Week in Review, October 10

A round up of some of the week’s most significant corporate events and news stories.

Volkswagen’s US chief blames deception on handful of staff

Three weeks after the diesel emissions scandal broke, Michael Horn became the first Volkswagen executive to give sworn, public testimony, kicking off what is likely to be a lengthy legal battle for Europe’s biggest carmaker, writes Andy Sharman.

The German chief executive of VW’s American operation told members of a US House subcommittee on energy and commerce that the introduction of “defeat devices” — which helped dupe emissions testers in the US — was the work of a handful of engineers at the company’s German head office.

Even as he gave his testimony, the ripple effects of the scandal continued, with German prosecutors carrying out a raids on VW’s Wolfsburg headquarters and other locations in connection with their investigation.

The World blog

As it happened: VW US chief grilled in Congress

Michael Horn, head of Volkswagen’s US operations, is the first senior executive from the German carmaker to appear before US lawmakers in the wake of the emissions scandal

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The scandal — which could lead to large fines and hefty recall costs — is expected to take a heavy financial toll on the company, prompting Matthias Müller, the new chief executive, to take a sober look at VW’s spending.

This week, he said that the company, which controls the world’s biggest corporate research and development budget (€11.5bn in 2014), would have to slash costs to help foot the as-yet-unknown bill.

“Anything that is not absolutely necessary will be cancelled or postponed,” Mr Müller told some 20,000 employees in Wolfsburg. “To be clear: this will not be painless.”

VW plans to start recalling and fixing some of the 11m affected vehicles in January. Some of them will require just a software patch, though the earliest models will also require new hardware and may not be fixed for about a year.

● Related in depth page: Volkswagen Emissions Scandal
● Related Lex note: Volkswagen: time to buy
● Related Wolfgang Münchau column: Volkswagen’s threat to the German model

General Electric faces up to persuasive Peltz

The sheer size of General Electric — it has a market capitalisation of about $280bn — has often been assumed to be a deterrent to any activist investor who might hope to shake the company up, writes Ed Crooks.

This week, Nelson Peltz’s Trian Fund Management, an activist with a record that runs from Domino’s Pizza to Tiffany to DuPont, proved that assumption wrong, revealing it had built a stake of about 98.5m shares, now worth about $2.76bn.

The stake, about 0.98 per cent of GE’s shares outstanding, makes Trian one of the company’s 10 largest shareholders.

Unlike some of the management teams in companies where Trian has taken a stake, GE’s chief executive Jeff Immelt and his colleagues were not directly criticised by Trian.

In a statement, the fund talked about the “longstanding relationship” between Mr Immelt and its principals Mr Peltz and Ed Garden, and praised GE’s “bold transformation” in selling off its financial services operations, saying the decision would “generate attractive stockholder returns in the years ahead”.

However, Trian did set out in an 81-page presentation of ideas for what GE could do to improve its performance still further.

Corporate Person in the News: Alejandro Santo Domingo

South American billionaire is public face of his family’s Colombian brewing fortune, who has emerged as kingmaker to Anheuser-Busch InBev’s takeover bid for SABMiller.

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Trian’s three principal recommendations are that GE should raise its operating margins by about 0.5 percentage points per year to 2018, add about $20bn to its debts to fund share buybacks, and return about 40 per cent of its market capitalisation to shareholders in the next three years.

Doing that, Trian said, should create “implied value” of about $40-$45 per share, compared to the price of about $28 this week.

That would imply a value for the shares close to their level of about $40 when Mr Immelt took over in September 2001, and at their peak before the financial crisis in 2007.

In a statement Mr Immelt welcomed Trian’s investment, and said he looked forward to a “constructive ongoing dialogue”.

Trian said in its statement that it had not asked for board seats, but “expects management to deliver on its commitments”.

Separately, GE was in advanced talks late on Friday to sell a speciality finance portfolio worth more than $30bn to Wells Fargo, said people familiar with the situation. The potential deal — which could be announced as early as Wednesday — would take the conglomerate well past its stated goal of offloading about $100bn of finance assets by the end of this year, as part of a plan to return to its industrial roots.

