Impact of Volkswagen's Diesel Emission Scandal on Shareholders, Customers, Public Relations, and Regulators

This report analyzes the impact of Volkswagen's diesel emission scandal on shareholders, customers, public relations, and regulators. It discusses the perspectives of stakeholders, the effect on customers and the automotive industry, the public relations efforts of Volkswagen, and the actions taken by regulators. Recommendations are provided for better management of such crises in the future.

REPORT BASED ON VOLKSWAGEN CASE STUDY
ACADEMIC AND PROFESSIONAL SKILLS

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Executive summary
The current report tries to underline the fact that ethical actions by corporations can affect the
wider market. The report has been based on the diesel emission scandal of Volkswagen in the
year 2015. Throughout the report discussions have been made that have tried to identify the
perspectives of the shareholders, investors as well as customers after the scandal was brought
to light. Necessary discussions have been also made that helps in analysing how ineffective the
entire public relation system of Volkswagen was in terms of managing and eliminating the risk.
The actions of the regulatory bodies on Volkswagen and their products have also been briefly
discussed. On the basis of the analysis done, recommendations have been suggested that it
might have been helpful for Volkswagen when the scandal first emerged.

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Table of Contents
Introduction 3
Analysis 3
Shareholders 3
Customers 4
Public relations 5
Regulators 6
Conclusion 6
Recommendations 7
References 8

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Introduction
Ethics can be defined as a set of moral principles that are responsible for guiding the activities
of an individual as well as their behaviours. In the current case study, Volkswagen has been
found guilty of violating the ethical boundaries of business. The dieselgate scandal was
discovered in 2015 where it was discovered that the company had fitted their vehicles with
modified devices for passing the emission tests set up by the regulatory bodies in the United
states. It was discovered that Volkswagen had duped over 11 million consumers worldwide as a
the company engineers failed to develop engines capable of high performance and minimum
emissions (Clemente and Gabbioneta, 2017).
In their statement of facts, the company accepted that the devices were engineered for reducing
emissions during tests but allowed emission beyond the limits while on road. As pointed out by
Ewing (2015), this revelation made it clear that the administration of Volkswagen fully supported
use of such unethical measures despite vociferous internal protests from time to time. Such
brazen flouting of regulations has never been previously reported. Consumers required
information performing opinions pertaining to a business and these opinions are necessary
when the consumers decide to you relate and interact with the organisation. Good reputation
helps in facilitating engagement and Is significantly helpful in mitigating impact of the bad
reviews.
Good reputation is also an important factor while calculating competitive advantage and building
relations with consumers so that they pursue, engage and trust the business practices.
Reputation helps in distinguishing a brand from the competitors and attracting supporters,
building resiliency and creating growth opportunities all at the same time. The present report will
try to analyse the impact of Volkswagen's unethical proceedings on the reputation of the brand.
It will also try to analyse the impact of such incidence on the psychology of shareholders, and
consumers while evaluating Public Relations efforts and regulator actions.
Analysis
The current analysis will take into account the perception of the stakeholders and consumers
after the revelation of the scandal. The analysis will also try to record the public relations efforts
and regulatory actions on the company after they had been found to be guilty.
Shareholders
After the news of the dieselgate scam came into light, majority of the shareholders of
Volkswagen took initiative to sue the German car maker in order to to compensate for the
sudden plunge in the share values after revelation of the emission test scandal. After admitting
to mislead the US regulators, the company lost third of the value in share market ( Mansouri,

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2016). The shareholders of the company decided to you take help from law firms so that they
can initiate the legal proceedings which are similar to the US style class action lawsuit for
compensating the affected shareholders by using the court rulings in favour of individual
shareholders as templates for setting damage values.
Initially Volkswagen promised to investigate the wrong doings and making them public. Later on,
the company retracted their statement and claimed that it will not release a report. According to
Markowitz et al. (2017), this sudden backtracking infuriated a large number of minority investor
groups who complained about this and demanded an independent investigation. In the 2016
Annual meeting of the company, the company allowed the shareholders to vote for the the
necessity of hiring independent expert and surprisingly the proposal did not get enough number
of supporters. This can be we expected since over 90% of Volkswagen is owned by the state of
Lower Saxony, Qatar and the Porsche-Piech family.
This inaction by the Volkswagen forced the minority shareholders to take support of the legal
systems. This was the only alternative course of action since the minority shareholders stood no
chance in front of the board (Oldenkamp, van Zelm and Huijbregts, 2016). Even after a case
was lodged the company claimed that the decision was incorrect and they were reviewing the
reasons in order to identify the next course of action. A number of institutional investors all over
the world came together to seek compensation on behalf of their clients for the damages made
by the unethical move of Volkswagen.
Customers
The scandal had a very detrimental effect on the automotive industry. The increasing regulatory
constraints have made it common for the industry sectors to face scandal. However,
Volkswagen has been one of the most reliable and trusted brands in the automobile business
which is why it took all the customers by surprise (Siano et al. 2017). At the time the scandal
happened, nearly 5% it off the road users drove Volkswagen and this affected the automobile
community since most of the users were looking at their cars being recalled. The first thing the
customers did was to determine whether the car was fitted with the fraudulent software.
In order to assist the customers, Volkswagen set up their self service system where the
consumer could input their vehicle identification number which would determine whether the car
was part of the crisis. Volkswagen was quite lax in its behaviour towards the crisis. The system
allowed Volkswagen to identify the affected cars. However, as noted by Aurand et al. (2018) the
consumer were not fully answered. Some waited for Volkswagen to contact them and having no
idea of the time scale it may take, it had caused confusion within the Volkswagen owners. The

