Multinational Business FinanceFifteenth EditionChapter 4 Min.docx

Multinational Business Finance
Fifteenth Edition
Chapter 4 Mini Case
Volkswagen’s Defeat Devices and Stakeholder Control
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1
Volkswagen’s Defeat Devices and Stakeholder Control
Today, E P A is issuing a notice of violation (N O V) of the
Clean Air Act (C A A) to Volkswagen A G, Audi A G, and
Volkswagen Group of America, Inc. (collectively referred to as
Volkswagen). The N O V alleges that four cylinder Volkswagen
and Audi diesel cars from model years 2009-2015 include
software that circumvents E P A emissions standards for certain
air pollutants.
—U.S. Environmental Protection Agency, 9/18/2015
Announcement resulted in the loss of 30% of the company’s
market value.

Volkswagen and Diesel
Volkswagen was founded in 1936 in Germany. By 2015
Volkswagen Group was a multinational holding company of car
and truck products and had become the second largest
automobile manufacturer in the world.
When Martin Winterkorn was appointed C E O in 2007, he had
given specific instructions: triple sales in the U.S. to 800,000
cars by 2018. His strategy was diesel.
Diesel Engines (1 of 2)
Diesel engine exhaust had lower carbon monoxide production,
but higher particulate and nitrogen oxides emissions.
U.S. emissions restrictions on passenger automobiles were the
most stringent in the world.
Diesel Engines (2 of 2)
There were two basic technologies used to reduce N Ox
emissions:
Selective catalytic reduction (S C R)
Lean N Ox trap (L N T)
S C R was most effective, but V W concluded it was too
expensive and added too much weight.
L N T was cheaper and lighter, but less effective, than S C R. It
was this technology that V W employed in the vehicles
equipped with defeat devices.

Detection (1 of 2)
In 2013, a small nonprofit clean air group in Europe, in an
attempt to verify and defend the environmental benefits of V
W’s clean diesel technology, sponsored a contract to conduct
emission tests on several V W models under California driving
conditions. The findings of that study revealed that two V W
models did not pass the emissions tests. California authorities
raised their concerns with V W management.
C A R B [California Air Resources Board] shared its test results
with V W on July 8, 2015. C A R B also shared its results with
the E P A... During a meeting on September 3, 2015, V W
admitted to C A R B and E P A staff that these vehicles were
designed and manufactured with a defeat device to bypass,
defeat, or render inoperative elements of the vehicles emission
control system.
Detection (2 of 2)
The defeat device was essentially software to determine if the
automobile was being tested for emissions.
If it was, it altered the combustion to allow more fuel to pass
through combustion and therefore reduce N Ox emissions.
The September announcement by C A R B/E P A resulted in an
immediate sell-off of V W shares. As illustrated in Exhibit A, V
W’s share price began to plummet.
V W estimated that the defeat device was onboard 11 million
cars sold worldwide. The C E O was replaced and 11 million
vehicles were recalled.
Exhibit A Volkswagen’s Share Price, March 2015-May 2016

For long description, see slide 21: Appendix 1
Corporate Culture
V W had long been known for its command and control culture;
it was purportedly an organization in which subordinates were
afraid to question their superiors.
Critics of V W often cite its “culture of arrogance,” in which
the organization believes it is not accountable except to itself.
V W’s management culture, called the V W System, functioned
via a network of deep relationships between management,
workers, local politicians, and a very difficult and frequently
torrid family ownership structure.
Although a global organization, its deep roots in Lower Saxony
assured corporate longevity by protecting the jobs and industrial
structure of its constituents. Often referred to as stakeholder
capitalism, it had proven good for stakeholders but less than
optimal for shareholders.
Power and Governance at V W (1 of 3)
V W did not have a single Board of Directors; instead it had two
separate boards common under German corporate law:
Supervisory board expected to oversee management
Management board expected to oversee the day-to-day activities
of the company
As illustrated in Exhibit B, board seats, ownership, and power
were three different concepts at V W.
Ultimately, the supervisory board controlled V W.

