Volkswagen Scandal: An Admission to Emission Fraud Assignment Sample

• Subject Name : business ethics

Comparative Business Ethics and Social Responsibility

Summary of Volkswagen Scandal: An Admission to Emission Fraud

Scandals on the auto industry aren’t new, one of the biggest scandals in the industry was encountered when Volkswagen was charged for employing a defeat device in their models. This device reported emissions to be lower than they were. Volkswagen was cheating on the emission tests. This emissions controversy is directly linked to the organizational misconduct of the firm, which from any perspective is largely unacceptable. The intolerable nature of this misbehavior is due to its global effect and breach in corporate ethics. The corporate culture of the company pressurized their employees to get the work done. This pressure was the reason that the company adopted unethical methods to cheat the emission test because of which the cars which were sold emitted more pollutants than were allowed by the US laws. Though the company accepted that the steps were unethical and did take the necessary steps to correct their mistakes such as recalling the defective cars and providing the clients with a $1000 goodwill package. The company still lost its reputation in the eyes of its clients and is still trying to get its reputation back. The unethical steps taken by the company and the scandal have made it difficult for the car dealers throughout the world to sell the cars. As the customers have difficulty in trusting the brands making it important for the other car manufacturers to take care of the ethical practices and ensure the validity of the environmental claims made by them.

Table of Contents

Introduction.

Case Study Questions.

Explain how the culture of Volkswagen created this ethical scandal?.

While Volkswagen claimed to support ethics and sustainability, how can they recover from this ethical disaster?.

Will the scandal lead to tougher scrutiny of companies’ environmental claims in the future?.

Conclusion.

References.

Introduction to Volkswagen

Volkswagen is known internationally as one of the world's largest most prosperous car producers with unprecedented development and productivity since its establishment. Even after its prosperity and productive progress, Volkswagen has occasionally experienced numerous problems with its company operations (Barrett et al. 2015). One of several recent controversies confronting this business is an emissions scandal sparked by its organizational misconduct which is inappropriate from every viewpoint (Argenti, 2015). Volkswagen modified its diesel vehicles to corroborate emission standards that gained worldwide media coverage and influenced the audience. The organization has mounted defeat program or system in its diesel engines, according to Hotten (2015), which could predict when the vehicle was being checked and adjust output appropriately to achieve bad or poor results in pollution testing. The company claimed to have cheated United States emission tests by installing this device in its diesel cars.

The device involves placing the vehicles in a certain type of configuration of safety, at which the engines operated underneath performance level and power. This occurred while the vehicles were working under regulated laboratory conditions, which included placing them on a motionless test platform. The engines turned out of standard control and output observed in the test phase until such automobiles were on the street. This culminated in the emission of nitrogen oxide contaminants that were around 40 times the permissible pollution limit in the USA (Hotten, 2015).

Volkswagen's strategy to deploy the malicious program within the diesel vehicles was based on the theory and assumptions that its investors care for financial performance, especially stock prices, rather than the impact of its operations on the business. The decision of the government was fuelled by the misconception that a firm or organization's primary financial purpose may be to maximize shareholder value. It was an irrational judgment apparent in the action of investors, marked by a one-third fall in stock market culminating in substantial declines in the stock of Volkswagen. That implies that the company's public image and profitability are tarnished by unethical behavior or corporate misbehavior.

One of the most important parts of the business is its reputation. Having a positive reputation can bring in great revenue for the organization. When a business is faced with the repercussions of not making the appropriate ethical decisions it can cost them their reputation and their name. This is something that Volkswagen had to learn after making the wrong decisions that resulted in a total of 22 billion dollars. Luis and Hortacsu (2010) explains this concept, “business with bad company reputation is harder and more expensive to execute. Whether a tarnished image is the result of a corporate scandal or poor customer service will be visible on the balance sheet.”

Case Study Questions

Explain how The Culture of Volkswagen Created This Ethical Scandal?

An enterprise's culture is very important in deciding upon its achievements. Culture is an important factor driving people to take action that is not in the good faith of their business activities (Goodman, McGrath, & Leah, 2015). So if employees perceive the firm does not allow honest communication, business organizations can transform into a terrible mess. Although the management of the company may not have specifically asked workers to participate in the scandal, the excessive pressure exerted by management on employees to perform could have contributed to the corrupt activities (Mansouri, 2016). For example, Volkswagen Chairman and CEO Ferdinand Piech was known for his demanding management style which could ultimately lead his staff to take immediate measures (Aurand et al. 2017). Piech’s reputation was ruthless.

As the CEO, he had ousted three Audi CEOs. Martin Winterkorn was the One who finally lived up to his expectations. Winterkorn was always a controlling manager who did not like failures (Carter et al. 2018). According to various critics, the pressure on managers at Volkswagen was so much that it might have led to the carmaker’s crisis. Taking into consideration Piech and Winterkorn’s behavior, it is not difficult to understand why the employees might have withheld certain information about the infamous scandal for a long time. “At Volkswagen, there had been a corrupt corporate culture. It was not a culture characterized by openness and honesty. The executives in charge of the affair were not concerned that they would put their company in a precarious position,” said Larry Thompson, the monitor appointed by the US Justice Department (Gebhardt, 2020).

Individuals are easily held accountable for their performance in a performance culture. An unhealthy workplace is an organizational culture that relies solely on efficiency indicators, without encouraging its workers to share simple human concerns (Hickman & Silva, 2018). An unhealthy workplace is an organizational culture that relies solely on efficiency indicators, without encouraging its workers to share simple human problems. A cultural environment, like this one, poses a strong risk of promoting misconduct and deceit. Many experts claim that some of the most possible reason-that Volkswagen employees were capable of committing offenses and deceive the public, who has been trying to preserve their employment. An old employee of Volkswagen told the New York Times, “Several analysts claim that some of the most possible reason-that Volkswagen employees were capable of committing offenses and deceive the public, who has been trying to preserve their employment.”

