Volkswagen Emissions Scandal Analysis

This assignment requires an in-depth analysis of the Volkswagen emissions scandal. Students need to examine the scandal's impact on corporate governance practices, including board responsibilities and accountability measures. Additionally, they must assess the environmental consequences of the manipulated emissions data. Furthermore, students should analyze the broader effects of the scandal on the auto industry, considering consumer trust, regulatory responses, and technological advancements.

Running Head: Business Management 1
Business Management

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Executive Summary:
Recent, emission scandal of Volkswagen AG resulted in various consequences. Harmful
pollutant components not only affectcompany in context of fines, penalties, legal proceedings,
etc., but it also affects other automakers in this industry, especially Germans automakers and on
society, political system etc. In other word, this company directly affects the economic growth of
the country.
From last few decades, concept of Corporate Social Responsibility and sustainability has
occupied an important place across the globe, and there are number of organization which are
adopting this concept and engaged in ethical and sustainable business practices. Controversy of
Volkswagen scandal shows that still various organizations presentwhich engaged in unethical
business practices for their own profit. This type of high-profile cases not only attracts monetary
consequences but also damage the trust of the public in the corporationsand social accountability
of the corporations.

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Contents
Executive Summary:....................................................................................................................................2
Introduction:...............................................................................................................................................4
Consequences of the scandal:.....................................................................................................................5
Environmental consequence:..................................................................................................................5
Economic Consequences:........................................................................................................................6
Effect on auto industry:.......................................................................................................................7
Social consequences:...............................................................................................................................7
Scandal & Corporate Social Responsibility:.................................................................................................8
Requirements of corporate governance:...................................................................................................10
Board structure & CG:...........................................................................................................................11
CG & approach of board in VW:................................................................................................................12
Investor’s approach:..................................................................................................................................14
Conclusion:................................................................................................................................................14
References:................................................................................................................................................15

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Introduction:
The Volkswagen emissions scandal is also known as "emissionsgate" or "dieselgate", and this
scandal is initiated in September 2015, when notice is issued by the United States Environmental
Protection Agency (EPA) German automaker Volkswagen Group for the contravention of
provisions of Clean Air Act. Agency further stated that group used program named as
Volkswagen had intentionally programmed turbocharged direct injection (TDI) diesel engines
for the purpose of activating their emission controls only at the time of testing of emissions in
laboratory. This program is deploy in almost eleven million cars worldwide, and 500,000 in the
United States during the period of 2009 to 2015.
In other words, EPA detect defeat device in number of VW cars sold in America, and this
software is installed in diesel engines which is detected at the time of testing and because of this
software performance is changed as per the better results. The German car giant has sine
admitted cheating emissions test in America.
During the period of 2014, California Air Resources Board (CARB) initiates study on emissions
inconsistencies between the models of US and European vehicles from the International Council

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on Clean Transportation (ICCT). In this study they collect the data related to 15 vehicles from
three different sources. For this purpose 5 scientists working at West Virginia University conduct
live tests and detect additional emissions while testing two out of three diesel cars.
Structure of this paper includes three sections; first section defines the global economic, social
and environmental consequences because of the scandal. Second section evaluates the impact of
scandal on the interpretation of “corporate social responsibility. Third section of the paper
defines the combination of inadequate corporate governance and poor ethical management
behavior because of which this scandal happen. Lastly, paper is concluded with brief conclusion.
Consequences of the scandal:
This scandal results in various consequences in context of social, economic, and environment,
and some of these consequences are stated below:
Environmental consequence:
In US, EPA stated that air includes high concentration of NO2 which result in different health
problems.
In UK, relevant authority stated that issues related to specific matter in context of emission has
been result in reduction of expectation of life in the UK by six months. This department further
report that death rate in UK is 4% higher because of the NOx pollution, and this result in 23,500
extra deaths per year (VW Emission action, 2016).
Recent study conducted by Environmental Research Letters stated environmental consequences
of this scandal, and as per this research team almost 2.6 million exaggeratedvehicles are sell in
Germany. Generally, nitrogen oxides released from the car engines and combine with other

