Reference no: EM132840980

Pimping a Ride with Management? Labor/Management Sex Scandals at VW "I was just following orders." That claim, not unlike similar claims of a far more dastardly nature during the post-World War II Nuremberg Trials, emanated from another German's lips 60 years later with regard to accusations that VW asked him to arrange liaisons with prostitutes for prominent union leaders. These were not the words, however, that Dr.-Ing. e. h. Bernd Pischetsrieder, chairman of the board of management of Volkswagen (VW) AG, wanted to hear about his firm. Klaus-Joachim Gebauer alleged thatVW sent a dozen of its top German labor leaders to Brazil for a tour of the company's São Paulo facilities and meetings with local Brazilian union officials. After finishing the official portion of the trip, Gebauer said he and the other men took a bus toRio de Janeiro and checked into a high-rise hotel on the city's famous Copacabana. Gebauer stated they then picked up prostitutes which he paid for out of his own pocket. He then got VW to reimburse him for the group's expenses for the entire trip. The Rio excursion was the first of dozens of pleasure trips to exotic locations undertaken by VW worker representatives and paid for by the automaker over a nine-year period. The trips caused a criminal investigation of illegally used company funds to pay for top labor leaders to go on junkets involving posh hotels, call girls, and the use of a company plane. Gebauer claimed he was given blanket instructions by his boss to use the trips to garner worker representatives' support for VW management.VW's initial response to such charges was to attack Gebauer's credibility and fire him for embezzling company funds and seeking kickbacks from potential VW business partners before he blew the whistle on the firm. Gebauer of course denied the charges. In response to these claims VW indicated that "we treat with caution any statements concerning these incidents solely made by a former employee who was dismissed without notice on the grounds of personal enrichment." After firing Gebauer and another manager for allegedly seeking kickbacks, VW asked the accounting firm KPMG LLP to investigate the abuse of traveling expenses and other expenses at the company. VW then disclosed the auditors' findings, acknowledging it paid about $740,000 to Adriana Barros, an acquaintance of VW's former top labor leader Klaus Volkert, for services that were not appropriate. She was also flown between Brazil and Germany several times using money from VW. The German court charged Barros with "26 counts of being an accessory to breach of trust."The company then acknowledged that "the necessary control systems" for catching improper expenses "were not in place."

Questions:

1. Evaluate VW's actions in handling this crisis by applying the four stages of crisis management to this case situation. What should VW have or have not done in reaction to these allegations?

2. Which stakeholders should Pischetsrieder have contacted when this problem was first uncovered? Why?

3. Firing Gebauer set off a chain of uncontrollable events. What alternatives were available to Pischetsrieder, and why should he and the board have taken them?