Leadership and Culture in Organizational

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Executive summary
In the current environment, globalization has changed the world into a global village in which
entities are always antagonistic and make competition with each other. As a consequence,
thereof, entities have to form new beneficial operational ways in performing their business
activities. In such type of situation, leadership is considered as one of the essential elements for
successful business activities. In this aspect, present study is based on discussion of the various
aspects of leadership, and organizational culture. For the purpose of analysis, Volkswagen, a
German car manufacturing company is selected. This company has faced one of the major diesel
emission scandals in the year 2015 and one of the reasons behind this is the company’s
leadership approach and its culture. It has been noted that, CEO of company named as Martin
Winterkorn has followed authoritarian leadership culture that does not involve employees for
decision making purpose. Further, subsequent to this, Matthias Muller has been appointed, who
make changes in the company’s leadership style as well as its culture.
 Table of Contents
Executive summary.........................................................................................................................1
Introduction......................................................................................................................................1
Discussion of the leadership about the company and the leader.....................................................1
Change leadership............................................................................................................................2
Discussion of Lewin’s model..........................................................................................................4
Discussion of culture.......................................................................................................................4
Critical analysis...............................................................................................................................4
Conclusion.......................................................................................................................................4
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Introduction
Volkswagen is one of the leading German automobile producer, founded in the year 1937 for
significant production of the low-priced ‘people’s car. In the year 2015, company was discovered
to have installed a defeat device to dress emissions data. The company’s culture and leaders was
blamed for such scandal. In this aspect, present study explains about the leadership of the
company and its leader when the scandal was happened. Subsequent to this, discussion about the
changes in leadership, and corporate culture is provided. The analysis is performed with the help
of Lewin’s model and hofstedian model of culture. At last, critical analysis is given that
contained about ideas and whether or not it worked for addressing the scandal and rebuilding of
company’s image.

Discussion of the leadership about the company and the leader

Leadership is considered as important management function that supports to guide resources of
the entity for improvement in the efficiency and achievement of goals. Effective leader offer
clarity of purpose, encourage and direct the entity to realize its mission (Abbas, and Asghar,
2010). In the year 2015, it has been discovered by the Environmental Protection Agency that
Volkswagen had installed equipment in cars with diesel engine that assists towards modification
of its performance in selective manner for passing emission tests. The equipment has been
developed internally and its technique failed to fulfill the required emission standard. Instead of
fix the issue, this problem has been covered by VW by installation of software in 11million
diesel powered vehicles in all over the world, consisting of approximately 500000 in the US.
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Figure 1: Emissions Hit

(Source: Dugar, 2018)

The value of any entity initiates from the voice at the top. the rules and regulations have been
established by the entity, and it is the workers that avail their cure their cure from the superior
entity. In the year 2007, Martin Winterkorn was obtained the position of CEO. He was the
demanding boss who hated failure. He has complied with authoritarian leadership style and
guided at increasing an environment of fear. For the public growth, he has also established the
ambitious goals, consisting of becoming the one of the largest car manufacturer in world. He
aimed to achieve this through breaking into the market of US in big manner. In the initial half of
the 2015, company has sold approximately 5.04 million cars, by which briefly holds the title
(Dugar, 2018). However, gaining the Winterkorn’s objective at any costs has a significant price
that eventually involved a notice of violation from EPA, a criminal investigation by US division
of Justice and several class-suit legal actions against the entity.

It can be said that, the reason behind such scandal and failure of company is mainly attributable
to the company’s leader. Since, Martin Winterkorn has implemented authoritarian leadership
style, which assists towards building of culture that discourages open dialogue and restrict
checks and balances could swift cheating and fraud. Therefore, it can be said that, company has
been infected with authoritarian culture, which depressed frank discussion as well as demanded
excellence at virtually at any price (Aitken, 2007).
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Change leadership
The diesel emission scandal of VW cannot be occurred if leadership of VW is really relied it its
stated values such as partnership, social responsibility, sustainability, and volunteering. Clear
and definite messages have been given by Winterkorn, that not any failure by employees would
be tolerated. Workers that did not follow were harshly forced out. They implemented hyper-
aggressive ambitions on workforce for capturing new market as well as attainment of higher
standards. The fear of suspension from the company for failure was probably very powerful that
employees felt that they will instead breach the law as compared to confront the wrath of
management (Bird, 2016). Due to this, some employees installed the defeat device, which assists
towards changes in the trajectory of entity in forever manner.

