Volkswagen Case Study: Analyzing the Impact of the Emissions Scandal

This case study examines the Volkswagen emissions scandal, focusing on the ethical breaches and their consequences. It begins with an overview of the scandal, detailing Volkswagen's deliberate manipulation of emission tests and the subsequent repercussions. The study explores ethical considerations, the role of business in society, and the stakeholders affected, including customers, employees, dealers, and shareholders. It analyzes the importance of corporate culture in business ethics, highlighting how organizational failings contributed to the scandal. Recommendations for Volkswagen include customer compensation, brand rebranding, adherence to EPA regulations, and internal investigations. The study also analyzes the scandal through the lenses of utilitarianism and virtue ethics, discussing how these ethical theories apply to Volkswagen's actions and their outcomes. The document underscores the lasting impact of ethical choices on business reputation and profitability.

Running head: VOLKSWAGEN CASE STUDY
Volkswagen case study
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Table of Contents
Part 1. (a).........................................................................................................................................2
Introduction......................................................................................................................................2
Overview of the Volkswagen scandal.........................................................................................2
Ethical considerations..................................................................................................................2
Role of the business in the society...............................................................................................4
Key stakeholders who were affected...........................................................................................4
Importance of a corporate culture in business ethics...................................................................5
The impact of ethical choices on business...................................................................................5
Recommendations for Volkswagen.............................................................................................6
Conclusion...................................................................................................................................7
Part 1. (b).........................................................................................................................................7
Part 2................................................................................................................................................9
Factors that make an ethical leader..............................................................................................9
Ways to manage business according to ethical standards.........................................................10
References:....................................................................................................................................12

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Part 1. (a)
Introduction
Overview of the Volkswagen scandal
In the past few years, there has been a growing awareness and consciousness about the
impact of business operations on the surrounding society and more importantly, the environment.
Phenomena like commercialization, globalization and widespread industrialization have
adversely affected the environment. As a result, the onus is on the organizations and businesses
to minimize their impact on the environment. However, Volkswagen has recently been charged
with violations of the Clean Air Act, which regulates vehicular emissions of nitrogen oxides,
which is considered to be one of the most potent pollutants in the environment at present. In
September of 2015, the United States Environmental Protection Agency or EPA accused
Volkswagen of willingly cheating on their emission tests (Blackwelder et al. 2016). Volkswagen
had apparently installed emission controls in their engines, which were programmed in such a
way that they would be activated only during the emission testing in the laboratories.
Volkswagen had used this software in more than 11 million vehicles worldwide. The discovery
of this scandal led to a worldwide uproar, with Volkswagen being forced to call back more than
5 million cars (Krall and Peng 2015).
Ethical considerations
Since the 1970s, the EPA has imposed stringent policies which regulate vehicular
emissions in the case of all vehicles. This is because vehicular emissions consist of harmful

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pollutants like carbon monoxide and nitrogen oxides which detrimental to both the environment
and the people who are exposed to it. The new emission standards which had been posed on the
automobile companies proved to be a challenge for brands like Honda, Nissa, Hyundai and also
Volkswagen. In the year 2015, Volkswagen consequently deployed a diesel dupe, which would
rig the emission tests that the vehicles are subjected to. This particular software ensured that the
emission controls were activated during the tests, so that the vehicles demonstrated lower levels
of pollution that what they actually emitted (Mansouri 2015). A defeat software or device had
been embedded in the diesel engines of more than 11 million vehicles, which would change the
emission performance of the vehicle to the desired results. In other words, for quite a long time,
Volkswagen had been pretending to meet the emission standards, whereas in reality, it was
simply cheating its customers (Ragatz 2015).
More importantly, the attitude of the Volkswagen management and the public statements
made were unethical in nature (Siano et al. 2017). Following the discovery of the scandal,
Volkswagen suggested that the people involved in rigging the emission tests and had worked
independently. In short, it was suggested that the management of the company was completely
unaware of the implementation of such a software. In 2015, only 9 managers were accused of
partaking in the scandal and they were suspended. It was a classic “bad apples” case and
Volkswagen publicly stated that the unethical behavior on their part had been due to the mindset
of a few employees and their inability to comply with the rules. However, internal investigations
conducted later showed that at least 50 managers had been aware of such a practice. The
technicians involved in the process had reportedly informed the supervisors, who had chosen to
turn a blind eye. In other words, there were several people involved in the scandal, which makes
the entire company responsible for the fiasco which erupted.

