University Report: BMGT3001 Case Study on VW Emission Scandal

This report examines the Volkswagen (VW) emission scandal, a significant case study in governance and business ethics. It begins with an introduction outlining the impact of unethical actions in the automobile industry, followed by a historical overview of VW. The core of the report is a detailed discussion of the scandal, including the use of "defeat devices" to cheat emissions tests and the resulting global repercussions. The argument section highlights the ethical violations and the company's deliberate actions. The report then explores ethical decision-making approaches, specifically utilitarianism and deontology, to analyze the ethical dimensions of the scandal. The conclusion emphasizes the importance of ethical leadership, corporate social responsibility, and the need for companies to prioritize ethical conduct. The report also underscores the environmental impact of the scandal and the importance of implementing plans for global cleanliness. Finally, it stresses the need to reduce the software dependency for better ethical practices.

Running Head: GOVERNANCE AND ETHICS
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Governance and Ethics
Case Study: The Volkswagen Emission Scandal
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Contents
Introduction................................................................................................................................2
History of the Organization........................................................................................................2
Case Discussion.........................................................................................................................3
Argument....................................................................................................................................4
Ethical Decision Making Approaches and Theories..................................................................5
Conclusion..................................................................................................................................6
References..................................................................................................................................7

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Introduction
In automobile industry’s business, any unethical action taken that leads to issues like
emission scandal have a great impact on the company’s reputation in the market. It is not
essential for leaders to always be right while making decisions where the company might
move towards corporate misbehaviour that is not acceptable. Under this, the perspectives
need to be considered are the markets and finance or the CSR (corporate social responsibility)
and business sustainability along with business leadership as well (Bansal, et al., 2018). The
issue covered is the company performing unethical practice while giving test of diesel
emission. This impacted highly on the economic system of Germany and Europe. It was
important is achieving profit within a short-time period that is disastrous along with looking
at business damaging the environment (Jung & “Alison” Park, 2016). In this report,
discussion is based on the case study of “Volkswagen (VW) Emission Scandal” with the
purpose of identifying and separating the factors related to organisational behaviour. It is
because of these factors that are responsible for having an adverse effect. The report also
provides an explanation of problems along with analysing the response of the company. It
provides strong recommendations for future by helping leaders to learn and apply them in the
business.
History of the Organization
In automobile industry, Volkswagen (VW) is a major manufacturer with its origin in the
Germany for the mass-production of “people’s car” at low-price. There was a fast expansion
in production of VW where the sales across the globe were strong for exporting in most of
the countries. There was trouble for the company concerning finances that bought change in
corporate philosophy to develop sportier and more contemporary car models. This
development of the company while establishing new designs and models made VW the best-
selling across the globe (Wilson, 2010). In the past, the joint ownership of West German
government with VW made the company denationalized due to the stock sales of 60 per cent
to the public. The company started to produce commercial vehicles and vans along with
passenger cars owing various other automotive companies. However, VW faced the issue of
public relations crisis where EPA (environmental protection agency) of the US (United
States) determined the manufacturing of cars that are diesel-powered containing software
altering the performance of vehicle for passing the emissions tests. In the world, the company

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accepted to install the “defeat device” along with recalling more than 10 million automobiles.
Also, VW faced almost $4 billion fines alone in the US and later, various officials of the
company were found guilty due to several crimes (VW Group, 2020). But, even after this
scandal, VW sales kept on increasing continuously universally.
Case Discussion
Across the globe, VW is the biggest company selling its manufacture in over 153 countries.
In 2015, the company indulges in the great emissions scandal where VW was uncovered by
the US officials while using software for cheating in emissions testing in models. In the US,
software terms as “defeat devices” were used for altering outcomes artificially at the time of
strict emissions testing. It was designed after knowing the testing of car is going to be done
where there will be engine switch in different mode that goes by lowering car emissions
essentially (Hotten, 2015). As, the issue taken place due to these VW engines are emitting
nitrogen oxide pollutants more than 40 times that is over than permitted in the US legally.
Not only in the US but this case was uncovered across Europe and the UK (United Kingdom)
as well that VW used illegal software along with accepting about the same in above 11
million cars in which 8.5 million was in Europe. Thus, it was the VW first quarterly loss
announced due to emissions scandal in 15 years. Further, the company breached the
consumer laws of EU where the company agreed to pay to its regulators and customers with
Euro 11.8 billion as the scandal’s compensation (OSV, 2017). Also, sued by Australia along
with facing criminal charges in the US showing the company’s declining in future.
VW emission scandal was founded by the EPA showing change in performance of the cars
for better results. The company went through a whole marketing campaign at large base
broadcasting its lower cars emissions. EPA accused VW for modifying software fitted on the
3 litre diesel engines where the company denied claims affecting 10,000 vehicles
approximately. Later, it was found that there are irregularities in tests by VW while
measuring levels of carbon dioxide emissions affecting almost 800,000 cars in Europe
consisting petrol vehicles as well. Further, based on the investigations, it was concluded that
only 36,000 cars were affected produced every year (Mansouri, 2016). Moreover, this ‘defeat
device’ works as computer software installed in engines sensing test scenarios by monitoring
air pressure, speed, steering wheel position and engine operation. This device is installed in
safety mode of engines running below performance and normal power under controlled
laboratory conditions operations involving stationary test rig as putted typically. Sometimes,

