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The VW Scandal Is a Wake Up Call for Every Company

10/15/2015 08:37 EDT | Updated 10/15/2016 05:12 EDT
Bloomberg via Getty Images
The VW logo sits illuminated on the exterior of the Volkswagen AG headquarters in Wolfsburg, Germany, on Tuesday, Oct. 13, 2015. VW Chief Executive Officer Matthias Mueller faced employees at the German company's headquarters last week as pressure mounts to slash spending in the wake of the diesel-emissions scandal. Photographer: Krisztian Bocsi/Bloomberg via Getty Images

The scandal brewing at VW around the "diesel" pollution scam is going to reverberate across the corporate world and so it should. All around the world surveys have shown that a majority of consumers care about whether the companies they buy from are "green" and "good." Yet those same surveys show that consumers are confused as to whether the companies they buy from are good and are very skeptical of company claims in this regard. Studies from places like the Reputation Institute suggest consumers believe only about 16% of what they hear already. Companies getting put over the coals for false claims are becoming ever more commonplace.

The lessons of VW's misstep are several. First, there is a price to pay for betraying the trust of consumers and the price is higher than it has ever been. Not only is VW's stock declining but they are now talking about having to reduce investment in key parts of the business from the fallout. There are already 227 lawsuits against the company, a number will likely keep piling up. The promise of being "green" and the subsequent breaking of that promise will exact a tremendous toll on the company. They will hardly be a magnet for top talent and green consumers will shun them for years. Besides, as one friend said to me, "if they are lying about this, what else might they be lying about-maybe safety!"

Consumers have always cared about companies being good but the reality is that the price for not being good used to be very low. When the Exxon Valdez spilled oil all over the Alaskan coast it was a PR nightmare for the company but the stock price barely declined. Thirty years later when BP spilled oil across the Gulf its stock price was cut in half as was that of Haliburton. To this day, consumers likely think of only one thing when they see the BP sign.

But it's not just VW that will pay a price this time. This scandal is likely to fuel consumer belief that companies are more interested in green washing and doing the occasional good deed or project than changing their core values. Every company that calls themselves good or makes green claims will now have a harder time convincing an already skeptical consumer base that the claims are more than marketing ploy.

This is a wake-up call for any company making good or green claims that are not in fact true or represent partial truth. It also means that trust in corporate communication is likely to go lower than it already is making the job of corporate communicators even tougher.

A colleague and I have recently been involved in a project to interview CEO's of large publically traded companies who we feel really "get it" in terms of a deep commitment to CSR and to green business practices. Our goal is to understand the anatomy of true CEO commitment to sustainable brands and to find out how to generate more such commitments. The process of trying to both identify and get CEO's to agree to be interviewed has been most revealing. What we have discovered thus far is a real reluctance on the part of CEO's to put themselves out there on these issues in such a personal way. It may be, in part, because once you do so any misstep or gap between the "talk" and the "walk" could be very harmful. One Chief Sustainability officer at a Fortune 50 company even told me that they are prohibited from doing interviews for media about their sustainability efforts even though I know he "gets it" and he says his CEO definitely "gets it."

Every time a BP that touted themselves as "beyond petroleum" or a VW/Audi that tricked us into thinking that it isn't "easy going green" betrays our trust and we discover that under the surface the apple isn't so shiny, it is going to make it much harder for companies to communicate their story, will make other CEO's and companies more nervous about making claims and make consumers all the more skeptical of what we try to tell them in the CSR space.

There is an upside to this scandal however. It may help separate the wheat from the chaff. Those companies who are walking their talk will persevere and work even harder to prove their claims. Those who are tempted to "green wash" may think more than twice about making false or misleading claims. Consumers will be even more likely to look to third parties to confirm green and good claims. The heavy price VW is paying may also bring some house cleaning within companies as CEO's and even internal whistleblowers seek to make sure claims are real.

Of course there is also a large downside. Even more CEO's and companies may become reticent to position themselves as sustainable brands and to take a leadership role. Even those companies that are making real progress may have a harder time wooing customers to choose them based on their sustainable brands. Maybe even the whole sustainable movement will begin to look like a Hollywood façade and not a very convincing one at that.

This may be grown up time for the CSR movement. Until now we have been able to skate along with nice platitudes and high claims. But BP and VW are bringing reality right into the face of the movement. Be real, go deep or don't even try to play this game. Time will tell if consumers really punish VW for their sins. For the sake of the movement to create more sustainable brands, let's hope they do.

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