Exhibit B Volkswagen’s Governance Structure
For long description, see slide 22: Appendix 2
The Porsche and Piëch families owned 32% of the company,
Lower Saxony 13%, Qatar 16%, and the remaining 40% was
held by outside investors through the free floating shares
(traded on exchanges).
But the ownership of shares did not translate directly into votes.
The Porsche and Piëch families held 51% of the votes in the
company.
The Supervisory Board had four committees: audit, nomination,
mediation, and presidium. It was the presidium, the executive
committee often referred to as the inner circle, that held the
power.
V W’s corporate governance employed a common control device
in Europe, the pyramid structure.
Pyramid structures involve an entity (such as a family or a
company) to control a corporation that, in turn, holds a
controlling stake in another company.
V W, at the time of the crisis, was effectively controlled by
three men: Ferdinand Piëch, his cousin Wolfgang Porsche, and
Martin Winterkorn. Although Winterkorn was now gone, the
new C E O, Matthis Müeller, was a close associate of Piëch.
The Piëch and Porsche families had an official agreement to
unite their voting power.

V W’s 2016 Mixed Message (1 of 2)
On January 4, 2016, the U.S. Department of Justice filed a civil
complaint against V W alleging the illegal installation of
emissions defeat devices and importing vehicles into the U.S.
violating the Clean Air Act.
V W’s response was to refuse to provide any communications
among its executives to legal authorities in the U.S. on the basis
of corporate privacy protection under German law. Germany had
some of the most stringent legal protections on personal
information in the world, particularly as provided to entities
outside the E U.
V W’s 2016 Mixed Message (2 of 2)
Although V W admitted it did indeed commit illegal acts in the
U.S. (technically by lying to government regulators, not for
installing the devices), the company noted that the device “is
not a forbidden defeat device” under European rules.
Although critics of all kinds were impatient with V W to
disclose the results of its internal investigations, V W’s
leadership continued to argue that it was obligated by German
corporate law to inform its shareholders first, and that could not
happen prior to the April 2016 shareholder meeting.
Changing Story (1 of 3)
The responsibility of leadership to divulge significant risks to a
publicly traded company’s shareholders in a timely manner was

clear in both Germany and the United States.
V W now reported that C E O Winterkorn was sent memos
noting the issue more than a year before the issue arose publicly
but he may not have read them.
Many insiders argued that V W’s leadership did not understand
that the defeat devices actually broke U.S. law, and believed
that resolution would be achieved relatively easily and quickly
with U.S. regulators.
Volkswagen considers the German shareholder lawsuits to be
without merit, since any ad hoc disclosure obligation requires
that the persons responsible for the fulfillment of this obligation
obtain knowledge of facts relevant for the stock price and can
assess the economic effects of those facts. With respect to the
diesel matter, stock price relevance occurred only as of 18
September 2015 when the violation of U.S. environmental
regulations was announced. Until then, there were no
indications whatsoever of information with relevance for the
stock price, since up until that point in time it was expected that
a manageable number of vehicles (approximately 500,000)
would be affected by the diesel matter and that fines in a two-
digit or lower three-digit million amount would be imposed, as
had been the case in the past in the U.S. in comparable cases
involving passenger vehicles.
Additionally, to the best knowledge, the diesel matter appeared
to be an issue that could be contained by measures that were
common in such cases, including effective technical solutions,
and, thus, appeared to be neutral with regard to the Company’s
stock price.
-V W press release to investor lawsuits

