Volkswagen's CSR Crisis: Ethical Failure and Corporate Governance

This essay explores Corporate Social Responsibility (CSR) with a focus on Volkswagen's unethical use of "defeat devices" to manipulate emission rates. It examines the company's CSR policies, the CEO's perspective on prioritizing employees over shareholders, and the implications of Volkswagen's actions on the environment and public trust. The essay highlights the importance of ethical standards and compliance with regulations within CSR frameworks, contrasting Volkswagen's approach with the broader expectations of corporate social responsibility. It concludes by assessing the financial and reputational damage incurred by Volkswagen and the corrective measures taken in response to the scandal, emphasizing the critical role of CSR in ensuring long-term sustainability and ethical conduct.

Running head: CORPORATE SOCIAL RESPOSIBILITY
Corporate Social Responsibility
Name of the Student:
Name of the University:
Author’s Note:

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Corporate Social Responsibility forms an important part of the overall business
strategy of the various business organizations (Epstein and Buhovac 2014, 2-78).
Furthermore, an effective management of the shareholders is another important part of the
overall business strategy of the various business organizations. It is significant to note that the
shareholders are the investors who have made an investment into the concerned business
organization and thereby take an active interest in the diverse business activities of the
concerned business organizations (Pless, Maak, and Stahl 2012, 873-903). The effective
management of the relationship with these diverse shareholders thus becomes very important
for the various business organizations. However, in the opinion of many people the various
employees of the concerned business organizations form a more important part of the
business organization than the shareholders whom the managers or the leaders of the
concerned business organization gets to meet only once or twice a year (Pless, Maak, and
Stahl 2012, 873-903). In addition to that, many people are of the opinion that the various
employees contribute more towards to the overall growth as well as the development of the
concerned business organization (Cheng, Loannou, and Serafeim 2014, 1-23). This particular
essay intends to shed light on the statement of the particular statement of the CEO of
Volkswagen “Why should I care about the shareholders, who I see once a year at the general
meeting. It is much more important that I care about the employees; I see them every day”
and the concept of corporate governance. The paper will more specifically focus on the
unethical use of the “defeat device” which the company Volkswagen used to manipulate the
emission rates of the vehicles manufactured by it.
Corporate Social Responsibility or more commonly called by the name of CSR can be
defined as the process by means of which the various business organizations “functions as a
self-regulatory mechanism whereby a business monitors and ensures its active compliance
with the spirit of the law, ethical standards and national or international norms” (Cheng,

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Loannou, and Serafeim 2014, 1-23). Thus, the various business organizations form their own
regulatory bodies by means of which they form their regulatory bodies which functions just
like a sovereign would rule their empire (Schwartz 2017, 10-51). Furthermore, these
regulatory bodies are in compliance with the various international rules as well as regulations
and thus they are used by the various business organizations for the resolution of the various
conflicts and the crisis events which the various business organizations often face (Pless,
Maak, and Stahl 2012, 873-903). In the opinion of many scholars, “corporations increase
long-term profits by operating with a CSR perspective, while critics argue that CSR distracts
from businesses' economic role” (The Globe And Mail 2018). Furthermore, the CSR is also
indicative of the social responsibility which a particular business organization has towards the
society. It is commonly seen that the various business organizations take the help of effective
corporate social responsibility to not only further the interests of their business organizations
but also to create a positive brand image for themselves. Thus, it is often seen that the various
business organizations often indulge in various creative activities to create a better brand
image for themselves. Therefore, it is often seen that the various business organizations also
try to promote the various precepts of the environmental legislations in the corporate social
responsibility programs in a bid not only to create a positive brand image for the company
concerned but also to contribute towards the cause of the environment. Thus, it can be said
that the various corporate social responsibilities followed by the diverse business
organizations are a reflection of the goals as well as the objectives set by the concerned
business organization.
The company Volkswagen, founded in the year 1937 by the “German Labour Front
under Adolf Hitler” is a German automobile company which specializes in the manufacture
of the cars and other vehicles (Volkswagenag.Com 2018). It is significant to note that the
company was adjudged the largest automobile company of the world in the year 2016 in

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terms of the sale volume (Volkswagenag.Com 2018). The literal meaning of the name of the
company is "people's car" and therefore the company intends to serve the interests of the
common people in the best possible manner (Volkswagenag.Com 2018). However, in the
recent times, the company had faced a lot of backlash due to the unethical means which it
used not only to enhance the number of vehicles sold by it but also to evade the results of the
various regulatory tests. According to a recently published article in The Telegraph (2018),
“Volkswagen has admitted that 11 million vehicles worldwide were fitted with software to
cheat emissions tests, as the scandal moved from beyond the US” (Telegraph.Co.Uk 2018).
Furthermore, in addition to this, the company “is facing fines of $18 billion after accepting it
had systematically installed software in VW and Audi diesels since 2009 to deceive
regulators who were measuring exhaust fumes” (Nytimes.Com 2018). This shocking
revelation by the company has put more than 11 million vehicles from all over the world at
risk. It is significant to note that the company used software, also called by the name of
“defeat devices”, which when implanted in the cars showed a reduced emission rate than the
actual ones that was originally being produced by the cars (Nytimes.Com 2018). This
revelation originally put 482,000 cars at risk however later on investigations proved that the
company used the same software to evade the tests for more than 11 million vehicles (BBC
News 2018). The problem surfaced last November when the company “found irregularities in
tests to measure carbon dioxide emissions levels that could affect about 800,000 cars in
Europe - including petrol vehicles” (BBC News 2018). However, later investigations
unearthed that it was the “defeat device” used by the company which was causing the
problem. Therefore, it can be said that the company in a bid to increase the amount of profit
gained by it on an yearly basis put not only the lives of millions of people from different parts
of the world at risk but also posed a significant damage to the environment by manipulating
the emission rates of the vehicles which it manufactured. Therefore, it would not be too far-