● Related Lex note: With friends like these

Air France staff resort to violence

An Air France staff meeting descended into violence this week, with two executives getting the shirts ripped from their backs by a mob of angry employees upset at proposed job cuts, writes Michael Stothard.

The incident caused much hand wringing in France, concerned that it would damage the country’s standing abroad, but also shone a light on the depths of industrial tensions at the lossmaking flag-carrier.

Michel Sapin, the finance minister, called the perpetrators “imbeciles, thugs, cretins who will be charged” while prime minister Manuel Valls said that he was “outraged by the unacceptable violence”.

The attack, which left a half naked Xavier Broseta, the human resources director, scrambling over a fence near Charles de Gaulle airport to escape, came after management threatened the first mandatory job cuts at the group since 1993.

In September, management and pilots failed to reach an agreement to increase working hours for pilots, which is seen as a key part to the company’s efforts to find €1.8bn in savings by 2020.

With talks broken down, management on Monday threatened to push ahead with “Plan B”, a harsher plan involving 2,900 job cuts and the cutting of some long-haul routes. Workers as a result stormed the works council meeting.

The unions, which condemned the violence by “isolated individuals”, reiterated this week that the deal proposed by Air France is unacceptable and they were being asked to pay the price for poor management decisions on strategy.

There have so far been no arrests over the attacks, but the police have said that they are looking into the incident. Negotiations between the two sides resumed on Friday.

Mr Broseta is being replaced as human resources head in January by Gilles Gateau, deputy chief of staff to Mr Valls.

● Related podcast: Air France protests turn violent
● Related news story: French workers’ guide to battling business
● Related Andrew Hill column: A stripped-down guide to Gallic labour relations

Dorsey plans ‘dramatic evolution’ at Twitter

Jack Dorsey, co-founder of Twitter and inventor of the tweet, once struggled with how much time and energy he should put into the company, writes Hannah Kuchler.

According to the book Hatching Twitter, to get his full-time commitment, it took fellow co-founder Ev Williams to sit down with Mr Dorsey and tell him: “You can either be a dressmaker or the CEO of Twitter. But you can’t be both.”

Years later, Mr Dorsey appears to have given up any ambitions at sartorial craftsmanship. Twitter on Monday announced it was appointing him permanent chief executive again — and he still has one extra burden: he will remain chief executive of his second company, payments start-up Square.

Despite uncertainty about how Mr Dorsey will manage both roles, especially with Square moving towards an initial public offering, shares in Twitter rose more than 10 per cent this week.

Mr Dorsey promised “dramatic evolution” of the messaging platform, and the very next day he launched Moments, which curates the best of Twitter under categories such as news and sports.

● Related Lex note: Twitter: Second Jobs
● Related news story: Prince Alwaleed ups Twitter stake to 5%
● Related video: Twitter v Square: will a joint CEO work?

And finally . . . the lighter side of the news

● Car technology is accelerating at a velocity that even the former hosts of TV show Top Gear would blanch at. However, some advances are not as innovative as they first appear. Toyota has announced that it will soon have cars that can switch lanes at the touch of a button. Clearly, they do not realise this know-how has existed for years: it can be found sitting behind the wheel of every taxi and urban 4x4 the world over.

● As homes get smarter, humans inch closer to being deposed as lords and masters. Now Amazon is accelerating the process: planning to connect washing machines to its website to order detergent when you are running low. But how long before the machines develop an attitude — and start tweeting pictures of the items normally hidden away in your “comfortable” underwear drawer?

● Build a better mousetrap and the world will beat a path to your door . . .  So said Ralph Waldo Emerson, allegedly. And it seems pest control experts Rentokil have taken him at his word — creating laser-triggered devices to capture rodents. But, beware the law of unintended consequences. If felines desert homes in a self-righteous huff over their redundancy, the entire internet is at risk of grinding to a halt, from a dearth of cat pictures. Alexander Gent