Volkswagen aims for generating maximum profit. The introduction of the money factor can change the ethical temperature of a culture (Sherk, 2014). Just thinking about money can lead individuals to ethical incomprehensibility. This could be one of several reasons why, for nearly 7 years, none reported the unethical behavior.

While Volkswagen Claimed to Support Ethics and Sustainability, how Can They Recover from This Ethical Disaster?

Although Volkswagen admitted their wrong conduct while they were portraying ethics and sustainability, recovering from this ethical disaster will be very challenging. Not only have they lost their customer’s trust, but also the possibility to go back to where they were before (Guckian et al. 2018). Something that should be done among this organization is to go back to their mission statement, goals, and objectives, perhaps going back to their roots can help them understand the reason why they exist and how important it is to keep doing business the right way.

Furthermore, Volkswagen can recover from its ethical disaster by taking steps to restore its consumer trust. Therefore, the corporation's stages to recall the automobiles and offer the car owners a $1000 goodwill bundle in the United States. Curbing the compensations of the executives is also a positive way of gaining consumer trust. Steps for the American consumers have to be different from the steps taken in the European Market, they would go bankrupt if they took the same steps. Additionally, the company agreeing to sell diesel cars for three years in the American market was a positive approach. The company also agreed to the monitoring of the same by the compliance team.

It is, therefore, necessary for the organization to reintroduce ethical standards and effective company culture from the inside out in the operations of the company for restoring the reputation, something that was lacking in the culture of the company before the scandal (Everett et al. 2018).

Will the Scandal Lead to Tougher Scrutiny of Companies’ Environmental Claims in The Future?

Not only is it believed that such a case will result in stricter scrutiny of the other companies' environmental claims, but it is also important for them to always do what they portray. By doing this, the companies will be more careful in ensuring environmental impacts while promoting their activities. This will not only help the business with better practices but also ensure their reputation is secured amongst the customers. Besides, the scandal will also increase awareness in the future of the company's environmental claims (Burke, Dowling & Wei, 2018). Because of the scandal the consumers are less confident and have become more cautious in buying eco-friendly cars which have made the car dealers work harder to prove that the cars are up-to-the environmental standards.

Conclusion on Comparative Business Ethics and Social Responsibility

As an organization that provides goods or services, it is their responsibility to be ethical and truthful with their customers. Customers have purchasing power and to be able to obtain this power, companies need to provide that customer with respect, and it begins with an honest advertisement. It has been seen time and time again, once an organization’s reputation has been damaged it is very hard to recover and, in some cases, they never get fully recovered as the customers will always have a side which doubts the car makers and their authenticity.

References for Comparative Business Ethics and Social Responsibility

Argenti, P. (2015). The biggest culprit in VW’s emissions scandal. Retrieved from http://fortune.com/2015/10/13/biggest-culprit-in-volkswagen-emissions-scandal/

Aurand, T. W., Finley, W., Krishnan, V., Sullivan, U. Y., Bowen, J., Rackauskas, M., & Willkomm, J. (2017). The VW Diesel Scandal: Engaging Students via Case Research, Analysis, Writing, and Presentation of Findings. Journal of Higher Education Theory and Practice, 17(7).

Barrett, S. R., Speth, R. L., Eastham, S. D., Dedoussi, I. C., Ashok, A., Malina, R., & Keith, D. W. (2015). Impact of the Volkswagen emissions control defeat device on US public health. Environmental Research Letters, 10(11), 114005.

Burke, P. F., Dowling, G., & Wei, E. (2018). The relative impact of corporate reputation on consumer choice: beyond a halo effect. Journal of Marketing Management, 34(13-14), 1227-1257.

Cabral, Luis, and Ali Hortacsu (2010), “The dynamics of seller reputation: Evidence from eBay.” The Journal of Industrial Economics, 58, 54–78

Carter, S. D., Crooks, D., Wise, I., & Beyer, S. (2018) Volkswagen-The Failure of Perfection and Moral Hazard: What Price Victory?. International Journal of Business & Applied Sciences, 7(1), 35-48.

Everett, J., Friesen, C., Neu, D., & Rahaman, A. S. (2018). We have never been secular: Religious identities, duties, and ethics in the audit practice. Journal of Business Ethics, 153(4), 1121-1142.

Gebhardt, C. (2020). Corporate non-compliance and corporate identity building–A management dilemma. Early indicators of organizationally driven deviance traps. In Bribery, Fraud, Cheating (pp. 247-283). Springer VS, Wiesbaden.

Goodman, McGrath, & Leah. (2015). Why Volkswagen cheated: intense ambition and a rigid corporate culture created the conditions for lying at Germany's biggest company, Newsweek. Retrieved from http://www.newsweek.com/2015/12/25/why-volkswagen-cheated-404891.html.

Guckian, M. L., Chapman, D. A., Lickel, B., & Markowitz, E. M. (2018). “A few bad apples” or “rotten to the core”: Perceptions of corporate culture drive brand engagement after corporate scandal. Journal of Consumer Behaviour, 17(1), e29-e41.

Hickman, C. R., & Silva, M. A. (2018). Creating excellence: Managing corporate culture, strategy, and change in the new age. Routledge.

Hotten, R. (2015). Volkswagen: The scandal explained. Retrieved from http://www.bbc.com/news/business-34324772

Mansouri, N. (2016). A case study of Volkswagen unethical practice in diesel emission test. International Journal of Science and Engineering Applications, 5(1), 211-216.

Sherk, J. (2014). Expand Employee Participation in the Workplace. The Heritage Foundation.

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