Corporate Governance and Ethics

The report discusses the background of the Volkswagen car emissions scandal, the ethical decision making approaches, and the arguments related to the case.

Running head: CORPORATE GOVERNANCE AND ETHICS
Corporate Governance and Ethics
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Executive Summary
The primary purpose of the report is to discuss about the background of the Volkswagen car
emissions scandal. The report throws light on the history of the company Volkswagen and the
arguments in relation to the case. The report also talks about the ethical decision making
approaches and the ethical decision making approach pertaining to the Volkswagen scandal.

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Table of Contents
Introduction................................................................................................................................3
History of organization..............................................................................................................3
Discussion of Volkswagen scandal............................................................................................4
Arguments of Volkswagen scandal............................................................................................5
Ethical Decision Making Approach...........................................................................................7
Conclusion..................................................................................................................................8
References..................................................................................................................................9

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Introduction
Corporate Governance refers to rules along with the practices by taking recourse to
which the board of the directors of a company helps in ensuring the element of the
accountability along with the fairness in a company. It comprises of procedures that helps in
reconciliation of the conflicting interest of the stakeholders on the basis of the duties along
with the privileges. Business ethics is indicative of business policies and practices that
includes the aspect of the corporate governance, bribery along with the corporate social
responsibility. Business ethics helps in ensuring that trust exists in between the consumers
and the market participants of the business (Welch 2019). Concept of the business ethics
started in the year 1960 in the event of corporations becoming aware about the rise of the
consumer-based society that revealed concerns in relation to environment along with the
social causes. Environmental Protection Agency (EPA) has found out about the fact that there
are many VW cars that has the “defeat device” or the software within the diesel engines.
German car giant has been cheating in the emission tests that raised the ethical issue in
relation to the business. EPA found out that there were around 482,000 cars within US who
had the defeat device that can prove to be dangerous for the consumers of the company. This
issue can be said to be significant as the irregularity in relation to the carbon dioxide emission
level has affected around 800,000 cars within Europe. This report throws light on the issue of
the Volkswagen emission scandal and the arguments in relation to the case. The report also
talks about the ethical decision making approach pertaining to the case. The report also talks
about the ethical decision making approach which is appropriate for the case.
History of organization
Volkswagen (VW) is the name of German automaker that was founded on the 28th of
May in the year 1937 by that of German Labour Front. It has its headquarters within

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Wolfsburg and it is flagship margue of that of Volkswagen Group (VG). In the early years,
the cars were luxury and the Germans could not afford anything more than that of a
motorcycle. Volkswagen Group distributes the passenger along with the commercial vehicles
and it can be said to be the largest automaker in terms of the sales. The company has got the
largest market share within Europe for the last two decades. The company has two main
divisions: Automative Division along with Financial Services Division. The company has
two important joint venture within China. Volkswagen has operations in nearly 150 countries
and it operates in around 100 production facility in the 27 countries. The production of the
comp grew rapidly in 1950 and in the 1960. The company acquired the Auto Union in the
year 1965 that later on went on to produce first post-war Audi models
(Knowledge.wharton.upenn.edu 2019). The company has factories in various areas of the
world. The company has manufacturing facilities within Mexico, United States, China,
Russia, Portugal, Spain along with the South Africa. The company has set up new factory
within West Java and the investment into the new plant has helped in producing large
transporters along with the multivans which is valued at that of $ 140 million.
Discussion of Volkswagen scandal
The EPA found out that VW had been instrumental in installing the defeat devices in
around 2.0 litre engines within United States since the year 2009. The software was used in
Volkswagen, Seat, Audi along with Porsche that helped the cars in meeting the exhaust
pollution standard in the event of monitoring of the results. The company at a later point of
time admitted to the fact that around 11 million diesel vehicle had been equipped with that of
the software (Schiermeier 2015). The investigators had found that there were some cars who
had emitted around 40 times more nitrogen dioxide that had disastrous results for the
environment. The emission of the nitrogen dioxide can pave the path for the respiratory along
with the cardiovascular diseases for the customers (Bbc.com 2019). The incident caused

