Management Problem Solving: CSR Issues and Recommendations for Volkswagen

The report analyzes the Corporate Social Responsibility (CSR) issues of Volkswagen and recommends ways through which the organization can focus more on ethical business in future. It highlights poor stakeholder management, unethical corporate bureaucrats and improper compensation management as the most crucial issues that lead to impact on Volkswagen CSR.

Running head: MANAGEMENT PROBLEM SOLVING
Topic: Management Problem Solving
Name of the Student:
Name of the University:
Author’s Note:

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Executive Summary
The purpose of the report was to highlight the Corporate Social Responsibility (CSR) issues of
Volkswagen and recommend ways through which the organization can focus more on ethical
business in future. Initially, it has been found that the organization has faced huge negative
publicity in the society due to the falsification of its NOx emission amount in the year 2015. It
has faced tremendous economic, legal and ethical issues in the past three years.
Poor Stakeholder Management, Unethical Corporate Bureaucrats and Improper Compensation
Management has been found to be the most crucial issues that lead to impact on Volkswagen
CSR. Directorial issues, organizational culture, poor corporate governance, ignorance of
administrative officials and blunt compensation package were some of the issues that resulted in
unethical business practice. Moreover, after comparing with Carroll’s CSR Pyramid, it has been
found that the organization has failed to meet all the pillars in the past ten years.
Following the issues some alternative solutions in favor of Volkswagen has been proposed,
which were Better Corporate Governance, Placing Responsible Corporate Administrators and
Proposing Realistic Compensation/Incentive Structure. The views from the authors indicated that
the organization might surely get huge response in future if the governance is restructured.
Finally, it has been recommended that Written Code of Ethics, Redefined Corporate Culture,
Strengthening Research and Development Team, Incorporating Audit Team and Strategic
Balance between Economic and Ethical Responsibility will help Volkswagen to reduce such
unethical practice in future. Ethical principles will indicate the internal stakeholders especially
the employees to perform morally or otherwise they will be penalized. Through R&D the
organization will be able to establish its latest engines, which will be emission free by
incorporating latest automation technology.

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Table of Contents
1.0 Introduction................................................................................................................................3
1.1 Context...................................................................................................................................3
1.2 Link to Case...........................................................................................................................3
1.3 Purpose...................................................................................................................................3
1.4 Argument...............................................................................................................................3
1.5 Outline....................................................................................................................................4
2.0 Analysis of the Critical Problems and Issues............................................................................5
2.1 Issue 1 – Poor Stakeholder Management...............................................................................5
2.2 Issue 2 – Unethical Corporate Bureaucrats............................................................................5
2.3 Issue 3 – Improper Compensation Management....................................................................5
3.0 Analysis of Alternatives and Options........................................................................................6
3.1 Alternative 1– Better Corporate Governance.........................................................................6
3.2 Alternative 2– Placing Responsible Corporate Administrators.............................................7
3.3 Alternative 3– Proposing Realistic Compensation/Incentive Structure.................................7
4.0 Recommendations......................................................................................................................8
4.1 Recommendation 1- Written Code of Ethics.........................................................................8
4.2 Recommendation 2- Redefined Corporate Culture/Corporate Relationship.........................8
4.3 Recommendation 3- Strengthening Research and Development Team.................................8
4.4 Recommendation 4- Incorporating Audit Team....................................................................9
4.5 Recommendation 5- Strategic Balance between Economic and Ethical Responsibility.......9
5.0 Conclusion.................................................................................................................................9
References......................................................................................................................................10

