It is also helpful, where possible, for the monitor to have extensive knowledge of the corporation’s industry and business. Because there are many experienced corporate monitors in the global market, the selection may be an iterative process to identify a person that both fits the profile and preferences of the company and is also acceptable to the DoJ.
Before the Monitor Arrives: Raise Unbiased Awareness
Especially in Germany, not every employee or manager intuitively understands the purpose of a monitor. Over the first weeks and months, a primary focus of my role was to raise awareness among our stakeholders of the upcoming monitorship and inform them of the purpose and mechanisms of the Monitor’s mandate and rights, as well as VW’s obligation to cooperate across the organization, at all levels of the organization.
Obviously, raising awareness should start in the boardroom, a place where I spent a lot of time throughout the entire Monitor’s term. Without the board members’ buy-in, a monitorship cannot be managed. Putting aside my personal appreciation for the help I received, having a dedicated board member (for Integrity and Legal Affairs) and a specific board level committee (for the monitorship) in place is key to not only make timely decisions, but also as a tangible sign of commitment.
One of the core messages I tried to convey was that a compliance monitor neither furthers punitive goals nor re-performs the work done by investigators. The company and monitor will be able to cooperate fruitfully only if people in the organization fully understand that a monitor is primarily future-oriented and should not be seen as a needless disruption. One effective tactic to raise awareness was to invite experts who have been involved in monitorships in other companies and have them explain the “do’s and don’ts” of a successful monitorship.
The Monitor Arrives: Getting the Start Right
First, knowing that you don’t get a second chance for a first impression, office space for the Monitor team needed to be set up and appropriately equipped with necessary IT. Placing the Monitor team alongside my coordination team in an office near the executive building facilitated effective cooperation and visibly confirmed the importance of the monitorship for Volkswagen. Hiltrud D. Werner, our board member responsible for Integrity and Legal Affairs, summed up our department’s vision at one of our first meetings with the Monitor team, stating, “We live cross-brand and cross-divisional transparency with a service orientation founded on integrity, thereby gaining trust of the Monitor´s team and the stakeholders of the Volkswagen Group.”
Second, in a sunny and exhausting week in May 2017, we held an off-site boot camp outside the Wolfsburg headquarters with more than 40 briefings by VW senior and top managers to familiarize the Monitor and his team with the Volkswagen world. Despite the significant amount of preparatory work, logistics, and organization, it was a great opportunity to get to know the Monitor’s team in person and laid the foundation for our trustful cooperation.
Finally, we prepared a Welcome Package with information about our business, organization, and processes as well as key governance functions. The Welcome Package also included an explanation of the mechanisms of employee representation through works councils and German labor law regulations. Especially for US-driven monitorships in Germany, the continuous involvement of works councils has proven to be a crucial factor for successful cooperation.
Creating Common Ground with the Monitor: The Settlement Obligations
Another challenge a company under monitorship may be faced with is the complexity of a settlement agreement itself. Written in (foreign) legal language, the settlement needs to be “translated” for both regular (non-legal) line managers as well as the monitor himself.
One of our team’s key tasks was to develop practical approaches to implement several obligations from the settlements. When translating the provisions of the settlement into implementation guidance for business units, you may realize that more practical questions need clarification than a settlement agreement can reasonably cover. Even the smallest difference in terminology can have a huge impact on the implementation of a settlement obligation.
Bear in mind that the Monitor appointed by the DoJ had not been part of the settlement negotiations, so he needs to walk through the complexities of the settlements himself in order to form his view of the scope and requirements. Put briefly, specifying and operationalizing settlement obligations may be an enormous and time-consuming effort and sometimes even an iterative process with changing views over time. To visualize the sequence of implementation and reporting obligations, we drew a milestone plan covering all major obligations, due dates, and their interdependencies. Printed to a custom-size poster of approximately 10 feet in width, my team and I frequently used it in our meetings and workshops, and the Monitor team also considered it a helpful means for planning and oversight.
The Backbone of Cooperation: A System for Document Transfer and Meetings
A monitor primarily works through the review of documents and data, as well as through interviews with employees at all levels of the organization. Looking back at the (almost) three years of the Monitor’s term at Volkswagen, this is where you feel the most that a monitorship is an extremely serious matter.
From a business unit perspective, providing documents and being available for interviews is a tremendous challenge. Enough time needs to be set aside for preparation, often in addition to day-to-day work. At least in the beginning of the Monitor’s work, many people in the business units also feel a significant level of uncertainty: What documents does the Monitor expect? What kind of questions will he ask, and what if I don’t know the answer right away?
From a coordination team perspective, things aren’t much easier. In order to track every document that is submitted to the Monitor and ensure that data protection and legal privilege regulations are complied with, a robust process supported by an effective workflow tool is a must. It is important to thoroughly test available IT tools and make sure that the process is flexible enough to respond to changes quickly while always complying with applicable regulations. The strong involvement of data protection and legal experts, as well as works council representatives, is a requirement.
Similarly, every interview conducted by the Monitor should be tracked in a centralized system and accompanied by people from the coordination team. Practical guidance (e.g., distributed as a checklist or handbook) is needed to ensure that statements made to the Monitor are not only true and complete, but also supported by appropriate documentation.