Figure 2: Converging elements of a toxic culture at Volkswagen

(Source: Van Rooij and Fine, 2018)

It should be noted that, subsequent to the scandal Martin Winterkorn stepped down, and he was
replaced by the CEO of Porsche, named as Matthias Mueller, within short span of time. It has
been stated by the Muller that, one of the most immediate activities is to win back trust for the
entity – through leaving no stone unturned and with utmost transparency, along with drawing the
correct conclusion from the existing situation. Under the leadership of Muller, VW would
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perform everything it could be advance and apply the strictest compliance as well as governance
mechanism in its sector (Teck, et al., 2020). If company is managed to gain that then
Volkswagen Company with its inventive strength, its powerful brands and above all its
competent and significantly encouraged team has the prospect to emerge from such calamity
sturdier than before.

As a part of their efforts to recover, entity has built a new set of values such as ‘Values from us,
Value for us’. Employees from across the globe were participated in advancing the new
corporate values of company, which is considered as significant mechanism for making
improvement in its corporate culture. This was regarded as whole annulment of the leadership.
rather than of motivating and enabling others to perform their absolute best in together manner to
realize an evocative and benefiting shares purpose, leader of VW is necessarily let each person
come up with whatever they assumed was valuable, convenient, and suitable. It can be said that,
there is change in leadership style from authoritarian to participative as now Muller welcomes
the ideas of employees as well. Following table reflects what aspect has been applied by Muller
during its leadership –

Genuine  No fear of hierarchies

 Open
 Transparent
 Emphasis on actual problem
 Speak out
 Take a stand
Courageous  Investigate habits.
 State my opinion
 Figure out new things.
 Challenge
 Give opinion
Customer-oriented  Listen
 High quality
 What is desired by consumer, not what
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VW wants
 Recognizing consumers across the
world

Efficient  Fast
 Economical
 Do things
 Avail responsibility
 Focused
 Minimum discussion
Mindful  Respect
 Thoughtful
 Issue, not status
 Empathy

In order to become fair, VW will tell consumers their new values from us, values for us are with
respect to the above factors. It has been noted that, new CEO of the company has a suitable risk.
They have to appropriate with the roots of entity and support the entity get back to such basics.
One of the major priorities of Muller at the time of availing the helm has been to decentralization
of power and restructure the command-and-control form that was existed previous CEO
Winterkorn. A number of medium level managers thrived under pre-dieselgate arrangements,
which permitted them of shifting of responsibility to others, and they are stressed to implement
drive by Muller for leadership and transparency. It has been stated by Muller that it took
approximately three years as CEO of the car manufacturer to set up a new culture at the entity
with its 12000 employees and shift the emphasis against to the products (Gandolfi, and Stone,
2018). It can be said that, CEO is trying to make changes in its inflexible hierarchy in aggressive
manner, by which VW has been dominated so long. He also started some actual changes. In this
aspect, he has decreased the board size, and makes replacement of dozens of senior members,
consisting of heads to major auto units. Exterior individuals are being recruited, which are not
having any link to the earlier culture. Significant autonomy has been also provided to them.
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Leadership change after

emission scandal

Martin Winterkorn (CEO) Matthias Mueller (CEO)

Democratic leadership
Flatter organizational
style and decentralized
structure with inflexible
Autoratic leadership style decision making which
hierarchy and increased
encouraged open dialogue,
executive bureaucracy
checks and balances

Figure 3: Leadership change after VW emission scandal

Discussion of Lewin’s model

In accordance with Lewin’s model, there are three key steps to ensure mandatory and successful
changes and these are; unfreeze, change and refreeze, and the same can be applied to VW case as
below:
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Figure 4: LEWIN’S MODEL OF CHANGE

(Source: The Leadership Change, 2022)

Unfreeze: In this stage, change readiness is ensured by organization and management of the firm
to accept and understand the importance of the need for change. In this way, this step breaks
down status quo, calls for existing conduct, modify prevailing practices and creating new way of
carrying out business. By considering this aspect, VW corporate culture was all about reliability,
trust and integrity, however after the scandal these all aspects were placed into huge risk.
Initially, the company carried out an internal inquiry, and the change was necessary because in
future they required a climate wherein issues were not covered, instead communicated openly to
management (Che, Katayama and Lee, 2020). Further, the company also hired new CEO
Matthias Mueller, and the importance of change was communicated through two-way discussion,
from top-level to bottom-level. With this, integrity and commitment were involved by company
in order to retain support from consumers, employees and shareholders.