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customer's demanded transparency, convenience and speed when it came to matters of
consumer service .
The unified customer service approach undertaken by Volkswagen helped the company to
respond to 70% of the consumers enquiries within 3 hours. It was not a problem with customers
that Volkswagen tried to cook their emissions data. However it was a moral question. The
consumers were left to wonder why did the carmaker lie and what else may they have been lied
to. After the court proceeding Volkswagen was directed to pay 15 billion dollars as settlements.
10 billion dollars was to be spent on restitution and buybacks (Painter and Martins, 2017). The
amount was calculated by assuming that all the vehicles on where to be brought back and the
leased vehicle agreements were to be terminated. The 10 billion dollars also included additional
compensation for the consumers.
Public relations
Volkswagen was able to survive from the crisis as as it decided to repay the consumers for no
fault of their own and developed a strong consumer service mechanism and public relations to
deal with the claims and lawsuits (Blackwelder et al. 2016). Volkswagen had broken regulatory
standard of many jurisdictions apart from lying to the consumers as well as the stakeholders.
This tarnished the two core values that had built the reputation of Volkswagen after the world
war, namely trust and integrity. It is ionic that the company was the least probable candidate for
causing a corporate fund in the eye of the public.
The public relations employed by Volkswagen where is responsible for crisis planning and crisis
management followed by image restoration and solving the crisis. Professionals in public
relations have a pledge to never disseminate false information knowingly. However, as
mentioned by An et al. (2018), the PR team of Volkswagen was in a fix since the company
breached the trust of consumers and shareholders along with the fact that the information
communicated by the PR team was misleading even though it was unintentional. However the
response after the crisis was also inefficient as the company did not issue any formal statement
immediately to the shareholders.
The company enlisted services of several PR agencies and made use of advertisements to
apologise to the shareholders for their lies. However, the initial response was not appropriate
and the then presiding CEO blundered along till the was replaced and even then the blunders
did not stop (Holland et al. 2016). The company had tried to justify its stand initially and later
when this crisis became a PR nightmare and lawsuits started accumulating, Volkswagen started
trying damage control.

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Regulators
After the revelation of the scandal, the legal fallout of the crisis was so vast that the company
suffered in international markets. In the year 2015, as noted by Stanwick and Stanwick (2017),
the environmental protection agency located in United States announced that Volkswagen was
responsible for violating the clean air act as they had unlawfully installed fraudulent softwares in
their diesel vehicles between the time period of 2009 to 2015. Apart from us circulators,
government authorities around the world and also opened their investigations into Ooh
Volkswagen and its practices. Volkswagen had admitted that 11 million cars All Around The
World were fitted with that software and this led investigations in the US, South Korea, Italy,
France, Canada, United Kingdom, Australia and Germany to name a few.
After the then American CEO openly admitted of Corporate dishonesty the regulator in United
States opened criminal probes. Policy memorandums were signed that placed stronger focus on
the investigation as well as prosecution of the executives than it was possible before. In the
previous cases, if the guilty party confessed to their crime and cooperated with the investigators,
the executive had a chance to be spared (Irwin, 2018). However the memorandum sign made it
clear that in order to qualify for Corporation credit in case of civil as well as criminal cases it was
necessary for the corporation Sunday investigation to provide the department of justice with all
the relevant facts pertaining to the individuals involved in the misconduct.
Volkswagen did not stand any chance when the case was followed up by regulator around the
world. The company was directed to play billions of dollars as fines, buybacks and restitutions.
As noted by Bachmann, Ehrlich and Ruzic (2017), the company was also directed to pay for
environment and mitigation as well as development of clean emission Infrastructures.
Conclusion
It is very clear that Volkswagen understood what it was doing before the risk became
uncontrollable. The strict compliance standards forced the company 2 to install softwares that
fraudulently displayed permissible figures when tested by regulator. By investigating the
perception of the shareholders, customers, Public Relations as well as regulator's it can be e
claimed that the entire fiasco could had been managed better. Volkswagen head breached the
confidence of the investors and did not find it necessary to formally inform then of the wrong
doings after the scandal came to light. They also so broke the trust of millions of consumers bye
trying to prove and justify action was not wrong. However the regulators around the world
pressurized Volkswagen to realise its mistake and compensate the damages done. The car
manufacture still operational which means that they have been able to survive the crisis.

