In the last week VW US has been found to have cheated. The Environmental Protection Agency (EPA) found that software in several VW diesel cars could deceive regulators, meaning that engines could appear up to 40 times cleaner than they actually are. Fines could reach $18bn. There may also be criminal charges for VW executives. The effects of this scandal are unlikely to be confined to the US market. Indeed, there is a possibility that the problem may affect vehicles in other geographical markets, as US tests are more stringent than they are in Europe. There is also a possibility that this may be just the beginning of a purging process which will involve other car manufacturers – although right now there is no suggestion other companies have been found guilty of the same crime.
VW faces huge financial costs. Most importantly perhaps, the scandal is devastating for VW’s reputation. Volkswagen means “people’s car” in German. The brand has been built on its reliability and integrity, over the course of many decades. It has been a highly trusted brand. Until now. Volkswagen’s chief executive Martin Winterkorn apologised saying – “I personally am deeply sorry that we have broken the trust of our customers and the public”. These words don’t seem to have been enough for the markets. VW shares fell by almost a fifth overnight.
Much has already been and will be written about this event for some time, indeed this may be only the beginning of something which might affect the whole automotive industry for some time. As a negotiation expert, I want to draw a couple of reflections about trust, as this is what this story is primarily about, for me.
Even in strong, highly collaborative partnerships, when the pressure is on, the temptation to break trust, and take actions which may be advantageous in the short term, is never far. The more trust there is, the greater the potential to break it, especially in highly pressurised scenarios. We don’t have to look far for other examples of this – the Libor scandal in banking, or doping in sport, to name but a few instances where people under pressure have done things with devastating long term consequences.
So, when the pressure is on, and you are tempted to take a short term strategy which may have negative long term consequences, slow down. Is the short term value of what you will gain worth the long term cost?
In a negotiation you need to assess the risk of your counter-party breaking trust too. Under pressure, they may be tempted to cut corners, and bend if not break the terms of your agreement during the lifetime of the contract. What can you do to protect yourself against such risks? Ensure you incorporate clauses to risk-proof your agreement. Do so during the negotiation – that’s when you have the most power, because you haven’t said Yes to the whole agreement yet. It’s much harder to change the terms of the agreement once the contract has been signed. These clauses are not needed because the parties don’t trust each other, they are simply a recognition that especially in long-standing contracts and partnerships, circumstances may change (they will, in one way or another), and when the pressure is on, it pays to have formal incentives to keep both parties on the straight and narrow. It is recognition of how much value both parties place on the partnership, so much value to want to protect it. Perhaps it’s even recognition of the human element in business, which ultimately takes place between people, not companies. And people are fallible – especially under pressure.
If you are enjoying a long-term relationship with another party, this will be based on trust: this trust will have taken a long time to build. Protect it, because it’s hard to gain, and, as VW is finding out, all too easy to lose.