Business Ethics and Volkswagen: An Analysis of the Emission Scandal

This report provides an executive summary and detailed analysis of the Volkswagen emission scandal, focusing on the ethical breaches related to the illegal installation of defeat devices in vehicles. The study examines the negative impacts on the company's revenue, share price, managers, and customers, highlighting the importance of business ethics. It explores the ethical issues faced by Volkswagen, detailing the consequences of the scandal, including financial penalties, damage to brand reputation, and loss of customer trust. The report also analyzes the roles of key stakeholders and the effects of the scandal on each group. The conclusion emphasizes the crucial role of ethics in business success and offers recommendations for Volkswagen to regain its reputation, including setting up ethical policies, improving communication, and conducting regular audits to ensure transparency and ethical conduct. The report underscores the need for ethical frameworks in design, manufacturing, and all business operations to maintain stakeholder trust and long-term sustainability.

BUSINESS
ETHICS

EXECUTIVE SUMMARY
In this project case study of Volkswagen is discussed which is related with the illegal
installing of defeat device in the vehicles. Due to this, company has to face different barriers and
difficulties related with revenues and reputation of the company. To overcome the impact of this
emission scandal, company is given recommendation of setting up policies and procedures in an
ethical manner and regular audits. This will helps the company in performing business operations
in a transparent manner. Organisation is also recommended to maintain effective communication
at workplace so that all the work can be accomplished in a legal and organised manner.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
ANALYSIS......................................................................................................................................1
CONCLUSION................................................................................................................................4
RECOMMENDATION...................................................................................................................5
REFERENCES ...............................................................................................................................6

INTRODUCTION
Business ethics is a kind of professional ethics or applied ethics which determines ethical
morale’s and principles along with ethical problems which can arise within business
environment. It is associated with business and individual conduct. These business ethics
emerges from organisational statements, individuals and legal system (Crane and Matten, 2016).
Business ethics include all those principles and values that is governed by the morale and
behaviour within an organisation. If framework of a firm is not ethically structured, then it will
become difficult for the firm to attain moral support from the stakeholders. These stakeholders
can either be their customers, employees, suppliers or other individuals related with organisation.
In this report, ethical issues which are faced in Volkswagen are mentioned along with
understanding and analysing the impact of these issues are mentioned. An analysis is carried out
on different organisational aspects such as revenues, share-price, managers and customers to
acknowledge if ethics helped these aspects or not. In accordance with that essential
recommendations are also given that can help in sustaining strong business ethics within an
organisation.
This present report is written in context with Volkswagen and its emission scandal that
takes place in 2015. It began in September 2015, when US Environmental Protection Agency
give notice to the company related with Violation of clean air act. Company was claimed to
intentionally programming turbocharged direct injection in diesel engines so that cars and other
vehicles can pass emission tests without facing any difficulty. Company deployed defeat device
in around 11 million cars due to which this became a big scandal. On this issue, Volkswagen
give comprehensive reaction and company works intensively to clear the irregularities. In this
regard, company has carried out both external investigation and internal queries (Ferrell and
Fraedrich, 2015).
ANALYSIS
Role of ethics in success and demise of organisation
Ethics are concerned with moral judgement of a people about wrong and right. Decisions
that are taken within a firm can either be taken by a group or individual but this decision will be
influenced by the culture of respective firm. There are different benefits that can be enjoyed by
Volkswagen by following business ethics. Appropriate business ethics will benefit in attracting
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consumers towards the products of firm that will helps in boosting profits and sales. It will
benefit in enhancing employee retention due to which organisational productivity will also
increase. There are some other benefits associated with business ethics like grabbing interest of
investors, reduction in recruitment costs etc. Unethical behaviour can harm the reputation of
business and appeal in front of stakeholders will also reduce. This can impacts the profit margins
in a negative manner. In this manner, if Volkswagen will follow business ethics in desired
manner then this will helps the company in achieving their desired success whereas if company
lacks ethical code of conduct, it will impacts the working morale of employees due to which
organisational performance will reduce (Trevino and Nelson, 2016).