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Germany to recall 60,000 vehicles throughout Europe as it had been fitted with the “defeat
devices”. Audi also had to recall around 60,000 cars as they had to face the same reason. The
chief executive of Volkswagen called Martin Winterkorn had to step down after five days of
the incident after the break out of the scandal in the year 2015. Matthias Mueller replaced
him and he is being investigated in the present time. Mueller had beens replaced as the CEO
by that of the brand chief called Herbert Diess. VW agreed to the fact that they would pay
fine of that of one billion euros for the settling of the probe by that of the German prosecutors
(Theconversation.com 2019). The scandal was responsible for costing VW more than that of
26 billion dollars in the form of the fines, compensation along with the buybacks. The
company announced that it had suffered net loss of around 1.6 billion euro in the year 2015.
Arguments of Volkswagen scandal
There are various countries across the globe that wants to phase out the internal
combustion engine within the passenger cars. The CEO was accused for the incident and it
amounted to the case of fraud for the company. The company was misusing the trust of the
people that gave rise to the ethical issue. The national environment agency of Germany has
talked about the fact that the pollution within the German cities was giving rise to health
concerns for the people. The toxic effect of the diesel fumes from that of the manipulated cars
would prove to be detrimental for the health of the people. The Volkswagen emissions
scandal raises the ethical concerns on account of the fact that it was detrimental for the health
of the common people. The shameful cheating in relation to the regulators test of the
Volkswagen scandal on the part of such a large car company in the world was unethical and it
drew the attention of the people from across the world (Iflscience.com 2019). The effects of
the exposure of nitrogen dioxide can be disastrous for many healthy young people living
within Germany. There are around 9500 people who die prematurely within London on
account of the high level of the nitrogen dioxide in the air. The event raises the ethical

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concerns as it jeopardises the health of the stakeholders of the company. The trust of the
common people has been broken with the help of this incident that was dangerous for the
common people living in different parts of the world (Rhodes 2016). It can give rise to air
pollution that can be catastrophic for the health of the people.
The arguments in relation to the case rises on account of the fact that the EU ministers
have not hit the farm with any kind of financial penalty. VW has stated that the company
does not have to pay compensation to that of the European drivers. The issue has pointed out
to the importance of the electric cars that can help in solving the environmental issues of the
future. The company was sued by the customers owing to the fact that it was making use of
software that was deceiving the common people. A study that was published within
Environmental Research Letters has pointed out the fact that around 59 premature deaths will
take place on account of excess pollution that was produced in between the year 2008 and
that of 2015 (Strittmatter and Lechner 2017). A large number of people would lose their life
owing to the particulate pollution (87%) and the rest of the people would die owing to the
effect of the ozone. Study has also revealed the fact that the aspect of the vehicles emission
would result into additional early deaths. The studies that were published in the media
sources has highlighted the fact that excess deaths would take place in United States on
account of defeat devices (Siano et al. 2017).
Nitrogen dioxide can be said to be a precursor pertaining to the ground-level ozone
that can cause various kinds of respiratory problems for the people like the asthma along with
the bronchitis. Nitrogen oxide can amplify effect in relation to the time particulate matter soot
that can give rise to health problems for the people. The arguments arose pertaining to the
case as this incident was responsible for putting in danger the lives of many kinds of people
living in various portions of the world.

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Ethical Decision Making Approach
There are various approaches in relation to the ethical decision making. They are the
utilitarian approach, rights approach, justice approach, common good approach along with
the virtue approach. The utilitarian approach talks about the fact that ethical actions should be
capable of providing balance in between the good and the evil. This concept was put forward
by Jeremy Bentham along with John Stuart Mill during the 19th century. The rights approach
states that the actions of an individual are on the basis of the free will. The approach talks
about the fact that individuals have the ability to choose in a free manner what they are doing
with their life. The justice approach stems from philosophy of Aristotle that states that equals
have the right of being treated in an equal manner in the society (Schwartz 2016). The main
idea revolves around the fact that the ethical actions are responsible for treating the human
beings in a fair manner. Common good approach states that the ethical actions helps in
providing an individual with an advantage. The virtue approach states the fact that ethical
actions of a person should be consistent with that of the ideal virtues that can help in the
developing of the humanity (Scalia and Elwyn 2018). There are various kinds of virtues like
honesty, compassion, fairness, tolerance, fidelity along with the prudence.
The ethical decision making approach in relation to Volkswagen Scandal is common
good approach. The fine being imposed on Volkswagen Scandal can be said to be on the lines
of that of common good approach. The emission from the cars was proving to be harmful for
the lives of the people and the company has to pay the fines so that it can help in serving the
common people. The measures that were taken can help in benefitting public along with the
society in the larger arena (Tse et al. 2017).The common good approach helps in regarding
the individuals as part of that of the larger community. For the thriving of the society, people
should safeguard the aspect of the sustainability of the community that can help in serving
good for the people within the framework of the society (Mansouri 2016). The common good

