Volkswagen Diesel Scandal Case Study

This case study examines the Volkswagen diesel emissions scandal of 2015, focusing on the ethical dilemmas arising from the company's use of a 'cheat device' to manipulate emissions tests. It explores the scandal's background, including the pressure to become the world's largest automaker and the aggressive leadership style that fostered unethical behavior. The analysis uses various ethical frameworks, including utilitarianism, moral rights, justice, and virtue ethics, to evaluate the actions of Volkswagen. The case study also proposes solutions for the company to recover from the scandal, such as rebranding, hiring an independent testing agency, and establishing a bond to rebuild consumer trust. The conclusion emphasizes the importance of ethical conduct and the long-term consequences of prioritizing profit over reputation and ethical standards.

Advance issues in accounting
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Corporate ethics definition:
The System of laws & principles under which the corporate and business professionals must
function in a way which is beneficial to the people of the society and country as a whole. It’s
a broad topic which covers bribery, corporate governance, corporate social responsibility,
insider trading, tax avoidance, corruption, political contribution, discrimination & fiduciary
responsibilities. When ethical principles are followed trust develops between workers &
management also between public & corporation leading to more productive workplace & vice
versa.
The case study will discuss a macro ethics issue related to Volkswagen diesel scandal of
2015. This study helps us to identify the possible ethical dilemma between the greater public
need and researchers access to vehicle software code against the manufactures wish to keep
the code proprietary (Wardord,2016). This study explains the utilitarian, individualism,
virtue, justice & moral approaches to better understand the ethical dilemmas that arose in this
case study.
Volkswagen case
Volkswagen is one of the world’s leading auto maker and it always had the aim of becoming
the world largest by selling more number of cars than Toyota. The combination of imperious
leadership and lack of proper control led to a scenario which proved fertile for bad decisions.
Apart from this aim of becoming the world’s leading it also help Germany ameliorate the
aftermath of great recession of 2008 by exporting more cars. By the year 2007, when Martin
winterkorn, who became the CEO of the company, targeted U.S to take the company to new
heights. For achieving this, VW had to increase its sales of motors to thrice then its present
motor sale in U.S. Further to come to this position, the German giant had to do something
which have never happened before. It had to produce cars which are not only powerful and
superior than its competitors but also friendly to the environment. The organisation then
aimed the U.S market which had very less diesel engine cars in comparison to gas & other
engines . Martin winterkorn thought that diesel cars are more fuel efficient without any
impact on power. But the diesel cars produce more pollutants than cars which are powered on
gas (Lynch & Santos,2017). The company under the leadership of Winterkorn were very
aggressive in its approach.

The seniors bullied the lower or sub ordinates and even fired the engineers or executives who
did not obey them. The employee never had the courage to pass any bad news to Winterkorn,
as he never welcomed them. They only approached him when they had some good news
(lynch & santos,2017).
The Cheat device:
Once Winterkorn started with the company expansion plans, he approached Daimler, another
player in the market whose Blue Tec discovered a substance called urea which greatly
reduced the nitrogen oxide , one of the most toxic substance and main by-product found in
car emissions. The Volkswagen technical & research team had a tough job ahead to work
from scratch under the demanding leadership who insisted on success. The technical team
finally found their way and created a cheat device with an aim of installing them to the cars
which will be exported to U.S. The software had the function of detecting whether the vehicle
is being tested indoors ( labs) because in labs not of its wheels were used. In labs only two of
its wheels were used. At that point of time it self-activates its emissions controlling devices
while on road the same was not being replicated. So, during the test it passed the test while
on road, where the cheat device automatically turned off and the emissions levels were much
higher than allowed (lynch & santos,2017). Sometimes the levels were 35 times higher than
permitted.
This revolutionary device made researchers all over the world to think as the diesel engine
cars which were used in U.S were less pollutant than that of Europe.
Impacts of this scandal on the company
This ruined the goodwill of the company and moreover made the consumers feel cheated who
bought diesel engine by thinking that they were less pollutant. The company announced a
sum of $9.6 billion only for the claims they were receiving from its regulators and
consumers. The company lost $1.6 billion in its third quarter and operating profits in 2015
fell significantly. Its ordinary share value fell by 23% after the scandals were revealed. Lastly
there was a fall in the market value of the company which fell by 31 percent from its previous
52.75 billion euros.

