But worse than the vehicle recalls is the loss of trust. This week, Standard & Poor’s downgraded Volkswagen’s long- and short-term corporate credit rating from A to A-minus. The frustration of shareholders is also reflected in the stock market: VW shares dropped about 30 percent since the Environmental Protection Agency disclosed the defeat devices and the breakout of the emission scandal on Sept. 18.
(VW Stock Price variation in three months. Source: Google Finance)
People are either worried about VW’s future or outraged by VW’s fraud. Deutsche Welle, the German international broadcaster, quoted a brand valuation and strategy consultant who said that VW experience could be worse than BP: “The BP oil spill wasn’t deliberate, whereas with Volkswagen we seem to be looking at a systematic, possibly industry-wide deception.”
As a crisis communication practitioner, I admit that VW does not have much trust in their trust tank; however, I disagree that they performed worse than BP mainly because none of VW’s senior management leaders said anything equivalent to “I’d like my life back” or “The Gulf of Mexico is a very big ocean. The amount of volume of oil and dispersant we are putting into it is tiny in relation to the total water volume.” Instead, VW issued formal apologies worldwide, including one at a Congressional hearing last week.
One hidden secret in crisis management is that what determines stakeholders’ perception of a crisis is not the event itself, but how the company and its leaders respond to the crisis. And a persistent question in crisis response is whether and how to apologize.
A Model for Apologies
To apologize or not to apologize, that is the question. And if to apologize, when, how, to whom, and through what channel?
There are constant debates among heads of government, C-Suite executives, and other leaders on the answer to this questions. The tension: Keeping silent makes leaders seem as if they do not to care, but issuing insincere confessions exacerbates the crises.
The key is to calibrate the apology correctly.
Last year my graduate thesis for the Master’s in Public Relations and Corporate Communication at New York University focused on CEO apologies. I developed a model to evaluate apologies and to help shape effective apologies in the future.
I call it the 10C Model of Apologies
I blogged about this 10C Model of Apologies last summer. Here I’ll apply the 10C model to VW’s leaders’ various apologies; first then-CEO Martin Winterkorn and then current U.S. CEO Michael Horn.
Three weeks ago, on Sep 18, The Environmental Protection Agency accused Volkswagen of installing software on approximately 500,000 diesel cars in the U.S. to evade federal emission regulations. Three days later, then-CEO Martin Winterkorn issued a video statement. Soon afterward, Volkswagen of North America President and CEO Michael Horn offered a public apology on VW’s emission scandal during the launch of their 2016 VW Passat.
This post will focus on VW’s ex-CEO’s apology first. I will apply the 10C Model to Mr. Winterkorn’s apology, and grade his apology line by line, assigning him a final letter grade of “A — F.”
And I will use the same 10C Apology model to evaluate Michael Horn’s performance in my next post.
The 10C Model and Volkswagen Then-CEO Martin Winterkorn’s Apology
1. CONTENT: Five languages
Content has to do with the language used in the apology. Here I follow the advice of from The Five Languages of Apology (Gary Chapman and Jennifer Thomas, 2007). They recommend that a public apology include five different kinds of language:
- Expressing regret — “I am sorry.”
- Accepting responsibility — “I was wrong.”
- Making restitution — “What can I do to make it right?”
- Genuinely repenting — “I’ll try not to do that again.”
- Requesting forgiveness — “Will you please forgive me?”
Let’s see whether Winterkorn covered all 5 languages (transcript source: N-tv.de):
1. An expression of regret —
“Es tut mir unendlich leid, dass wir dieses Vertrauen enttäuscht haben.”
(I am deeply sorry that we have broken this trust)
2. An acceptance of responsibility for the mistake —
This part is missing in his apology.
3. A form of restitution or compensation —
This part is missing in his apology.
4. A credible commitment to change and a promise that the act won’t occur again —
Wir arbeiten intensiv an den nötigen technischen Lösungen, und wir werden alles tun, um Schaden von unseren Kunden und Mitarbeitern abzuwenden. Ich gebe Ihnen mein Wort, bei all dem werden wir mit der größtmöglichen Offenheit und Transparenz vorgehen.
(We are working very hard on the necessary technical solutions. And we will do everything we can to avert damage to our customers and employees. I give you my word: we will do all of this with the greatest possible openness and transparency.)
