Volkswagen's Business Practices and the United Nation's Global Compact

This paper analyzes the business practices of Volkswagen based on the principles of the United Nation's Global Compact. It discusses the positive and negative lessons learned, recommendations for the firm, and the benefits, challenges, and implications for key stakeholders.

Running head: GLOBAL BUSINESS MANAGEMENT
Global Business Management
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Table of Contents
Introduction................................................................................................................................2
Volkswagen and its business practices......................................................................................2
Volkswagen’s business practices and the principles of Global Compact..................................3
Principle 8..............................................................................................................................3
Principle 10............................................................................................................................4
Positive and negative lessons.....................................................................................................5
Recommendations......................................................................................................................5
Benefits, challenges, and implications for key stakeholders......................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8

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Introduction
As opined by Crane and Matten (2016), the concept of ‘business ethics’ has gained a
significant amount of prominence within the framework of the contemporary business world
because of the ever increasing amount of damage that the business activities of the firms are
causing to the environment and society. Trevino and Nelson (2016) are of the viewpoint that
in the contemporary business world, the firms are not only required to take responsibility for
their actions but at the same time follow the notion of business ethics for contributing in an
effective manner towards the planet and society. In this regard, the United Nation’s Global
Compact (UNGC) is an important pact or initiative on the part of the UN to encourage the
firms to embrace sustainable as well as socially responsible practices (Unglobalcompact.Org
2019). This paper will analyze the business practices of Volkswagen on the basis of Principle
8 (undertake initiatives to promote greater environmental responsibility) and Principle 10
(Businesses should work against corruption in all its forms, including extortion and bribery)
of UNGC.
Volkswagen and its business practices
Volkswagen Group, founded in 1937, is a German automobile which specializes in
the manufacture of commercial as well as luxury vehicles (Volkswagenag.Com 2019). The
firm had active association with the different automobile brands like Audi, Bentley, Bugatti,
Lamborghini, Porsche, SEAT, Škoda, Porsche and others and this in turn enabled the firm in
2016 to become the largest automobile firm of the world both in terms of revenue generated
by it and also in terms of the number of vehicles it had manufacture (Volkswagenag.Com
2019). However, things started to spiral downwards for Volkswagen in September, 2016,
when the Environmental Protection Agency (EPA) discovered that the firm was taking the
help of unethical practices to enhance the prospects of their business (The Guardian 2019). In

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this regard, it needs to be said that the agency found that the firm had installed “defeat
devices” on the diesel vehicles manufactured by it so as to cheat on the emission tests
(Nytimes.Com 2019). For example, it was seen that these devices were able to detect when
the vehicles were being taken to the labs for testing and thereby placed the engine on “test
mode” which in turn showed normal emission rate however in actual practice the emission
rate of these vehicles were 40% higher than the permissible level (Rogerson 2017). The
discovery of these business practices on the part of the concerned firm significant affected the
reputation as well as business prospects of the firm and in order to settle these disputes
Volkswagen had to pay a penalty of $2.8 billion in addition to the reparation cost to more
than 590,000 diesel vehicle users of the firm (Irwin 2018). It is pertinent to note that this
practice of Volkswagen clearly indicates the utter disregard of the contemporary firms of the
concerned business ethics and shows that the prime focus of the firms is to enhance their
profitability regardless of the means that they are taking.
Volkswagen’s business practices and the principles of Global Compact
Principle 8
The Principle 8 of the United Nation’s Global Compact (UNGC) requires the business
firms to “undertake initiatives to promote greater environmental responsibility” and thereby
fulfill their social and environmental obligations as business firms (Unglobalcompact.Org
2019). Smit and Bierman (2017) have articulated the viewpoint that this is especially
important because of the fact that the business firms in a bid to earn a higher amount of profit
are increasingly taking the help of business practices which are putting the environment and
the society at great risk. An analysis of the business practices of the firm Volkswagen,
especially the use of the ‘defeat devices’ in this regard is likely to yield insightful
information. The primary purpose of Volkswagen behind the usage of the defeat device was

