FOR a man apparently at the centre of inquiries into the global emissions scandal, Michael Horn, chief executive of Volkswagen in the US, cut a calm figure in front of legislators recently, even as they evoked the famous question posed during the Watergate investigation: “What did the president know and when did he know it?”

Yet one obvious fact that emerged from the hearing was that Mr Horn was not at the centre. He was near the periphery of a group firmly controlled from its Wolfsburg headquarters.

Referring to the worldwide product safety committee in Germany, which he said developed ‘software fixes’ for diesel emissions that were out of line with US standards, Mr Horn said at one point: “I trusted those guys and those processes that everything was according to the book, 100pc.” He had no knowledge until recently of ‘defeat devices’ in cars being sold through VW’s US network.

A precise answer to the Watergate question should emerge in due course. But the VW case is already shaping up as a study in tension between central power and local autonomy.

Short of breaking the law, tolerance for messiness is the one essential trait for a manager in a global business. Multinationals need to stay flexible, sometimes blurring lines so that local and central offices share responsibility. Moving staff between headquarters and far-flung outposts can help ensure they see the situation from all sides

For all of Mr Horn’s unflappability, discussions about where to draw the line between head and local offices, or global products and regional variants, can be intense. At a private workshop I hosted recently for the FT’s 125 forum, one manager of another company called it ‘a holy war’.

There is no definitive answer to the question of how to balance global and local priorities. Chief executives either duck it or impose an answer without consulting subordinates in the field. Consultancies grow fat on fees paid to map out federal, matrixed or networked structures, even as they struggle to keep their own regional fiefdoms in check.

Wherever the line is drawn, casualties mount up on each side. Nokia was accused of taking too many decisions in Finland in the late 2000s, ignoring local requests to adapt to Indian customers’ desire for handsets that would carry two SIM cards, for instance. On the other hand, Mondelez was at first successful in its campaign to tailor Oreo cookies to Chinese tastes with exotic new flavours but has had to move fast recently to adapt to changing consumer habits, as the Chinese shun fattening snacks.

Consistency is often desirable and efficient, because every attempt to produce a bespoke item for a specific customer adds costs. The consensus at the FT forum was that the only non-negotiable local demand is legal compliance. But even this is sometimes hard to meet. In making diesel engines for the world market, VW seems to have found it impossible to reconcile global economies of scale with local standards on emissions without cheating. It would be naive to imagine other multinationals are never drawn into such shoddy compromises.

Ending religious warfare is hard. Skirmishes will continue to break out, however petty. Iglo, the frozen food group, once had to rule between four country heads feuding over which breadcrumb coating was best. Kingfisher, the DIY group, held a ‘paint-off’ to settle a dispute over whether one local emulsion was superior to another. The breakthrough came when buyers adopted the final decision as their own.

Short of breaking the law, tolerance for messiness is the one essential trait for a manager in a global business. Multinationals need to stay flexible, sometimes blurring lines so that local and central offices share responsibility. Moving staff between headquarters and far-flung outposts can help ensure they see the situation from all sides.

Barbara Kux, now a director of Total and Henkel, pushed through supply chain savings at Siemens from 2008, making global savings while cultivating local sourcing networks.

When the Fukushima nuclear disaster disrupted the Japanese network in 2011, the ability of Siemens’s local offices to act independently of headquarters made the difference between paralysis and survival. But at a certain point, Ms Kux says, the management team still has to say “let’s go left or let’s go right. If you leave this exclusively to a democratic process, you never get the desired results. You’ll have endless discussions, frustrated people, and everybody will protect his home turf.”

“What amazes me is how often it is not actually discussed rationally,” says one former chief executive. “It is entirely emotional, entirely personal,” and based on one primal managerial urge: ‘I want to control this.’”

andrew.hill@ft.com

Twitter: @andrewtghill

Published in Dawn, Business & Finance weekly, October 19th , 2015

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