Whatever tools for document transfer and meeting organization you implement prior to the start, the test will come when many requests need to be processed on very short notice. While there may be plans in place to increase capacity, it is difficult to anticipate when they will be necessary. The coordination team’s most important task is to make sure that processes and key controls are not curtailed or bypassed when deadlines are short.
It’s a People Business: Mirroring the Monitor’s Team Structure
Whenever the mandate of a monitor defined in a settlement agreement is broad and comprises different matters of a company’s compliance program, a monitor is likely to employ several sub-teams. In such cases, I believe it is extremely helpful to create continuity and permanence in the liaison unit by employing a peering concept.
As trivial as it may sound, challenges in cooperation with a monitor sometimes start with the question “Have we understood each other correctly?” or “When we use a certain term, do we mean the same thing?” Creating a common language is essential for consistent and trustworthy communication.
It was a significant endeavor to gather a cross-functional team of senior managers from both second and third line-of-defense functions such as risk, compliance, quality management, human resources, and internal audit but also from relevant first line-of-defense areas such as engineering, environmental management, procurement, sales, and finance. In the beginning, everyone could feel the “clash of sub-cultures” when these people started to work together. However, they were open-minded and fully engaged in their new roles as “coordination peers” between the Monitor team members and their business units.
Over time, the coordination peers became trusted persons for the corresponding Monitor team members, helped them understand the complex world of Volkswagen, and assisted with formulating the Monitor’s requests in a way that allowed the business units to deliver the answers that the Monitor team was looking for.
In the end, a coordination peer is a facilitator and an intermediary. In this role, he or she should neither take responsibility for the matters subject to review by the monitor, nor should he or she make any “official” statement towards the monitor, as this is the responsibility of the respective business unit.
Listen and Understand: Implementing the Monitor’s Recommendations
People at Volkswagen are proud of, and committed to, what they do—from the way we design and build vehicles to our indirect or supporting processes.
Since the scandal, Volkswagen has changed a lot: strategy, processes, organization, personnel and leadership, reporting mechanisms, control systems, and IT tools. Hence, process owners and other responsible persons may tend to consider their area of responsibility as an “optimized system.” They believe that the solution they have designed and implemented is, in fact, the most appropriate given the company’s specific requirements (including the appropriate consideration of lessons learned from past misconduct or malfunctions). Even so, the monitorship forced the company to reconsider all our processes. Honestly, no system in the real world is so good that it could not be improved further. An unbiased view from the outside always has the potential to identify room for improvement.
Like in any other monitorship, Larry D. Thompson has provided recommendations to Volkswagen in the reports issued throughout his term. Such recommendations were always made with the clear expectation of a timely and thorough implementation.
In order to meet those expectations, we used a specific “operating model” to coordinate between business units, the coordination team, and legal and other experts. Another important factor in successfully meeting the Monitor’s requirements was management and board involvement. In the VW monitorship, each recommendation provided by the Monitor was owned by a board member at the group level.
Starting with in-depth and energetic discussions of the Monitor’s reports and recommendations in the boardroom, board members closely oversaw the entire response process from appropriate design to sustainable implementation and operating effectiveness. The board also approved necessary resources and budget allocations. Notably, in almost three years of the monitorship, I never became aware of any cost-driven attempt to cut resources or budgets in relation to a Monitor’s recommendation.
The Bottom Line: Impact of the Monitorship
Without any doubt, a monitorship is a huge challenge. First, in terms of organization and coordination, depending on the scope of the monitor’s mandate, many functions and business units may need to be involved. Processes for the transfer of documents and meetings with the monitor need to be established and managed through a liaison office.
Second, a monitor independently reviews the company’s processes and procedures. The mirror that the monitor holds up to the company reveals weaknesses and inconsistencies. Expectations that the monitor formulates represent a benchmark and require immediate action. A monitor demands an appropriate and sustainable implementation of his recommendations.
Third, and most importantly, a monitorship is designed to create long-term impact, reducing the risk of reoccurrence of the underlying misconduct. As such, the monitor serves as an accelerator to the company’s efforts to improve its compliance and ethics programs. He helps prevent initiatives from getting stuck in operational restraints. Being aware that cultural change is a matter of more than the three years of a usual monitor’s term, the monitor focuses on the sustainability of the company’s commitment for a robust and effective compliance program and a culture of integrity.
I believe that Larry D. Thompson’s greatest merit is his unrestricted will to make Volkswagen a better place, distinguished by both its high performance and its high integrity. While Volkswagen had taken several steps towards this goal prior to the Monitor’s arrival, the monitorship made the shift permanent. At the same time, the Monitor helped spread the understanding that performance and integrity are inseparable elements of VW’s future success.
About the Author:
Since February 2017, Dr. Thomas Meiers, LL.M. (Chicago), has headed the Central Coordination Monitor department as Senior Vice President at Volkswagen Group. His department coordinates all global activities related to the mandates of Larry D. Thompson as Independent Compliance Monitor and Independent Compliance Auditor, which are part of the settlement agreements with the US Department of Justice. In previous leadership roles within the Volkswagen Group, Thomas headed Corporate Strategy at Italdesign Giugiaro S.p.A. in Turin, Italy, and Compliance at MAN Truck & Bus AG in Munich, Germany. Prior to this he held several positions in the legal department of GE Healthcare and worked at the law firm Freshfields.
