A Potemkin Village is a term used to describe situations where a thinly veiled facade is created with no underlying substance. Legend has it that Grigory Potemkin became Governor of Southern Ukraine and Crimea after the Russian takeover in 1774. Potemkin was assigned to rebuild the areas after a series of wars between the Ottoman Empire and Russia. In 1787, the Russian Empress Catherine II and her entourage embarked on a six-month trip through the Ukraine and Crimea. To assure his continued favor with Catherine II, Potemkin is reported to have built a fake portable settlement along the banks of the Dnieper River. Each night after Catherine II and her entourage passed the village, Potemkin would have the village disassembled and reassembled further down river to give the impression of a thriving, prosperous economy however, reality was quite different. Many people question the authenticity of the legend but, true or not, the fact still remains that organizations do construct facades with very little substance behind them.
Enron is probably the king of Potemkin Villages. Enron went so far as to create a fake trading at their Houston Headquarters and ordered staff to pretend they were “doing deals” during the annual shareholder meeting with the intent of impressing Wall Street Analysts (Enron "created fake trading room",” 2002 ). The VW defeat device scandal might well be event that exposes an elaborate Potemkin Village. VW provides a high degree of transparency that is rarely found in large public companies. VW posts an annual report on risk and opportunities. The annual risk report describes in great detail the risk management organization, the Volkswagen Group’s risk management system (RMS) and internal control system (ICS). On the surface, all indications are that VW has a very robust risk management organization. However, the latest VW scandal calls into question the effectiveness of their risk management program. I am very curious to see the results of the ongoing investigation at VW to see whether VW has an elaborate Potemkin Village, a gap in their risk management program, or someone orchestrated an elaborate scheme and coverup.