This was followed by a 113-page interim report from its own
ongoing internal investigation, in which V W noted that it had
been surprised by the issue being taken public by U.S.
regulators.
The company had assumed that continuing negotiations would
follow the September findings, privately, to reach a resolution.
In the past, even in the case of so-called defeat device
infringements, a settlement was reached with other car-makers
involving a manageable fine without the breach being made
public.
The now ex-C E O of V W, Martin Winterkorn, had opened the
company’s 2014 annual report to stakeholders with the
corporate vision, a vision that now sounded increasingly
hollow.
Mini-Case Questions
Why did Volkswagen’s leadership decide to use defeat devices?
Who controls the strategic and operating decisions at V W?
Describe the various stakeholders and their individual interests
in V W. Whose interest dominated in the decision to pursue the
defeat device strategy?
How did V W react to the discovery of its deceit? Do you think
this was the proper crisis management response? What would
you recommend that they do differently-next time?
Copyright

This work is protected by United States copyright laws and is
provided solely for the use of instructors in teaching their
courses and assessing student learning. Dissemination or sale of
any part of this work (including on the World Wide Web) will
destroy the integrity of the work and is not permitted. The work
and materials from it should never be made available to students
except by instructors using the accompanying text in their
classes. All recipients of this work are expected to abide by
these restrictions and to honor the intended pedagogical
purposes and the needs of other instructors who rely on these
materials.
20
Appendix 1
Long Description for a graph plots Volkswagen’s share price in
euros versus time for the period from March 2015 to May 2016.
The graph consists of a curve representing the following trends
in Volkswagen’s share price. The share price generally fell from
around 235 euros on March 24, 2015 to 165 euros on September
18, 2015. On this date, the U S E P A announced a notice of
violation. The share price then dropped to near 100 euros by
early October 2015. Over the period from October 2015 to May
2016, the stock price continued to fluctuate between 100 and
140 euros, rising to near 130 euros by May 2016. All values
estimated.
Return to presentation
Appendix 2
Long Description for Volkswagen’s governance structure.
The diagram explains Volkswagen’s governance structure.

Volkswagen’s governance structure begins with the Supervisory
Board. The Chairman of the Supervisory Board alternates
between the Works Council and Shareholders. The Supervisory
Board oversees the Management Board headed by the Chief
Executive Officer, C E O and Chairman of the Management
Board. The Supervisory Board has two components: the Works
Council and Shareholder Interests. The Works Council has 10
seats, and Shareholder Interests have 10 seats. The Porsche and
Piëch Families have a formal agreement to vote their shares as
one. The following table provides the number of board seats,
percent ownership, and number of votes for each Shareholder
Interest.
A table has 5 rows and 4 columns. The columns have the
following headings from left to right. Shareholder, Number of
Board Seats, Percent Ownership, Number of Votes. The row
entries are as follows. Row 1. Shareholder, Porsche and Piëch
Families. Number of Board Seats, 4. Percent Ownership, 32.
Number of Votes, 51. Row 2. Shareholder, Lower Saxony.
Number of Board Seats, 2. Percent Ownership, 13. Number of
Votes, 20. Row 3. Shareholder, Qatar Investment Holdings.
Votes, 17. Row 4. Shareholder, Outsiders Appointed. Number of
Board Seats, 2. Percent Ownership, blank. Number of Votes,
blank. Row 5. Shareholder, Outside Investors, free float.
Votes, 12.
Return to presentation
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ITS 833 – INFORMATION GOVERNANCE
Chapter 4
Information Risk Planning and Management
Dr. Sandra J. Reeves
[email protected] J. Reeves 2018
1
1
CHAPTER GOALS AND OBJECTIVES
Be able to outline the progressive steps involved in developing
an information risk management plan
Know what is meant by “risk” and a “risk profile”
Know the different ways one would go about creating a risk
profile
Know how one would go about conducting a risk assessment
Know what an information risk mitigation plan is
2
2
What is the purpose of Information Risk Planning”?
Identify potential risks to information