Ethical issue faced by Volkswagen
Volkswagen is a renowned German car manufacturer which is popular for manufacturing
luxurious cars. In order to sustain a strong presence in market, it is essential for firm to produce
commodities in accordance with the expectation of customers while following all business
regulations and policies in a desired manner. For achieving desired outcomes, Volkswagen is
required to follow business ethics in a proper way but emission scandal that took place in 2015
disfavours the organisation. It is related with illegal installation of defeating device in vehicles
so that emission tests can be passed easily (Bowie, 2017). Doing it was ethically wrong due to
which company has faced a lot of criticism and faced issues like employee turnover, reduction in
revenues and profitability etc. Software was installed in more than 11 million cars in a global
context due to which expectations of customers was shattered. This ethical issue has impacted
the revenue and brand reputation of the firm in a negative manner. For example, company has to
pay more than 26 billion euros as a penalty for installing illegal software. Due to this, customer
base of company has also reduced to a great extent.
Key stakeholders and impact on them Revenues: Volkswagen is a big company which is negatively impacted by the issue or
error done in the cars of the company. The company is a MNC due to which it is essential
for the company to follow the ethical standards and norms in order to maintain the brand
image and market position of the company in the market. However, the issue caused by
the installing of the devices for avoiding the pollution check is not an ethical practice
which has impacted the brand image of the company very bad. Due to the degraded brand
image, the customers are dissatisfied and as a result they started to ignore the cars of this
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brand. It had negatively impacted the sales and revenue of the company as the company
has to withdraw a large number of cars from the market in order to eliminate the errors
done by the business people. The company had faced heavy loss of billions of Euros due
to the withdraw of the car from the market (Weiss, 2014). The revenue of the company
depends upon the sales and profit which is reduced for the Volkswagen due to not
following the ethical practices and standards while providing the cars to the customers. If
the company has performed its designing and manufacturing process in accordance with
ethical norms, then this scandal will not have taken place. So it can be stated that
revenues play an essential role in sustaining revenues of a firm. Managers: The managers of the Volkswagen are guilty as they are involved in the scam
of installing the software for the pollution test. However, initially managers of the firm
stated that they are not involved in the scam, but everyone was aware that such action
cannot be done by the engineers only without the involvement from the higher
authorities. The managers however tried to separate themselves from the incident and
stated that appropriate actions would be taken against the guilty who has been involved in
the incident. The managers of an organisation need to perform their work and role in an
ethical manner so that the brand image can be improved along with the productivity. But
the managers of Volkswagen are following unethical practices due to which the
customers, employees and distributors all have to face the issues regarding the sold cars
having issues. Due to the slight mistake of the managers, Volkswagen has to face an
unbearable loss. The employees of the organisation also get impacted due to these cars
which leads to dissatisfaction among them regarding the company and its managers. Share-price: When the scandal broke out and notice related with violation of clean air
Act came out and became public, Volkswagen faces a steep low in its share-prices. On
Frankfurt stock exchange, company faces a low of around twenty percent. On second day
i.e. 22nd September 2015, organisation faces another fall of 12% in share-prices. After
another day, low of 10.5% was faced by Volkswagen due to which revenue dropped to
100 euros which is was lowest in last four years. Company lost around a quarter of
market-value when the cheating test was proved right. Due to this, CEO of company
faced heavy pressure in repairing the reputation of company (Hoffman, Frederick and
Schwartz, 2014). Share-price of company was closed at 132.2 euros which was very low
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as compared with past share-prices of company. Company had a loss of total 37% when
the reports of investigation and enquiries were disclosed. If the manager of company has
given proper consideration to the designing and manufacturing process along with
carrying out work in ethical manner, then share-price of company wouldn't have fallen. In
this regard, business ethics plays a vital role in sustaining the stable share-price of a firm.
 Customers: These are important stakeholders of company which get considerably
impacted due to the emission scandal. They face issues because of purchasing those
vehicles which are not manufactured in accordance with the legal requirements. Due to
which they face different issues in riding these cars. Because of this, customers feel
dissatisfied with the company and shift their preference towards vehicles which are
offered by other companies (Carroll and Buchholtz, 2014). This incident has reduced the
customer base of company in a considerable manner due to which revenues and market
shares of company reduced significantly. In this regard, company has compensated more
than 9.2 billion Euros to its customers so that their grievances can be reduced
considerably. As company was failed in satisfying the expectations of customers, they
have stopped purchasing the vehicles of company until company apologised and adopts
measures to overcome the issue that takes place because of scandals. Ethics plays an
essential role in sustaining a strong customer base, if company has performed every work
in legal and ethical manner then customers would have been more satisfied and customer
base of company wouldn't have been reduced.