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Recommendations
The first recommendation that can be provided on the basis of the analysis is that in case of
corporation is found out to be e involved in some sort of misconduct it is advisable for the board
of directors and and the other members of the administration to take initiative and let the
shareholders of the company know what has been done (Robertson, 2017). Since Volkswagen
tried to to cover up the involvement of its higher ups in the scandal, the shareholders started
getting agitated as the minority group was unable to overcome the crisis Unlike the rich and
wealthy Board members of the company.
Another recommendation that can be suggested on the basis of the previous analysis is that it
might be necessary for the regulatory bodies to uncomplicate and relax the stringent compliance
regulations imposed on companies like Volkswagen which exist in a very competitive market.
The inability of the company to adhere to the regulations and compliances resulted in
Volkswagen taking up the unethical approach so that they can continue selling their products
without letting the world know of their failures in developing diesel engines that were emission
compliant as well as reduced the claimed torque and power (Valentini and Kruckeberg, 2018).
Lastly, it is highly recommended for Volkswagen to start developing automobiles that do not
have the the necessity e to undergo the emission tests. This means that Volkswagen has to
who invest a significant amount of their fortune in in developing electric and green vehicle
prototypes which not only satisfies the the aesthetic values appreciated by the consumers but
also the moral and oblique ketari environmental values that are killed by the regulatory bodies.

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References
An, Q., Christensen, M.G., Ramachandran, A., Mukkamala, R.R. and Vatrapu, R., (2018), June.
Volkswagen’s Diesel Emission Scandal: Analysis of Facebook Engagement and Financial
Outcomes. In International Conference on Big Data(pp. 260-276). Springer, Cham.
Aurand, T.W., Finley, W., Krishnan, V., Sullivan, U.Y., Abresch, J., Bowen, J., Rackauskas, M.,
Thomas, R. and Willkomm, J., (2018). The VW Diesel Scandal: A Case of Corporate
Commissioned Greenwashing. Journal of Organizational Psychology, 18(1).
Bachmann, R., Ehrlich, G. and Ruzic, D., (2017). Firms and collective reputation: the
volkswagen emissions scandal as a case study.
Blackwelder, B., Coleman, K., Colunga-Santoyo, S., Harrison, J.S. and Wozniak, D., (2016).
The Volkswagen Scandal.
Clemente, M. and Gabbioneta, C., (2017). How does the media frame corporate scandals? The
case of German newspapers and the Volkswagen diesel scandal. Journal of Management
Inquiry, 26(3), pp.287-302.
Ewing, J., (2015). Volkswagen says 11 million cars worldwide are affected in diesel deception.
The New York Times, 22.
Holland, S.P., Mansur, E.T., Muller, N.Z. and Yates, A.J., (2016). Damages and expected
deaths due to excess NO x emissions from 2009 to 2015 Volkswagen diesel vehicles.
Environmental science & technology, 50(3), pp.1111-1117.
Irwin, M., (2018). Case Study: Volkswagen's Diesel Emissions Control Scandal. Journal of
Strategic Innovation and Sustainability Vol, 13(1), p.53.
Mansouri, N., (2016). A case study of Volkswagen unethical practice in diesel emission test.
International Journal of Science and Engineering Applications, 5(4), pp.211-216.
Markowitz, E.M., Chapman, D.A., Guckian, M.L. and Lickel, B., (2017). A Corporate Scandal
that Hits Close to Home: Examining Owners’ Responses to the Volkswagen Diesel Emissions
Scandal. Environmental Communication, 11(6), pp.740-755.
Oldenkamp, R., van Zelm, R. and Huijbregts, M.A., (2016). Valuing the human health damage
caused by the fraud of Volkswagen. Environmental Pollution, 212, pp.121-127.
Painter, C. and Martins, J.T., (2017). Organisational communication management during the
Volkswagen diesel emissions scandal: A hermeneutic study in attribution, crisis management,
and information orientation. Knowledge and Process Management, 24(3), pp.204-218.
Robertson, J.A., (2017). The danger of Dieselgate: how Volkswagen’s diesel scandal critically
damaged the wider market. Annals in Social Responsibility, 3(1), pp.68-69.

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Siano, A., Vollero, A., Conte, F. and Amabile, S., (2017). “More than words”: Expanding the
taxonomy of greenwashing after the Volkswagen scandal. Journal of Business Research, 71,
pp.27-37.
Stanwick, P. and Stanwick, S., (2017). Volkswagen emissions scandal: The perils of installing
illegal software. International Review of Management and Business Research, 6(1), p.18.
Valentini, C. and Kruckeberg, D., (2018). “Walking the environmental responsibility talk” in the
automobile industry: An ethics case study of the Volkswagen environmental scandal. Corporate
Communications: An International Journal, 23(4), pp.528-543.