International Corporate Governance: Issues and Solutions at Volkswagen

This article discusses the scandal at Volkswagen and the role of the Supervisory Board in the scandal. It also highlights the growing investor pressure on companies to manage their environmental risks. The article outlines the corporate governance issues at Volkswagen and suggests solutions to resolve the crisis.

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INTERNATIONAL CORPORATE GOVERNANCE
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1. The Supervisory Board is ultimately accountable for the strategy and activities of
the company; hence they are ultimately responsible for the scandal. The CEO has resigned,
but it should have been the Supervisory Board members.
In most circumstances, all companies are managed by a board of directors who acts as an
advisory body. They are appointed by the shareholder to regulate everyday activities in the
company. The agency is responsible for the proceeds as well as the losses incurred by the
company. It is the role of the directors to define the purpose and aim of the company with its
values on daily duties. Corporate governance in a company is the regulatory framework for
supervision and management of companies which is determined by the owners and the relevant
legislators (Barrett et al. 2015).
Since it’s the role of the directors to manage all the activities in the company, they ought
to have known the risks their products were exposed to the public. Volkswagen Company had
caused long-lasting damage to the society as well as the environment. Therefore, the company is
facing criminal charges and lawsuits which threatens the future of the company. Resigning of the
CEO of the company only, could not bring any change since the damage had already caused the
future of the company future to look grim.
The supervisory members were responsible for the scandal. This is because, for an
international company to commit fraud for a long time can only be viewed as a problem of
regulatory capture which entails information asymmetry, aspects with oversight and private
governance by the supervisory members.
It is the role of these members to ensure the implementation of the strategies put in place
to achieve their promises and act by the legislation governing them. Volkswagen had been
promoting their diesel cars as the most environmentally friendly as well as fuel efficient in the

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market which led to more sales. Dramatically, the results were different on low emissions. The
results against their claim and putting the environment and society to threats was enough
evidence for all the supervisory member to resign. If a company cannot serve the interest of the
public and with goodwill, the company should not operate or change in its managerial aspect
should be considered.
The International Council on Clean Transportation (ICCT) claimed for Volkswagen to
have installed defeat device. The device allows changes in emissions control system. The agency
believed that somebody in the company introduced these devices with deliberate intentions.
The biggest tragedy supporting the resigning of all the board members is the adverse
effects caused by their products to the environment. The scandal was responsible for the release
of toxic nitrogen oxide into the atmosphere. The gases cause acid rain which depletes the ozone
layer causing inflammation of the respiratory perils. With these arguments, the supervisory board
of members was supposed to resign for their incompetence and for threatening the lives of the
society (Masulis, Wang and Xie 2012).
2. Investors and activist groups are increasingly exerting pressure on companies
regarding their activities especially in managing their environmental risks. What could
these investors have done to help resolve the crisis?
There is a growing investor pressure whose primary area of concern is the protection and
conservation of the environment. The activists and the investors are changing the manner in
which they assess the performance of the company and making decisions based on business
ethics (Werther, W.B and Chandler 2010).
The investors and the activists of Volkswagen could have assessed the performance of
the company and its effects on the environment. With a thorough assessment, the emissions of

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nitrogen oxide could have been pointed out and ways of regulating the discharge enhanced
(Cumming et al. 2017). The scandal which finally cost the company losses could have been
avoided. Shareholders should concern their operating on checks such as checks and balances
which in turn will enhance clear professional standards and norms and the deviation by agents
from the professional ethics will be costlier (Cuomo, Mallin and Zattoni 2016).
Environics international has revealed that investors and activists group take into account
on ethics consideration while buying or selling their stock. It should be the ideology of the
Volkswagen investors that the managers have the responsibility of maximizing the rate of return.
The reason is that the investors are often the ones at risks of facing a conflict of interests either in
sources of income or benefit from the public goals. Volkswagen has suffered losses due to the
bad reputation. Those directly affected are the investors of the company. To avoid such scandals
in future, investors increase the pressure on the company is acting within the legislation and
managing the environmental risks which are the emissions of harmful nitrogen dioxide
(Oldenkamp, Zelm and Huijbregts 2016).
3. The Case 13 document refers to corporate governance issues at VW. Outline what
you think they are and how should have they been resolved
I believe that Volkswagen should be held accountable for its actions for violating the
public interests. The primary issue in the scandal is how the manipulation of software was in
place for many years undetected despite the laws governing the company. The central question to
the scandal is the negligence of the legislative bodies since, were it not for the non-governmental
organizations such as the ICCT, the outrage could not have been unveiled, and the company
could have continued with the harmful emissions of gases beyond the allowed level. The other
issue is that the environmental groups had previously warned the national car approvals