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engines switched out on the road of this test mode (DeMers, 2018). The company broke the
trust of their customers and public with legal action by shareholders and owners also having
the financial impact. VW’s emissions testing legitimacy was questioned by regulators,
politicians and environmental groups across the globe. Due to this, the shares of carmaker
have fallen after the breaking of scandal by about a third.
Argument
The company’s management command chain gave the approval of fitting cheating devices in
the VW’s engines where departures are similar further. In long-term, it will take a planned
structural changes not even relating to current events. As in 2014, the concern was raised by
regulators in the US related to emissions levels of VW but were dismissed due to unexpected
and technical issues based on the conditions of real-world that might led to the issue of
survival difficulty (Atiyeh, 2019). In this case, the argument is based on ethical issue
concerned with the company affecting environment at the global scale. The company violates
the ethical conduct by not following it while making decisions. This case is unethical of VW
both in terms of consequences produced and wrong way of making things done. This, this
concludes the argument by cheating in a big company along with violating laws and making
deliberate action of doing it unethically in this emission scandal while using defeat device as
a software.
VW accepted about federal emissions laws violations where it was not an issue of safety or
any state. But, the legal action was taken against the company along with thousands of
consumers in Germany looking for compensation from the VW over its emissions test
cheating. This case was brought by the behalf of consumers from “Federation of German
Consumer Organisations (VZBV)” as a German legal instrument’s new form likely to the
actions or orders related to group litigation of the US and UK. Further, there are over 630,000
employees under VW across the globe accepted to manipulate 11 million vehicles in case of
fooling emissions tests (Jolly, 2019). This scandal was based on the company’s decision to
move more quickly towards repairing the reputation through electric vehicles. But, there was
no idea of VW reaching at failure that made the company to work on excessively to prove
their case. For the company, settlement is hard to imagine and difficult but still possible
where VW paid for damages to get reduced by depreciation along with sufficient
responsibility based on the actions taken considering the scandal (Miller, 2019).

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In this scandal, environment was getting harmed through nitrogen dioxide (NOx) emissions
damaging industry, power stations, agriculture and vehicles. The techniques were used of
“Clean diesel” cutting off emissions from engines by adjusting exhaust flows and air-fuel
ratios along with injecting the solution that is urea-based rendering NOx harmless. This
requires VW to run normally with better performance among controlling operations in a right
way. Due to this, health was getting affected through fumes causing airways inflammation
and worsens individual’s breathing. Also, there can be serious cause of respiratory conditions
and aggravate heart problems. It can result in death as well due to exposure to pollution for
long-term (Topham, et al., 2015). In the US, there were huge penalties on VW due to this
emissions scandal and not in Europe but the automaker of Germany faced the issue. The
company paid $25 billion for “Dieselgate” along with TDI (Turbocharged Direct Injection)
technology to get free from this scandal and revive the VW’s reputation again. As, the cars
get more pollutive progressively in cooler or hotter conditions (Parloff, 2018).
Ethical Decision Making Approaches and Theories
This case of “VW Emissions Scandal” is a clear violation of ethical conduct that requires to
be followed by the company. Due to this, different approaches are used to find about the
decision as ethical or not. In terms of ethics, two theories are used in this case that is
Utilitarianism and Deontology. Deontology is judging the action being right or wrong
depending on the code of moral where consequences are not taken into consideration. As, to
follow proper behaviour rules defines right thing along with fairness and equality promotion
(Guzman, 2016). However, Utilitarianism takes action into consideration looking at the most
positive outcome. It is well used while generating accuracy at the time of addressing
complicated situations showing solutions are not as insignificant, also it is not justice-
oriented which is its downfall (Canellopoulou-Bottis, 2018). Thus, it is clear that ethics
depend on a moral structure and decisions are based on believing in the best and right
necessarily. The theory of utilitarian promotes actions maximising well-being and happiness
of an individual and suggests judging actions based on consequences being right or wrong.
However, theory of deontology in ethics suggests action’s morality being it right or wrong
based on rule where action are important than the consequences.
In this case of VW emission scandal, the consequence was environment pollution and it was
wrong due to the purpose of cheating as per the utilitarian theory. In fact, it was wrong while
resulting in losing money of huge amount where even the CEO resigned and VW lost its

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image. Furthermore, in case of deontology theory, this case shows to be unethical due to
cheating on purpose and was against the law resulting in environment pollution and its
concerns (Reuters, 2019). Also, VW try to hide it from the authorities that are against the
laws and defines to be unethical.
Conclusion
To conclude, this scandal shows the changing environment in business rapidly where it also
shows the importance of ethical leadership and CSR as an essential component. Though, VW
being one of the firms needs to realise ethical duty towards the society. In the environment, it
is essential to not to affect by using defeat device as such of a software. It is not important to
use a short-cut approach to build an effective image for succeeding in long-term. In the
company, positive result is achieved through taking a decision in a right way producing right
thing to utilise for competing. It was essential to understand the issue of not cheating in such
a big firm. In whole of the case study, unethical way is not accepted where VW violated the
laws and chosen this way deliberately along with which the company faced many issues
concerning the trust of consumers and the environment. The world is painted is a polluted
way where companies are attempting such fraud kind of plans that requires to get stopped. It
is essential to implement a plan where there is cleanliness across the globe. Lastly, it is
important to reduce the software dependency that is based on technology for better outcomes
in future.

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References
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about-the-vw-diesel-emissions-scandal/
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