Comparative Corporate Governance: A Case Study of Volkswagen Emission Scandal

Running head: MANAGEMENT
Comparative Corporate Governance
Name of the Student:
Name of the University:
Author Note:

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Introduction:
The essay aims at providing an insight into comparative corporate governance in
perspective of a corporate crisis. The corporate crisis discussed in this article is the emission
scandal of Volkswagen that made the company face global backlash. The emission scandal of
Volkswagen which is also known as ‘ dieselgate’ or ‘emissiongate’ started in the year
September 2015 when a violation notice related to Clean Air Act was issued to the German
automaker Volkswagen Group by the Environmental Protection Agency (EPA) of United States.
The agency found that the German car maker purposely programmed its diesel engines for
activating the emission control during the laboratory testing that did not show any outputs while
in reality the emission levels have been 40 times more. This enabled Volkswagen in meeting the
US standards during the regulatory testing. Volkswagen tried to deploy programming software in
close to 11 million car models across the world that included 500,000 in United States. The essay
tried to put forward a critical analysis whether such deceit has been the contribution of the
corporate governance towards organizational culpability. The essay also discusses about the
suitable steps that has been taken for prevention of the future scandals of similar nature.
Discussion:
Corporate Crisis

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According to Kiambi and Shafer (2016), a corporate crisis refers to a situation, event or a
public initiative that poses a threat to the ability of the company in effectively operating the
business. A crisis might get escalated into long-term impediment to business growth or a
disaster when not handled properly with sensitivity and efficiency (Lam, 2014).
Siano et al. (2017) stated that German car maker Volkswagen went through one such
corporate crisis when the Environment Protection Agency (EPA) discovered that the cars sold in
the United States comprised of software in it its diesel engines that could change performance
through improved results based on the test performed. The accusations led the German car
makers in admitting that it cheated the emission test in United States.
Volkswagen had an immense pressure on selling the diesel cars in the United States since
it had been backed up by major marketing campaign that trumpeted the lower emission levels of
the cars Mansouri (2016). The findings of EPA covered close to 482,000 cars in the United
States that included the Audi A3, Beetle, Jetta, Passat and Golf. However, Volkswagen
mentioned that it was only 11 million cars that were fitted with the defeat device. The company
also faced accusations for modifications of its software on 3 litres diesel engines fitted in some of
the models of Porshe and Audi. The claims were however denied by Volkswagen that affected
close to 10,000 vehicles.

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According to Schiermeier (2015) such a culpable act is not possible without a supporting
corporate governance structure. Corporate governance refers to the practices, rules and the
processes by which a firm is controlled and directed. In other words, corporate governance
involves balancing of the interest of the stakeholders that included management, shareholders,
suppliers, customers, financiers, community and government (Crête 2016). Volkswagen did not
have a proper corporate governance structure which was evident from a statement made by the
CEO of the company who stressed on caring more about the employees than the shareholders.
Burki (2015) stated that On December, the chairman of the Volkswagen, Hans- Dieter
Potsch, made a revelation to public stating that group of engineers from Volkswagen took the
decision of rigging the diesel emission test in the year 2005 when the toughest emission
standards were imposed by United States to the automobile industry. This decision forced them
into a culpable act given the shortcoming of the technology at that point of time. Thus, engineers
were not able to meet the emission standards put across by the United States given the allocated
budget and the time. Although later the engineers could find a solution but they wanted to
continue with rigging instead implementation of the method. According to Anenberg et al.
(2017), the unethical scandal in Volkswagen does not imply a single mistake but an entire chain
of the mistakes that took place without disruption.