Impact of Ethics in Modern Business: A Case Study of Volkswagen's Diesel-gate Scandal

This paper explores the impact of ethics in the modern business context, focusing on the case of Volkswagen's Diesel-gate scandal. It discusses the consequences faced by the organization, strategies for recovery, and the importance of ethical business conduct.

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Introduction:
The impact of the ethics in the modern business context is observed to be significant.
The effect of the ethical business conduction on the customers of the modern generation is
immense as the preferences of the customers in choosing a particular company, is notably
influenced by the above mentioned aspect. Along with that, the practices of ethics in the
modern business organizations is seen to be of great significance in the case of creating a
corporate image that will have the potential to attract the customers (Grace and Cohen 2015).
Adding to this, it is observed that the preferences of the customers are more inclined towards
the organizations which has the capability to consider the views and the opinions of the
customers and has the ability to take the stand for the customers. The ethical business
conduction from the part of the modern business organizations is much needed as it makes
sure that the organizations do not suffer any sort reputational damage in the business industry
along with the financial loss (Kolk 2016). The ethical business conduction is seen to be
crucial in the increment of the profitability through the increased sales as it produces the base
for it to the organizations in the form of the preferences or the customers. Hence the unethical
business conduction from the part of the modern business organizations is seen to cost the
organizations in significant manner.
The paper is focused in the elaboration of one such case of unethical business
conduction from the part of one of the market giant of the automotive industry in the form of
Volkswagen. The case elaborates the case of Diesel-gate which was an emission scandal that
was conducted by the organization in the year 2015. The paper elaborates the base of the
scandal and along with that, it also defines the consequences that the organization had to face
for conducting the mentioned case. Adding to that, the paper also describes the strategies for
the chosen organization to recover from the impact of the mentioned case and along with that,

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it mentions the paths to be followed by the chosen organization in transforming their business
conduction following a more ethical approach.
Organizational Overview:
Volkswagen is a German company that has the expertise in operating in the
automotive industry. The chosen company is a market giant in the global automotive industry
and has significant reputation of being the one of the very few organizations belonging to the
mentioned industry that are employing the technological gadgets and the innovations in an
efficient manner into the products and the services. The mentioned organization was
established in the year 1937 by the German Labour Front (En.volkswagen.com. 2019). The
company is currently having the headquarter in the city Wolfsburg of Germany and is seen to
serve the customers across the globe. Adding to this, the significant improvement of the
business conduction of the organization in the modern era is seen to be possible due to the
excellence in the leadership of Herbert Diess, the chairman of the board of management of
the Volkswagen passenger cars brand (Volkswagenag.com. 2019). Along with the visionary
leadership of Herbert Diess, the improved efficiency and the skills of the 117400 number of
employees of the organization recorded in the year 2017, is considered to be of great
significance in the generation of a production output of 6.073 million units in the year 2016
(En.volkswagen.com. 2019).
Apart from that, the combination of the improved skills and the competencies of the
employees of the organization and the excellent leadership of Herbert Diess was seen to be
instrumental in the generation of a revenue of 76.729 billion euro in the year 2017 along with
a net income of 4.353 billion euro in the same year (En.volkswagen.com. 2019). However,
even after having such improved financial condition, the organization was observed to face
significant crisis in their business conduction in the year 2015 when it faced the consequences

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of Emission –gate or Diesel –gate scandal (Volkswagenag.com. 2019). It is considered to be
one of the major criticism that the company faced in the history of it and was seen to have
immense impact on the customers of the organization.
Diesel Gate case:
The Diesel gate was a case of violation of the legislations framed for controlling the
emissions of the organization. It took place in United States where the United States Federal
government is seen to take a major initiative in controlling the air pollution with the design
and implementation of the Clean Air Act of 1963 (Epa.gov. 2019). The main aim of the
legislation was to control the air pollution at the national level to make sure that the citizens
of the country be able to breathe properly. Many of the environmentalists of the mentioned
nation are also seen to comment the excellence of the legislation by stating it to be the most
influential modern environmental law designed for the country along with tagging it to be the
most comprehensive air quality law in the world. The mentioned legislation provides a
certain level for the emission of vehicles with a precise focus on the rating of the NOX which
all the automotive organizations operating in the mentioned country were bound to follow
(Bovens 2016). However Volkswagen was observed to violate the legislation in the year
2015.
The company achieved the idea of the fact that the required infrastructural
adjustments will certainly increase the costing of the products which has the potential to
decrease the market share of the company. Hence the organization intentionally programmed
turbocharged direct injection diesel engines to activate the emission control of their products
(Stieglitz, Mirbabaie and Potthoff 2018). The activation of the emission control for the
products of the organization was deliberately conducted during the laboratory testing of the
products to make sure that the actual emission of the products are covered with the reduced