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Role of the business in the society
The economy of a particular country or a state would depend on the business and trade in
that region. Every business is regulated by a certain code of ethics and morals, which determine
how the people involved in the organization should act and behave. It must also be asserted that
that since a business of any kind would use resources from the surrounding communities and
society, it is also the responsibility of the business corporation to take care of the society they are
dependent on. In other words, the society and the business that operates within in are
interdependent entities. Business ethics refer to moral principles and rules which are not legally
binding, but every company is expected to abide by it. The purpose of business ethics is to
ensure that a company is able to regulate its impact on the society.
Key stakeholders who were affected
The key stakeholders who were affected are as follows:
 Customers – The customers of Volkswagen felt cheated and deceived. Moreover, they
were forced to deal with the hassles involved in recalling the vehicles, the additional
costs and also the embarrassment that followed.
 Employees – The employees had to put up with the humiliation and investigations that
followed (Jung, Chilton and Valero 2017).
 Dealers – The company lost the goodwill of the dealers, who had to manage the hassle
involved in recalling majority of the vehicles that were sent out.
 Shareholders – The scandal also resulted in erosion of the trust of the shareholders, who
suffered equity losses which were not recoverable.

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Importance of a corporate culture in business ethics
It was estimated that the total number of individuals who were responsible for the scandal
were more than 50. In other words, at least 50 managers were aware of the practice of rigging the
emission tests. Despite the fact that the Volkswagen management denied any kind of
involvement in the matter initially, they were proven to be equally guilty with internal
investigations. Thus it can be claimed that organization culture was partly responsible for the
failure to impose business ethics. Volkswagen spokespersons commented that the mindset of the
individuals involved in the process were to blame for the failure to comply with stringent
environmental policies (Lane 2016). Corporate culture refers to the working environment, or the
culture prevailing in an organization, which has an impact on the decision making process of the
employees, along with how they address ethical factors or incorporate ethics into the decisions
(Crete 2016). Maintaining a favorable corporate culture in the workplace which incorporates
ethics as an integral part of its moral principles would ensure that each employee abides by the
code of ethics in the workplace. Corporate culture, depending on its nature, may very well be
both the source or the solution for ethical issues at an organization. Suitable management in
charge of corporate culture would set an example for the employees and impact their attitude
towards their responsibilities and duties (Rhodes 2016).
The impact of ethical choices on business
Making ethical choices would have the following impacts on Volkswagen:
 Ensuring ethical practices in the workplace would boost the morale of the employees and
even secure their loyalty. It would also lead to a strengthening of the bond with the
management.

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 Ethical choices would also affect the profitability of the company for both short and long
term goals. Volkswagen’s unethical practices resulted in calling back millions of vehicles
across the world, which resulted in significant and unrecoverable losses for the company.
 Ethical choices would also affect the overall reputation of the company. Due to one
mistake in decision making, Volkswagen’s reputation has been forever tarnished. The
reputation of a company would play an integral role in determining the investment value
of the organization (Schiermeier 2015).
Recommendations for Volkswagen
The following recommendations can be made in this case:
 The first step in this case should be to deal with the customers. Volkswagen should either
attempt to fix the vehicles and send them back or cancel the loans altogether.
 Compensations should also be provided to the customers and dealers around the world,
who were greatly affected by the scandal and suffered financial losses because of it.
 Rebranding the brand should be one of the strategies adopted by Volkswagen. For
instance, Volkswagen could undertake environmentally conscious projects which would
exhibit their inclination towards corporate social responsibility.
 Strict measures need to be implemented keeping in mind the EPA. Emissions and the
pollution caused from them are important aspects for the EPA. Thus, a new plan must be
implemented by the Volkswagen management which abides by the EPA measures.
Internal investigations must also be carried out from time to time to ensure that these
measures are in place (Zhou 2016).

