Volkswagen Emissions Scandal: Ethical Business Practices

The assignment analyzes the Volkswagen emissions scandal, highlighting its negative impact on the company's brand image and reputation. It discusses the need for regular audits to ensure ethical business practices and provides recommendations for improvement. The document is useful for students studying business ethics and management.

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EXECUTIVE SUMMARY
Ethics is considered an essential practice for an organisation which is necessary for
maintaining the brand image. This report includes the case study of Volkswagen in which they
built the car by installing cheat device for avoiding the testing. Due to this scandal, the cars
developed by company emits more pollution than normal cars which is dangerous for humans. In
order to overcome the impact of this scandal, some recommendations are provided to the
management of the Volkswagen such as promoting effective communication, developing
strategies by considering the ethical practices etc. Also through these recommendations,
management can improve their brand image among the various stakeholders in order to reduce
the impact of scandal on them.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................4
ANALYSIS......................................................................................................................................4
Role of ethics in enhancing the success of an organisation .......................................................4
Ethical issues faced by the Volkswagen.....................................................................................5
Impact of scandal on different aspects........................................................................................5
CONCLUSION................................................................................................................................7
RECOMMENDATIONS.................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
Ethics refers to the standards and norms which are developed for avoiding the conflicts
among the individuals as well as to decide what is wrong and write. Ethics in business is very
essential for the business organisation so that they can maintain their brand image in the market.
The business firms needs to follow the ethical work practices in order to keep motivated their
employees for performing their work effectively.
This report will discussed the case study of the Volkswagen who was involved in an
unethical scandal which also affected the brand image of the company. Volkswagen is one of the
most recognised organisation in manufacturing as well as distribution of luxury cars. The
“emission scandal” of 2015 was disfavouring for the organisation which arises due to the use of
cheating devices in the cars which was also ethically wrong. The company has faced heavy
criticism due to this unethical practice (Everything You Need to Know About Volkswagen Diesel
Emission Scandal, 2018). The company installed cheating device in over 11 million diesel
vehicles which was against the standards set by the authorities as well as also against the
customer expectations. Due to the use of cheat devices, the cars was emitting 40% more harmful
nitrogen oxide which is more than the allowed limits. The scandal impacted the brand image of
the company and company was fined worth more than 26 billion euros. Similar companies of
automotive industry such as BMW, Daimler and Toyota are also charged with collusion over
gases emissions which impacted their brand image in the industry (BMW, Daimler and VW
charged with collusion over emissions, 2019).
Brand image or reputation is a very important aspect for an organisation which should be
maintained by the firm among the eyes of customers and other stakeholders. This is essential for
enhancing the sales and profitability of the company at the marketplace (Bowie, 2017). This
report will cover the recommendations for the Volkswagen along with the impact of scandal on
different aspects of organisation such as employees, revenue etc.
ANALYSIS
Role of ethics in enhancing the success of an organisation
Ethics are associated with the moral decisions of individuals regarding what is right or
wrong. The decisions taken by the firm or individuals are based on the culture and environment
of the workplace. Ethical practices refers to the strategies and policies which are developed and

followed by the organisations by considering the ethical principles. There are various benefits for
the Volkswagen if ethical business practices are followed by the company. Through these ethical
practices, brand image of the company can be maintained among the mindset and eyes of
customers and other stakeholders due to which more number of customers get attracted towards
the cars of the company (Weiss, 2014). Also the company can retain their employees for a longer
duration of time when ethical business practices are followed by company. The company can
keep their customers and other stakeholders happy by following the ethical practices which will
also enhance the sales and profit of the company at the marketplace. Other benefits of ethical
practices includes grabbing interest of investors, reduction in recruitment costs etc. Unethical
behaviour or practices can negatively impact the profit and brand image of the company which
can impact the revenue of the firm too. When companies lack the ethical code of conduct, then it
can leads to dissatisfaction and lost morale of employees which can also impact the performance
of the company.
Ethical issues faced by the Volkswagen
Volkswagen is a British car manufacturer providing premium range cars to their
customers from all over the world. In 2015, the company was involved in an unethical scandal in
which they installed cheating devices in their over 11 million cars. The company needs to
provide the cars based on needs and expectations of their customers but however, the company
get involved in the scandal for avoiding the emission tests through the installation of cheat
devices which impacted the customers and other stakeholders of the company in a negative
manner (Hoffman, Frederick and Schwartz, 2014). This ethical issue also negatively impacted
the brand image and revenue of the company as the customers are dissatisfied with the cars and
does not preferring the purchasing of cars of Volkswagen. Also the profit of the company also
get negatively impacted as the company had to pay the fine of worth 26 billion euros as penalty
for using unethical practices in the development or production of the cars. The impact of this
unethical scandal also impacted the various aspects of the business of the Volkswagen such as
customers, revenue, managers etc.
Impact of scandal on different aspects
The carbon emission scandal of the Volkswagen negatively impacted the various aspects
of the business of the Volkswagen due to which the sales and profitability of the company as
well as the performance get affected as discussed below:

