Business Ethics and Responsible Management: Volkswagen Case Study

This report discusses the Volkswagen case study related to unethical practices in the company, ethical decisions, and leadership management in the organization. It includes recommendations and two ethical theories - Utilitarianism and Deontology.

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VOLKSWAGEN
Business Ethics And Responsible Management
Report
Student
7/17/2019

BUSINESS ETHICS AND RESPONSIBLE MANAGEMENT 1
Executive Summary
Ethics defines an individual’s morality and integrity to perform the task irrespective of the
consequences. However, in the business grounds, they are known as the code of conduct, which
states how an individual must perform ensuring the interest of the company and other
stakeholders. These rules and regulations also state the measures, which the company can adopt
to take action against unethical practices. However, the consequences of not adopting such
practices can be observed in the Volkswagen case study where the company deceived its
customers through its environment-friendly advertisement. Therefore, the focus of the report and
essay is on the case study related to unethical practices in the company, ethical decisions, and
leadership management in the organization.

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Contents
Part A.....................................................................................................................................................4
Introduction of the report...................................................................................................................4
About the Company...........................................................................................................................5
Ethical Issues.....................................................................................................................................6
Role of Business in Society...............................................................................................................8
Impacts of Issue on the Stakeholders.................................................................................................9
Employees:....................................................................................................................................9
Stakeholders...................................................................................................................................9
Two case study depicting the impacts of Ethical choices................................................................10
Good Ethics.................................................................................................................................10
Bad Ethics....................................................................................................................................10
Recommendations............................................................................................................................11
Part A (2).............................................................................................................................................11
Two ethical theories.........................................................................................................................11
1. Utilitarianism.........................................................................................................................11
Case..............................................................................................................................................12
2. Deontology............................................................................................................................12
Case..............................................................................................................................................13

BUSINESS ETHICS AND RESPONSIBLE MANAGEMENT 3
Recommendation.............................................................................................................................13
PART B...............................................................................................................................................14
Conclusion...........................................................................................................................................18
Bibliography........................................................................................................................................19

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Part A
Introduction of the report
Ethics are the guidelines and moral values, which direct individual behavior to conduct their
activities ethically. In the corporate culture, they are defined as a code of conduct, which is
compiled by the members so that they can attain organizational goals along with personal goals
with the most efficient, and effective approach. They are the norms, which plays a significant
role in the decision- making process (Landau, 2013). However, when principles are breached
then it creates a negative impact on the business environment of the company. Volkswagen,
which is one of the powerful cars, deceived the customers by trading highly polluting cars in the
market. In the further report, it is discussed about the ethical issues faced by the company
following the recommendations, which companies should follow while preparing its futuristic
strategies.

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About the Company
Source: (VolksWagen, 2019)
Volkswagen is a German automobile brand, which is one of the most popular automotive car
brands in the history of motor cars. This brand was established in 1933 in the beautiful city of
Berlin (VolksWagen, 2019). Volkswagen is a “People’s Car” which is giving cutthroat
competition to another valuable brand in the market through reliability and affordability. Since
its name reflects the brand value, it provides the most exclusive and premium cars like BMW,
Porsche, and Lamborghini. Moreover, with annual sales of Rs.10, 830,625, it has outperformed
Toyota and has topped the chart of the biggest automobiles companies in the world (Schmitt,
2019). Today with more 6, 64,496 employees, it is operating in 122 manufacturing plants across
20 European countries and operates in other nations like Americans, and Asia. Its mission and

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vision are to work towards the sustainable culture and “shaping mobility” (VolksWagen, 2019)
for future generations.
Ethical Issues
One of the secrets behind the long-term success of Volkswagen is its strategy to identify the
threats and opportunities prevailing in the automobile industry. It promotes transparency in its
activities and follows the code of conduct in the operations performed by them. For the
company, the trust of its stakeholders and employees is one of the valuable assets for the
company, which gives them the strength to perform better than the rest of the competitors
(VolksWagen , 2019). Company welcome diversity and share equal responsibility and duty
towards our customers. Every member who is working with us whether they are managers,
employees or factory workers, is part of the Volkswagen family. Attributing to this, it ensures to
protect the interest of stakeholders and promote sustainable development.
Being efficient managers, I observed that, from the last few years, the company has been
indulged in malpractices due to which it has faced serious allegations that not only jeopardize its
reputation in the market but also shook the confidence of its customers.
In 2016, the company was caught in the deceiving scandal where they claimed to use clean diesel
in its economical and luxury car brand like Audi. Federal Trade Commission found Volkswagen
guilty as they breached the trust of their customers by fitting harmful emitting gases that were
creating a negative impact on the environment (Federal Trde Comission , 2016). According to
the Federal Trade Commission, the company intentionally installed prohibited emission devices
during the monitoring sessions, hides this fact in the government test, and came out clean.
Volkswagen was convicted and found guilty for its manipulative and fraud advertising activities.

