Volkswagen Scandal & Corporate Culture

This assignment examines the Volkswagen emissions scandal as a case study in corporate ethics and cultural failures. It requires students to analyze the scandal's background, understand its ethical implications, and explore how leadership styles and organizational culture contributed to the crisis. The analysis should also consider the stakeholders involved and the long-term consequences of the scandal.

Management Theory and Practices
Management Theory and Practices
Ethical Dilemma

1
Management Theory and Practices
Introduction
Every organization is very particular about its reputation in the market. None wants to have a bad
image. But there are times when the company faces dilemma and has to go through a rough time.
Volkswagen diesel emission case is definitely a good example of Ethical dilemma because due to
this dilemma, the company had to bear lots of money to the EPA and to the consumers
worldwide (Kansas City, 2016). Ethical dilemma in business is the situation when there lies
confusion between any two decisions and the organization cannot seem to make any, be it moral
or immoral(KarimiJahromi, 2016). Utilitarianism and Kantianism are the two theories which
explains Ethical Dilemma as a different perspective. Volkswagen’s case comparison with the
theories are done in this report. Companies must implement rules and regulations to ensure that
these types of dilemmas are not faced by them. Compliance policies in all the organizations are
important.
Company that faced ethical dilemma
Volkswagen (VW) is known to be the largest automobile making company. This German brand
has made its mark in the world by selling the best cars with great designs and engines. In
September 2015, the EPA (Environmental protection agency) found that VW had a software
device attached with their carengines whichcontrolled the emission of Nitrogen Oxide and the
car tests were being approved so that the cars can finally go out on the roads. While actually their
cars were releasing 40 times more Nitrogen Oxide and it was creating pollution in the
environment. VW believed that producing diesel cars would be good, which was just 5 percent
of the US market till 2007 (Lynch & Santos, 2016). These were done in all types of cars, be it
beetles, Audi A3, Jeta, Golf and Passat. EPA then issued notice for violating “Clean Car Act”
and VW agreed that 11 million cars worldwide (Slide Share, 2018) and 5 lakhs in US undergo
that software in between 2009 to 2015 (Kansas City, 2016). Earlier when this discrepancy came
into picture, VW people said that it was due to a technical mistake but later they also agreed that
they were at fault and that all this was done deliberately. Thus, VW had to pay $10 Billion to the

2
Management Theory and Practices
US consumers as compensation, $2.7 Billion as a remediation fund and for cleaner vehicle
projects they paid $ 2 billion to EPA. In another 44 countries, $600 Billion were paid to settle all
the claims (Kansas City, 2016). The company was also charged for attaching that software to the
cars of 3-literdiesel engineslike Audi and Porche. Although, VW did not agree to this but the
truth was that this technology affected over 10,000 automobiles. (Hotten, 2018). Then again in
November 2015, VW said that their cars were some “Irregularities” found in their cars when the
tests were run again and that it could impact over 80,000 cars in Europe but later after more
investigation that said that it only impacted 36,000 cars. This act broke Volkswagen’s customers
trust and it was not simply acceptable by them. The company should not just maintain its image
but also should think about its consumers. Good business minds never would hurt their
customers as it’s said that customers always come first. They also offered a small amount of
$1000 as penalty and assistance for free on the roadside (Kansas City, 2016).It later came into
picture that some senior executives including the CEO were also involved in this fraud (Slide
share, 2018).
Theory 1: Utilitarianism
This theory basically comes under those managerial ethics which acts when there is something
good to be done for a huge number of people (Barrow, 2015). The main thing that a company
can do morally is to keep their customers happy rather than keeping their self interest in mind
(My assignment help, 2018). This is a definition of a good business company. According to the
founders, Jeremy Bentham and John Stuart Mill, utilitarianism is the amount of goodness done in
an action rather than producing any excruciation for others. Volkswagen did put their own
interest first and produced the cars that spread environment pollution and nothing good could
come out of this treachery. VW even after knowing the negative impact of their doings bought
the cars on the road after fooling the laboratory tests. They made good profit by selling huge
number of cars but could not stand out in the eyes of their consumers. Overall, Volkswagen lost
their goodwill in the market after denying the accusations and then not full heartedly being
apologetic to their customers. Hence, the concept of this theory does not apply to this case as