Change: In this step, firm must consider transition or shift into new state of being. In regards
with this, VW in order to push through the nightmare of PR and regaining sales traction,
emphasis on the 4-step procedure that totally focused on four core words namely; replacing,
restricting, redeveloping and rebranding (Guckian et al 2018). It also launched new strategy of
Together – strategy 2025, halted advertising and engaged a series of print advertisement
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apologising. For regaining the trust of demoralized employee, it changed its culture by being
more open and adopted the strategy of outreach, along with ensuring that everyone knew about
the current and future happenings (Turna, 2022). VW realized that culture is required to be
addressed and improvised, for which they created campaigns of open dialogue, together for
Integrity for new cultural development and inspirational forums. These directly aimed towards
open debate, dialogue and diversity and their major purpose is to motivate management and
employees to participate in open discussions that further reduce hierarchical barriers. As the VW
corporate culture was hierarchical, kind of obedience as well as command model. In this way,
they tend to change it in a way by encouraging more dialogues and debate, embracing two-way
feedback, considering decentralized decision making and diversification of talent pool.

Refreeze: Refreezing is the act of strengthening and stabilizing the new state aftermath of the
change. It is all about sustaining the enacted changes. In order to retain the made changes, VW
considered the strategy of face-to-face communication so as to rebuild trust. Employees were
encouraged by the company for sharing their opinions and expressing their concerns (Jung and
Sharon, 2019). Information was provided on the ongoing ordeal and were engaged in the
procedure of reacting to feedback. They were provided with great amount of training, regular
meetings and sessions were assigned to check if or if not, operations are conducted under quality
and compliance controls.

Discussion of culture
The Hofstede model comprise of six core dimensions and these are illustrated dimensions:
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Figure 5: Hofstede's Cultural Dimensions Model

(Source: Fran, Xavier and Ondrej, 2017)

Power distance: It is associated with distinct solutions to the fundamental issue of inequality (De
Mooij, and Hofstede, 2010). In the case of VW, the corporate structure was highly centralized
and employees’ inputs were not taken into account by top management. The structure was
authoritative wherein employees were not engaged in decision making which was liable for
either on a knowing or an unknowing basis invoked cheating climate with no top management
knowledge (Van Rooij, and Fine, 2018).

Uncertainty avoidance: The scandal took place due to the fact that the corporate culture
discouraged open dialogue as well as restrict checks and balances, it is evidenced that VW
avoided dissent and discussion at the workplace which further limited discussion, participation
and engagement of employees and restricted them to discuss their concerns and issues.

Individual vs collectivism: It can be evidenced that employees at VW have powerful work ethics
and are likely to emphasize on individual attainment with strong individual goals. However, the
company has managed to retain a better mix of individualism and collectivism through engaging
challenging tasks and goals. The culture is highly based on employees being highly independent
as well as self-reliant and striving to attain personal goals and individual rights.

Masculinity vs femininity: The senior management was leaded by German based male
engineers; the company faced the disadvantages of group think in the course of making decision
to involve in that enormous cover-up. By retaining more gender diversity as well as varying
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perspectives, better decisions could have been made. It can be stated that not only recruiting
diversified personnel, it can bring up valuable perceptions and innovation to the culture and
enhances financial performances (Neville and Schneider, 2021).

Long Term vs Short Term Orientation: It can be asserted that VW preferred to consider the
short-term orientation of their sales, instead of the long-term orientation forming and retaining
the American consumer trust. Furthermore, the multi-faceted indictment as well as fall of the
culture of VW is evident via its several consequences. The culture placed pressure over middle
management by the senior management which resulted into groupthink and created unrealistic
expectations over the engineers (Aurand et al 2018).

