MGT0706: Volkswagen Carbon Emission Scandal Case Study Analysis

The assignment is a case study analyzing the Volkswagen carbon emission scandal of 2015. It details the use of defeat devices, highlighting ethical and corporate governance failures. The analysis covers the organization's structure, the ethical violations, including violations of legal obligations and consumer trust, and applies ethical theories like utilitarianism, deontology, and virtue theory to evaluate the company's actions. It compares Volkswagen's corporate governance to Toyota's, focusing on accountability, independence, leadership, and competence. Recommendations include restructuring the board, improving communication, and promoting whistleblowing. The study concludes with the need for a proper code of conduct and an effective internal control system to prevent such ethical issues. The assignment references several sources to support its analysis.

Volkswagen Carbon
Emission Scandal

Introduction
 The given case study has presented
a brief about the occurrence of
carbon emission scandal in
Volkswagen in the year 2015
 The case study analysis has
illustrated the ethical and corporate
governance issues that have
resulted in the occurrence of the
scandal

Description of the Organization & the Key Issues
 Volkswagen is an internationally recognized
German company that is known as ‘People’s
Car’
 It has presence in about 150 countries across
the world
 The company has achieved a distinctive
position owing to selling of unique design
passenger cars
 The brand image negatively impacted due top
use of a defeat devices for escaping carbon
emission test

Continued…
 The tests conducted by the EPA (Environment
Protection Agency) and International Council on
Clean Transportation (ICCT) identified the use of
cheat device used by the company
 The device adopted the use of computer
software for reducing the emission of nitrogen
oxide fumes at the time of conducting emission
test
 The use of such physical device by the company
is a serious ethical concern and has highlighted
its ineffective corporate givernance structure

Critical Analysis of Ethical Issues
Involved in Carbon Emission
 The company has confessed the use of defeat
device for reducing the amount of carbon emission
from its passenger cars
 The ethical issue involved within the scandal is due
to violation of legal obligations by the company
 It has cheated on the interest of the consumers as
they believed that they purchased cars with low
carbon emission and lower tax implications
 Emission of toxic gases has lead to the increase in
the heart and respiratory problems negatively
impacting the interests of the general public

Application of Relevant Ethical
Theories from Conventional and
Islamic Perspective
 Utilitarianism ethical theory states that an
action is regarded to be ethical if it results
in producing largest good for maximum
number of people
 Volkswagen actions can be regarded as
highly unethical on the basis of the theory
 The use of defeat device is intended to
negatively impact the interests of all the
stakeholders

Deontological Ethical Theory
 The theory is based on the moral philosophy
and is based on the fact whether an action
is ethically right or wrong under the rules
 Cheating is regarded as an immoral action
on the basis of their theory that Volkswagen
has alleged done by the use of defeat
device
 Volkswagen has given false impression of its
actions that they are legal and ethical but in
reality they were highly immoral

Virtue Theory
 This ethical theory is mainly based on
describing the characteristics traits for a
good human life
 The four major virtues as illustrated by
the theory are honesty, courage, justice,
fairness and self control
 Volkswagen has not met any of these
virtues due to use of its unethical actions
as all its actions are driven by maximizing
personal benefits

Efficiency of Corporate Governance
Structure of Volkswagen in
comparison to Toyota
 As per stewardship theory of corporate
governance, the business managers at
Volkswagen has not acted in responsible
manner towards its stakeholders.
 The company has acted against the long-term
interest of the shareholders by focusing on
achieving short-term gains
 This is mainly due to ineffectiveness of its
corporate governance structure that lacks the
adoption of an adequate ethical code of
conduct

Accountability
 Effectiveness of the corporate governance
structure is dependent on the
accountability of the directors towards its
various stakeholders
 The presence of a two-tier board structure
within the company has resulted in
causing complexity within its board
 There is no distinction of supervisory
board and the management

Continued….
 Toyota ensures the legality and validity
of its Board through simplifying its
corporate governance structure
 Appointment of a distinct
management committee and
appointing data and supervisory board
members for improving board
accountability

Independence
 The UK corporate governance code
ensures the presence of maximum
number of independent directors within
the Board
 There is lack of independency within the
Board of the company as the majority of
the directors are not independent
 Toyota strives to ensure fairness in its
Board structure by appointing relevant
independent members of management

