Compliance

Acting with integrity and compliant and ethical behavior are essential prerequisites 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 guiding 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 at the present time is to further enhance awareness of this.

Commitment to compliance at the highest level

At the Global Management Meeting in March 2017, Matthias Müller, Chairman of the Board of Management of Volkswagen AG, underlined that integrity and compliant behavior are the responsibility of each individual in the Group: “Compliance and integrity are not something that can be delegated to another department or a single person – everyone must play their part.”

At the presentation of the new Code of Conduct for the Volkswagen Group in September 2017, Hiltrud Dorothea Werner, member of the Board of Management responsible for Integrity and Legal Matters, said: “It is our shared responsibility to bring the concept of integrity to life at Volkswagen. In practice, this involves us all being familiar with the rules in place, acting responsibly and making the right decisions. The new Code of Conduct provides the basis for this.”

Strengthening the compliance organization

In light of the growing relevance of the topic of compliance, the Group’s compliance organization was restructured in the reporting period. Since April 2017, Group Compliance has been a separate unit, with the Group Chief Compliance Officer reporting directly to the Board Member for Integrity and Legal Affairs; he also reports to the Audit Committee of the Supervisory Board.

The structures, responsibilities and processes within this unit have also been honed and reinforced. The Volkswagen Group’s compliance organization has been set up with divisional and regional compliance offices. This enables central corporate functions to be supported to an even greater extent and advised by their own compliance contacts. Additional centers of competence develop and manage key compliance issues for the entire Group. The heads of the centers of competence and the divisional and regional compliance offices report directly to the Group Chief Compliance Officer. Communication between the Group and brand compliance officers and networking were enhanced and intensified in the reporting period through regular meetings and team conferences.

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 Board Member for Integrity and Legal Affairs and the Group Chief Compliance Officer.

The Group Compliance Committee chaired by the Board Member for Integrity and Legal Affairs was formed at top management level in 2017. This committee ensures that compliance and integrity standards are uniformly applied and communicated on a cross-divisional and cross-brand basis. The core compliance team, which concentrates expertise on compliance issues from different departments, remained unchanged.

Compliance management system

Our compliance management system is based on national and international standards. Its objective is to encourage and reinforce compliant behavior in the Group. The new Code of Conduct is the key element for strengthening awareness among staff of correct behavior and finding the right contact person in cases of doubt.

Where laws and regulations have been seriously violated, our restructured whistleblower system is a suitable tool for taking appropriate action.

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

The basis of compliance work in the Volkswagen Group is a systematic process of risk identification and reporting in accordance with the IDW standard AsS 980. We used 2017 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 Code of Conduct was completely overhauled in the reporting period and approved by the Group Board of Management. All Group companies are required to introduce the new Code of Conduct. This was completed at the brand level by December 31, 2017.

Based on the 2010 Code of Conduct (for instance on the topic of environmental protection) the content was updated and new content added (such as product conformity). Readability and practical relevance were enhanced through a clear structure, simpler language and specific examples. It emphasizes each individual employee’s responsibility as regards compliant behavior.

The introduction of the new Code of Conduct was accompanied by an intensive internal communication drive in digital and print media.

The Code of Conduct is a key component of compliance training and is also integrated into operating processes. For example, all new employment contracts for employees of Volkswagen AG include a reference to the Code of Conduct and the obligation to comply with it. In addition, 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 Code of Conduct, the Volkswagen Group’s compliance framework incorporates the anti-corruption guidelines among others, including checklists and the express prohibition of facilitation payments, as well as guidelines on competition, antitrust law and anti-money laundering. 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 potentially serious violations of laws and internal regulations by employees of the Volkswagen Group, in addition to the committees that support and monitor the work of these contact points.

The Company has had a system for reporting any breaches of the law or regulations already since 2006. In 2017, the whistleblower system was improved and partially reorganized. The processes were optimized further as of November 1, 2017 to be able to follow up on reports even faster and in a fairer and more transparent manner. Among other things, a central Investigation Office was set up in the Compliance department at the beginning of the year, which is responsible for coordinating the whistleblower system in the Volkswagen Group and for processing information received concerning Volkswagen AG and its subsidiaries – with the exception of AUDI AG, Dr. Ing. h.c. F. Porsche AG and Volkswagen Truck & Bus GmbH. These companies 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.

Information on misconduct can be submitted in any of the major languages used by the Group and are treated confidentially. The people providing the information need not fear any sanctions from the Company for their actions. 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 through which anonymized reports from whistleblowers can be sent to the Investigation Office. We also continue to rely on existing tried-and-tested channels such as ombudspersons (counsels of trust).

As the whistleblower system was enhanced, reporting was reorganized, for example to ensure standard Group-wide handling. A total of 1,489 reports were registered throughout the Group in 2017. 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 and offering them advice is a core component of our compliance activities.

The compliance organization regularly briefs the workforce on compliance-related issues using the internal Group-wide communication platform called “Group Connect”. Content on compliant behavior is also made public through the internal communication channels of the Group and its brands. Focal points of compliance communication in the reporting period were the introduction of the revised Code of Conduct and the further development of the whistleblower system.

Furthermore, the topic of compliant behavior was intensely discussed at employee events and works meetings.

In 2017, approximately 219,000 employees across the Group participated in various forms of training courses on compliance-related topics. 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 a part of the training provided to employees and managers. Another event held in 2017 was the Volkswagen Convention – Integrity, Culture and Compliance, which was attended by more than 7,300 executives and works council members from Volkswagen AG, Volkswagen Sachsen and Volkswagen Osnabrück. The Convention was aimed at driving the change process forward at Volkswagen.

Employees can 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, process reliability and a zero-defect culture. This indicator is based on an evaluation of the answers to three questions in the opinion survey relating to compliance with regulations and processes, transparency and monitoring, and dealing with risks and errors. In the case of adverse deviations, the departments will develop and implement measures. The indicator improved to 79.53 (79.03)% during the reporting year.

We have also defined a strategic indicator for the Financial Services Division – the compliance and governance indicator. In addition to achieving our economic objectives, we are also striving to ensure compliance with legislation and legal requirements and are working towards a culture shaped by compliance and integrity. To this end, we have established a compliance function within the individual companies to accompany the implementation of suitable and effective compliance standards for fields of law that have been identified as significant. To evaluate the effectiveness thereof, we will consult examination and inspection findings from both the internal and external auditing, risk management and compliance, as well as the timely processing of the measures defined by these control units.

Strengthening compliance in company processes

The act to transpose the Fourth EU Money Laundering Directive into German law presented new challenges 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). A Group Directive, which already exists in draft form, will define the minimum standard to be implemented by all Group companies.

A concept for a new sales-related business partner check was drawn up in the reporting period. 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 classified as not acting with integrity. The sales-related business partner check will be gradually introduced in the Group from 2019.

New business models are constantly being considered in the Volkswagen Group as part of the TOGETHER – Strategy 2025 program. Areas on which these focus in particular are digitalization, automation and electrification, but also the development of and involvement in mobility concepts. Group Compliance 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 anchored in mergers and acquisitions and real estate transactions to a greater extent.

Effectiveness review

Independent reviews by the Group Internal Audit function at 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 2017.