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1.0 Introduction
1.1 Context
Globalization has tremendously increased the competition among all business sectors,
among which automobile industry is one of the most rapidly flourishing industry. However,
manufacturers are often found to disregard the environmental sustainability policies by
practicing some fake or unethical methods (Lin, Chen & Huang, 2014). Such unethical practices
often lead to corporate sustainability issues and extreme negative publicity in the market.
1.2 Link to Case
While considering Volkswagen, it has been found that “Volkswagen emissions scandal”
is one of the most prominent case that has raised the question of Corporate Social Responsibility
in the entire automobile industry (Tse et al., 2017). The organization has been found to violate
the “Clean Air Act” in the United States by intentionally programming ‘turbocharged direct
injection (TDI)’ diesel engines, which masked the actual carbon emission from engines at the
time of testing. The main intention of the manufacturer was to limit the emission output by
meeting the US standards during regulatory testing. However, in actual, it was found to emit 40
times the NOx emission limit, which eventually was found to impact the environment by raising
the toxicity level of clean air (Rhodes, 2016).
1.3 Purpose
The purpose of the report is to analyze the major management problem, which is
Corporate Social Responsibility (CSR). The ethical issues that Volkswagen have raised since
2015 will be evaluated and alternative solutions will be highlighted. Finally, some
recommendations will be introduced in support of Volkswagen so that it can restore its CSR
practices.
1.4 Argument
The main argument that will be discussed in this report is regarding the differences
between CSR theoretical model and the ways through which Volkswagen have violated the
theories. The main theory that will be selected is Carroll’s CSR Pyramid and its pillars will be
compared with Volkswagen case.

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1.5 Outline
Following is the report outline:
Figure 1: Outline of the Report
(Source: Created by Author)
Critical
Problem
Identification
Poor Corporate Social Responsibility
Unfair Business Practice
Analysis of the
Problem
Poor Stakeholder Management
Unethical Corporate Bureaucrats
Improper Compensation Management
Analysis of
Alternate
Solution
Better Corporate Governance
Placing Responsible Corporate Administrators
Proposing Realistic Compensation/Incentive Structure
Recommendations
Written Code of Ethics
Redefined Corporate Culture/Corporate Relationship
Strengthening Research and Development Team
Incorporating Audit Team
Strategic Balance between Economic and Ethical Responsibility
Summary
Concluding the report

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2.0 Analysis of the Critical Problems and Issues
2.1 Issue 1 – Poor Stakeholder Management
Volkswagen has been found to be mostly affected due to the lack of independent
directors. More than half of the board members were aforementioned labor reps while rest of the
members were the representatives of Piech families and Porsche. Therefore, it is clear that the
organization was facing severe corporate governance issues. While considering Carroll’s CSR
pyramid, it can be said that the ‘Legal’ pillar indicates proper obey towards laws and regulation
(Nalband & Kelabi, 2014), however, when compared with Volkswagen, it can be said that shear
corporate governance has predominantly resulted in establishing fake sustainability policies.
Shaw and Barry, (2015) pointed out that when an organization is highly dominated by specific
investor then the necessity of monitoring and investigation becomes scrupulous. However, for
Volkswagen, Piech and Porsche families even though owned a huge stage, still they failed to
manage organizational governance.
2.2 Issue 2 – Unethical Corporate Bureaucrats
The ‘three-way catalytic converter technology’ is quite backdated and for that
Volkswagen tried using a ‘common-rail fuel injection’ system. However, since the engine failed
to reduce the NOx emission the engineers had to install “rigged software” to control the output
logarithm (Stanwick & Stanwick, 2017). According to Ehie, (2016), Carroll’s CSR pyramid
indicates ethics to be the most important corporate responsibility so as to create positive
publicity and brand image in the global market. However, the factor is quite contrary to
Volkswagen as its Inspection and Quality Department was never found to raise the unethical
installation of rigged software. On the other hand, Soltani and Maupetit, (2015) pointed out that
an organization should have written code of ethics that will make the mission and vison
statement to be quite transparent. However, since Volkswagen did not have any such CSR
principles or those were partially communicated to the stakeholders, it raised to such
consequences.
2.3 Issue 3 – Improper Compensation Management
Managementtoday.co.uk., (2018) pointed out that Volkswagen failed to tie the
compensation to performance. In between 2011 to 2016, business profits dropped from €11.3bn
(£8.9bn) to €8bn, however the executive board earned €400m. Moreover, it has been found that