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Moreover, FTC protested and highlighted the fact that during the seven-year duration, this
“people cars” mislead the customers by trading and renting more than 5,50,000 diesel motor cars
(Beauchamp , 2018)
Volkswagen employed the strategy to identify the consumer insights and realized that society is
becoming environmentally conscious, therefore to attract the attention of masses, the company
claimed to manufacture cars, which discharges less harmful gases, are ecofriendly in usage, meet
emission criteria set by the government and traded them with the price tag of $ 28,000.
Furthermore, In the US, they marketed their products with the slogans (Mansouri, 2016), which
declared that in Volkswagen Jetta diesel, company has reduced the release of Nitrogen oxide by
90%, and Audi TDI engines have a low rate of emissions in comparison to gasoline. Such
misappropriate claims became the reason for its downfall.
Role of Business in Society

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Source: (Volkswagen, 2019)
Volkswagen is a well-established car brand who is striving hard to provide premium, eco-
friendly and exclusive models to its customers. The mission of the Volkswagen group is to
develop ecological, transparent and accountable management in the organization (VolksWagen,
2019). Moreover, to curb the issues and bring the positive changes in the society, management
has formed environment policy, which is based on 5 principles that are management conduct,
compliance, ecological protection, and collaboration with the special interest group and bring
improvisation with consistency. In the United Nations, Volkswagen aims to work according to
the standards set by the Paris Climate Agreement. Moreover, by 2025, the company will be
introducing battery rechargeable vehicles in Europe and other Asian countries like China, so that
the discharge of greenhouse effects can be revamped until 30%. By 2050, it is aiming to reduce
the discharge of toxic components like carbon dioxide in the environment. In their upcoming
models, they will be employing advanced technology so they can provide the best design with
wholesome experience to their customers.
Impacts of Issue on the Stakeholders
Volkswagen, who was one of the major contributors in shaping the future of the automobile
industry, lost its significant goodwill due to its unethical activities. Since 2015, its deceiving
scandal was under the investigation that adversely affected stakeholders of the company (CEO
Today Magazine, 2019).
Employees:
The report was published by the government authorities that until now 50 managers have
confessed regarding their involvement in these misconducts and were suspended by the

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Volkswagen chairperson for their involvement in this fraud scandal. However, during the
investigation and internal and external monitoring, many data, which came out, were incomplete,
distorted, and manipulated. Though an international law firm Jones day presented the facts that
company engineers and experts informed the managers regarding discharging of chemical
components, they ignored the seriousness of the issues. In this fraud, majorly managers took
unfair advantage of their position and did not comply with the rules (Mansouri, 2016).
Customers
One of the major reasons for its downfall and deception case was company dictatorial corporate
culture. The company practiced centralized culture and therefore took all the major decisions.
This whole situation adversely affected Volkswagen's reputation and the company spent $14.7
billion as a compensation amount to settle its charges of fraud and misleading the government
authority in the emission test (Federal Trade Commission , 2016). Moreover, they bore an
additional fine for cheating the clients on 2.0 L diesel automobiles. Customers who put their faith
in the company products and services suffered unfairness and injustice because of the wrong
activities of the company. Even if Volkswagen undertakes some measures to resolve the issue, it
will not helping the customers. They will still suffered the financial damage as the value the
company has degraded and will not provide any kind of benefit to the customers even if they try
to resale in the market (Muoio, 2017). According to the consumers report, it was analyzed that
about 11 million cars was affected. Moreover, the owners who suffered due to this fraud, they
can now resale the cars to the dealers and claim for reimbursement in the context of $14.7
billion settlement.

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Government
The emission scandal had become major concern for the government, as authorities neglecting
attitude towards Volkswagen nitro-oxide emission, given an opportunity to other automobile
companies to deceive the customers with the same game. However, government took severe
actions all those companies and ordered the CEO of the companies that repair 5 million diesel
cars with new software so that they discharge less nitrogen oxide and contribute in Public
Transportation Fund and left them without compensation. Such attitude of government provoked
consumers and environmentalist as government officials was protecting the carmakers from
settlement (Petzinger, 2018).
Two case study depicting the impacts of Ethical choices
Good Ethics
A. Company DOT and BO
Antony Soohoo, who is the CEO of DOT AND BO, shared an experience when he was head of
the product management department of Apple’s PowerBook team (Giang, 2015). He said, while
evaluating samples of their product in the inauguration event, the company discovered that few
of their pieces are defective, which can be dangerous to the health of their clients. However, it
was a very difficult and confusing situation for the company because if they start manufacturing
the products once again, they will lose their shipment contact, and that will cost millions. On the
contrary, if they introduce the defective products in the market, which will cost them until the
long run and that might ruin their reputation and brand loyalty amongst the customers (Soohoo,
2016). As the manager, he took the right decision from the perspective of their customers and

