Global Glance: Sep 28, 2015

A quick look at intriguing international stories

By John Bostwick, Managing Editor, Radius

Welcome back to Global Glance. This week we look at:

• The VW scandal, business and the rule of law
• The NFL’s plans to expand to London
• The mayor of São Paulo’s controversial biking initiative

The VW Scandal, Business and the Rule of Law

Few 2015 business stories can match the intrigue of the recent Volkswagen scandal, in which the automaker admitted its vehicle software was designed to circumvent diesel emissions testing. A full six days after the US Environmental Protection Agency issued a press release outlining the allegations, the story remained above-the-fold news in The New York Times, The Wall Street Journal and the Financial Times.

Virtually anyone not holed up in a cabin writing anti-technology manifestos will be familiar with the basic facts of the scandal and that Volkswagen is reeling from its effects. As last Thursday’s front-page Financial Times article reported, the scandal has “wiped more than 30 percent off the company’s share price since Monday” and VW “had set aside €6.5bn to cover potential costs.” That’s about USD$7.2 billion, which may not be nearly enough to cover the financial costs. The EPA’s Notice of Violation to VW indicates that the company may be “subject, among other things, to a civil penalty of up to $37,500 for each [vehicle] violation.” Given that about 500,000 vehicles are involved, that’s more than $18 billion in potential EPA fines alone.

Perhaps more morbidly fascinating than the potential financial penalties involved is the reputational damage resulting from the scandal. Reputational damage is far more difficult to measure and will likely persist for years after all the fines have been paid and all the recalls completed. As this New York Times article on the wrath of Volkswagen’s drivers observes: “The deception could prove a major threat to Volkswagen’s reputation in the United States and could break the trust that the German automaker had cultivated with car owners over the years.” That reputation dates back at least to the 1970s, when high-mileage VW Beetles and vans appealed to left-leaning US consumers looking to protect the environment and save money on gas.

Given the financial and reputational stakes involved, it’s astonishing that anyone at Volkswagen — let alone anyone in a position of authority — would have seriously considered implementing the “defeat device” strategy, let alone carried it through. And this was a business strategy. One interesting take on the scandal was given last week by Louis Schweitzer, the “honorary president of French carmaker Renault,” as reported by National Public Radio. Schweitzer was quoted (through a translator) as saying, “it looks like VW chose business over the law of the land.”

Respectfully, I think Schweitzer’s comment is something like a false dichotomy. Laws that regulate business are inseparable from business. When operating in any country, a company is not faced with a choice of conducting business or complying with laws, but (among other things) with compliance or noncompliance when conducting business. By creating a mechanism intended to “defeat” US emissions tests, VW made a strategic business decision to take on the risks associated with noncompliance. Now the company is facing the dire consequences of that decision.

The NFL Looks to Establish a Team in London

The National Football League is hugely popular with US adult viewers, though some feel the league is on the cusp of an existential crisis. Unfortunately for the NFL and its current and former players, there’s mounting evidence to suggest a link between concussions and football. To take but one example, a Frontline article published this month reported that “a total of 87 out of 91 former NFL players have tested positive for the brain disease at the center of the debate over concussions in football, according to new figures from the nation’s largest brain bank focused on the study of traumatic head injury.” Many predict that in the face of such evidence, a substantial number of US parents will stop allowing their children to play football. This would likely lead to a significant decline in the sport’s — and the NFL’s — domestic popularity.

One way for the NFL to hedge against this possibility is to expand overseas. The NFL has tried global expansion before, when it introduced NFL Europe in 1991. That was a kind of minor league to the NFL, and it folded in 2007. That year, the NFL responded by introducing the International Series, in which actual NFL teams compete in London’s Wembley Stadium. That series continues to this day, and three 2015 regular-season NFL games will be played in London.

An article in NFL.com last year indicated that the league wants to move beyond simply sending US-based teams to play in London, and envisions having a London-based team in 2022. In light of growing US parental concerns over concussions and football, it’s interesting to note that the NFL.com article cites the following bit of evidence in support of the London move: “amateur football participation [in the UK] has grown by an average of 15 percent per year since the league took the Giants and Dolphins to Wembley seven years ago.”

For a more objective take on the NFL’s plans to move a team to London — including information on a new deal between the NFL and English Premier League soccer club Tottenham Hotspur — read this International Business Times article. The article points out that “a permanent relocation would … represent a logistical nightmare, in terms of navigating Britain’s labor laws.” One related hurdle would involve surmounting the UK’s increasingly strict work-permit laws. But given the vast sums of money that would be involved, and the power of the NFL and the English Premier League, would it come as a surprise if UK immigration authorities made exceptions to accommodate the NFL?

São Paulo’s Mayor Spends Big Money to Promote Biking

With 12 million residents, São Paulo is the largest city in the western hemisphere. According to a Wall Street Journal article published last Wednesday, the city’s mayor, Fernando Haddad, is “highly unpopular.” One of his most controversial efforts, according to the Journal, has him “attempting to convert this traffic-choked city … into a bike- and bus-friendly zone where private cars are treated as a pestilence.” While many city residents have embraced the initiative, it “has enraged some motorists who regard the mayor as a meddling quasi-socialist who is out of step with his auto-centric city.” The initiative involves introducing over 200 miles of bike lanes and has a price tag of over USD$20 million.

Detractors may have their valid points, including what they see as lavishing money on a “luxury” program in the face of “rising crime, crumbling schools and cash-strapped public hospitals.” But those detractors can’t accuse the mayor of hypocrisy. Mr. Haddad, a first-generation Brazilian from Lebanon, can often be seen “peddling along new stretches of bike lanes, sometimes sporting a business suit and a helmet.”