Leadership & Competence
 CEO of the company adopts the use of
autocratic leadership style
 Pressure on the management for
achieving the determined goals of sales
and profitability
 Toyota, on the contrary, has adopted a
divisional organizational system
 Directors managing officers, audit and
supervisory board members work in
integration with each other

Recommendations for Improving
the Corporate Governance at
Volkswagen
 Re-Formation of board of directors: It is
essential for Volkswagen to restructure
their formation criteria of board as to
promote the independency
 It will benefit company to improve its
internal control processes
 Improved Communication: Organizational
structure and performance had been
affected a lot due to split between Board
of Director

Continued….
 There should be effective balance of
communication and relationship
between CEO and Chairman
 The culture of whistle blowing must be
promoted from bottom to top level
hierarchy in order to reduce the chance
of fraud and other risks

Conclusion
 It can be said from analysis of the
ethical and corporate governance
issues that occurred within Volkswagen
that business entities need to adopt
the use of proper code of conduct
 Presence of an effective internal control
system is necessary for prevention of
occurrence of such ethical issues

References
 Case Study: Volkswagen. (2016). How VW Lost the Public’s Trust. Retrieved September 20, 2019, from
https://www.reputationinstitute.com/sites/default/files/pdfs/How-VW-Lost-Public-Trust-2016.pdf
 Dans, E. (2015). Volkswagen and The Failure Of Corporate Social Responsibility Retrieved September 20, 2019, from
https://www.forbes.com/sites/enriquedans/2015/09/27/volkswagen-and-the-failure-of-corporate-social-responsibility/#2d403d8d4405
 Elson, C., Ferrere, C. & Goossen, N. (2015). The Bug At Volkswagen: Lessons in Co-Determination, Ownership, and Board Structure.
Journal of Applied Corporate Finance, 27(4), pp.36-40.
 Emissions Scandal. (2016). Environmental impact of the VW emissions scandal. Retrieved September 20, 2019, from
https://www.vwemissionsaction.com/news/environmental-impact-of-the-vw-emissions-scandal
 Epstein, R. (2017). The Role of Defeat Devices in Environmental Protection: Beyond The VW Scandal. Retrieved September 20, 2019,
from
https://www.forbes.com/sites/richardepstein/2017/09/27/the-role-of-defeat-devices-in-environmental-protection-beyond-the-vw-scandal
/#4bfe47b052c1
 Georgeevski, B. (2016). The Effect of the Volkswagen Scandal (A Comparative Case Study). Research Journal of Finance and
Accounting 7(2), pp. 54-56.
 Goza, R. (2013). The Ethics of Record Destruction. Journal of Management Policy and Practice 14 (6), p.107-115.
 Judge, B. (2015). Toxic governance: an overview of the Volkswagen saga Australian Institute of Company Directors. Retrieved 19
September, 2019, from
http://www.companydirectors.com.au/Help/Page-Not-Found?item=director-resource-centre%2fgovernance-leadership-centre%2fpractic
e-of-governance%2ftoxic-governance-an-overview-of-the-volkswagen-saga&user=extranet%5cAnonymous&site=homesite&url=%252f
director-resource-centre%252fgovernance-leadership-centre%252fpractice-of-governance%252ftoxic-governance-an-overview-of-the-v
olkswagen-saga
 Mansouri, N. (2012). A Case Study of Volkswagen Unethical Practice in Diesel Emission Test. International Journal of Science and
Engineering Applications 5(4), pp. 211-216.
 McDonald, G. (2010). Ethical relativism vs absolutism: research implications. European Business Review 22(4), pp.446-464.
 Toyota Industries Corporation. (2019). Corporate Governance. Retrieved 19 September, 2019, from
https://www.toyota-industries.com/csr/management/governance/
 Volkswagen Group raises its environmental targets. (2019). Retrieved September 20, 2019, from
https://www.volkswagenag.com/en/news/2017/09/volkswagen_gec_2017.html
 Zhang, B., Veijalainen, J. & Kotkov, D. (2016). Volkswagen Emission Crisis – Managing Stakeholder Relations. Web Information Systems
and Technologies, 1, pp.176-187.



