Daily Times

By many critical measures, the Justice Department’s announcement on Tuesday that Volkswagen had agreed to pay $14.7 billion to resolve claims related to its diesel-emissions scandal was startling. For one thing, it is the largest class-action settlement ever, billions more than the one Enron agreed to in 2008. It also far exceeds Toyota’s $1.1 billion outlay, in 2012, over flawed accelerators, and the two billion dollars that General Motors recently agreed to pay for faulty ignition switches.

The Volkswagen agreement calls for a record product buyback, which will require the company to repurchase from consumers, at market price, as many as four hundred and seventy thousand or so automobiles with model years 2009 through 2015, which came equipped with stealth software capable of masking, during testing, their engines’ ability to emit up to forty times the legally permitted levels of nitrogen oxide. In addition, as part of the settlement, Volkswagen will have to pay billions to support various pollution-control projects, the largest punishment ever meted out under the Clean Air Act.

As if to punctuate the scale of Volkswagen’s perfidy, Deputy Attorney General Sally Yates announced the settlement in language dripping with the kind of disdain usually reserved for organized crime figures. “Volkswagen turned nearly half a million American drivers into unwitting accomplices in an unprecedented assault on our environment,” she said.

Still, as striking as some of the details of the settlement are, the scandal shouldn’t have been surprising. For decades, Volkswagen has practiced a management style that imposes rigid goals and punishes middle- and lower-level employees who are unable to keep up with the pace. The origins of this approach, known as top-down control, date back more than a century, to the work of the industrial-efficiency guru Frederick Winslow Taylor. In its current iteration, the concept typically sees executives formulate bold strategic objectives and timelines for new products and services, with little input from others in the company. Although these aims are often presented as guidelines, not mandates, management rarely treats them as negotiable. In turn, rank-and-file employees, pressured by the expectations placed on them, try to deliver at all costs.

Although top-down culture is increasingly being discredited in favor of greater organizational coöperation and worker empowerment, it is still prevalent, embraced to varying degrees by big names like Apple, Nissan, General Electric, and Boeing. In some cases, it has been costly: while reporting a feature on Boeing for Portfolio magazine some years ago, I observed that the company’s difficulties in getting its vaunted Dreamliner off the ground were directly related to the “aggressive goals-fearful employee” dynamic. Numerous experts whom I spoke with about Volkswagen agreed that few other companies apply top-down control so unremittingly, and that this was the likeliest explanation for why its engineers were willing to commit crimes and defraud the public to save their jobs. As one person who had worked closely with Volkswagen told me, the company “is fuelled by intimidation at every level, which creates a borderline, or sometimes over the borderline, unethical culture.”

The groundwork for the diesel scandal at Volkswagen was laid around 2007, soon after Martin Winterkorn was named C.E.O. The auto industry was just beginning to undergo its most pronounced transformation since the days of Henry Ford, a still-evolving shift in direction away from the venerable internal-combustion engine and toward innovative concepts like electric, hydrogen, and autonomous cars. This put severe pressure on automobile manufacturers to make especially acute guesses about products and technology, by anticipating consumer preferences and policymaker demands.