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Conclusion
In conclusion, it can be said that the Volkswagen scandal was quite damaging for the
organization which had emerged as a force to be reckoned with in the automobile industry. The
most important aspect to be considered during such a scandal is the damage to reputation. The
above report identifies the stakeholders who were affected as part of the scandal, and even
provides recommendations for the same.
Part 1. (b)
The Volkswagen scandal may be analyzed from two perspectives, using ethical theories,
namely utilitarianism and virtue of ethics. According to the normative ethical theory of
utilitarianism, the concept of what is right and what is wrong would depend on the ultimate
consequence. The theory asserts that the most ethical choice or decision will be one which
produces the best results. For instance, according to this theory, an unethical act may be called
right or may be justified if it succeeds in producing the benefits or advantages for parties
concerned (Mill 2016). It is a reason based approach to determining what is right and what is
wrong. Now there are two aspects to the Volkswagen scandal. The company owes all its
stakeholders transparency in terms of policy and also environment friendly measures against the
diesel emissions which are harmful in nature. From an utilitarian point of view, the question
arises as to whether the actions of the company which are not entirely illegal, can still be
immoral or unethical and thus warrant consequences.
If the utilitarian theory is applied to the Volkswagen scandal, one would have to look at
the outcomes. In this case, the emphasis would be the good results (Lyons 2015). In other words,
the emphasis would have to be placed on the benefits rather than the negative outcomes. For

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instance, the company’s logic in this case would be this – the rigging of the emission tests meant
that the vehicles would be performing at higher rates than other vehicles. The measures imposed
by the EPA were a hindrance as far as performance was concerned. Thus, the speed and the
performance of the vehicles with rigged systems resulted in satisfied customers which would
please the employees as well. As a result, this would be considered more significant as compared
to the pain of those people who on being exposed to the vehicular emissions would suffer from
respiratory diseases (Oldenkamp, Van Zelm and Huijbregts 2016). This is all the more poignant
since no laws had technically been violated. However, the major problem with utilitarianism is
that there is no actual way to make the decision objectively. The consequences or the negative
effects on Volkswagen have not had much of an effect on its profitability either. Volkswagen
admitting its mistakes and calling back its vehicles would not have much an effect on the cash
flow and Volkswagen’s reputation.
Virtue ethics or virtue of ethics is another normative ethical theory which may be applied
in this case. This theory emphasizes on the virtues involved in character and mind. A theorist
who delves into virtue ethics would deal with the issue of ethics and the related problems. For
instance, the theory covers how these ethics are acquired in real life and how they may be
applied to a context. The virtue ethics theory differs from the theory of utilitarianism with
regards to context and mode. While utilitarianism believes that if an action has a positive impact
or a benefit associated with it which outweighs the negative consequences, then the action can be
termed as ethical or right (Hursthouse 2013). However, the theory of virtue ethics emphasizes
that the consequence of a particular action is of prime importance. A person or organization
following the virtue ethics theory would treat others in the same manner as he himself would like
to be treated (Sandler 2013). If this theory is applied to Volkswagen, then the action on part of

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the management was gravely wrong. The act of rigging the emission tests was not only morally
wrong but also had a negative consequence (Barrett et al. 2015). The company was pretending
that its vehicles abide by the measures imposed by the EPA, but in reality, it was simply cheating
its customers. Moreover, the action had an impact on the people who were exposed to the
harmful emissions of the vehicles as well, potentially resulting in respiratory diseases in the
victims (Burki 2015). Keeping this in mind, the virtue ethics theory suggests that the actions on
part of Volkswagen cannot be justified even if it proved to be beneficial for the company in
terms of benefits.
Part 2
Factors that make an ethical leader
From a personal point of view, I believe that the following factors make an ethical leader:
 Trust is one of the most important factors which contribute to ethical leadership. A leader
is expected to set an example for the rest of the organization and the other employees. In
other words, a leader is supposed to inculcate a sense of moral and ethics into the
organization culture. If the leader is able to win the trust of the employees, they would
follow his example of a moral and ethical practice. The first step to ensuring trust of the
employees is extending it. An ethical leader would not suspect his employees without
reason. Extending trust to the employees would win their favor (Yukl et al. 2013).
 Open lines of communication between the management and the employees plays a key
role in ensuring ethical choices at an organization. At Volkswagen, there was clearly a
communication gap between the management and the people who were involved in the
scandal. On the contrary, ensuring open lines of communication would make sure that