Weighing risks against each other
Creating strategic plans for risk mitigation
Creating policies
Develop Metrics
Applying metrics to measure progress
Audit and feedback
3
3
STEPS IN INFORMATION RISK PLANNING AND
MANAGEMENT
Step 1: Survey and Determine Legal and Regulatory
Applicability and Requirements
Step 2: Specify IG Requirements to Achieve Compliance
Step 3: Create a Risk Profile
Step 4: Perform Risk Analysis and Assessment
4
Step 5: Develop an Information Risk Mitigation Plan
Step 6: Develop Metrics and Measure Results
Step 7: Execute The Risk Mitigation Plan
Step 8: Audit the Information Risk Mitigation Program
4
Step 1: Survey and Determine Legal and Regulatory
Applicability and Requirements
Conduct Legislative Research-Legal requirements trump all
other requirements

Identify the jurisdictions(s) where the company operates
Federal
Provincial (international)
State
Municipal
5
5
Step 1 Continued
Approaches to legal research for retention, privacy and security
laws:
Records retention citation service (Example: FILELAW®)
Use online Print resources (Example: Code of Federal
Regulations “CFR”)
6
6
Step 2: Specify IG Requirements to Achieve Compliance
Compile list of external compliance requirements
Map data, document, and records to external compliance
requirements
Devise a method of keeping legal and records management staff
apprised of changes in regulations
Reconcile Internal IG retention requirements with external
compliance requirements
7

7
Step 3: Create a Risk Profile
“RISK” – Effect of uncertainty on objectives1
“RISK PROFILE” – Description of a set of risks2
A part of Enterprise Risk Management
Considerations for creating a Risk Profile
Frequency
External Resources
Stakeholders
ISO 31000 2009 Plain English, Risk Management Dictionary”,
www.praxiom.com/iso-31000-terms.htm
Included in Risk Profile
Identification, documentation, assessment and prioritizing risk
that an organization may face in pursuing a business objective
Timeline:
Projections 3 to 5 years into future
Create annually
Updated or reviewed semiannually
8
8
Step 3..Continued
Types of Risk Profile Methodology
Top-10 list-simple listing and ranking of top 10 risks in relation

to the objective
Risk Map – Visual tool, easy to grasp, grid depiction of a
likelihood axis and impact axis-Generally rated on a 1 to 5 scale
Heat Map-color coded matrix generated by stakeholders voting
on risk by color (red is highest risk)
9
9
Step 3..Continued
Information Gathering for Risk Profile
Surveys
Person-to-Person Interviews
Give interviewees questions in advance
Schedule interviews at convenient times and places
Keep interviews as short as possible
Include questions about:
Access and Security policies
Policy development
Policy adherence
Retention of email
Legal Hold policies
Record Retention
Record destruction
Training and Communications
Consider key events and changes that will impact risk
Generate a list of risks and categorize (Example: natural
disasters, regulatory, safety , competitive, etc.)
10

10
Step 4: Perform Risk Analysis and Assessment
Five steps for Risk Assessment:
Identify the risks –The output of Risk Profile
Determine Potential Impact-Include calculations for range of
economic impact in dollars where available. Be as specific as
possible
Evaluate Risk Levels and Probabilities and Recommend Action-
Recommendations for new procedures, new processes, new
investments in IT, and other risk mitigation methods
Create a Report with recommendations and implement-include
risk assessment table where available, include written
recommendations – implement
Review periodically-at least annually but as appropriate for
your organization
11
11
Step 5: Develop an Information Risk Mitigation Plan
What is a Risk Mitigation Plan?
Plan which includes
Options to reduce specific risks and increases likelihood of
achieving objectives
Tasks to reduce specific risks and increases likelihood of
achieving objectives
Timetable implementation of risk mitigation measures
Milestones for implementing risk mitigation measures
Timetable/Milestones for IT acquisitions
Timetable/Milestones for assigning roles and responsibilities