5. A request for forgiveness —
Auch deshalb bitten wir, bitte ich um Ihr Vertrauen auf unserem weiteren Weg. Wir klären das auf.
(That is why we are asking for trust as we move forward: We will get to the bottom of this.)
Winterkorn did not cover all five key languages, he missed repentand responsibility. Although he kept repeating words like customers, employees, transparency, and trust, he did not acknowledge anything nor provide any detailed restitution to prove he cares.
He failed to meet the qualification of CONTENT. (Grade: D)
2. CHANNEL: Where does the leader express the contrition?
There is no unified platform for apologies, but the leader should pick up the most suitable channel. As a general principle, it should be in the channel or channels that reasonable stakeholders would appropriately expect to find the apology.
In this case, Winterkorn issued a video apology and uploaded it on VW’s website. The site included many statistics about the video and media contact information. It was even downloadable in two sizes. Despite these formal communication efforts on the website, it was not sufficient to win the hearts and minds of stakeholders.
3. CONTROL: When does the leader express the contrition?
The Golden Hour of crisis response refers the observation that incremental delays in responding effectively to the crisis lead to greater-than-incremental harm to trust and confidence. The longer it takes to show that the leader or company cares, the harder it becomes, the more harm it causes, and the harder it is to eventually restore trust.
The VW emission scandal broke out on Sept. 18 and Winterkorn issued the video apology three days later, which is considered timely and fully prepared. His relatively quick response brought two benefits: 1) It stopped the rapid drop of VW’s stock price; 2) VW emission scandal related reports after Winterkorn’s apology are all bundled with his quotes and statement. At least VW showed their attitude.
(VW Stock Price variation in one month. Source: Google Finance)
(Titles of reports. Source: Süddeutsche Zeitung Fortune)
Winterkorn passed the qualification of CONTROL and performed better than last two “10C” criteria. (Grade: B)
4. CHANGE: Are there any promises or following actions?
Words matter, but words plus actions are better. Remember in the first 10C, CONTENT, we noted that a credible commitment to change is one of the five languages of apology. However, the two changes are different. That first change is what leaders say, whereas this second CHANGE is what leaders actually do. In other words, leaders should promise that first change, in the content of the apology, and then deliver the second CHANGE, in their subsequent actions, to their stakeholders. Trust is built through the delivery of the promise.
In VW’s case, Winterkorn said in the statement that VW would do everything necessary to reverse the damage and do everything necessary to win back trust — step by step (Wir werden alles tun, um Ihr Vertrauen Schritt für Schritt zurückzugewinnen). And then VW started to take action. According to German national daily newspaper Die Welt, VW started an internal audit to investigate the incidents, and VW’s supervisory board hired the American law firm Jones Day to carry out an independent external investigation (Unsere interne Revision hat sofort mit den Ermittlungen begonnen. Der Aufsichtsrat hat zudem eine unabhängige externe Untersuchung durch die US-amerikanische Großkanzlei Jones Day beauftragt). No one knows how long it is going to take and what would be the final result, but at least VW is in the right track to fulfill the promise.
Winterkorn performed well in terms of CHANGE. (Grade: B)
5. CUSTOMIZATION: Is it a general or a customized apology?
How does the leader tailor the message? Apologies are directed towards human being, not inanimate objects. Different stakeholders have different needs and expectations. Leaders should understand each group of the target audience — employees, customers, investors, community, government, media and interest groups — and speak in words that have particular meaning to each of them.
Although Volkswagen uploaded Winterkorn’s video in German and English on their official website with links to download and media contact information, they did not customize messages towards specific stakeholders. Car dealers don’t know their restitution, EPA doesn’t hear VW’s acceptance of responsibility. The video statement is long, but too general.
Winterkorn did not do a suitable job on CUSTOMIZATION. (Grade: C)
6. CHARACTERISTIC: Acute or chronic?
Before expressing anything publicly, leaders should clarify different types of crises in order to make the right decision. Crises could be differentiated as acute crises or chronic crises: Acute crises happen unexpectedly, and need quick and proactive engagement. Chronic crises happen with notice, involve a series of ongoing issues, and need careful monitoring, consideration, and investigation.
