Volkswagen Gas Emission Scandal: Lessons for Corporate Governance

This article discusses the Volkswagen gas emission scandal and its impact on corporate governance. It covers the key actors involved, circumstances leading up to the crisis, and the organization's response. The article emphasizes the importance of effective corporate governance and the role of gatekeepers and whistleblowers.

VOLKSWAGEN GAS EMISSION SCANDAL
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VOLKSWAGEN GAS EMISSION SCANDAL
Introduction
Cooperate governance could simply be described as the system of rules procedure and practices
that direct and control a firm’s daily activities essentially for catering the interest of the firm's
stakeholders which mainly constitutes consumers, the community the government as well as the
firm’s shareholders. It basically illustrates how crucial an effective cooperate governance is to
the success of a firm’s growth and development, it should constitute some of the governing
concepts that contribute to a good corporate governance such as integrity and accountability in
the long run1. Volkswagen(VW) is a German automaker founded in 1937 the German Labor
Front under Adolf Hitler and headquartered in Wolfsburg. It’s among the oldest and operational
automaker firms that has its operations worldwide. Being the largest car produce in Europe, it
has spear headed Germany to be the world’s leading automobile and commercial vehicles
produce. However, V.W has long been characterized by hybrid family leadership and poor
corporate governance structure. This type of leadership and governance in the firm has long been
a breeding ground for scandal, this came to light when it was involved in a gas emission scandal.
A profile of the organization at the time that the crisis occurred
. In 2015 the automaker was caught in a gas emission scandal where it installed complex
software in the cars that assisted the firm in cheating the American Air pollution test, this
software so was good that it was able to sense Air pollution tests and it would adjust the numbers
according to the required international and American standards2. The scandal also revealed that
VW has been using the software known as defeat devices since 2008 which indicated the
contribution of the profits earned in that period. The scandal affected the firm’s revenue in 2015
1 Ayuso,, et al. "Maximizing stakeholders’ interests 414-439.
2 John "Volkswagen's Emissions Scandal 32.

Volkswagen gas emission scandal 3
where it met its first loss in 15 years that attributed to 18 billion dollars3. Part of the losses was
incurred heavily due to the money set aside for covering expenses and settlement when solving
the scandal4. This lead to the then CEO Martin Winterkorn to resign and be replaced by Matthias
Mueller who has so far been putting the company back on track and slowly gaining its
reputation.
The circumstances and contributing factors leading up to the case crisis
In 2006 the performance of VW in the American market was embarrassing in comparison with
Toyota which has been it biggest rival for decades5. They had to enter the market by introducing
the new diesel mortar cars that have been doing well in other international markets and would
compete with Toyota’s hybrid vehicles. However, there was one problem, the cars did not meet
the strict requirements of American emission standards. Stuart Johnson, head of VW’s
Engineering and Environmental Office was the then anonymous whistleblower who was present
in an executive meeting at VW headquarters in Wolfsburg in mid-2006 stated that an agreement
was made to install the illegal software that would detect emission test and crank up control to
show standardized results with the help of Robert Bosch who owned a German automaker firm6,
he was to provide the necessary engine accessories secretly7. In 2013 a team from west Virginia
whao were the first gatekeepers, conducted a test on whether diesel car produces more emission
during normal driving than in test. They discovered that two VW diesel cars emitted far more
than expected. The California Air Resources Board who were the second gatekeepers opened an
inquiry after the publication of the study by west Virginia. Other gate keepers such as the
International Council for Clean Transportation (ICCT) joined the inquiry where VW executives
3 Cremer and Edward. "Volkswagen Takes $18 Billion Hit over Emissions Scandal." .
4 Minter, "VW scandal lowers Germany’s brand value by $191 billion."
5 Law and Christopher. Restructuring the global automobile industry.
6 Walters. "VW emissions scandal could snare other firms, Whistleblower claims." 108
7 Nelson, and Josephine . "The Criminal Bug: Volkswagen's Middle Management." 35

Volkswagen gas emission scandal 4
and engineers tried to cover up the scandal by feeding the authorities with false and misleading
data but they later admitted in their plea agreement. The emission scandal was not a surprise to
many experts who criticized the cooperate governance and the governing culture of VW for long.
According to Charles M. Elson , professor of finance described the VW governance, as a
breeding ground for scandal. The emissions scandal was not a surprise to him at all, it was an
incident waiting to happen. Since the establishment of the firm the cooperate governance and
that governing structure has been awful. It had long been characterized by hybrid family control
dictatorship and even labor influence even. Although it’s among the oldest and largest profit
earning firm in Germany. Markus Roth, an expert in European corporate governance describe
VW corporate governance as a soap opera since the beginning rating it to be even worse by
German standards
The key actors involved in the case crisis and their culpability
Although VW finally admitted to the scandal after vigorous investigation it led to the implication
of nine managers and a few engineers who were suspended which lead to the then CEO Martin
Winterkorn to resign further investigations Martin Winterkorn received a report on the incident
which would have caused no more than 30 million dollars to fix but scooped it under the hood a
further depiction of abuse of the whistleblowers and gatekeepers who discovered the incident.
another key participant was Robert Bosch, a German auto supplier knowingly participated in the
evading us emission laws according to lawyers of U.S citizens were owners of the diesel
environment polluting vehicles8. However, in the long run, the scandal as most experts agree was
caused by poor cooperate governance and governing structure did not allow a conducive
environment gatekeepers and whistleblowers concepts to take charge.
8 Connor, The German Auto-Emissions Scandal 78

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The organization’s response to the crisis
As usual VW responded the crisis by deeming the scandal terming it as preposterous accusations.
however, after vigorous investigations by the authorities as well as cooperation, the firm later
admitted guilt citing it will cooperate fully with the authorities as well as conduct its internal
investigations. Moreover, there was additional pressure from the investors and stakeholders who
complained on the management and governing structure of the frim citing it to be poor. The
stake holders also demanded compliance with the authorities which saw the then CEO Martin
Winterkorn to resign as, moreover 10 senior executives and a several engineers were suspended
and indicted. VW set aside money for settlements and fines which made it incur huge losses. It
recalled all the cars affected and fixed them according to the required standards. Moreover, the
new CEO seems to be building the reputation of the firm aggressively by incorporating new
strategies that would prevent other scenarios especially since it was an internal issue. The
‘TOGETHER- 2025 strategy’ which aims the firm to be eco-friendly through the productions of
the provision of electric and hybrid cars by 2020 and 30 electric cars by 2025 which would later
lead to a full-scale production in the future9. Although the strategy seems to be working a few
touches need to be done on the cooperate governance and governance structure which has long
been characterized by hybrid family control dictatorship and even labor influence even.
Conclusion
9 Volkswagen, A. G. "„TOGETHER‐Strategies 2025”, .

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In conclusion, what firms can learn from the VW scandal is the importance of an effective
Cooperate governance which translates to a good governing structure. This means a good
Corporate governing structure should entail governing concepts such as integrity, honesty, and
accountability which seriously lacked at VW. Moreover, gatekeepers and whistleblowers are the
key to a good corporate governance, they can be third parties or internal staff member who value
the interest of the firms as well as the stake holders. The gatekeepers perform audits and check
whether there is and imbalance disruption from the normal activities. They further protect the
firm reputation and brand by ensuring compliance with local and international regulations10.
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10 John Volkswagen's Emissions Scandal: Lessons for Corporate Governance

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