In today’s connected world of information overload and hyper-transparency, a lie has the power to instantly destroy the image of a large corporation and sometimes, drag down with it the image of a country. It may lie undetected for a while, delivering intended results for the company, but the long-term consequences of a lie (well, concealing the truth is the equivalent) are always ugly.
Dieselgate scandal
The Volkswagen ‘Dieselgate’ scandal is a classic example. This week marks the completion of a year since the emissions scandal broke out in the US, and the fallout has been staggering, to say the least.
As the controversy unravelled and the real costs of installing the emissions-cheating device and software revealed, it became clear that the very foundations of the VW brand had been shaken.
The mother brand of the German automotive conglomerate had to drop its slogan, ‘Das Auto’, because, in the words of its own top management, the tagline was too pretentious and arrogant. This slogan (meaning “The Car”) had been in use since 2007, but after the scandal, it suddenly seemed inappropriate.
Chain reaction
A penitent VW still faces a repair bill that runs into billions of dollars for recalling and fixing all the cars that were fitted with the cheat device, for legal fees, and for paying compensation for the nearly half a million diesel affected VW cars sold in the US.
By admitting that the company’s engineers wilfully fitted an emissions bypass device with related software to detect if the vehicle was running on a test cycle or on the road, VW set off a chain reaction in the automotive world.
While it could end up paying more than $15 billion in fees, compensation and repairs in the US alone, more claims are likely to come from buyers from other countries, including in the European Union, where nearly 8.5 million of these affected cars were sold.
Taking a hit
The ‘Dieselgate’ scandal brought brand VW down to its knees. But the big picture fallout is the hit that the ‘Made in Germany’ brand suffered. Apologies have been conveyed, and amends are being made by VW to climb out of the mess — even Chancellor Merkel had to intervene — but the scar caused by the lie will take a long time to heal.
While in VW’s case, the scale of wilful fraud was big, the lesson to be learned from this episode is to never take the customer for granted. That even a small suppression of truth can have disastrous consequences for the company and the country.
The home-grown instance
That brings us to the second example, which is home-grown. It is now a month to the day since the Welspun’s ‘yarn’ about its bed sheets being woven out of 100 per cent Egyptian cotton was called by US-based retailer, Target Corporation.
The controversial sheets were exported by Welspun and shipped to Target between August 2014 and July 2016. The latter claimed that its investigation showed the bed sheets to be made out of cheaper cotton and not the Egyptian variety, as claimed by Welspun. Accepting responsibility, the Indian company seemed to indicate that its internal processes were to be blamed. It has since appointed EY to review its processes.
This move, however, hasn’t convinced Target, which said it is snapping business ties with Welspun and that it will now source its cotton sheets from another Indian manufacturer. One fraudulent claim and Welspun is on the verge of losing nearly 10 per cent of its business from Target. It risks losing a further 35 per cent of its business, which currently comes from other big US-based retailers like Walmart and JC Penney.
Welspun is the world’s second largest terry towel maker and is the official supplier to prestigious outfits like Wimbledon. After the Target controversy, Welspun’s stock tanked, almost halving in value before recovering a bit of its losses. It is still down nearly 40 per cent compared to the pre-controversy level.
Like in the case of VW, the Welspun controversy has the potential to spiral into a larger issue — one which could tarnish the image of the ‘Made in India’ brand. We keep hearing about sporadic cases of export consignments being returned because of poor quality or contamination, but when a corporation the size of Welspun makes such a mistake, it runs the risk of taking down the image of India Inc. as a whole.