12
12
Step 6: Develop Metrics and Measure Results
Assign quantitative measures that are
Meaningful
Measure progress
What are relevant metrics? – Must be relevant to your
organization. Examples are:
Educe the data lost on stolen or misplaced laptops and mobile
devices by ___ % over the prior year
Reduce the number of hacker intrusion events by ___ over prior
year
Reduce e-discovery costs by __ % over prior year
Reduce the number of adverse findings in the risk and
compliance audit by ___% over last year
Provide information risk training to __%of knowledge level
workers this year
Provide confidential messaging services for the organization’s
top ___ executives this year
13
13
Step 7: Execute Your Risk Mitigation Plan
Set up regular project/program team meetings
Develop Key Reports on key risk mitigation metrics
Manage the process
Use Project management tools and techniques

Clear and concise communication with the IG team on progress
and status
14
14
Step 8: Audit the Information Risk Mitigation Program
Key tools in the audit process?
Metrics used to measure risk mitigation effectiveness
Use Audit results for further redevelopment and fine tuning of
the risk mitigation program
Don’t misuse the audit results-Don’t use it to beat up on people-
Use it for feedback and improvement
15
15
The End
16
16
ITS 833 – INFORMATION GOVERNANCE
Chapter 5

Strategic Planning and Best Practices for Information
governance
Dr. Sandra J. Reeves
1
1
CHAPTER GOALS AND OBJECTIVES
Be able to explain the general steps required in the strategic
planning for an IG Plan
Be able to identify key Best Practices as they relate to strategic
planning for an IG Plan
2
2
First Step in Strategic Planning for Information Governance
Program
Secure commitment/sponsorship of executive management
Resource acquisition
Time
Labor/Manpower
$$$
Accountability
But who??
Suggested: Chief compliance officer, Chief Information
Officer, Chief Executive Officer

3
3
Crucial Roles:
So what is the role of this Executive Sponsor?
Budget
Planning and Control
Decision Making
Expectation Management
Anticipation/Runs Interference for PM
Approval
4
What is the role of the Project Manager?
Keep Executive Sponsor apprised of progress
Implement/oversee daily tasks
Track detailed progress
Involve Executive Management only when necessary to do so
4
EVOVING ROLE OF EXECUTIVE SPONSOR
The Role of the Executive Sponsor will change over the
lifecycle of the IG program implementation
Initial involvement requires greater TIME investment by

executive management
Early Implementation – Visible and Accessible
Post-Implementation – Responsible for maintenance –ongoing
communication with PM
5
5
THE IG TEAM
Who Should Be On Your IG Team?
Take a Cross-Functional Approach
Required:
Executive Sponsor
Legal Department or Outside Attorney
IT Department
Senior Records Officer
Risk Management Specialist
IG Program Manager
Elective:
Human Resources
Analyst
Rep from different business units or departments
6
6
ASSIGNMENT OF ROLES AND RESPONSIBILITIES
Executive Sponsor – designation of roles for
Project Manager

Possibly from Legal, Compliance, Risk management, Records
Management or IT
Logically each IG team members take responsibility for their
functional area of expertise
Pair up team members or assign small work groups
Resulting output of team effort: Final Draft of the IT strategic
plan – Should be in a form ready to align with organizational
strategic plan
7
7
ALIGMENT OF IG PLAN TO ORGANIZATIONAL
STRATEGIC PLAN
IG Plan MUST support the achievement of the Organization’s
business objectives and its strategic plan
IG Plan MUST be integrated with the IT strategy
Decisions must be made with regard to the use of E-Discovery
techniques like predictive coding technology in early case
assessment and software that uses artificial intelligence
Must take resource allocation into consideration