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the organization pressurized its sales and marketing team to achieve extraordinary target,
however the incentives were of long term and it lacked transparency. According to the viewpoint
of Wagner-Tsukamoto, (2015), it can be said that Carroll’s CSR pyramid proposed a balance
between all the four corporate responsibilities, however Volkswagen exploited its employees by
proposing unrealistic sales target and setting blunt incentive scheme to which they were never
clear about. Therefore, the engineering team, project team and audit team tried to make the
project go live as early as it was possible so that they might earn huge amount within short time.
On the other hand, Kolk, (2016) pointed out that if an organization fails to establish the balance
between ethical responsibility and economic responsibility then sustainability might perish in
future. This has been the same issue for Volkswagen as it focused more on higher sales, return
on investment within very short time and early market entry in developing countries without
focusing ethical principles.
3.0 Analysis of Alternatives and Options
3.1 Alternative 1– Better Corporate Governance
While considering the viewpoint of Tricker and Tricker, (2015) it can be said that
restructuring the corporate governance is one of the most vital elements that help in establishing
better interconnection among organizational stakeholders. On the other hand, Boreiko and
Murgia, (2016) pointed out that corporate governance helps in building up the processes,
practices and rules in an organization. For an organization that is facing sustainability issues due
to poor corporate social responsibility needs to have a concrete operational process that is
transparent enough to channelize the responsibilities of stakeholders. Furthermore, Aguilera,
Judge and Terjesen (2018) highlighted that restructuring the organizational governance, sets up
new mission and vison of an organization, which guides the board of directors and managers to
streamline the responsibility of organization towards society.
Volkswagen needs to focus on its corporate governance at the earliest because it will
involve all the directors, chairmen, board of directors, managers and other higher-level
employees to restore its social responsibility. It has been prominent enough that Volkswagen has
directorial issues due to which it has failed to guide its administration. Since huge amount of its
stake is owned by other organizations, hence it has neglected its internal audit and investigation

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process. Therefore, Volkswagen might able to achieve better CSR outcome through ethical
business practice if the core stakeholders stand as the responsible pillar towards sustainability.
3.2 Alternative 2– Placing Responsible Corporate Administrators
Lloyd, Mey and Ramalingum, (2014) placed a viewpoint regarding the monitoring
policies of the administrative positions in an organization. Often it is found that higher-level
executives are corrupt and favor such practices that prove to earn advantage to specific
individual rather than a stakeholder group. Therefore, in such organization external audit teams
must be hired so that long term projects are properly scrutinized before those are launched. This
will also help in monitoring the performance of bureaucrats over the progress of time. On the
other hand, Weiss (2014) pointed out that an inspection and quality team is highly required for
any manufacturing project so that internally any quality standard acceptance issue is highlighted.
However, Trevino and Nelson, (2016) argued and pointed out that only quality team might not
be effective enough, therefore quality standard maintenance policy statement has to be
documented so that any unethical practice is highlighted and escalated to higher department
before it is shared in the market. Similarly, Volkswagen might achieve better corporate
administration if it is able to introduce quality and audit team who will need to comply with
quality standard maintenance policy.
3.3 Alternative 3– Proposing Realistic Compensation/Incentive Structure
On the words of Harrison, Freeman and Abreu, (2015), CSR primarily involves
satisfaction of employees through proper remuneration and compensation package as this creates
a healthy culture and well-being associates. This also indicates ethical business process. On the
other hand, Zhu et al., (2015) pointed out that an organization needs to establish strong and
transparent commitment towards its employees by setting up clear achievable target within
stipulated timeframe. This helps in earning competition among operational teams. Furthermore,
Manroop, (2015) proposed the viewpoint where both the economic and ethical responsibility of
an organization can be balanced through clear objectives, mission and vison statement. In order
to achieve higher revenue and better return on investment, an organization must not exploit its
human resource or falsify its principles by breaching its code of conduct. While comparing the
viewpoints with Volkswagen it can be said that the organization will need to reduce the long-
term incentive to short-term incentive policy. This will help the employees of all the department

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to receive financial benefits within short term and eventually, they will not undertake any
unethical practice for gaining money.

