Massive challenge ahead for Volkswagen’s next CEO

As CEO resignations go, this one didn’t come as much of a surprise.

On Wednesday, Volkswagen Group announced that its beleaguered chief executive, Martin Winterkorn, would be stepping down.

The news followed the German car giant’s admission that it had cheated on U.S. emissions tests, leading the company to take a $7.3-billion charge to cover losses and say that as many as 11 million vehicles could be affected.

On Friday, Volkswagen’s board appointed Matthias Mueller, the head of the group’s Porsche unit, as CEO — handing a longtime company insider the task of trying to lead the world’s top-selling automaker past the growing emissions-rigging scandal.

“I am taking on this task at a time in which our company faces unprecedented challenges,” Mueller, 62, said at Volkswagen’s headquarters in Wolfsburg, Germany.

The potential reputation and monetary damage the company is facing is enormous, leadership and governance experts say.

“Warren Buffett has often noted that you build a reputation over years and decades, but you destroy it in a blink of an eye,” said Thomas Donaldson, a professor of legal studies and business ethics at the University of Pennsylvania’s Wharton School. “Well, Volkswagen just blinked.”

He said the nature of Volkswagen’s scandal had few parallels: “I’ve never seen a corporate Watergate of this stripe.”

As a result, spelling out how Winterkorn’s successor can begin repairing the wreck isn’t a simple application of crisis management 101.

Any incoming CEO will need to be adept not only at rebuilding a culture where this sort of deception occurred, but at managing the global legal and regulatory fallout and massive fines the company is likely to face.

Hanging over it all, leadership experts say, is the political rift that played out this year between Winterkorn and former Chairman Ferdinand Piech, who is patriarch of the family that owns just over 50% VW’s voting rights.

The company’s next leader will also need to take many of the more traditional crisis management steps, albeit facing particularly high stakes.

The challenge ahead is extraordinary. It includes overhauling personnel, rebuilding the company’s culture, setting realistic expectations and bringing in untainted outsiders who can send strong signals to investors.

Said Donaldson: “The way back is up a mountain that’s very tall. It’s a crawl up a very steep slope, where at this point you can’t even see the top.”

Now that the new CEO is named, experts said it will be important to make clear that others beyond Winterkorn will also be shown the door. That will not only enable the new CEO to start with a clean slate, but will send signals to outsiders — customers, investors, suppliers — that significant change is underway.

Dennis Carey, a senior executive recruiter for Korn Ferry, said he worked with Tyco International after the company’s accounting scandal, helping to rebuild its senior management team and board.

Jerome York, the respected former Chrysler and IBM executive, was recruited “basically to send a signal to investors,” Carey said. “Not only cleaning house, but signals are very important from here on out.”

Jena McGregor writes a daily column analyzing leadership in the news for the Washington Post’s On Leadership section.