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ethical choices are made at an organization. This would mean that the employees feel
comfortable in opening up to the management and vice versa. Moreover, if there are
unethical practices implemented at an organization, employees should be able to
approach the management for help (Yidong and Xinxin 2013).
 Moral authority is another important factor. A leader should be able to exert a moral
authority amongst his subordinates. This could cultivate a culture of lasting loyalty,
which also boosts employee morale. A common vision and mission along with shared
values must be inculcated amongst the employees (Jordan et al. 2013).
 An ethical leader would stand for what he believes in. In the case of the Volkswagen
scandal, the measures put forth by the EPA had not been implemented properly because
the leaders themselves did not believe in them. It was failed leadership which had led to
such a mindset amongst the employees at Volkswagen. On the contrary, an ethical
leadership should be able to stand for what he believes in and inculcate the same amongst
the employees at his organization.
Ways to manage business according to ethical standards
In order to manage a business according to ethical standards, I believe that a manager
should be an effective leader who is able to reinforce compliance at various levels of the
organization. The following things are to be kept in mind:
 Every organization should have an effective internal communications policy. This would
ensure that a two way communication channel is maintained within the organization. It
would also encourage people to come up and speak their mind in case of unethical
choices being spotted within an organization (Demirtas and Akdogan 2015).

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 An internal investigation team must be introduced in every organization, who would be
responsible for ensuring that ethical standards are followed at every organization. The
internal investigation team would examine the operations at the organization and ensure
that ethical standards are followed.
 Ethical standards must be followed with respect to the environment. For an automobile
company, it is imperative to follow strict measures and policies which have been
prescribed by the EPA. In that case, it is the responsibility of the leader to ensure that
these policies are adhered to.
 An environment or culture of ethics and morals must be cultivated into the organization
at the grassroot levels. The management and the leadership at the organization are
responsible for that. The leaders of the organization should ensure that a moral example
is set for the subordinates to follow (Brown and Trevino 2014). The mindset of the
employees should be shaped in such a way that they are programmed to adhere to the
ethical standards of the organization. This would prevent any unethical practices at an
organization in the long run.
 In case of unethical practices, restructuring and rebranding of the organization would be
immensely helpful. It must be remembered that scandals are usually never forgotten,
especially one that involves the public interest. However, rebranding the organization so
as to portray the organization in a different light would help in winning back the favor of
the customers.

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References:
Barrett, S.R., Speth, R.L., Eastham, S.D., Dedoussi, I.C., Ashok, A., Malina, R. and Keith, D.W.,
2015. Impact of the Volkswagen emissions control defeat device on US public
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Volkswagen Scandal.
Brown, M.E. and Treviño, L.K., 2014. Do role models matter? An investigation of role modeling
as an antecedent of perceived ethical leadership. Journal of Business Ethics, 122(4), pp.587-598.
Burki, T.K., 2015. Diesel cars and health: the Volkswagen emissions scandal. The Lancet
Respiratory Medicine, 3(11), pp.838-839.
Crête, R., 2016. The Volkswagen scandal from the viewpoint of corporate governance. European
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Hursthouse, R., 2013. Normative virtue ethics. ETHICA, 645.
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Jung, K., Chilton, K. and Valero, J.N., 2017. Uncovering stakeholders in public–private relations
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Siano, A., Vollero, A., Conte, F. and Amabile, S., 2017. “More than words”: Expanding the
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