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approach can help in recognizing how freedoms that are enjoyed by the individuals can help
in sustaining the welfare of the community.
Conclusion
Corporate Governance talks about the practices that can be instrumental in ensuring
fairness on the part of a company. Business ethics is indicative of business policies which
comprises of the elements of corporate governance and that of bribery. It can help in taking
care of the fact that there is trust in between consumers and that of market participants of
business. It was found by EPA that the car manufacturer had installed defeat devices in
United States since the beginning of year 2009. The software was made use of in the cars so
that the car company can meet level of exhaust pollution standard when the results are being
monitored. The company agreed to fact that there were approximately 11 million diesel
vehicles who had been fitted with software. It was found out with the help of the
investigation that there were some cars which was emitting more amount of nitrogen dioxide
that was having harmful results for environment. Ethical decision making approach
pertaining to Volkswagen scandal was that of common goods approach. Fine had been
imposed on the company as it has violated the trust of the common people and deceived
them.

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References
Bbc.com (2019). Volkswagen: The scandal explained. [online] BBC News. Available at:
https://www.bbc.com/news/business-34324772 [Accessed 25 May 2019].
Iflscience.com (2019). How Volkswagen Got Caught Cheating Emissions Tests By A Clean
Air NGO. [online] IFLScience. Available at: https://www.iflscience.com/technology/how-
volkswagen-got-caught-cheating-emissions-tests-clean-air-ngo/ [Accessed 25 May 2019].
Knowledge.wharton.upenn.edu (2019). Why the Volkswagen Diesel Scandal Hasn't Gone
Away. [online] Knowledge@Wharton. Available at:
https://knowledge.wharton.upenn.edu/article/volkswagen-diesel-scandal/ [Accessed 25 May
2019].
Mansouri, N., 2016. A case study of Volkswagen unethical practice in diesel emission
test. International Journal of Science and Engineering Applications, 5(4), pp.211-216.
Rhodes, C., 2016. Democratic business ethics: Volkswagen’s emissions scandal and the
disruption of corporate sovereignty. Organization Studies, 37(10), pp.1501-1518.
Scalia, P. and Elwyn, G., 2018. Shared decision making is an ethical imperative, but
implementation challenges persist: A rejoinder to ‘Concepts of health, ethics, and
communication in shared decision making’by Lauris Kaldjian. Communication &
Medicine, 14(3), pp.284-286.
Schiermeier, Q., 2015. The science behind the Volkswagen emissions scandal. Nature News.
Schwartz, M.S., 2016. Ethical decision-making theory: An integrated approach. Journal of
Business Ethics, 139(4), pp.755-776.

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Siano, A., Vollero, A., Conte, F. and Amabile, S., 2017. “More than words”: Expanding the
taxonomy of greenwashing after the Volkswagen scandal. Journal of Business Research, 71,
pp.27-37.
Strittmatter, A. and Lechner, M., 2017. Sorting on the Used-Car Market After the
Volkswagen Emission Scandal.
Theconversation.com (2019). The Volkswagen scandal: will the US justice system change
managers' behaviour?. [online] The Conversation. Available at:
https://theconversation.com/the-volkswagen-scandal-will-the-us-justice-system-change-
managers-behaviour-105632 [Accessed 25 May 2019].
Tse, Y.K., Zhang, M., Doherty, B., Chappell, P., Moore, S.R. and Keefe, T., 2017. Exploring
the hidden pattern from tweets: Investigation into Volkswagen emissions scandal. In Supply
Chain Management in the Big Data Era (pp. 172-198). IGI Global.
Welch, J., 2019. The Volkswagen recovery: leaving scandal in the dust. Journal of Business
Strategy.