Volkswagen’s Corporate Scandal: Diesel Fraud by Volkswagen

Running Head: Diesel Fraud by Volkswagen
Volkswagen’s Corporate Scandal

Diesel Fraud by Volkswagen 1
Introduction:
In September 2015, the most audacious fraud in the corporate history was exposed to the world.
The fraud was committed by the world’s biggest carmaker named as Volkswagen and it is
commonly known with the name of Dieselgate or Emissiongate scandal. The company is a
German corporation and is in existence since the year 2008. It was found by the US
Environmental Protection Agency that Volkswagen had deliberately been indulged in deploying
the defeat devices in the cars to circumvent the emissions tests in United States. The top
management personnel of the company were aware of the ill-practices of company’s engineer
and were in continuous support of them in concealing the facts about these practices from the US
regulators and the customers of the company. Therefore, the corporate governance structure of
the company was blamed for the entire scandal. The scandal occurred due to the greedy
intensions of the managerial persons and engineers of the company to become the top carmaker
in the world. The company’s negligence towards its responsibility of protecting the rights of its
shareholders made the company suffer from heavy fines and penalties (Blackwelder and Katerine
2016).
Emission Scandal and its consequences
By 22nd September, it was ultimately admitted by the Volkswagen Group that it has sold around
600000 vehicles in US market and such vehicles were equipped with the defeat devices that
contained sophisticated software to cheat on the emission test designed by the US regulators. The
defeat devices were less of a device than a mere code in reality on the electronic control module
of the car that could detect whether the car is run in the labs for the testing purpose or they are
run the roads for their actual usage (Siano and Vollero 2017, 27). While in the laboratory the cars

Diesel Fraud by Volkswagen 2
could clear the emission test it was generally observed by the environmental protection agencies
that the cars were actually emitting nitrogen oxide 10 to 40 times more of what was ideally
allowed as per the standards of US market (Armstrong 2017).
The stock prices of Volkswagen were considerably higher prior to the opening up of the scandal
on part Volkswagen group as it was successfully operating as the largest manufacturer in the
world as it was owning the most notable brands across the world such as Volkswagen, Porsche,
Lamborghini and Audi (Volkswagen AG 2018). The company was highly recognized for its
branded cards that offered maximum satisfaction to its customers. Volkswagen group was
operating its business as a family controlled company because the Porsche and Piech families
were owing almost 52% of the company’s voting rights. Also, the 20% of the Volkswagen’s
voting rights were owned by Lower Saxony and the State of Qatar held 17% voting rights in the
company. Due to this, the external shareholders were holding only 11% of the overall voting
rights of the company. Soon after the acceptance of the fraud commitment by the company in
response to the notice of EPA for the violation of federal rules of emission, the stock prices of
the company declined by 20% on the stock exchange on the very first day after the investigations
report went public and on the next day the prices of the company’s share further fell down by
12%. The stock prices kept on falling down further which made the shareholders of the company
suffer heavy losses (Leggett 2018). The Qatar which has the major holding the major stake in the
company lost near about five billion dollars as a result of scandal revelations. Also, there was a
great impact of the scandal reports on the sales of the company as it declined by 24.7% in 2015
in comparison to the sales of 2014.
There were various factors that contributed to the major scandal that was undertaken by the
Volkswagen Group. The intense competition in the market pressurized the engineers of the