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pollutants in air, and when this air is consumed by the humans it results in cardiopulmonary and
respiratory issues in the body. Pollution does not recognize any boundary, and health issues
because of the emissions cross the boundaries of Europe and result in other 700 early deaths in
other countries. Research team gets this result by combing the data available on German driving
habits on-road emissions, and atmospheric conditions. In fact, excess of emission results in more
severe public health effects in Europe as compared to U.S.
Same research team previously conduct one study, and as per this study almost482,000
compromised cars sold in the U.S and because of these cars almost 60 premature deaths happen
between the period of 2008 and 2015. However, in this study authors further stated that number
of VW cars sold in Germany is 440 percent higher in comparison of VW cars sold in U.S and
this means German drive VW cars 20% more in comparison of U.S. drivers. In Europe,
combination of atmospheric conditions and its higher population density make the conditions
more severe and increase the effects of pollutants. This team further stated that, each and every
unit of nitrogen oxides released in Europe caused 5time more number of premature mortalities in
comparison of U.S (Wheeling, 2017).
Economic Consequences:
While proposing the regulations related to air quality, analysis is conducted by EPA for the
purpose of assessing the advantages of improvements in air quality. The regulations provide the
advantage of reducing the damages result from the pollution. Team further stated if reduction of
pollution save money then adding a unit of pollution spends the money.
There are number of economic researchers who conduct studies in context of expressing health
damages caused because of the air pollution and other risks related to the environment in dollar

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terms. One section of this considers the amount spends for illness that includes cost of treating
the illness and it also includes the loss of time at work because of that illness (Selin, 2015).
While making efforts for the purpose of monetize the health impacts can be controversial in
nature, and for this EPA used the method of value of Statistical Life (VSL) to determine the
economic effects of burden related to health. In this willingness of individuals is measured to pay
for the purpose of avoiding the risk of deaths. Current approximation of VSL for every year is
almost $9 million (Hermes, 2017)
These assumptions are used by BenMAP for determining the financial guesses related to burden
on health because of the air pollution. The study conducted by EPA already used BenMAP for
determining the value of the health problems released from on road sources at $7,300 by using
its estimates related to VSL.
Effect on auto industry:
Recently, wider automotive sector does not perform well in the market, and the main reason
behind this is the spillover into the European market, and it also affects because of the future of
diesel for the industry and the car sales in general (MacLennann, 2015).
Social consequences:
Volkswagen not only affects the climate and economy, but it also affects the society in adverse
manner. It is very difficult to attach the exact figure of the health damage result from the
Volkswagen scandal. But knowledge related to NOx in the climate is clear and every excess
amount of NOx result in harmful effects on the health of the people and this result in high cost to
the society.

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Recent similar high profile case is defective air bags which result in eight known deaths. While
impact on health evaluation is not able to identify the particular affected individuals, and the
lives of people reduced because of the actions of Volkswagen and those also whose health is
affected are the real fatalities.
Any postponement from the VW side in addressing this issue may result in more deaths each
year, but the good news in this regard is that when this problem is solved, air pollution and health
of individuals get better (Politico, 2015).
Scandal &Corporate Social Responsibility:
In other words, CSR reporting is used as tool by the organizations for the purpose of building
positive image in the public. There are many other circulating concerns which usually stated the
engagement in activities which validate these criticisms, and the recent example for this is the
scandal of Volkswagen. This scandal can be considered as good example of difference between
the reality and the reporting. In 2015, EPA discovered defeat device in various cars of
Volkswagen in America and this device is located in the diesel engines and detected at the time
of testing. These devices change the performance of vehicles in context of improve NOx
emissions levels (Hotten 2015; Dubbink, Graafland, Liedekerke, 2008)). Volkswagen admitted
that there are number of cars worldwide were equipped with this software (Russell 2015;
Dudovskiy, 2012).
This emission scandal is considered as disturbing and high profile case of CSR fraud and this
fraud affects various stakeholders such as customers, governments, society, community, etc. The
effects of this scandal are long lasting. Because of this scandal, Volkswagen group also face
severe consequences as market value of the company dropped by 23% in September 2015. A sale

