The VW debacle just keeps getting worse. I wrote the piece below for HBR a couple days after it all came out. Since then, as I expected, reporters (and I assume lawyers) are starting to estimate the health impacts — and likely deaths from air pollution — that VW’s excess emissions caused.
One more thought I’ve had since I wrote the below, and this would be lesson 4. The goals we set matter. Today, a New York Times story mentioned that the now-former CEO — back in 2008 when it was clear the engine they were proud of wouldn’t do so well on emissions — was pushing to “triple sales in the United States within a decade.” When the message is sales above all, what will your people do to hit the target? What if the goal were to offer the cleanest burning engine at the highest miles per gallon?
At any rate, let’s not let this kind of corporate malfeasance go to waste…

Sept. 23, 2015…

The ripple effects of the Volkswagen scandal go well beyond the 11 million cars affected, the CEO’s resignation today, and the steep fines the company is facing. Though the story is still developing, there are a few big, interconnected lessons to be drawn from what we know so far.

1. Being clean and green has real, bottom-line value. Rigging emissions tests to make cars look cleaner is appalling, and while it may sound like the company was just putting one over on the regulators, the result is more pollution that harms all of us. (The WHO estimated last year that 7 million premature deaths could be linked to air pollution.)

In a strange way, VW’s chicanery only reinforces how important it is for products today to be environmentally safe. This wasn’t a test of how well their cars handle, how fast they go from zero to 60, or how well they protect you in a crash. No, VW was risking its reputation to make everyone believe the cars were cleaner.

This episode has proven that cleaner-burning cars with high fuel efficiency are truly valuable—after all, if you’re willing to cheat to pursue it, it must be worth the risk. But when you stake your reputation on being clean and green, you better make sure that you actually are.

2. Protecting the environment builds trust, and trust is precious capital. Decades ago, a company’s market value was nearly equivalent to its tangible assets—buildings, machinery, materials, financial capital, and so on. In 1975 intangible assets were just 17% of the market value of the S&P 500. But today those proportions are flipped: intangible assets now make up 84% of the market value of the S&P 500. I once asked an audience of 200 financial executives from large consumer products companies if any of them thought that more than half of their company’s value stemmed from tangible assets. Nobody raised a hand.

What exactly is all that intangible value? Some of it is intellectual property. For consumer-facing companies, though, a vast amount of value resides in the brand value, an amorphous measure of how a company’s key stakeholders—its customers and employees foremost—feel about the company or product. Among the many emotions and feelings that tie us to brands, trust is one of the most foundational. How many car buyers will trust VW now?

3. Trust comes from transparency, and transparency is the norm today. While it’s surprising that the company tried to pass off its cars as “clean diesel,” it’s even more surprising that the company’s leadership thought the plan wouldn’t come to light.

We are barreling into a new world of complete openness. We’re more connected than ever, we’re gathering endless data, and the number of cameras recording our behavior seems to be multiplying exponentially. Millennials and Generation Z expect an answer to any question they have about the products and companies they interact with: What’s in this product? Is it toxic? What’s the carbon footprint? Who made it? Were they paid a good wage? How much does the CEO make? Has this company been fined for anything I would find offensive?

Take the example of what’s happening in the food industry. The rise of demand for “clean labels” that tell us what’s in our food is causing major headaches for old-school food and beverage companies. On some level, it all comes back to a harsh reality: trust in all institutions, business in particular, has been eroding for years. We now look for verification before trusting a company. With actions like VW’s, can you blame us?

We don’t yet know what the repercussions will be for VW or how the company will manage its reputation. More damning evidence about WV could emerge, and investigators are wondering whether VW’s competitors might be hiding similar illegal practices.

So let this be a warning to other companies: being clean and green is important, but only if it’s authentic. And remember that everyone is watching you.

(This post first appeared at Harvard Business Review online.)
(Andrew’s new book, The Big Pivot, was named a Best Business Book of the Year by Strategy+Business Magazine! Get your copy here. See also Andrew’s TED talk on The Big Pivot. Sign up for Andrew Winston’s blog, via RSS feed, or by email. Follow Andrew on Twitter @AndrewWinston)