Indulgence vs Restraint: Indulgence highlights on a culture that more emphasize on individual

gratification, needs and satisfaction of people, however restraining culture showcase a culture
which is controlled by social norms and regulations. In regards with Volkswagen, the company
has acquired combination of both, with high inclination towards restraint, as it focused less over
leisure time and directed the gratification of their desire.

It is to be noted that, it is a huge challenge to operate in a multicultural environment that is

subjected to several expatriates.

Critical analysis
By considering the above aspects, it can be analyzed that prior to the scandal, the work culture of
VW was only focused on generating sales, ignoring employee’s ideas and inputs, considering
ethical standards, and following an autocratic style of leadership. As noticed that, in the scandal
the engineers were resorted to cheating, due to the work-environment not being conducive and
have to keep forward with their jobs (Zhang Atwal and Kaiser, 2021).

However, aftermath of the scandal, the company thrived to transform the corporate culture and
aggressively attempted to modify the inflexible hierarchy through reducing executive
bureaucracy and granting considerable autonomy to managerial authorities and employees which
made their changes quite promising (Florio and Sproviero, 2020).
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With the help of monitorship, it enhanced its work culture and concentrated in enhancing its
whistleblower program and establish a compliance officer network in every business section
(Florio and Sproviero, 2020). Furthermore, VW has sought to establish employee trust after the
scandal by appointment of new CEO, and by engaging more flatter organizational structure and
decentralized decision making. It made the system more transparent, emphasizing on question-
and-answer session, improvising training and enhancing accessibility regarding the program. In
addition to this, the company also tend to demystify its process of investigation for employees
and has strived to share lessons and examples from internal probe (Welch, 2019). However, it
has been evidenced that there is a requirement for the company to consider the alignment of
international best practices by cultivation of a culture that embrace constant learning which aids
employees in elevating their skills.

With the less hierarchical as well as decentralized structure, it would allow VW with various
benefits, as it will allow low level employees to develop and adopt new ideas and these
employees are generally close to consumer as compared to senior ones, their collective know-
how regarding the demand of market is a considerable value source. Offering division managers
with autonomy frees them to give response to market demands while also enable them to place
their individual career interest over the firm welfare. It has also been evaluated that the shift of
VW over decentralized decision making and integration of accurate means for checks and
balances would allow employees in freely engaging in debate process; for example the low
context, task-oriented, direct, and conformational nature of its employees culture will involve
communicating of core information with them on the corporate direction and frequent listening
session would allow employees to share their views and a range of issues regarding company
would be defined and debated (Roddy and Wang, 2018). However, VW has a long way to go, it
needs to take necessary steps in order to avoid future uncertainties, through considering
turnaround management for allowing a positive culture, instill a culture of transparency and
accountability (Florio and Sproviero, 2020).

Conclusion
Based on above analysis, it can be said that, leadership creates significant influence on the
success of company (Montgomery, 2006). It has been noted that, ineffective leadership style of
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Winterkorn has assisted towards unethical activities, and consequently one of the major scandals
in VW, which is recognized as diesel emission scandal. In this aspect, Winterkorn has applied
authoritarian leadership style rather than of democratic, which is against the probable nature of
other car producer entities, which emphasis on the employee performance as well as well-being.
By not making alignment of upper management and objectives of shareholders, company select
to give priority towards short term orientation of their turnover, instead of their long-term
orientation in the direction of creation and maintenance of trust of customers. The organizational
culture in place showcased a cutthroat culture which resulted into market success of VW, but
also it ensuing downfall. On the basis of above analysis, it can be concluded that the emission
scandal would not have been taken place in a situation where the top management of VW
motivated a culture of efficient debate as well as constructive involvement. Subsequent to this,
Muller has been appointed as CEO and he made essential changes in the company’s leadership
as well as culture. He has complied with participative leadership style, in which employees could
share their ideas and opinion without being feared. The culture changed from authoritative to
democratic and decentralized, in which employees were encouraged to engage in open debates,
discussions and dialogues. Along with this, campaigns and training programs were released in
order ensure full compliance, quality checks and work under ethical standards. These changes
therefore tend to be promising and the strategic response of VW aided the company in regaining
its image and transforming its culture, however it can be cited that company needs to keep up
with regular checks, monitoring and evaluation to avoid any future wrongdoings.
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