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to evade the responsibility for the environmentally destructive vehicles that they were selling
to the customers and thereby to maximize their profitability (Mansouri 2016). As a matter of
fact, it is seen that the national governments of the different nations had given strict mandates
regarding the emission level that the vehicles manufactured by them needed to produce and
an analysis of the emission rate caused by the diesel vehicles manufactured by Volkswagen
clearly reveals the fact that the emission caused by them was 40% higher than the permissible
level (Siano et al. 2017). Thus, it can be said that by solely focusing on the aspect of
profitability the firm Volkswagen completely disregarded the Principle 8 of the UNGC and
rather than shouldering their environmental responsibility placed it at a great risk.
Principle 10
The Principle 10 of the United Nation’s Global Compact (UNGC) requires that the
“businesses should work against corruption in all its forms, including extortion and bribery”
(Unglobalcompact.Org 2019). More importantly, Hultman, Bonnedahl and O'Neill (2016)
have articulated the viewpoint that an effective pursuit of this principle requires the firms to
comply with the notion of business ethics and thereby contribute in a positive manner
towards the reduction of all forms of corruption within framework of the contemporary
business world. In this regard, it needs to be said that the defeat device and the other business
practices of the automobile firm Volkswagen rather than reducing corruption within the
framework of the contemporary business world and society took the help of this very
construct of corruption to sell the kind of diesel vehicles which are destructive or harmful
from the perspective of the environment (Irwin 2018). For example, the usage of anti-
emission devices in this regard to evade being detected for the higher amount of emission that
the diesel vehicles manufactured by the firm caused itself is a form of corruption and
derogatory not only from the perspective of business ethics but also from the perspective of
the business firms to mitigate corruption (Mansouri 2016). Thus, it can be said that the firm

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Volkswagen completely disregarded the Principles of the UNGC so as to earn a higher
amount of profit.
Positive and negative lessons
An analysis of the business practices of the automobile firm Volkswagen reveals
positive and negative lessons for the various business firms. For example, the discovery of
the usage of unethical or immoral business practices of the firm Volkswagen and their
downfall is a positive lesson for the firms regarding the benefits that they can reap through
the effective pursuit of the notion of business ethics (Rose-Ackerman 2018). In this regard, it
needs to be said that the effective practice of the concept of business ethics offers long-term
benefits to the firms and in the short-term they do not offer adequate benefits (Rhodes 2016).
However, as the case of Volkswagen reveals it is better to focus on long-term growth and
sacrifice short-term benefits through effectively focusing on the concept of business ethics
(Vega 2017). On the other hand, the negative lesson that the case under discussion here
reveals is the fact that the business firms in a bid to earn a higher amount of profitability often
take the help of the kind of business practices which are not only unethical but at the same
time derogatory from the perspective of the environment and the society (Collins 2018).
Recommendations
Some of the most important measures that the firm Volkswagen can use to increase
compliance with the two Principles of the UNGC are listed below-
 Allocation of adequate resources to the regional intermediaries: The firm in order
to reduce the use of corruption and also its corrupt business practices can allocate
adequate amount of funds to its intermediaries for the creation of suitable regulatory
or controlling programs. This will enable the firm to comply with the principles of the

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UNGC in an effective manner and also reduce the usage of all forms of corruption
within the business of the firm.
 Use of effective CSR programs: The firm in order to comply with the principles of
UNGC and also to contribute in an effective manner towards the environment as well
as society needs to take the help of different kinds of corporate social responsibility
(CSR) practices or initiatives. The usage of these CSR practices will enable the firm
to improve its brand or market image and also to establish a responsible business by
contributing towards the development of the society and the environment.
Benefits, challenges, and implications for key stakeholders
The effective usage of these recommendations is likely to offer various benefits to the
stakeholders of the concerned firm. For example, the stakeholders would be getting the kind
of vehicles which will in synchronicity with the regulations of the national government and
thereby the damage that they cause to the environment or the society through the usage of
these vehicles would be considerably lesser. More importantly, the usage of these
recommendations will also enable the firm to reduce corruption and thereby create
transparency and foster fair practices which in turn would benefit the stakeholders.
Furthermore, this would also enable the firm to attain profitability in the longer run and
thereby offer higher returns to the stakeholders in the future. One of the major challenges that
the firm is likely to face for the use of these recommendations is the fact that these are likely
to reduce the profitability of the firm for the time being in a significant manner which in turn
could adversely affect the interest of the stakeholders. Another important challenge in this
regard is the fact that in order to pursue these measures the firm would have to significantly
increase its product prices which once again could hurt the interests of the stakeholders. The

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major implication of these recommendations will be the fact that they will enable the firm to
comply with the principles of the UNGC and also to develop a sustainable business as well.
Conclusion
To conclude, the contemporary business firms with the objective to earn a higher
amount of profit often take the help of the kind of business practices which are unethical and
also adversely affect the environment and the society. In this regard, it needs to be said that
the United Nations had given various mandates in the form of Global Compact Principles that
the firms are required to follow for the process of their business operations. However, in the
majority of the cases it is seen that the firms completely disregard these principles and follow
the kind of practices that are likely to yield maximum profit. These aspects become clear
from the above analysis of the business practices of the automobile firm Volkswagen and
their disregard of the UNGC principles.

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References
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Crane, Andrew, and Dirk Matten. Business ethics: Managing corporate citizenship and
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