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Osamu Suzuki looked bemused. It was 2010 and the chief executive of eponymous Japanese carmaker had just signed up to an alliance with Volkswagen. Presenting the deal at the Geneva car show, however, VW’s top managers spoke only German in front of hundreds of international journalists, leaving Mr Suzuki befuddled until he was handed a translation headset.
The Suzuki deal has since gone sour, offering a rare blemish on the otherwise sparkling recent performance of the German carmaker. But as VW seemingly goes from strength to strength in its quest to become the world’s biggest carmaker, the incident serves as a big warning to the company and its shareholders as well as the broader German business community.
Much of the negative focus on VW has centred on corporate governance. Placing someone whose previous experience is as a kindergarten teacher to police one of the world’s biggest and most complex companies merely because she is the wife of the chairman would be troublesome in any business. Yet while that is undoubtedly a serious matter, it is probably not the biggest challenge facing VW.
That honour, in my opinion, goes to the corporate culture. Or, as one investor says, it may be more appropriate to call it “monoculture”.
VW’s management board is made up entirely of German speakers, save for Francisco Garcia Sanz, its Spanish-born head of purchasing who has nonetheless studied and worked mostly in Germany. Its 20-seat supervisory board is similarly Teutonic with only three non-German or Austrians, and two of those belong to Qatar Holding, the third-largest shareholder behind Porsche and the local state government with 17 per cent.
Fault also lies on the side of the workers, who provide half the directors on the supervisory board. Despite only representing 44 per cent of its 513,000-strong global workforce, German employees occupy all 10 board seats, something that has caused tensions in the past when domestic factories appear to have been favoured over cheaper foreign locations.
Shareholders and analysts can themselves see the culture at work at their annual conference with VW’s management, an event run in English by virtually every other blue-chip company. At VW, analysts — like Mr Suzuki — need to don their translation headsets.
The corporate headquarters in Wolfsburg — itself a town that only really exists because of VW — wields enormous power with chief executive Martin Winterkorn and chairman Ferdinand Piëch infamously obsessive about the tiniest details.
Undoubtedly, it has led VW to develop some impressive cars that have fuelled its explosive growth in recent years. But it makes some outside observers, as well as some managers in private, fret about too much meddling from the centre, especially as it adds an 11th brand in the shape of motorcycle maker Ducati
The big worry, acknowledged both internally and externally, is that VW through its success becomes complacent, following in the footsteps of Toyota. Its Japanese rival’s botched response to its recall saga was widely blamed on its culture. VW executives therefore stress how keen they are to learn from their Japanese rival.
After years of underperforming in the US, they are now taking American customers more seriously and have installed a non-German, Jonathan Browning (a Brit), as head of the local business. Executives also point to China, now VW’s biggest market, where although the country head is German the lead sales executive is Chinese.
But the fear still remains that VW is an overwhelmingly German company and that could become a problem as its presence in emerging markets grows in importance. It previously came a cropper in the US by misjudging local customer needs on seemingly trivial matters such as the need for larger cupholders because of a belief that the centre knows best.
And the matter of how international the top managerial ranks of companies are is an issue for all German business. Peter Löscher, Siemens’ chief executive, memorably told the that the conglomerate was too German, too male and too white. Like VW, progress may have been made at lower levels but its management board remains overwhelmingly German-speaking.
For now, VW like most of German industry is in world-beating form. Its products and technological knowhow are in demand from Shanghai to São Paulo. But for its long-term future the carmaker would do well to better reflect the global nature of its business both in its culture and management role. Otherwise VW risks emulating Toyota, only not in the manner it wants to.
Richard Milne is the FT’s Capital Markets Editor