Volkswagen has admitted that it used computer software in its diesel cars to bypass emission regulations. What happened? How did a company that is well-positioned on a global basis decide on an institutional basis that skirting regulations was somehow acceptable?
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Volkswagen trunk ornaments bearing the VW logo lie next to the Golf VII assembly line at the Volkswagen factory in Wolfsburg, Germany.
I suppose one could ask the same question regarding the savings-and-loan crisis and the misdeeds of executives then. Come to think of it, what might be the motivation of traders who manipulated Libor rates or executives in financial institutions that pumped up the value of worthless real estate bonds in the midst of the housing crisis?
General Motors recently settled a lawsuit related to ignition switches that resulted in more than 100 deaths, admitting that employees knew nearly a decade before the recall that the there were problems with the switch. There are countless examples such as WorldCom and Qwest, where behaviors were discovered to be inappropriate. The list goes on and on.
What is at the root of these decisions to bypass ethics?
Volkswagen, several years ago, stated as a corporate goal that their mission was to be the global leader by unit sales for automobiles around the world. They adjusted their product mix and often reduced prices all focused on capturing greater market share. Their efforts were rewarded by increasing sales. Of course, little did we know that diesel sales were supported by fraudulent data. Volkswagen is learning that getting ahead at all costs eventually catches up with you. So much for being the leader on a global basis on auto sales.
Growth is a worthy goal but only when those goals are pursued in a way that will not lead to a potential cataclysmic moment when one's misdeeds are publicized. Perhaps that's why Warren Buffett of Berkshire Hathaway puts so much value on relationships and the ability to trust the managers that he deals with. Ethics matter to him and should for all investors when you are making investment decisions.
We sometimes forget how critical ethics are in terms of assessing the wisdom of inserting a company into your portfolio.
When you invest in a company, do your best to make sure that the company has an ethical compass that you are comfortable with particularly in today's "make money at all costs" world.
In fact, make sure you're investing in companies that clearly illuminate their goals and provide transparency to investors. Smoke and mirrors in terms of corporate transparency is the last thing you should settle for when constructing an investment portfolio.
I recently spoke to an institutional investor, originally from Germany, who lamented the fact that the German brand of innovation and quality has now been tainted. As an investor with significant connections still in the German business community, Michelle ( the institutional investor) expressed her bitter disappointment that a German company with such global recognition chose to go down a very slippery path.
Even Volkswagen CEO Martin Winterkorn, in issuing his resignation, said, "Above all, I am stunned that misconduct on such a scale was possible in the Volkswagen Group."
This came after the head of Volkswagen's U.S. unit, Michael Horn, admitted very directly that the company "screwed up."
This type of transparency is a start and what is needed now by VW, particularly given the dishonesty in bypassing emission regulations that has come to light.
I hope that transparency now becomes a hallmark of the coming investigation. Given that governments around the world are likely readying lawsuits and punitive action, and given that customers who purchased diesel products from Volkswagen will likely be part of a massive class-action lawsuit, I suspect Volkswagen — and hopefully other companies — will have little choice but to be transparent.
Commentary by Michael A. Yoshikami, the CEO and founder of Destination Wealth Management in Walnut Creek, California. He is also a CNBC contributor. Follow Destination Wealth Management on Twitter @DestinationWM.