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4.0 Recommendations
4.1 Recommendation 1- Written Code of Ethics
According to the viewpoint of Burgess, (2017), it can be said that an organization might
need to document its Code of Ethics as it creates a set of guidelines and principles that help
professionals to carry out the business honesty and with integrity. Moreover, Moon, Uskul and
Weick, (2018) pointed out that the Code of Ethics document outlines the organization values and
mission, ethical principles, core standard and values that portrays a business to be ethical.
Similarly, Volkswagen will need to create its Code of Ethics at the earliest. This is because it
will help the internal stakeholders to understand the change in corporate governance and
principles and that they need to act through integrity or otherwise they will be held responsible
against any unethical practice that portray negative brand image on the society.
4.2 Recommendation 2- Redefined Corporate Culture/Corporate Relationship
While considering the viewpoint of Carlos Pinho, Paula Rodrigues and Dibb, (2014), it
can be said that organization culture is the root cause for acting ethically. A culture that
propagates positivity and morals among associates will ultimately help in spreading the
importance of ethics across all departments. However, Guiso, Sapienza and Zingales, (2015)
argued that not all the employees believe in morals as they focus more on quantifiable outcome
rather than long-term descriptive result. Therefore, in such a situation, employees will need to
extend their relationship cross-departments and establish the importance of ethics. Volkswagen
will need to create and reestablish its corporate culture by inducing the values of ethics and its
outcome. The benefits of informal corporate culture will help in escalating any unethical practice
irrespective of hierarchy.
4.3 Recommendation 3- Strengthening Research and Development Team
Bernardo, (2014) affirmed that an organization fails being sustainable when it is not able
to innovate. Even though an organization is able to innovate it might fail to comply with quality
standards. Since the amount of resource expenditure in R&D is becomes quite limited, low
standard products are made to go live in market. However, Lopez-Valeiras, Gomez-Conde and
Naranjo-Gil, (2015) argued that organizations need to indulge more time and expense for R&D
purpose as it is the primary stage of sustainability. Volkswagen will need to focus more on the
R&D department in future so that it can set up new engine by using diesel as the fuel and at the

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same time lowest NOx emission. Alternatively, it can invest more on electric car manufacturing
as it will be the complete new segment where the impact on environment is the least.
4.4 Recommendation 4- Incorporating Audit Team
Chi et al., (2017) asserted that for a manufacturing organization, audit is very necessary
after every project deliverable accomplishment because it helps in proper documentation of
authenticity and quality standards. Volkswagen has been found to get audited from external
source at the last stage and each of the project proceedings were being audited internally.
Therefore, in future it is required for Volkswagen to deal with external audit firms to check its
product quality standards so that all the transparency is restored. Moreover, it can publish its
quality standard fulfillment in official websites.
4.5 Recommendation 5- Strategic Balance between Economic and Ethical Responsibility
Wagner-Tsukamoto, (2015) highlighted that an organization is often found to focus more
on revenue earning by ignoring its ethical standards. However, it is required to create the balance
between ethical principles and economic outcome. Volkswagen must not exploit the environment
by increasing the level of toxicity but it must put more effort on vehicle design and engine
remodulation. It must take into consideration the societal moral standards and must not harm the
community. Redesigning the ethical conduct will help Volkswagen to get directed towards better
innovation through R&D, which will ultimately help in achieving better economic stability along
with ethical responsibility.
5.0 Conclusion
Volkswagen has been found to violate its Corporate Social Responsibility by practicing
unethical ways of faking its toxic emission. Both the community and business economy has been
found to get impacted due to such unacceptable activities. Considering the Carroll CSR pyramid,
it has been clear that none of the pillar has been satisfactorily achieved by Volkswagen.
Therefore, it has been recommended that Volkswagen will need to create new Code of Ethics
that will redefine its vision, mission, objectives, goals, principles, procedures and rules. This will
also involve revising the corporate culture by triggering the importance of ethical business
process across all departments. Finally, it has been recommended that Volkswagen will need to
focus more on research and development so that innovation process is strengthened and none of
the stakeholder in the society gets affected through unfair business practice.

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