It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you’ll do things differently. —Warren Buffet
The first car I ever drove was a VW Beatle. VW, short for Volkswagen, means peoples’ car, began production after WWII and quickly became one of the best selling cars in history. Just recently, VW surpassed Toyota as the best selling automobile manufacturer. This carefully cultivated brand, with a long standing history of reliability, lost its reputation after the Environment Protection Agency charged the automaker with purposefully installing software in some VW diesel vehicles to cheat environmental regulations.
Volkswagen’s CEO, Martin Winterkorn, a long time company insider and the highest-paid CEO in Germany, has had to resign in the wake of this scandal. The cost to the company is expected to exceed the $7 billion originally estimated. Company stocks have already plummeted 23 percent. (Bloomberg Business 21 September 2015)
Why? Because of the Trust factor. As I have written in my upcoming book: Enlightened Negotiation: 8 Spiritual Laws, the first law is the Law of Trust. Last week I was presenting my lecture on Enlightened Negotiation at Rancho la Puerta in Mexico. As always, the comments about the trust issue were profound and had people reflecting for days.
Trust is the foundation of any relationship and any agreement. Confidence that the other party will keep its commitments provides both parties with the assurance necessary to keep moving forward productively. When either party’s commitment to its promises is perceived as doubtful, a marriage, a business arrangement, or even a multi-national peace treaty can fall apart in an instant because there is no solid foundation of trust.
The Volkswagen issue is so significant that the German Engineering Federation, which represents machinery makers and is closely intertwined with the auto industry, said there was a risk that the “Made in Germany” brand could suffer. The organization said in a statement that it was worried “that one instance of misconduct could be carried over to all of German industry. ” (NY Times 23 September 2015)
Because VW tried to cheat on environmental regulations, the rest of the German industries may suffer, because consumer trust in the German brands has been compromised after this scandal. This is what I call the intangible and rippling effect in negotiation. In this case a negative one. This proves that the Law of Trust should not be taken lightly in any relationship.
Naomi Kresge Richard Weiss “Volkswagon Drops 23% After Admitting Diesel Emissions Cheat” Bloomberg Business 21 September 2015 Web
Ewing, Jack “Volkswagen C.E.O. Martin Winterkorn Resigns Amid Emissions Scandal” NY Times 23 September 2015 Web.