CONCLUSION
From above discussed report, it can be concluded that ethics is business plays an essential
role in sustaining a positive working culture within an organisation. Those organisations which
do not follow ethical compliances have to face heavy loss of revenues along with penalties that
results in reduction of brand value in marketplace. In companies will not follow ethical norms
then this will result in reduce employee retention and engagement. This can lead to decreased
working productivity due to which market shares of company will get considerably impacted. If
a company will not follow all legal compliances then it will impact different stakeholders such as
customers, employees, suppliers and other stakeholders in a considerable manner. Ethics plays a
vital role in the success of a company. If an organisation will not follow ethical norm,s then it
can results in demise of business.
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RECOMMENDATION
After going through the above discussed case study of Volkswagen, different conclusions
can be attained that are associated with the requirement of organisation to formulate an organised
framework and ethical thinking. Also, there are some recommendation which can be given to the
management of company so that lost reputation of company can be attained in a short time
period. Some of these recommendations are stated below: Setting up policies: Volkswagen is recommended to formulate different policies by
introducing ethical framework in its designing and manufacturing processes. These
policies are required to consider each resource and procedures which are adopted by
company. Manager of the company is recommended to follow all ethical and legal
regulations formulated by government & stakeholders in a sincere manner so that all the
work can be carried out in a systematic way. Communication: Management of Volkswagen, company is recommended to build a
strong communication and interaction with its stakeholders so that ethics in work can be
managed thoroughly. Company is required to regain the trust of its workforce, clients and
other stakeholders. Formulated policies must be communicated with each and every
stakeholder of company of that culture ethics of company can be maintained. Also, duties
of workers must be communicated to them in a clear manner so that employees can
follow ethical standards in more effective manner.
 Regular Audits: Another recommendation given to company is following of Audits on a
regular basis. It is an important practice that will ensures the consistency of
organisational ethics. External audit will assure that all the limitations and shortcoming
can be removed from organisational procedures and products. This will help the company
in removing inconsistencies and other barriers in the ethical way of achieving success.
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REFERENCES
Books and Journals
Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
Ferrell, O. C. and Fraedrich, J., 2015. Business ethics: Ethical decision making & cases. Nelson
Education.
Trevino, L. K. and Nelson, K. A., 2016. Managing business ethics: Straight talk about how to do
it right. John Wiley & Sons.
Bowie, N. E., 2017. Business ethics: A Kantian perspective. Cambridge University Press.
Weiss, J. W., 2014. Business ethics: A stakeholder and issues management approach. Berrett-
Koehler Publishers.
Hoffman, W. M., Frederick, R. E. and Schwartz, M. S. Eds., 2014. Business ethics: Readings and
cases in corporate morality. John Wiley & Sons.
Carroll, A. and Buchholtz, A., 2014. Business and society: Ethics, sustainability, and stakeholder
management. Nelson Education.
Pearson, R., 2017. Business ethics as communication ethics: Public relations practice and the
idea of dialogue. In Public relations theory (pp. 111-131). Routledge.
DesJardins, J. R. and McCall, J. J., 2014. Contemporary issues in business ethics. Cengage
Learning.
Wallace, M. and Sheldon, N., 2015. Business research ethics: Participant observer perspectives.
Journal of Business Ethics. 128(2). pp.267-277.
Online
A brief history of environmentally-friendly cars. 2019. [Online] Available Through:
<https://www.hyundai.news/eu/technology/a-brief-history-of-environmentally-friendly-
cars/>
Everything You Need to Know About Volkswagen Diesel Emission Scandal. 2018. [Online]
Available through: <https://www.news18.com/news/auto/everything-you-need-to-
know-about-volkswagen-diesel-emission-scandal-1784005.html>
How Volkswagen Rallied Its Employees After Its Emissions Scandal (At Least For Now). 2018.
[Online] Available Through:
<https://www.forbes.com/sites/karstenstrauss/2017/07/26/how-volkswagen-rallied-its-
employees-after-its-emissions-scandal-at-least-for-now/#3d5d5d6d181b>
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