Ratings agency Moody’s has said that the Volkswagen emission scandal has highlighted some serious corporate governance problems of the manufacturers.
These problems included ineffective internal controls to uncover improper activity and poor risk management by VW’s management and supervisory boards.
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In addition, Moody’s said the crisis might cause lasting damage to VW’s previously solid reputation, with potential adverse effects on its future earnings and cash flow.
However Moody’s noted that the company had taken number of remedial actions, including a number of management and organizational changes, as well as an internal investigation.
On the topic of new management, Moody’s said the changes to date were positive, but the high turnover created risks.
Moody’s said: "In our view, the management shake-up will empower VW’s brands and improve regional coordination."
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By GlobalDataIt added: "However, given the magnitude of the changes, we think it will take time for the new management framework to take shape and become integral part of the company’s corporate culture. There may be further changes following the conclusion of the internal investigation, which could put additional stress on the quality and depth of the senior management bench."
Moody’s also highlighted a persistent lack of independent external voices on the supervisory board, with just one independent director among its 10 representative shareholders on its supervisory board.
Yasmina Serghini-Douvin, vice president and senior credit officer at Moody’s said: "VW’s emissions crisis has brought to light serious corporate governance issues within the company that we view as a credit negative. These deficiencies include ineffective internal controls to uncover improper activity and poor risk management by VW’s management and supervisory boards. The emission crisis might cause lasting damage to VW’s once-solid reputation with adverse effects on its future earnings and cash flows.
"The management shake-up will empower VW’s brands and improve regional coordination across the organisation. These changes should also help address the company’s organisational complexity, which we have viewed as a long-standing credit negative. However, a turnover of this magnitude creates risks, and additional changes following the conclusion of an internal investigation may put added stress on the quality and depth of the senior management team."
