10 / 10 / 2016

Shareholders Sue Volkswagen after Dieselgate Scandal


Towards the end of September 2015, the EPA issued Volkswagen Group a notice of violation of the Clean Air Act after the EPA discovered Volkswagen intentionally programmed some of its diesel engines to “activate certain emissions controls only during laboratory emissions testing.” During testing, the program would provide emission outputs matching US standards. However, on the road, the vehicles would emit “up to 40 times more” nitrogen oxides than the nitrogen oxides standards measured in the lab.

volkswagen's billion euro lie

In the aftermath of what has been colloquially dubbed “Diselgate,” Volkswagen’s share price unsurprisingly dropped, their brand has been tarnished and multiple lawsuits from Volkswagen’s shareholders have been filed against the company. These shareholders represent a large spectrum of people and groups. From “sovereign wealth funds and international asset managers” to run-of-the-mill company pension funds, Volkswagen’s notorious actions to deliberately cheat federal agencies has consequently been met with lawsuits that could, according to one law firm involved with the company, “run into billions of euros.”

Why Your Shareholders matter

What are the lessons to learn from this?

  1. First, don’t lie and don’t cheat.
  2. Second, your shareholders matter. Not every business is publicly traded, but most businesses do have some form of management, stockholders, or shareholders who get to have some type of say given their investment in your company.
Sometimes, a shareholder just wants to invest his money and hope to earn a profit in it. He might not care how you run your business, so long as you make money at the end of the day. However, it should go without saying that even to that end of non-involvement, shareholders can’t get paid when the company has to pay exorbitant fines and penalties to federal agencies.

If a company does decide to officially establish shareholders, there should be well-defined rights for the shareholders in the company’s charter and/or bylaws. Generally, shareholders can have the right to:

  • inspect your company’s books and records
  • to sue the company itself and, in some cases,
  • have a specific say in the management style of the business. 

As you are building or growing your company, remember the importance and the power of your shareholders and seek legal help when drafting your company's charter or bylaws.

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