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VW scandal highlights importance of effective compliance, corporate governance

Readers may or may not have heard or read about the current situation facing Volkswagen at present. The situation, simply put, is that Volkswagen is in a lot of trouble for intentionally skirting federal emissions rules. The company has admitted to developing software for millions of vehicles in order to avoid compliance with the requirements.

Not only is the company facing massive fines from the Environmental Protection Agency in connection with the scandal, but also a criminal probe by the Department of Justice. The long-term effect of the scandal from investors’ perspective remains to be seen, but there has been considerable turbulence since the scandal broke. 

Moody’s Investor Service, perhaps stating the obvious, has pointed out that the emissions scandal is a sign that the company has serious issues in terms of corporate governance. According to Moody’s, Volkswagen’s problems include ineffective internal controls over improper and illegal activity, as well as substandard risk management by management and supervisory boards.

The Volkswagen crisis is a pretty stark reminder of the consequences companies can face when they fail to put proper focus on corporate governance and compliance issues. It is also a reminder of the fact that, no matter how successful a company becomes, it is never too big to fail in this area. Between continually changing laws and regulations, shifts in markets and a business’ culture, there is a lot to keep track of in this area, but working with experienced legal counsel can help ensure a company establishes sound policies close up any gaps where they are at risk.  

Sources:

AM Online, “VW emissions crisis highlights serious corporate governance problems, says Moody’s,” Oct. 27, 2015.

USA Today, “Cost of Volkswagen scandal: 'Enormous but manageable',” Nathan Bomey, Oct. 28, 2015. 

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