Customers: The company i.e. Volkswagen got involved in the unethical scandal of using
cheat devices in their cars. This device turns off the pollution controls when the vehicle is being
driven and turns them on the vehicle is undergoing emissions test. The customers who bough
these cars are facing or has to face various issues in some states who may require proof that the
vehicle has been repaired for complying with the emissions standards which is a time consuming
process (What the Volkswagen Emissions Scandal Means for Consumers, 2019). Also customers
can face the issues in terms of financials as the car are not developed as per the standards due to
which the resale value of the cars is low. The performance of the car will also suffers in terms of
oil consumption, when the vehicles are retrofitted with technology to address the excessive
emissions.
Revenue: Due to the involvement in the emission scandal, the profit of the Volkswagen
also get affected as the customers are not happy with the products due to which they switched
their brand to other car manufacturer. The company faced a decline of 20
% in the sales of the cars due to which the profit and revenue of the company decreased. The
revenue of the company were down 3.4% to €51bn due to the decline in sales of the cars in the
year 2016 (VW profits down 20% after diesel emissions scandal, 2016). The sales of the car of
the Volkswagen brand were hit hard by the scandal whereas brand under the company such as
Audi, Porsche, the Czech brand Škoda and the Spanish marque Seat maintained the profit of the
company. The revenue of the company gradually reduced when the scandal goes viral or public
in the market.
Managers: Due to the involvement of the company in scandal, the manager of the
Volkswagen also get affected as large number of senior level managers had to leave the
organisation due to the reduced brand image. Also the company terminated several senior level
managers who are reporting directly to Matthias Müller, the chief executive, Volkswagen after
the scandal went public. The company recruited some new faces after firing the existing
managers (VW makes management changes following emissions scandal, 2015). The remaining
managers of the company has faced issues of staff turnover as a large number of employees
becomes dissatisfied by the unethical practices of the company. The structure of the company
also changed after the scandal which also impacted the working of the remaining managers.
Shareholders: The shareholder of the Volkswagen also criticised the company for
following unethical practices in the manufacturing of the cars. After the emission scandal, the

investors or shareholders of the company has claimed 1,670 claims for seeking 9.2 billion euros.
When the scandal of the company become public, then investors determined that the company is
violating the clean air Act due to which the shares of the company get low (VW investors sue for
billions of dollars over diesel scandal, 2018). Volkswagen lost around a quarter of market-value
when the cheating test was proved right. Due to this, the image and reputation of the company
decreased which also impacted the shareholders as they are investing their money heavily in the
firm. Even some of the shareholders claimed that they had sold the shares if they had the
knowledge regarding the unethical scandal of the company. The shareholders of the company
asked for their money when the brand image of the company reduced or when the scam became
public.
These all stakeholders or aspects of the business get negatively impacted due to the
unethical scam of the company. The brand image and sales of the company also reduced which
impacted the revenue and profit margin of the company. This scandal resulted in the heavy loss
for the company which leads to the dissatisfaction among the different stakeholder of the
company. Due to the reduced profit and revenue, shareholders or investors asked their money
back which further leads to more loss for the company.
CONCLUSION
It has been concluded from the above report that the ethics plays an essential role in
maintaining a healthy working culture at the workplace. Companies who does not follow the
ethical business practices faces various issues in performing the business operations as well as
reduced profit and sales. Also the employee retention and engagement of the company gets
affected due to not following the ethical practices which also impacts the brand image of the
company in the market. The productivity and performance of the company also get negatively
impacted which will also enhance the dissatisfaction among the employees.
RECOMMENDATIONS
After going through the case study of the Volkswagen, various conclusions and
recommendation can be provided to the company in order to improve the brand image once
again infront of the customers and other stakeholders. Some of the recommendations to the
Volkswagen has been provided through which they can improve their reputation and profitability
of the company. These recommendations are as follows:

 Developing strategies accordingly: It has been recommended to the Volkswagen that the
new strategies and policies of the company must be developed by considering the ethical
frameworks and code of conduct. The framework and code of conduct is essential for
developing and implementing effective ethical strategies through which the company can
improve the products provided to customers in order to improve the brand image and
profit (Carroll and Buchholtz, 2014). The company needs to follow the all ethical and
legal regulations formulated by government in order to ensure smooth flow of operations. Implementing suitable communication system: It has been recommended to the
management of Volkswagen to promote and develop effective communication at the
workplace by using effective communication systems. These system are essential for
regaining the trust of its workforce, clients and other stakeholders for maintaining healthy
relations with them (DesJardins and McCall, 2014). The developed policies and strategies
should be communicated to them in effective manner so that they can maintain the ethical
culture of company. Also the assigned work and duties should be conveyed to them
effectively for executing the work in proper manner and within the deadlines.
 Regular Audits: Also the company needs to conduct audit in an fixed interval of time
period so as to determine whether the ethical business practices and strategies are
followed properly. These audits are essential for ensuring the consistency of
organisational ethics (Pearson, 2017). These audit can be done from external auditors for
ensuring that the limitations and shortcoming are eliminated from organisational
procedures and products.
Through these recommendations, company can improve their brand image which is lost
due to the involvement in the scandal. Through this improved brand image and reputation,
company can ensure that they are following the sustainable and ethical practices for ensuring the
increase in profit, sales and revenue.

REFERENCES
Books and journals
Bowie, N. E., 2017. Business ethics: A Kantian perspective. Cambridge University Press.
Weiss, J. W., 2014. Business ethics: A stakeholder and issues management approach. Berrett-
Koehler Publishers.
Hoffman, W. M., Frederick, R. E. and Schwartz, M. S. Eds., 2014. Business ethics: Readings and
cases in corporate morality. John Wiley & Sons.
Carroll, A. and Buchholtz, A., 2014. Business and society: Ethics, sustainability, and stakeholder
management. Nelson Education.
Pearson, R., 2017. Business ethics as communication ethics: Public relations practice and the
idea of dialogue. In Public relations theory (pp. 111-131). Routledge.
DesJardins, J. R. and McCall, J. J., 2014. Contemporary issues in business ethics. Cengage
Learning.
Online
BMW, Daimler and VW charged with collusion over emissions. 2019. [Online]. Available
through: <https://www.theguardian.com/business/2019/apr/05/bmw-daimler-and-vw-
charged-collusion-clean-emissions-tech>.
What the Volkswagen Emissions Scandal Means for Consumers. 2019. [Online]. Available
through: <https://lemonlawexperts.com/what-the-volkswagen-emissions-scandal-
means-for-consumers/>.
VW profits down 20% after diesel emissions scandal. 2016. [Online]. Available through:
<https://www.theguardian.com/business/2016/may/31/vw-volkswagen-profits-down-
20-diesel-emissions-scandal>.
VW makes management changes following emissions scandal. 2015. [Online]. Available
through: <https://www.theguardian.com/business/2015/dec/17/vv-management-
changes-emissions-scandal-german-carmaker>.
VW investors sue for billions of dollars over diesel scandal. 2018. [Online]. Available through:
<https://in.reuters.com/article/volkswagen-emissions-trial/vw-investors-sue-for-billions-
of-dollars-over-diesel-scandal-idINKCN1LQ0XS>.
Everything You Need to Know About Volkswagen Diesel Emission Scandal. 2018. [Online]
Available through: <https://www.news18.com/news/auto/everything-you-need-to-
know-about-volkswagen-diesel-emission-scandal-1784005.html>