3
Management Theory and Practices
there was nothing good in this whole act of treachery. Rather, Volkswagen should not have
attached the software and let the diesel emitting cars face the laboratory tests. Environment
pollution created by the VW cars was harming the citizens of the country and that is not at all an
ethical way of doing things. Going by ethics would have meant a lot to the customers and they
would have trusted the brand forever by this act. Utilitarianism helps the organization in
understanding that a customer comes first. If they are satisfied with the outcome, then the brand
is also safe to play in the market. However, this theory also suggests a punishment so that this
should not repeat again in future but VW had to bear more than this punishment. They faced a
big loss and the stocks came down like anything. The demand for their diesel cars also went
down in a huge manner. The stakeholders were not at a very good position as well as the
customers in this case as none of them were benefitted by this act. (Fowler S, 2017).
Theory 2: Kantianism
Kantian Ethics theory was founded by Emmanuel Kant (Arnold, 2012).The theory basically
states that any action that is done by the company should only create growth for it and this
growth should keep increasing as long as the company is good enough to face its competitors in
the market (Neil, 2013). In this case also, the company made lots of profit by pushing out their
pollution producing cars on the roads and earned the title of the second largest automobile selling
company but they forgot their moral ethics on the whole. Not just the customers but the habitat
that we live in i.e. environment was at stake. On moral grounds exploiting the environment is
unethical. Also, consumers should know the real standards of the cars the company was
providing them with. Hence, the consumers were also cheated. This behavior is also immoral.
When the act of fraud is done by any company, not just the higher authorities like the CEO or the
founder but the managers and executives are also at fault (My assignment help, 2018). They also
know about the wrong doings of the company and by its owners yet they stand still and do
nothing about it. The technical managers those who developed the software for the company
were also equally at fault. The image of the organization depends on the one’s who take out new
ideas to promote it and also the hampering of it belongs to the same set of people. These leaders

4
Management Theory and Practices
should definitely think of the benefits that their company is going to provide to its consumers.
Trust is a big thing in any of the business. Kantianism says that the company should be on the
growth side only by being ethical. It means the long term growth which a company can achieve
by gaining the trust of its consumers. When a customer is happy with the products of any
company, they put that company on the top list and the image of that company touches the sky.
Hence, even before putting the idea into practicality, these leaders should think of the
consequences their company has to bear.
Ethical Decision Making
This is a process in which leaders or managers takes decisions which are good for the company
and it harms no other person as well. It is about choosing between what is ethically right. During
the process, the options that are unethical and not the best for anyone should be totally neglected
and never be taken. Volkswagen or any other organization should look up to t his process as it
helps the company to be ethical and think ethically all the time. This way Volkswagen would
never have gone through the loss they went through actually. The ethical decision making
involves three simple steps:
 All decisions are to be taken only when it is suitable for everybody and not harming
anyone in any sense. Volkswagen’s act did harm many people just to earn profit out of
selling their cars (Blink, 2018).
 There are times when the unethical decisions are made by the company. There can be
times when the perspective of the decision maker does not foresee the harmful impacts
that are harmful. Yet, the leaders make that decision. Hence, one should be able to judge
between wrong and right (Blink, 2018).
 Out of many right ethical decisions, there are some ethical decisions which are most
likely to provide more goodness as compared to the other one. Hence, one should be able
to sense which ethical decision is providing the best results for everyone than the other
and then only implement that (Blink, 2018).
For creating the positive environment in the organization, there are three different types of
ethical work climate which can be followed.

5
Management Theory and Practices
 Deontological climate: It is derived from the conceptual theory of deontology. To
provide a positive atmosphere, managers need to make good decisions in terms of the
rules, procedures, norms, behavior, codes etc. The company rules, norms and
procedures should be such that not even one stakeholder feels disconnected with the
organization (Cairn, 2018).
 Egoistic Climate: Enough space should be given to an employee so that they do not
feel power abused or doubt their individuality. The self interest of an employee
should always be there (Cairn, 2018).
 Caring Climate: When a person enters any organization, he expects that the company
would provide him the best of the atmosphere as well as emotional balance. Equal
respect and ethical treatment, openness and authority are the key factors to keep an
employee happy (Cairn, 2018).
Positive Climate for Volkswagen
The positive climate in any company comes when it has a good corporate culture maintained all
throughout. When ethics are not right one cannot expect the culture and the climate to turn out
positive. Every company has the culture to teach its employees about the work ethics and to
follow them by any means (IIA, 2015). Volkswagen did have the intention of the company
growth but also it was not in the best interest of its consumers (IIA, 2015). In Volkswagen, there
were about 30 people who knew about the software that helped VW passed the test from the
laboratory and finally get the cars on the road (IIA, 2015). Now VW is a big company and it has
a huge number of employees yet these leaders went for the decision which was unethical and
totally neglected the interest of the stakeholders and the consumers too. The top managers in any
of the company play a very important part in maintaining the healthy and positive environment.
They provide the details of the ethical culture that should be followed in the company. Basically,
they put down the foundation of a positive climate for the company. Volkswagen managers and
leaders are the example that an organization can lead to the downfall if any illegal act is perused
by the company which is not at all in the interest of its stakeholders or the employees. There are