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fetched to say that this particular policy used by the company was not only unethical but also
posed a significant damage to the environment and the lives of the people concerned in the
process.
The “Environmental Protection Agency (EPA)” is the organization which is entrusted
with work of ensuring that the emissions caused by the various vehicles are kept at a
minimum level (The Guardian 2018). The official report of the “Environmental Protection
Agency (EPA)” in the nation of the United States of America states that “cars had been fitted
with sophisticated software algorithms which detect when they are undergoing official
emissions testing and turn on full emissions controls” (The Guardian 2018). It was thus
particular “defeat device” which was enabling the cars to evade the safety tests. It is
significant to note that the various nations have levied a fine of more than $18 billion on the
company in addition to the “set aside € 6.5 billion to tackle the problem which is expected to
include a huge recall so that the software can be updated” (Telegraph.Co.Uk 2018). This
particular unethical practice of the company has made millions of vehicles all over the world
illegal and also has put the lives of billions of people across the world at risk due to the
environmental risk which these vehicles are posing to the environment.
The Corporate Social Responsibility policies of the company as well as the other
strategies which the company takes help of focused more on the increasing the number of
sale of the vehicles and thereby the annual profit of the company concerned. The CEO of the
company himself said “Why should I care about the shareholders, who I see once a year at
the general meeting. It is much more important that I care about the employees; I see them
every day” (Volkswagenag.Com 2018). Thus, it can be said that the policies as well as the
strategies of the company are directed more towards the employees who form one of the core
components of the company. It is significant to note that this is in stark contrast to the
policies followed by the other business organizations which place a greater amount of value

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on the satisfaction level of the shareholders who have spent not only their capital but also
other resources in the company (Epstein and Buhovac 2014, 2-78). Therefore, it would be apt
to say that the corporate governance policy of the company under discussion places more
amount of insistence on the various employees of the company rather than on the diverse
shareholders of the company (Epstein and Buhovac 2014, 2-78). In the opinion of many
people, this was one of the major factors which contributed to the downfall of the company in
the recent times. The employees no doubt forms a very part of the organization concerned
however the company by focusing more on the employees developed the strategy which
ultimately lead to its downfall. In the opinion of many people, it is true that the primary
purpose of the various business organizations is to make money however they should take
into consideration the society as well as the planet as well of which they also are a part
(Epstein and Buhovac 2014, 2-78). Furthermore, it is significant to note that financial
sustainability is more important than the employee sustainability which the company tried to
achieve by focusing more on the employees (Kinderman 2013, 701-720). A financially
sustainable company could have withstood the backlash the company under discussion
experienced recently (Kinderman 2013, 701-720). However, as the company chose to be an
employee sustainable company by focusing more on the satisfaction of the employees thus
the company was not able to handle the backlash.
The company after the incident came to light has taken certain steps which would help
the somewhat mitigate the damage which it committed in the course of the many years. First
of all the company has decided to revoke all the vehicles which used the technology of
“defeat device” (Kinderman 2013, 701-720). Secondly, the company also has agree set aside
a huge sum of more than € 6.5 billion in a bid to handle the situation which it has created and
is also trying to change the style of governance followed by it for the management of its
business operations, which has been attributed as one of the major reasons which lead to the

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fall of the company (Telegraph.Co.Uk 2018). It is significant to note that in the year 2016 the
company was the largest automobile company in the world (Telegraph.Co.Uk 2018).
However, after the incident the company lost one third of its shares within a single week and
ended up incurring a loss of more than one billion.
To conclude, it becomes apparent that “corporate social responsibility” forms an
important part of the various business organizations. It can be said to embody the rules as
well as regulations by means of which the various business organizations govern themselves
just like a ruler would rule his or her kingdom. Furthermore, it is significant to note that the
Corporate Social Responsibility of the various business organizations takes into consideration
the various legislative as well as the ethical precepts given by the diverse governmental
bodies. Moreover, it is often seen that an effective CSR policy can help the business
organization concerned to bring about their overall growth as well as development however
an ineffective or misplaced CSR can also bring about the ruin of the company concerned.
Thus, it can be said that the concept of corporate social responsibility forms an important part
of the various business organizations and the various business organizations often take the
help of this particular concept to enhance the brand image of their business organization
which will help them to have a more wider customer base.

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