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values of the emission that resulted from the activation of the emission controls (Mačaitytė
and Virbašiūtė 2018). The activation of the emission control made sure that the products of
the mentioned organization meet the NOX output that is desired from all the organizations
operating in the country in accordance to the US standards. However, it was observed that the
actual emission of the products of the mentioned organization included NOX emission that is
40 times more than the results of the laboratory test (Zhang et al. 2016). The concern
organization was observed to include programming software to eleven million cars across the
globe where 500000 number of cars were for the market of United States
(Volkswagenag.com. 2019).
Enquiry:
In the year 2014, the California Air Resources Board commissioned a study on the
emission discrepancies between European and the US models of vehicles from the
International Council on Clean Transportation with various sorts of data related to the
emissions on 15 vehicles (Ww2.arb.ca.gov. 2019). During the study, five scientists of the
West Virginia University were observed to detect additional emissions of the products of the
mentioned organization and along with that, International Council on Clean Transportation
were also seen to purchase data from two different sources for the further evaluation of the
products of the mentioned organization. After thorough investigation, the United States
Environmental Protection Agency found Volkswagen to be guilty of violating the Clean Air
Act with the unethical programming of the turbocharged direct injection diesel engines and
issued a notice to the mentioned organization (Epa.gov. 2019).
Results:
The case produced notable amount of reputational damage for the organization which
was pretty evident with the initiation of investigation on Volkswagen by government of many

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of the countries in which it operates. As a result, the stock prices of the company started to
fall in a rapid manner (di Rattalma 2017). A series of resignation took place which included
the resignation of the group CEO, Martin Winterkorn. Apart from that, the head of the brand
development, Heinz-Jakob Neusser, the Audi research and development head Ulrich
Hackenberg along with the Porsche research and development head Wolfgang Hatz were
observed to be suspended as a result of the event (Blackwelder et al. 2016). The event forced
the mentioned organization to rectify the issue in their products and the organization
announced a plan of investment of 16.2 billion Euro for the rectification of the issue in their
products (Blackwelder et al. 2016). The company initiated a recall programme for refitting
the affected vehicles. The company was seen to elaborate the procedure of the development
of the defeat devices which unethically helped the organization to pass the emission test of
the mentioned nation, in an enquiry commissioned by the US lawyers Jones Day. However,
in the month of April, 2017, the organization was forced by the Federal Judge of United
States to pay an amount of 2.8 billion US dollars as criminal fine for rigging diesel powered
vehicles in an attempt to intentionally cheat during the government emissions tests
(Whitehouse.gov 2019). Apart from that, the chief executive officer of the group Martin
Winterkorn was charged with fraud and conspiracy in United States in the year 2018.
The scandal was significant in raising the much required awareness amongst the
diesel powered vehicle makers across the globe which had the tendency to exceed the legal
emission limits in the real world driving. The case inspired ICCT to conduct a study along
with the ADAC which showed that the largest deviations belonged to Volvo, Renault, Jeep,
Hyundai, Fiat and Citroen. The case produced notable amount of discussion on the
contribution of the software controlled machinery on the intention of cheating from the part
of the automotive organizations and the discussion seemed to lead towards the open sourcing
of the software for the public scrutiny.

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Transformation of the company:
The company has all the possibility to be more ethical in conducting the business
operations. The organization is in need to make sure that the they be able to recover from the
impact of the above mentioned case and that can be achieved with the undertaking of the
Integrated Marketing Communication (IMC) from the part of the organization (Thorson and
Moore 2013). The IMC plan of the organization is in need to be dedicated to the existing and
the probable customers of the organization and is in need designed for the effective
elaboration of the steps that the chosen organization has undertaken to resolve the above
mentioned issue. Adding to this, the shareholders of the organization is in need to make sure
that they be able to invest a notable sum in the development of the features of the products to
make sure that the products of the organizations are capable of satisfying the emission rates
of the national authorities (Nemeth and Carvalho 2017). Apart from that the incorporation of
the ethical business conduction will be notably based on the incorporation of the ethics into
the employees of the organization.
The case provided an instance where a number of senior employees of the
organization were forced to resign and were suspended as well. Hence the ethical business
conduction by the members of the senior level management of the organization is much
needed to make sure that the organization conducts their operation in an ethical manner. As
the employees of the organization is a major area of focus for the organization in terms of
managing the ethical business conduction, the mentioned organization is in need to make sure
that they recruit employees with a precise focus on the employment history of the employees
so that any existing tendency of the employees of conducting unethical business conduction

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gets highlighted prior to the selection of the employees (Ekwoaba, Ikeije and Ufoma 2015).
Adding to that, the organization is in need to make sure that they be able to improve the
leadership so that the reflection of the ethical business conduction of the leaders of the
organization inspires the junior employees of the organization and prohibits any sort
unethical business conduction from their part.
Conclusion:
On a concluding note, the case is significant for the elaboration of the importance of
ethics in the modern business context. Along with that, the case is able to efficiently present
the consequences of unethical business conduction majorly in the form of the reputational
damage that Volkswagen faced in the year 2015 along with the considerable amount of
financial loss. However, the above mentioned impact can be nullified with the ethical
business conduction and in order to achieve that, the organization needs to make sure that
they improve the organizational leadership and the recruitment procedures.

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