6
Management Theory and Practices
surveys where results have shown that the maximum percentage of the image of the company is
based on the ethics the company follows. There might have been a chance when if this problem
of producing more pollution, if discussed, with its employees, they might have given their
valuable suggestions and the problem might have been solved. Giving importance to all the
employees is a critical aspect of a good corporate culture. An employee more than feeling cared,
wants to be valued in the company because that is why he is working in the company. Some of
the employees had to lose their jobs as well. Hence, the company did not provide a good climate
for the employees to work in (Delta Net, 2017).
Leadership Styles and their consequences
A leader is a person who has the growth idea for him and his team and who would work
positively for his team and company (Babalola, 2016). IT is important because the leaders are the
people who can take their company to a higher level by taking some good decisions for the
company. Leadership skills are of different styles. In case of Volkswagen, there are three
leadership styles which if used, would have given the company a good and a long term growth.
 Transformational Leadership Style: This type of leadership is focused on the overall
growth of the company. This means that the employee or all the stakeholders as well as
the profit of the company on the whole are at the positive side. If we consider this style in
the real sense, it promotes changing of the heart, mid and soul of the employees, so that
their goal is to value the ethics and work culture of the company. The leader has a keen
interest in the growth of the employees and has a good vision for every employee growth.
Volkswagen leaders took a disastrous decision and the employees who were working on
the very same assignment did not have any clue. Though the employees were not at fault,
still, they faced issues (Nanjundeswraswamy, 2014).
 Autocratic Leadership Style: This style of leadership defines that the leader’s perspective
is just to make the employees follow what he thinks is right for the company. Though he
also thinks about the growth of the company but there is no importance of the employee’s
point of view. No respect is given to the ideas shared by the employee and this kind of

7
Management Theory and Practices
culture could lead to a greater issue because the employee satisfaction will decrease
gradually (Wise Toast, 2018).
 Laissez – Faire Leadership: This type of leadership gives very much importance to the
employees. Mostly the decisions are given by the employee in the interest of the
company growth. The leader gives equal importance to the employee and his ideas and
considers him as a part of the team as well as the company. Volkswagen’s employee had
no idea about the software until the news was out (Small Business, 2018).
All these leadership styles were missing in the case of Volkswagen.
Positive Work Climate for No dilemmas
Managing a huge company is in itself is a task beyond taking company out for the growth.
People today want to work for the company which provides positive and warm environment to
each and every employee. There are many factors that contribute to the success of the company
in which the most important is the ethical and positive work environment created by the
company. Factors that would have helped in making the climate of Volkswagen positive are:
 Transparency and Openness: A company or the leaders should make sure that every
employee has a right to say whatever they feel. The respect given to their ideas makes the
employee feel that he is being valued. By doing this, the company would create an open
and confident environment to work in (Poh M, 2018).
 Work Life Balance: An employee is majorly satisfied with the work culture of the
company when he is able to complete all the responsibilities he is liable to such as
Family, society and spirituality and self growth. Hence, the leaders while making the
rules and norms, should keep this point in mind (Poh M, 2018).
 Training and Development: Work culture would also be positive when a proper
development plan is maintained for every employee of the company. Training for the
code of conduct and skills should be properly and mandatorily given so that there lies no
confusion (Poh M, 2018).

8
Management Theory and Practices
 Recognition: When any employee’s work is not recognized, the morale of that employee
can break. Every employee should be recognized by the company and the leaders. This
will give push to the employee to always keep up with the pace (Poh M, 2018).
 Team Spirit: In case of any difficulty, one goes to seek help from his mentor or the
leader. The sense of responsibility and helping nature would develop within the teams
and hence, the productivity of the company will increase (Poh M, 2018).
 Caring: Sometimes, a few nice gestures take a huge place in the heart of any person. A
company should create an environment where people genuinely care of each other. A few
factors can also add in to the positive climate such as celebrating birthdays, yearly
bonuses etc (Wahoos, 2002).
 Ethical Decision Making: Employee should be given compliance trainings on decision
making and should be given the overview of the ethical conduct. By doing this,
knowingly no one would try and take the unethical decision which can put a company in
dilemma (Cairn, 2018).
All these factors would have contributed to Volkswagen’s positive work environment.
Conclusion
This essay has argued about how Volkswagen diesel emission case had put the company in
ethical dilemma and the consequences the company had to face. Also, the theories like
utilitarianism and Kantianism can help the company with not getting into any dilemma. The
positive work environment that a company should have is also mentioned with the factors.
Leadership styles and the decision making factors which can contribute to the overall company’s
long term growth. Following all the leadership styles, a company can stop itself from facing any
dilemma. By creating the positive work environment including the factors discussed above, the
company can maintain a healthy and competitive climate and also can provide a good experience
for any employee. Growth of a company should be long term rather than short term. A few
leaders or managers take advantage of taking unethical decision, which are good for the
company short term growth but they do not think about the dilemma that the company will face
in the long term. This essay shows as to by just following some simple rules, a company can
touch the sky and can keep the trust of the customers forever.