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of the company in U.S. alone is reduced by 25% almost in the period of November 2015. The
projected cost related to this scandal is more than$8 billion. However, it is problematic to
determine the damages occurred to the company in long run such as undesirable impact on the
organization and reputation of the company, satisfaction of customer, employee morality and
loyalty, and confidence of investor. Once trust is lost, it is hard to regain the trust.
Some external effects are also there such as this scandal not only destroy the reputation of
Volkswagen but also destroy thereputation of other automakers and even corporations in
unrelated industries but they also breach the public trust in the corporations (Ewing & Mouawad,
2015).
This organization provides important lesson regarding the approach of business in terms of CSR
approach. Cheating stakeholders by misrepresenting them in context of CSR activities never
provide in positive results for the company or for the society. However, it results in heavy cost
for the organization. Various researches are conducted in this context and these researches stated
that value for business is only created when CSR activities are included in the culture and main
strategies of the company. When company follows the approach of CSR, then it provides various
benefits to the company such as positive reputation, customer satisfaction, higher employee
morals, and profitability in the organization. It is also beneficial for society, as serves the
organization as good example for others (Zhakypova, 2016).
Requirements of corporate governance:
There is clear requirement of corporate governance in the organization and VW scandal is the
clear evidence of this fact. This scandal clearly shows that the lack of the appropriate control
system results in the failure of management to ensure appropriate interest of the shareholders. In

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this case, it is clear that organization has defective system of checks and balances and because of
which management system prevailed (Financial times, 2017).
There are number of experts who raise doubts on the corporate structure of VW, and this can be
understood through example, corporate Governance quality index is developed by the MSIC and
this index asses the profitability of the company on the basis of sustainability of CG structures.
In this context score of VW is very less in comparison of one of its competitors.
Sustainability in context of current economy stands for ability of the organizations to solve the
issues related to the climate and other issues faced by human beings. Corporate Social
responsibility and sustainability mainly referred as CSR and it includes power of the business
organizations to improve the conditions of environment and society. This concept is considered
as biggest and most important obligations of business management and other stakeholders of the
organization, and this obligation is the central approach of CSR (Maguire 2011). However,
sometimes this concept is considered as week concept (Okoye 2010), but it mainly ensures that
activities of the organization conduct in more responsible manner (Nwagbara and Reid 2013).
Agency theory is part of the biggest topic of CG and it mainly includes the issues related to the
directors while controlling the company at the same time when company is owned by the
shareholders. In context of CG, it must be noted that if company is owned and managed by same
people then dedication of work is more (Kaplan, n.d.). Any different in the shareholding and
ownership creates conflict of interest between the two and this conflict is the most serious topic
which must be considered in CG. This theory states that directors of the VW must work as the
agent of the shareholders and interest of the shareholders must be in their top list.

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VW followed rules based CG but there is need to follow the principle based CG which defines
the principles on the basis of ethical standards and law. Principle approach of CG provides more
certain approach to the directors and it automatically creates the link between the corporate
governance structure and CSR activities of the organization. It is possible for organizations to
improve their business practices by indulging in different social obligations, and it also helps the
organization to improve their profit earning activities. Now, organizations conduct their activities
responsibly and also report their CSR activities to their stakeholders through different reports.
There are number of organizations which inform their stakeholders in context of performance
related to social and environmental issues through different reports or through websites (Herzig
and Schaltegger 2011). For this purpose, there must be accurate monitoring system which
continuously monitors the activities of the agent (Kaplan, n.d.).
Board structure & CG:
VW follows the one tier board structure because of which monitoring of board activities is not
possible and it also reduce the efficiency of the board. It is necessary for VW to opt for two tier
board structure in the organization because it creates different levels of the board and ensure
effective management in the organization.( OECD, n.d.)
Two tier includes different levels such as general manager who is directed by the supervisory
board and supervisory board is directed by the management board. This type of structure also
includes the executive and non-executive directors of the company. While structuring the board
following factors must be considered by the organization:

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There must be executive and non-executive directors, and non-executive directors must meet on
continuous basis for the purpose of ensuring effective and efficient governance structure in the
organization (Valmec, n.d.).
Directors of the organization must possess the knowledge related to proper governance because
it helps the director in ensuring good CG approach in the organization.
There must not be any family domination in the organization because increase the chances of
fraud in the organization.
It can be said that Volkswagen save itself from scandal but actions of the company still are not
adequate. Management of VWmust learn lesson from previous cases such as Nike already bear
public distrust and boycotts from consumers because of its sweatshop labor practices, but this
company is considered as greatest image turnarounds. Code of conduct is established by NIK for
its labor practices and they hire external professionals for the purpose of auditing its suppliers,
and increased transparency of its labor practices by providing its performance in its annual
corporate social responsibility reports. Therefore, it is necessary for the organization to establish
such code of conduct which ensures effective governance structure in the organization.
CG &approach of board in VW:
If Volkswagen wants to restructure its image after this scandal then it is necessary for
organization to act decisively. Volkswagen must take whole accountability as an organization
and not like individual group. Company must prepare credible plan for reducing the emission
and for fulfilling its obligation to compliance with regulatory standards(Du & Sands, 2016).

