Volkswagen Gas Emission Scandal: Lessons for Corporate Governance

VOLKSWAGEN GAS EMISSION SCANDAL
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Volkswagen gas emission scandal 2
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