Compliance

Acting with integrity, compliance and honesty is an essential prerequisite for the success of the Volkswagen Group. For this reason, compliance with national and international laws and regulations, internal rules and voluntary commitments is among our Company’s most important principles. We are striving to strengthen the trust of our customers, our business partners and stakeholders in our Group through fair treatment. Compliant behavior is the basis for this and must be a matter of course for all Group employees. One of our Company’s main tasks is to further enhance awareness of this.

Commitment to compliance at the highest level

At the Global Management Meeting in June 2018, Herbert Diess, Chairman of the Board of Management of Volkswagen AG, underlined that integrity and compliant behavior are the responsibility of each individual in the Group: “We need dependable structures and work processes that ensure impeccable, compliant behavior. But we also need a firmly rooted sense of right and wrong, a better way of handling mistakes, a culture of constructive dissent and a stronger sense of responsibility in the management team.”

In an interview in August 2018, Hiltrud Dorothea Werner, member of the Board of Management responsible for Integrity and Legal Affairs, explained the importance of dealing thoroughly and quickly with cases of suspicion and compliance violations in the Company: “The nearer Compliance is to people and processes, the better, because preventing a problem from becoming a scandal also means acting with speed and investigating thoroughly.”

Compliance organization

The Group Compliance Committee at top management level is chaired by the member of the Board of Management responsible for Integrity and Legal Affairs and met regularly in the reporting year. This committee ensures that compliance and integrity standards are uniformly developed, applied and communicated on a cross-divisional and cross-brand basis.

Central divisions within the Group are supported and advised by their own compliance contacts. Additional centers of competence are responsible for the overall direction of compliance work and develop compliance instruments and program components with which the companies can implement the compliance requirements themselves across the Group. During the reporting period, additional resources are set aside for these tasks.

The global compliance organization at the Volkswagen Group comprises divisional and regional compliance offices. It supports and advises the respective Group and brand companies with an effective, risk-based, Group-wide compliance management system, helping them to conduct their business activities in accordance with the rules and to consistently adhere to relevant laws and internal regulations. It also helps companies to identify, evaluate, manage and monitor potential compliance risks. Additional compliance resources were provided across the Group on a risk-oriented basis in the reporting year. Higher-level compliance functions are involved in the appointment of new compliance officers and conduct a standardized appointment and induction process.

In the reporting period, there was direct communication on compliance issues at meetings of the Supervisory Board, the Board of Management and the Works Council, particularly by the member of the Board of Management responsible for Integrity and Legal Affairs and the Group Chief Compliance Officer.

The Group Chief Compliance Officer reports directly to the member of the Board of Management responsible for Integrity and Legal Affairs and also to the Audit Committee of the Supervisory Board of Volkswagen AG.

The heads of the centers of competence report to the Group Chief Compliance Officer on disciplinary and functional matters. The compliance officers of the brand companies and the head of the regional compliance office for China report to the Group Chief Compliance Officer on functional matters. Meetings and conferences ensure that those responsible for compliance at Group and brand level are connected and communicate regularly.

Compliance management system

Our compliance management system is aligned with national and international laws and standards. Its objective is to encourage, reinforce and ensure compliant behavior in the Company in a lasting manner. The focus of our compliance organization is on preventing corruption, breaches of trust, embezzlement, fraud and money laundering and thereby on reducing the risk of unlawful actions. The Code of Conduct is the key element for raising awareness among staff of correct behavior and finding the right contact person in cases of doubt.

Where laws and regulations have been violated, our whistleblower system is a suitable tool for taking appropriate action. We enhanced the whistleblower system in 2018: members of management are obligated to report every indication of serious rule-breaking. Failure to do so is itself a serious infringement. The accessibility of the whistleblower system has been further improved with a 24-hour hotline.

We place value on communication and training seminars to permanently anchor compliance-related content among the workforce.

Compliance work in the Volkswagen Group is based on a systematic process of risk identification and reporting in accordance with the IDW standard AsS 980. We used 2018 to review the content of and the process for the existing compliance risk analysis. The objective is to obtain transparency at Group level of the risk exposure of all Group companies included in the compliance scope.

However, we are also aware that even the best compliance management system can never entirely prevent the criminal actions of individuals.

Code of Conduct and guidelines

The Volkswagen Group’s Code of Conduct is established throughout the Group. It is permanently available to all employees on the intranet and also to third parties on the internet and is continually communicated via digital and print media and at events within the Company.

The Code of Conduct is a significant part of the compliance training completed by all staff, from the Board of Management to employees. Both face-to-face and online training are used. The Code of Conduct is also integrated into operational processes. For example, employment contracts for employees of Volkswagen AG generally include a reference to the Code of Conduct and the obligation to comply with it. Furthermore, compliance with the Code of Conduct remained a component of our employees’ annual reviews in the reporting period and was thus taken into account when calculating their variable, performance-related remuneration.

In addition to the Volkswagen Group Code of Conduct, there are various Group policies and guidelines on specific compliance issues. Organizational instructions on dealing with gifts and invitations as well as on making donations also apply across the Group.

Employees have access to the compliance rules and regulations in particular via the compliance pages on the Company intranet.

