Our ongoing Supply Chain Matters commentaries regarding certain product design flaws, quality conformance shortfalls and subsequent efforts at covering-up such flaws have drawn similar takeaways, but it now appears that the stakes are growing far higher.

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In the case of the diesel engine emissions manipulation scandal involving Volkswagen, the financial, legal and brand impact implications remain ongoing. A company noted for a somewhat tops-down management style and an engineering-driven culture and among one of the two top global producers is learning some tough lessons because of this scandal. Financially, the global tally is now exceeding $20 billion in product recall, legal settlement, and other costs with potentially more remaining.

Last week, in response to U.S. Justice Department investigative efforts, VW admitted guilt in the manipulation of auto emissions standards along with efforts to cover-up such activities. Six individual VW executives were criminally indicted because of the emissions cheating case. One was once responsible for ensuring that vehicles complied with U.S. emissions standards. Five others had senior leadership roles in the product development organization in Germany.

In its plea agreement, VW admitted that its supervisors and employees agreed to deceive regulators and customers regarding the actual emissions performance of engines. According to published reports, the indictment states that some of the supervisors encouraged employees to create software to evade emissions standards.

A published report by both the New York Times, Reuters, and global business network CNBC, cites content taken directly from the U.S. Justice Department indictment. Noted is man identified as “Supervisor B,” who overruled nervous subordinates and allegedly instructed them to develop the overriding software program to defeat emissions readings. According to the court documents, this supervisor instructed the subordinates to not get caught.

Further noted in this report is a statement from the federal indictment indicating: “In 2012, for example, senior executives rebuffed a group of Volkswagen engineers who had discovered the illegal software. The engineers were told to destroy the documents they had prepared showing how the software worked.”

The whole affair represents the first time that the U.S. Justice Department has elected to pursue responsible individual employees as well as companies themselves in such criminal investigation cases and the admission of guilt.

Also last week, a U.S federal grand jury indicted three former Takata Corp. executives, charging them with conspiring to provide auto makers with misleading test reports on rupture-prone air bag inflators at the center of unprecedented products recalls involving upwards of 42 million vehicles involving multiple brands. These executives held senior positions overseeing air bag product management and engineering at the Japan based supplier. Takata itself separately pleaded guilty to criminal wire fraud and agreed to pay $1 billion to resolve a two-year long U.S. Justice Department probe of the supplier’s handling of air bags that risk rupturing and spraying shrapnel in vehicle cabins. The safety problem is linked to 11 deaths and 184 injuries in the U.S. alone. According to court documents, a senior Takata executive at one point directed a junior engineer to remove data showing ruptures during testing from a report later given to an auto maker

Product and quality management professionals with on-the-job experience in regulated industry environments have likely encountered certain situations of organizational tendencies to cover-up potential product, process, or software design flaws. Such tendencies can sometimes come from verbal directives from above to “make the problem go-away.” Often, pressures to make operational and financial performance milestones can motivate such actions.

Yet, with each passing year, the scope and implications of such actions have grown to unprecedented dimensions. And now, these latest actions point to executives and individuals collectively being held criminally accountable for their specific actions.

We need to be clear, we are not at-all dismissing any of these actions and behavior.

Instead, we observe that product and quality management professionals have now been placed in a more precarious role.

Accommodate pressures to make problems go away so that business goals and performance bonuses are met, or stand on principled legal grounds to do the right thing for customers, corporate and individual legal protections. The challenge becomes ever more magnified as increasingly specifications, process performance activities and management actions are stored in digital files and available for internal or external review.

Such actions represent a slippery slope, one that probably does not get adequate attention in employee and management leadership training, but surely will in the coming months.

The notions of “make the problem go-away’ needs to be supplanted by “we all need to do the right thing” for customers and employees. It starts with corporate leadership, culture, ethics and resolve.

Unfortunately, in today’s global business climate of intense pressures for results, the challenge appears to be more elusive, and individual careers and reputations may well suffer the consequences.

Bob Ferrari

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