The VW emission scandal did not happen overnight. Evidence shows that five scientists from West Virginia University detected additional emissions during road tests on two diesel cars. And European Commission’s Joint Research Centre warned the possible use of defeat devices as early as 2013. Therefore, this is a long-term issue and needs thorough investigation.
But Winterkorn said that he was unaware of the problem until very recently. And once the crisis became public, Winterkorn got the point and was able to handle that in a correct way: Make a timely but formal apology, and then act.
Winterkorn performed well in terms of CHARACTERISTIC. (Grade: B)
7. CONSEQUENCE: How severe is the issue?
What harm does the crisis cause? Economic loss? Reputational damage? Product recall? Casualties?
If the crisis causes a severe aftermath, a formal apology, whether spoken or signed by the leader, is needed. If the situation is not that serious — for example, a slip of the tongue or a dumb but harmless business decision (which does not trigger a threat to anybody) — the leader could be informal, using social media to say sorry and promise not do it again.
Unlike the BP Deepwater Horizon crisis, which caused severe bodily and environmental harm, no one died because of the VW emission scandal. However, it led to a product recall, resulted in environmental degradation, and caused a huge economic loss and reputational damage to VW. Winterkorn was able to detect that and made a proper formal apology.
He performed well in terms of CONSEQUENCE. (Grade: A)
8. CULTURE: What’s the culture background of the crisis and the apology?
Where does the issue happen? Where do leaders, followers and stakeholders come from? Is apologizing popular, forbidden or sensitive in this place? The perception of apology varies widely across different cultures. Leaders who are eager to sell their products worldwide and see the growth of sales volume rarely understand their global stakeholders.
Winterkorn might be well received in Germany, but his words are not fully accepted, at least in the States, as he does not behave humbly or exhibit emotion.
He failed to fully understand the CULTURE behind the crisis. (Grade: D)
9. CAUSE: What’s the psychological incentive of the leader?
What’s the motivation behind the expression of sorrow? Is it a sincere apology or a non-apology apology? An honest or touching apology could be very strategic. If leaders say anything unwillingly or even worse, refuse to apologize at first and then relent under pressure, no matter how perfect the statement looks, the apology is just useless words.
Winterkorn seemed to be sincere based on his performance in the video and his resignation. However, Bloomberg discovered that he remains a top executive job at Porsche Automobil Holding SE, which owns 52.2 percent of the automaker’s voting stock. He’s also still chairman of VW’s publicly traded Audi AG unit as well as the group’s truck holding company, among other positions. That leads one to wonder: what’s the point for naming a new CEO given the fact that the old leader still oversees the newcomer? Winterkorn seemed to apologize to preserve these other jobs.
He failed to show credible CAUSE to make this apology. (Grade: D)
10. CHARISMA: Does the leader enjoy a good reputation?
Apologies from trustworthy leaders are more likely to be accepted because of the leaders’ positive personal image, whereas statements from disreputable leaders are not trusted and can be counterproductive. In addition, if the leader apologized for other problems in the past, but failed to keep his or her word and deliver on the promise of the apology, stakeholders and the public will not trust that leader in the future.
A vivid example of this is disgraced former New York Congressman Anthony Weiner. Would you believe that he never texted anything inappropriate after his last apology, given that he did text inappropriate pictures after he promised he would not do it again?
Fortunately, VW’s Winterkorn has enjoyed a good reputation. He was featured in the 2007 and the 2008 Power List of American automotive magazine Motor i, and has served as an honorary professor of the Budapest University of Technology and Economics.
His CHARISMA somehow wins back the credibility of his apology. (Grade: A)
(A=4.0; B=3.0; C=2.0; D=1.0; F=0)
If we grade Winterkorn’s performance using a grade calculator, his GPA of the apology is a C+. Among the 10Cs, he did a good job in recognizing the characteristic and consequence of the crisis, but he failed to include all five languages of an apology and did not convince stakeholders that he issued this apology out of willingness.
Winterkorn lost his job (at least the CEO of VW AG) even though he issued a timely apology. And this model tells me that he did a fairly job expressing his regrets, but his statement was not good enough to hold down his job.
However, his colleague Michael Horn, a German employee in VW U.S., did an excellent apology to save his job as VW’s President and CEO of Volkswagen Group of America. I will use the same 10C Apology model to evaluate his performance in my next blog post.