Whistleblower system

In the Volkswagen Group, the whistleblower system refers to the internal and external contact points where employees and third parties can report potential violations of laws and internal regulations by employees of the Volkswagen Group. It also refers to the committees that support and monitor the work of these contact points.

The Company has had a system for reporting breaches of the law or regulations since 2006. In 2017, the whistleblower system was improved and partially reorganized. Processes were further optimized to enable reports to be followed up on even more quickly, fairly and transparently. Among other things, a central investigative office has been set up in the Compliance department. It is responsible for coordinating the whistleblower system within the Volkswagen Group and for processing information concerning Volkswagen AG and its subsidiaries – with the exception of AUDI AG, Dr. Ing. h.c. F. Porsche AG and TRATON SE. These companies each have separate investigative offices for themselves and their subsidiaries.

The whistleblower system uses defined processes to investigate reports on breaches and to penalize misconduct where appropriate. Protection of both the whistleblower and the party affected has top priority in the applicable procedural principles and guarantees. In addition, a Group Guideline sets out the responsibilities in the Group and the specific procedure for the processing of reports. The aim of the whistleblower system is to protect our company and employees from harm using firm principles and a clearly governed, transparent and fair process. Moreover, experience with violations of laws and regulations also helps us to constantly enhance our compliance management and prevent similar incidents in future.

Information on misconduct can be submitted in any of the major languages used by the Group and is treated confidentially. The people providing the information need not fear any sanctions from the Company for providing the information. In principle, they can decide for themselves whether they wish to give their names. For this reason, a specially protected online reporting channel was additionally set up in 2017, which whistleblowers can use anonymously. We also continue to rely on existing tried-and-tested channels such as ombudspersons (counsels of trust).

Since August 1, 2018, information on possible rule-breaking has also been reportable via a telephone hotline in addition to the existing reporting channels. Employees, business partners and customers worldwide can submit information 24 hours a day, 365 days a year. Callers are put through to a specially trained contact person with access to an interpreter if required. In addition, a revised Group policy was adopted in August 2018. This enhances the whistleblower system, particularly with its expanded communication options. It was also decided to provide additional resources for the expansion of the whistleblower system.

The Compliance organization registered a total of 2,920 reports throughout the Group in 2018. All substantiated reports have been, or will be, investigated, and any misconduct penalized.

Communication, training and advice

Providing information to employees at all levels on compliance, raising their awareness of compliant behavior and offering them advice as partners within the Company is a core component of our compliance activities.

We use all of our internal communication channels to communicate compliance-related content. These include online and offline media as well as event and training formats.

Online communication is primarily via the compliance organization’s own sites on the Volkswagen intranet and via the in-house, Group-wide communication platform “Group Connect”, which is also used for direct dialog with the target groups. There are also articles, interviews and other publications in cross-brand and specific divisions’ media. In the reporting year, compliance-related topics were also featured at various information events for employees and at works meetings at several locations. Communication regarding the whistleblower system was integrated into an event on corporate culture that took place across multiple locations.

Following a risk-based approach, mandatory compliance training is conducted for specific target groups. In addition to traditional lectures and online tutorials, case studies, role-playing games and other interactive formats form part of the training provided to employees and managers.

In the reporting year, the focus was on enhancing Code of Conduct training and, in particular, on commencing the introduction of compulsory training regarding the Code of Conduct for all employees in the Group.

Employees can also use special e-mail addresses to solicit advice on compliance issues.

Compliance key performance indicators

To measure the level of target achievement, we defined a strategic indicator for the major brands that manufacture passenger cars:

• Compliance, a culture of error management and behaving with integrity. This is based on an evaluation of the answers to three questions in the opinion survey relating to compliance with regulations and processes, dealing with risks and errors and behaving with integrity. In the case of negative deviations, the affected departments develop and implement measures. In the reporting year, the figure further improved on the already good basis.

Strengthening compliance in company processes

The act implementing the Fourth EU Money Laundering Directive into German law presented new requirements for Volkswagen AG as a company that is bound by the Gesetz über das Aufspüren von Gewinnen aus schweren Straftaten (GWG – Law on Tracing Profits from Serious Criminal Offences). The Group policy adopted and published in this context by the Board of Management in 2018 defines the minimum standard to be implemented by all Group companies.

In 2018, we designed and developed a new IT tool for a risk-based business partner selection process at the Volkswagen Group. We began pilot testing of the tool at the end of the reporting year. This business partner selection process will be gradually introduced in the Group from 2019. A key objective of this new process is the creation of transparency within the Volkswagen Group to prevent Group companies from entering into business relationships with business partners which other Group companies have previously classified as not acting with integrity.

New business models are constantly being considered in the Volkswagen Group as part of the TOGETHER – Strategy 2025 program. These business models focus particularly on digitalization, automation and electrification, but also on the development of and involvement in mobility concepts. The compliance organization helps the strategic business units to implement their forward-looking projects through individual risk assessments and recommendations based on these.

In addition, compliance will become more firmly embedded in mergers and acquisitions and real estate transactions.

Effectiveness review

Independent reviews by Group Internal Audit in the corporate units and the regular exchange of information with external bodies help ensure continuous improvement of the compliance management system. There are no indications that our current compliance management system was ineffective in 2018.