9
Management Theory and Practices
References
Agil., S. O. S., (2011). KANTIAN ETHICS: A CRITIQUE. UNIVERSITI TUN ABDUL RAZAK
E-JOURNAL. Vol. 7 (2).
Ahmad., N. H., Ansari., M. A. &Afaqi., R. (2005). ETHICAL REASONING: THE IMPACT OF
ETHICAL DILEMMA, EGOISM AND BELIEF IN JUST WORLD. Asian Academy of
Management Journal. Vol. 10 (2). PP 81 – 101
Arnold, D. G., & Harris, J. D. (Eds.). (2012). Kantian business ethics: Critical perspectives.
Edward Elgar Publishing.
Babalola, M. T., Stouten, J., Euwema, M. C., &Ovadje, F. (2016). The Relation Between Ethical
Leadership and Workplace Conflicts The Mediating Role of Employee Resolution
Efficacy. Retrieved from http://researchbank.acu.edu.au/cgi/viewcontent.cgi?
article=1774&context=flb_pub
Barrow, R. (2015). Utilitarianism: A contemporary statement. Routledge
Blink. (2018). Making Ethical Decisions: Model. Retrieved from
https://blink.ucsd.edu/finance/accountability/ethics/model.html.
Cairn. (2018). The Ethical Climate at Work. Retrieved from https://www.cairn.info/revue-
rimhe-2013-5-page-15.htm.
Delta Net. (2017). Creating a positive corporate culture - what can you learn from failings at
VW?Retrieved from https://www.delta-net.com/blog/2015/10/creating-a-positive-
corporate-culture---what-can-you-learn-from-failings-at-vw.
Duke University. (2016). Corporate Culture. [Video File]. Available at: https://www.
youtube.com/ watch ?v=7g-BLzjEbXU.
Fowler, S. (2017). What are stakeholders & Ethical Dilemmas? Retrieved from
https://bizfluent.com/info-8100582-stakeholders-ethical-dilemmas.html

10
Management Theory and Practices
Freifeld, L. (2012). 6 MANAGEMENT PRACTICES FOR AFFECTING WORKPLACE
CLIMATE. Retrieved from https://trainingmag.com/content/6-management-practices-
affecting-workplace-climate.
Hotten, R. (2018). Volkswagen: The scandal explained. Retrieved from
http://www.bbc.com/news/business-34324772
Iqbal, N., Anwar, S. &Haider, N. (2015). Effect of Leadership Style on Employee Performance.
AJBMR.
Jahromi., K. S. &Alvani., M. S., (2016). Ethical Decision Making in Issues Management. IOSR
Journal of Humanities And Social Science. Vol. 21 (7). PP 34-39
Kansas City. (2016). VW scandal a case study in bad corporate ethics. Retrieved from
http://www.kansascity.com/opinion/editorials/article87287037.html
Lynch, L. J. & Santos, C. (2016). VW EMISSIONS AND THE 3 FACTORS THAT DRIVE
ETHICAL BREAKDOWN. Retrieved from https://ideas.darden.virginia.edu/2016/10/vw-
emissions-and-the-3-factors-that-drive-ethical-breakdown/. .
Nanjundeswaraswamy T. S. &Swamy D. R. (2014). Leadership Styles. JSS Academy of
Technical Education.
Norman, W. (2016). Business Ethics. Retrieved from
http://www.hbs.edu/faculty/conferences/2016-newe/Documents/Norman,%20Business
%20Ethics,%20IntEncycEthics.pdf.
O'Neill, O. (2013). Acting on principle: An essay on Kantian ethics. Cambridge University Press.
Slide Share. (2018). Volkswagen: Scandal, Ethical and Professional issues. Retrieved from
https://www.slideshare.net/hsbj/volkswagen-scandal.
Small Business. (2018). 5 Different Types of Leadership Styles.Retrieved from
http://smallbusiness.chron.com/5-different-types-leadership-styles-17584.html.

11
Management Theory and Practices
The Institute of Internal Auditors. (2015). The Effects of Culture on Organizational Ethics.
[Video File] Available at:https://www.youtube.com/watch?v=2F-oQAcCvN0.
Wahoos. (2002). Creating a Work Climate That Motivates Staff and Improves Performance.
MSH Publications.
Wise Toast. (2018). 12 Different Types of Leadership Styles. Retrieved from
http://wisetoast.com/12-different-types-of-leadership-styles/.