During this time of great uncertainty—marked by protracted pandemic-related risks, rising geopolitical tensions, expanding cyberthreats, talent market upheavals, and more—senior leaders are sharpening their focus on resilience. What makes some companies so much more resilient than others? How can we build resilience into our organizations? How should we think about potential trade-offs between resilience and more immediately obvious benefits such as speed, efficiency, and cost?
McKinsey recently hosted a virtual leaders summit on building resilience in uncertain times. Among the guest speakers was Hiltrud Werner, a member of Volkswagen’s board of management who oversees the compliance and integrity teams, risk management, and legal affairs. Hiltrud oversaw the company’s US compliance monitorship in the wake of its diesel fuel scandal. She was interviewed by Thomas Poppensieker, a senior partner at McKinsey and a leader in the firm’s global Risk & Resilience Practice. The following is an edited version of their conversation.
Thomas Poppensieker: How did the COVID-19 pandemic test Volkswagen’s resilience?
Hiltrud Werner: Volkswagen has a large manufacturing footprint and over 100,000 employees in China alone, so our early experiences with the pandemic in Asia informed our preparations in Europe and elsewhere. For example, we leveraged our well-established supplier network in China to buy masks and other protective clothing. That early-warning system also benefited our human resources team, including health and safety, and our legal and risk management teams, including crisis management.
One of our biggest early challenges was ensuring Volkswagen could operate safely and without putting the health of our employees at risk. To address this challenge, we developed a 100-point plan outlining how best to respond and adjust to the pandemic, both internally and externally, to ensure continuous and uninterrupted operations for our workforce, supply chain, and customers. We also shared what we learned with our suppliers, who, because of their smaller size, had fewer resources than Volkswagen to dedicate to their pandemic response. Our intent was to enable them to recover faster for their benefit and ours. In a pandemic, you can’t solve all your problems alone.
Thomas Poppensieker: How did your pandemic response address the needs of the local communities where Volkswagen operates?
Hiltrud Werner: For our local workforces, feeling safe at work wasn’t enough; people also needed to feel safe commuting to and from work on the bus or train. We needed to provide ample access to testing services and masks. We also needed to provide accurate and timely information at a time when, at least in Germany, surveys revealed a lack of trust in information being provided by the media and politicians. Our focus on effective communication, including the frequency of communication and calls to action, helped not only our employees but also society overall because it instilled trust that we could overcome this huge shock and come out of it stronger.
Meanwhile, we went from having 3,000 to over 30,000 employees working from home. This put a huge strain on our internal network and exposed a shortcoming in our preparedness, which we have since addressed. Because we hadn’t previously documented which business functions are critical, we were unable to prioritize them for network access.
Thomas Poppensieker: Many automotive OEMs canceled supply contracts during the pandemic and are now unable to satisfy resurgent demand. Has this situation prompted Volkswagen to reevaluate its supply chains to boost resilience?
Hiltrud Werner: Each of our cars contains thousands of semiconductors, and none of our first-tier suppliers was able to provide them. So yes, we have had to rethink our supply chains not only to address shortages but also to comply with new laws, including the Supply Chain Due Diligence Act [SCDDA] in Germany,1 which obligates companies to monitor their supply chains to protect human rights and the environment.
Thomas Poppensieker: How will new laws and regulations related to environmental, social, and governance [ESG] affect your resilience strategy?
Hiltrud Werner: We fully appreciate the responsible business conduct that SCDDA requires, and that is reflected in our new strategy, “New Auto: Mobility for Generations to Come.” There is no plan B for the planet. Natural resources—carbon dioxide, water, and elements including cobalt, magnesium, and radium, among others—are limited, and the science indicates they are a critical risk to our supply chain. Complying with new requirements will strengthen our supply chains, but it calls for a transformation of not only our processes but also our mindsets. This helps us commercially as more customers are making purchasing decisions based on environmental, social, and governance [ESG] factors. ESG principles also increasingly inform people’s career choices, analyst decisions within the investment community, and corporate financing decisions.
Thomas Poppensieker: Volkswagen has made major commitments to the electrification of the auto industry that will have a major impact on your core operations. How will the areas of the business that you oversee directly be affected by ESG strategies?
Hiltrud Werner: Achieving our ESG and resilience objectives will necessitate new roles within our risk management and compliance functions. Additionally, the risks we face are increasingly volatile and interconnected, so we need to take an integrated approach to managing them to maintain our stability. Digitalization plays a major role because it provides us with real-time data and supports faster decision making. We are working currently to integrate our compliance and risk management tools into a unified digital platform to improve our agility as we prevent and react to incidents.
The legal function is also evolving. There’s less time than in the past between when a new law is enacted and when it goes into effect, which means we have less time to prepare for it. We need to reorganize our legal department to become more agile and flexible and help the company think ahead with respect to new legislation.
Thomas Poppensieker: What is the audit committee’s role in boosting resilience?
Hiltrud Werner: Audit committees are becoming more powerful and asking questions about resilience that were beyond their scope just three or four years ago. They are scrutinizing not only our environmental compliance management but also product compliance management and other systems. More first-line managers than ever before file reports with the audit committee.
Thomas Poppensieker: How do customers support or challenge resilience at Volkswagen?
Hiltrud Werner: Customers are an important potential source of disruption. If one day customers stop buying diesel cars, for example, and the company can only produce diesel engines and lacks the agility to adapt to changing customer needs, that indicates a lack of resilience.
Thomas Poppensieker: What capabilities can companies build to better predict upswings in volatility and uncertainty?
Hiltrud Werner: We recently were having a discussion about needing more people without law degrees in the legal department. If we want to use digital technologies—in legal, compliance, and risk management—to boost our resilience, then we need to invest in people with those skills. Additionally, we need to continue to invest in communication and data sharing to increase transparency throughout our workforce and with the board as nonfinancial risk reporting and disclosures are becoming increasingly important to the investment community.
Thomas Poppensieker: How do you approach your own personal resilience as a corporate leader and a woman, and how does diversity affect resilience?
Hiltrud Werner: Resilience for me as an individual looks much the same as it does for the overall organization; I work to maintain a steady temperature no matter what is happening around me. I’m deeply self-motivated. I love my work and contributing to a greater purpose. This helps me overcome bad days or cope with the headwinds.
When working in diverse teams—diverse in terms of age, gender, geography, or other attributes—tolerance is paramount. You won’t get the advantages of diversity if you require everyone to behave the same. Diverse team members may need information presented in different ways, or they may ask different questions. Respecting those diverse needs allows the group to then see the subject from all angles—a hallmark of better decision making. Tolerance and resilience are synonymous.
Thomas Poppensieker: How is transitioning to the future of mobility affecting Volkswagen’s workforce?
Hiltrud Werner: Our components business predicts the shape of things to come. They were the first to shift from diesel to gasoline engines and now to electric cars. People who used to work on our older vehicles now have new jobs in, for example, battery construction. We’re also rethinking what work we retain internally versus what we outsource. This will entail retraining thousands of people. In our plant in Zwickau, where we now produce only Audi electric vehicles, we retrained the workforce.
An employee in his mid-40s, who was preparing for a certification for his new job, described to me how odd it felt to sit beside his son, doing homework together. This is part of his personal transformation, and Volkswagen needs to support it. We’ve had success by having employees alternate between their old and new jobs to help them maintain their confidence and prevent too much disruption. Our HR department is hard at work on various models that take this step-by-step approach to retraining thousands and thousands of people.