8
8
SURVEY AND EVALUATE EXTERNAL FACTORS
What External Factors?
IT Trends – What new is coming online? What new is being
developed? Which are too risky? What is the plan for long term
digital preservation?
Business Conditions and Economic Environment-Where is the
industry/country in the recurring business cycle? What is the
state of business conditions in your industry?
Relevant Legal, Regulatory and Political Factors-Identify
regulation affecting your industry. What is expected of future
and anticipated regulation?
Industry Best Practices-Survey your industry. What is your
more progressive competition doing? Will you use 3rd Party
consultants
See Sample IG Best Practices taken from Different
areas/industries on page 61-64
9
9
FORMULATING THE IG STRAEGIC PLAN
Synthesize Information –
Make the plan relevant to the information . Don’t linger
Develop IG strategy for each critical area
Maintain focus by developing IG strategy without regard to
prioritizing critical areas
Prioritize Strategies and map to organizational goals and

objectives
Develop Actionable Plans to Support Organizational Objectives
and Goals
Develop policies and plans that identify specific tasks and
steps, and define roles and responsibilities
Build checks and audits and other testing methods
Create New IG Programs to Support Business Goals and
Objectives
Launch new “Sub-Programs” within the IG program
Assign specific employee responsibility to specific tasks
Have defined timeframes for subprograms
Piece together subprograms
Draft IG Strategic Plan and Gain Input from Broader Group of
Stakeholders
Get Buy-in and Sign-Off and Execute Plan
Answer questions of top level management
Address concerns
Get them to buy-in to the program and sign off on it
10
10
The end
11
11

Case Discussion Rubric
Page 1 of 2
Outstanding
100 points
Good
85 points
Average
75 points
Limited
65 points
Flawed
55 points
Demonstrates
Careful Reading
and Inquiry into
Subject
Discussion Post

• Shows serious
contemplation of
readings.
• Shows original
thought that goes
far beyond the
obvious.
Discussion Post
• Indicates
reading was
completed.
• Addresses some
of the questions
obvious answers.
Discussion Post

• Relies primarily
on case summary
Discussion Post
• Suggests case
scanned but not
read carefully
• Rehashes ideas
from other posts
Discussion post
• Gives little
indication that the
case was read and
assignment
completed.
• The Post was not
relevant to the case
questions or current

discussion.
Responsibly cited
and provides
examples
Quotes used:
• support writer’s
point (“proves”
it)
• are original
(unexpected
quote choices
and/or uses
quotes from
multiple
places of the
text)
• properly

integrated into
the discussion
• Properly
punctuated
Quotes used:
• support writer’s
point (“proves” it)
• are somewhat
predictable
• are not well
integrated into
discussion
• some mechanical
and/or
documentation
errors
Some quotes are
used, but:

• There are too
few examples;
relies mostly on
generalization s
• Some quotes do
not effectively
support writer’s
point
• quotes are poorly
integrated
• citation errors
• Diction is
ordinary
Some quotes are
used, but:
• Paraphrase
dominates
• quotes used are

not integrated
• Quotes do not
make sense as
support
• Quoted
material is out
of context
• Fails to use
capital letters or
punctuation
No quotes are used;
textual evidence
(even paraphrased
evidence) is flimsy
and/or
inappropriate
• Citations are

missing
Case Discussion Rubric
Page 2 of 2
• Quotes are
properly cited.
• Contains multiple
documentation errors
Outstanding
100 points
Good
85 points
Average
75 points
Limited
65 points
Flawed

55 points
Engagement with
Others
• Shows concerted
and honest effort
to engage
with others
• Responds to
ideas in a way
that advances
discussion
beyond the
obvious
• Interacts
easily &
accurately
with other
posts in the
thread

Responds in the
way highlighted
above at least 5
times.
• Shows attention
to other posts in
the thread
• Incorporate s and
acknowledges
ideas
of others in
attempt to
advance the
discussion
(perhaps
in predictable ways)

Responds the way
described above 3-4
times.
• Offers little
interaction
with other
posts in the
thread
• Mostly
summarizes
what others
have said
without adding
to discussion
Responds in the
way described
above 1-2 times.
• Does not

acknowledge
other posts
• Misrepresents
content of other
posts
• Ignores other
posts in thread
• Does not engage
with others

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