While the short-lived term ‘rogue engineer’ was initially coined in 2015, it really came to the fore in the past year as Volkswagen management tried to claim it was unaware of the defeat device installed in its diesel line of automobiles. Much like those forlorn commentators who claim that corporations should not be punished for the acts of a ‘rogue employee’; the claim that some lowly engineer came up with the idea and then implemented an illegal device to hide excessive pollution is worse than laughable.
This past week, six Volkswagen executives were criminally charged for their role in the defeat device. For The Man from FCPA, the most interesting thing about these indictments were not that ‘rogue engineers’ were charged but that executives who participated in the cover-up were indicted. One, Oliver Schmidt, was inane enough to travel to the United States where he was promptly arrested when U.S. official determined he had traveled into their jurisdiction. For his recklessness, he was denied bail and faces up to 167 years in prison.
Indeed it turns out that these same ‘rogue engineers’ who were part of the defeat device development team had actually warned the company not to incorporate the defeat device into autos back in 2006. In other words, not only was the fraud scheme well known within the company but lower level employees raised concerns about it. This scenario was played out at Wells Fargo where it turns out that numerous employees had raised concerns about the company creating fraudulent accounts but such concerns were not pursued.
One of the reasons for the existence of the corporate form is to diffuse decision making and liability so that (hopefully) one person’s antics, removal/departure or bad decision does not bring down an entire organization. That inherent structural design was put in place centuries ago for those reasons and others. It also means that in the modern corporation there are always indicia of fraudulent schemes. But you have to monitor and then investigate when those indicia arise. You cannot behave like the arrested VW executive Oliver Schmidt, who when told of the fraud, alleged responded, that if we are not correct, we must continue to do so.