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Reasons behind this Volkswagen scandal are not clear yet and this section of the report states the
reasons because of which organization is able to commit this scandal. For the purpose of
conducting internal investigation, US law firm Jones Day conduct this investigation and results
of this investigation is published in the fourth quarter of 2016. Official line of VW for this
purpose is that this was the result of the actions of a few engineers and programmers. However,
this device is installed in large number of vehicles from last seven years and it seems that senior
management is involved in this scandal.
Whether, this scandal is the result of rogue technicians or management inaction, but it seems that
they are motivated by the management of the company. Competitors of VW are selling diesel
cars into the US market such as BMW and Mercedes, and they adopt more advanced technology
for the purpose of cleansing the diesel fumes of particulates and Nitrous Oxide, known as urea
filtering. By choosing not to license this technology from Mercedes, it is estimated by analysts
that VW could have saved almost $4.8bn (Gorgen, 2012).
This sum is large but very less in comparison of losses occurred to the company because of this
scandal. VW faces a number of legal proceedings across the globe. Details related to estimated
quantum provided in late April from VW’s 2015 Annual Report and it also published the
announcement of an agreement in principle regarding a settlement with US authorities and also
with the class action lawyers. In this agreement VW agreed to repair or buy back the cars sold in
the US with the illegal software, and also to pay additional compensation to the purchasers.
There are many uncertainties in context of liability, and the agreement also covers the civil
litigation in the US. Additionally, US Department of Justice has opened a criminal investigation,
and civil, criminal and/or administrative actions initiated in different countries against the VW.

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Announcement is made in the Annual Report 2015 regarding the totaling of the provisions, and
as per this announcement almost €16.4 billion spends for the clean-up and legal costs, which also
include €7.0 billion for “legal risks” and a further €1 billion ($1.2 billion) for contingent
liabilities. VW also recall their products in the EU.
Therefore, it can be said that this scandal is not just a mistake but it is the result of unethical
practices conducted by the management of the organization (Solomon, 2013).
Investor’s approach:
It is also necessary for the investors of the company to evaluate all necessary aspects of the
company before making any investment in the company because it not only protects the
investors’ interest but also protect the interest of the society and encourage the company to
follow ethical approach in future.
Conclusion:
After considering the above facts, it can be said that Volkswagen scandal is the important lesson
for all the organizations who are conducting their activities for the purpose of earning profit. This
scandal results in various consequences not only for organization but also for other stakeholders
such as for government, consumer, shareholders, society, etc. it affects the complete automaker
industry and also result in public distrust in the corporates.
It is considered as important lesson regarding the approach of business in terms of social
responsibility and sustainability approach. Deceiving stakeholders by misrepresenting them in
context of CSR activities never provide positive results for the company or for the society.
Business value is created when social responsibility and sustainability are included in the culture
and main strategies of the company. When company follows the approach of CSR, then it

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provides various benefits to the company such as positive reputation, customer satisfaction,
higher employee morals, and profitability in the organization.
References:
Armour, J. (2016). Volkswagen’s Emissions Scandal: Lessons for Corporate Governance? (Part
1). Available at: https://www.law.ox.ac.uk/business-law-blog/blog/2016/05/volkswagen
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January 2018.
Du, S. & Sands, M. (2016). The VW Scandal Continues: Implications for Corporate Social
Responsibility. Available at: https://www.triplepundit.com/2016/01/vw-scandal-continues-
implications-corporate-social-responsibility/. Accessed on 31st January 2018.
Dubbink, W., J. Graafland, and L. van Liedekerke. (2008). CSR, Transparency and the Role of
Intermediate Organizations. Journal of Business Ethics 82: 391-406.
Dudovskiy, J. (2012). Criticism associated with Corporate Social Responsibility. Available
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Ewing, J., and J. Mouawad. (2015). Volkswagen Faces Major Spending Cuts and regulatory
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