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authorities that the number of nitrogen gases emitted by the diesel cars in the laboratory was
lower than what was ejected on the roads. The manufacturers used the tricks, but also the
regulators in the sector were reluctant and did not take the required measures. In this case,
regulatory capture is practiced by the regulators (Carroll and Shabana 2010).
Regarding International Centre Financial Regulation (ICFR), regulatory capture can be
termed as a mode of corruption where a body assigned the duty to act in public interest decides
to work in favor of economic or political groups which it is supposed to be regulating. After the
scandal, the European Union members came together to discuss the consequences of the scandal,
but they failed to develop plans on alternative testing models like testing the auto emissions on
the road other than relying on the lab outcomes. The testing would have overcome the
manipulation software (McNulty and Akhigbe 2015). Moreover, the European car industry is closer
to the government than other industries, yet the government was hesitant to take actions on the
risks and threats imposed to the sector which carries a significant number of manufacturing
employment. The European car industry has emerged to be an example of regulatory capture
since it exists between those they regulate and the regulatory agencies. Another issue evident is
that the European commission opted for economic incentives other than protecting and finding
possible remedies of environmental policy (De Villiers, Naike and Van Staden 2011).
The solutions to the agency problems should focus on contract design which outlines the
specific responsibilities of agents and imposes penalty or rewards for their every action. For
instance, European Commission or the EPA consideration on coming with more detailed
outlines. The agency should have selected or screened the mechanism thus reducing information
asymmetry which is the best option for it is less costly and effective (McCahery, Sautner and
Starks 2016).

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Volkswagen could have hired trustworthy workers, and the likelihood of the scandal
happening could have been minimal. It's not possible for a company to identify honest people
before they take part or enact power in their positions. With this reason, companies are advised
to increase reporting and monitoring techniques (Clarke 2014). Monitoring in the company is
performed by the patrol police who randomly checks the audit of companies. Lastly,
implementation of checks and balances will also aid in keeping track of the activities taking
place in the company. With the standards and professional norms becoming more explicit, it will
be a threat to the agents and other workers in the company to deviate from the expectations of
professional ethics (Georgieva 2015).
The primary failure in the company was the incorporation of new information and to
achieve it. Implementation of new mechanisms should be considered to enhance transparency in
the company. Volkswagen could have much adhered to the environmental rules based on the
accounting cost (Tricker and Tricker 2015). By this, it means that it is cheaper for a firm to follow
laws and regulations that cost damage which can never appear on the balance sheet. The
managers receive payment based on what looks on the balance sheet but what the company bring
some years later and is not considered. Volkswagen should come up with new structures and
earn consumers’ confidence that the scandal will not happen again (Jo and Harjoto 2011).
In conclusion, the managers, owners of the entity as well as workers are responsible for
acquiring the regulations and laws they would wish to the public field to achieve their desired
corporate governance outcome. For a company to avoid chances of committing fraud in future,
corporate reporting standards should be high (Stout 2012).

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References
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2015. Impact of the Volkswagen emissions controls defeat device on US public health.
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Cuomo, F., Mallin, C. and Zattoni, A., 2016. Corporate governance codes: A review and
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De Villiers, C., Naiker, V. and Van Staden, C.J., 2011. The effect of board characteristics on
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Oxford University Press, USA.

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Cumming, D., Filatotchev, I., Knill, A., Reeb, D.M. and Senbet, L., 2017. Law, finance, and the
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