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focused to curb the long-term impacts by postponing the event. Initially, it was one of the
toughest decisions but it saved a company from the scandal.
Bad Ethics
B. Equifax
The largest data analytics agency of the United States which has involved security
misconduct where all the private information of its customers was leaked in the public
and affected 145 million of its clients on the global level during the financial year of
2017-2018. It credit company, which manages the data of various blue-chip companies,
and assist them in their decision-making process. However, the lack of a security system
and monitoring is one of the major causes of such breach in the company (Beauchamp ,
2018).
Recommendations
In today’s competitive world, to perform better and expand the business company as if
Volkswagen indulged itself into unethical practices and misconduct which is not only toxic for
the company’s business environment but its ignorance attitude towards the activities of their
employees adversely impacted its position in the market (Mansouri, 2016). Moreover, it can be
observed that pollution and discharge of harmful gases is one of the alarming situations for EPA.
Thus to survive in this automobile industry, every brand needs to comply with the rules and
regulations prepared by EPA. Volkswagen must prepare emission criteria and should coordinate
with Research and development to avoid such cases in the future.
Part A (2)
Two ethical theories

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Utilitarianism: This normative theory is one of the widely adopted theories in the management
as it denotes that any action can be called ethical if it provides a maximum level of satisfaction
and pleasure to a large number of people. It is a form of measuring pain and happiness together
(Landau, 2013).
In Volkswagen's deceiving Scandal, it was analyzed that the company has breached this ethical
theory. It has misled the customer by advertising, that it has launched diesel cars and sold more
than 550000 cars on these false statements. The reality was that their cars discharge up to 4,000
more than legal standards of NOx – a harmful pollutant that is dangerous for the ecosystem.
Moreover, the employees of the company internally knew regarding the unethical practices,
however, they were ignored Lack of efficient management was one of the systems (Federal Trde
Comission , 2016).
This theory is recognized as the Utility principle as it describes the set activities, which are
taken, provide to benefits while conquering the pain or curbing the impacts of any negative
consequences to the masses (Landau, 2013). The focal point of this theory is the spread of an
abundance of happiness in the environment. It is a democratic approach, where the audience has
the freedom to act according to their interests without any pressure. Such a theory incorporates
common ethics with the objectives, which is to be achieved.
However, there are some disadvantages to this theory, which is related to the integrity of justice.
One of the components of this ethical practice is to constrain people to criticize the standards of
truthfulness ‘and honesty. It creates an unrealistic approach of the society as it highlights the
biased attitude of the majority of people towards minority Thus, such theory will be considered

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wrong when they are practiced to benefit the majority of people neglecting the needs of the
minority.
Deontology: It is duty-based ethics, which states that it is the responsibility of the individual to
make the right decisions without thinking about its positive and negative consequences. This
theory has been discovered by Immanuel Kant who believed that duties are an integral part of the
system, which cannot be abandoned regardless of its consequences (BBC, 2019).
In the case study of Volkswagen, to maximize its profits, the company trapped the customers in
the web of lies and sold its model in the context of low emission cars which was ethically wrong
as they dup its customers. Due to such incidents, customers lost their confidence in the company.
Moreover, members of the company were also a part of such crimes and fraud. To earn a few
incentives they took the wrong decisions and supported the company in these malpractices.
(Federal Trade Commission , 2016)
Such ethical theories explain that according to universal truth, some acts will be considered
rights and others will be wrong, however, it is a duty of the individuals to behave in a righteous
manner irrespective of outcome (BBC, 2019). One of the positive sides of this approach is that it
requires every individual to respect the perspective of another person. It represents the degree of
responsibility an individual has, in the creation of harmony and any kind of damage towards
society must be avoided at a high cost.
While practicing this theory there will be a time, it creates a paradox as you can put your life in
danger why saving thousands of lives, as self-sacrifice is not considered as ethical decisions.
Moreover, it is a personal opinion based theory as it displays the psychology of the individual to
deal with the issue. It does not include self-protection ideas as it suggests that all type of violence

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is wrong and even somebody hurt you, as a victim, you will not revert and the possible action
you will run-away from the situation (BBC, 2019).
Recommendation It is very important for the organization to understand that employees are the
assets of the company and their actions play a crucial role in shaping the future of the company.
Therefore, the company must focus to increase the morale of the employees and should avoid
centralized hierarchy in the company so that employees have the freedom to share their views
with their superiors. Thus, contribute to greater productivity (Landau, 2013).
Both theories are equally important for the growth of the company. Utilitarianism, which is a
normative ethical theory, plays a crucial role as its state's degree of actions, which provide
maximum benefit against any harm. Moreover, it states the companies while focusing on this
theory can reduce employee turnover and can provide ample opportunities to the individual so
that they explore their talents and interest. However, when such actions are performed by
deceiving somebody; it will be called unethical even it creates benefits for a large audience. Such
situations must be avoided by the organization. On the other side Deontology theory, states that
companies must comply with the rules irrespective of the possible outcomes. However, there
must be flexibility in following this theory and necessary modifications can be done so there
must be a balance between duty and truthfulness.

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