Volkswagen's Apology and How It Might Save Millions

Volkswagen’s Goodwill Program in the U.S., which may cost the company nearly half a billion dollars all told, may be a form of corporate apology that could insulate the automaker from further lawsuits.

Michael Siebecker, a professor of law at the University of Denver, says the company’s gift cards could be a form of “corporate apology” that studies have shown help shield some doctors from medical malpractice lawsuits.

“I believe that this is a type of watered-down apology. They may be saying ‘You must be hurting, here’s a little something to get by.’ I don’t know what exactly they think consumers need right now,” Siebecker said.

According to a 2009 study by Dr. Jennifer K. Robbennolt for “Clinical Orthopaedics and Related Research,” a publication by The Association of Bone and Joint Surgeons, an apology could ward off patients taking doctors to court for malpractice. Of the patients who believed their malpractice lawsuit could have been prevented, 40 percent said an apology by the doctor would have been sufficient to preclude legal action.

“There’s a whole notion of corporate apology. Corporations, both in the U.S. and around the world, have decided to approach scandals in a slightly different way, whether that’s animated by public relations or it’s just business sensibilities,” Siebecker said. “There’s a benefit in apologizing. Of course, the danger there is when you apologize you then expose yourself to further liabilities when you admit to wrongdoing.”

Siebecker, who teaches a law class in corporate social responsibility at the University of Denver, said corporations have been slower to embrace organizational apologies because it often admits guilt that could be used later in lawsuits.

In Volkswagen’s case, the automaker may be offering some sort of mea culpa by way of $1,000 in gift cards to nearly 500,000 consumers to avoid costly lawsuits later.

“To you and me, $500 million dollars is a lot of money. But something of this size and magnitude, which could cost billions, $500 million doesn’t seem like a lot,” if it goes to help generate goodwill toward the company, he said.

The Harvard Business Review recently found examples where organizational apologies helped defuse potentially explosive situations.

“An apology enables an executive to express concern and convey the organization’s values — even as an investigation into exactly what happened and who was responsible unfolds,” Maurice E. Schweitzer, Alison Wood Brooks and Adam D. Galinsky wrote in their September findings for the publication.

Siebecker said that by making half of the goodwill package redeemable only at Volkswagen dealerships for parts and service could potentially backfire. He recalled the story about a Pennsylvania mine explosion that killed one worker, where gas-giant Chevron initially responded by giving the people in the town free pizza coupons.

“That obviously didn’t work,” he said.

While many in the town weren’t initially upset with Chevron, the scheme was a public relations nightmare.

Still, Siebecker said, something on the size and magnitude of the Volkswagen diesel scandal may not be recoverable for the company.

“I think that once this investigation takes hold, it could bring down the largest automaker in the world,” he said.