The consequences can be summarised (lee,2016):
 The share price of company plunged by 1/3rd since September 2015.
 The company’s CEO resigned, Martin Winterkorn resigned taking all responsibilities
of the fall out.
 Several law suits and claims from different car owners are expected.
 The company declared an amount of 3.7 billion of provision to cover the cost of
aftermath but market analyst predicts the actual sum would be much higher than that.
 Loss of company’s reputation.
 Billions of dollars of fine & penalties & more to come from the U.S regulators.
The factors which led to this drastic situation made by the technical team of the company are:
Pressure
The was huge pressure on the staff’s from the top officials. Every employee of Volkswagen
was so obsessed with company’s code of conduct that at one point it seemed irrelevant when
management only goal was to succeed by any means.s

Prospect
There was this chance for company to become the world’s leading by producing a fuel-
efficient diesel engine car and take the maximum market share than Toyota, the Japanese
giant. This led to buying of a software which had this unique function of finding whether the
vehicle is tested indoors (labs) because at that it would turn the emission controlling software
which reduced the emission levels. Although it was sold only for testing purpose as use of
such software commercially was not legal.
Rationalization:
In 1970, the engineers came to know that Volkswagen installed “defeat devices”. The
consequences at that time were minimal, as there was a mere fine of 120,000 $. The
punishment at that time were light that they may have rationalized. This gave the belief that it
can used for the betterment of the company.
These three factors together can bring a situation when employee may begin to engage in
unethical behaviours.
Ethical analysis
The main issue in the case is whether the information about the software should be
transparent to the consumers and the researchers or remain reserves under the DMCA act.
This section shows how the case raised the issues of ethical dilemmas ( warford, 2016).
These issues are explained below:
1) Utilitarian approach: The utilitarian approach here brings the issue open code made
accessible to the owners and software researchers so that the fraud of this nature is
detected sooner. This would the mean better health of the public and environment as
the affected cars either would be modified or taken off the roads sooner reducing the
harmful emissions. Additionally, the security vulnerabilities could be identified or
patched sooner preventing the hackers taking advantage of the situation. The more
eyes on the code would reduce the number of bugs in the software, which could
reduce other safety risks due to flawed software.

2) Moral Rights: The auto maker may find that making their software code public
would restrict on their right to own intellectual property. Due to this there is code
protection under DMCA, as there is significant commercial interest at stake.
However, having right over this would enable public towards the safe products
which can be achieved by having more eyes on the code which out weights the
right to intellectual property.
3) Justice: This may not a major role over the debate of open software code but the
way Volkswagen acted was not fair as it put other diesel car manufactures which
used expensive emissions control devices at competitive disadvantage.
Additionally, it also forced the public to inhale the poor air quality while it
benefitted by deceiving the public.
4) Virtue: Although, this may not directly but the way Volkswagen in antithesis tried
to portray in its television commercials as engineers sprouting angel wings did not
act virtuously in deceiving its regulators and the public with its cheat device. This
resulted in plummeting stock prices and loss in sale due to public loss of trust in
organisation (warford,2016)
Solution: The Volkswagen group main issue is facing problem of credibility from its
consumers. Although its takes decades to establish the trust among the consumers and
stakeholders, a single instance puts back the company to its initial level from where it started
(Zhou,2016).

The three possible solutions to this scenario are:
1) Rebranding:
In the last 6 decades, Volkswagen have become one of the leading auto maker of the
world. Many believed that instances like this will be overlooked soon but Volkswagen top
management have started planning to establish the company from a nascent stage. If its
starts by renaming the company then it may re-establish the image it had because of this
scandal. The rebranding of the company will also help the company to function efficiently
and may potentially save the company. The company can choose to establish the one
which is greener and focuses on corporate social responsibilities.
2) Hiring an autonomous agency for Verification:
Hiring an autonomous agency for testing purpose of vehicle emission can bring back the
trust of customers as previously Volkswagen had its own team for the same.
3) Posting a bond:
A final solution can be a bond that acts as a credibility between the Volkswagen and the
consumer. The bond should state that, if anything like the past happens again then the
company would be liable.
Conclusion:
The above case study can be summarised that when an organisation tries to maximize its
profits by keeping its reputation at stake then it may not only lead to huge financial loss but
will also lead to a situation where it may not regain its trust back from its consumers and
stakeholders. An organisation should operate by following all the standards set aside by the
government for the betterment of the company.

References:
 Warford, E. (2016). Ethics in classroom: The Volkswagen diesel scandal. New
Orleans Publisher.
 Zhou, A.(2016). Analysis of the Volkswagen scandal possible solution for recovery.
UCSD-GPS CASE 16-12. Retrieved from
https://gps.ucsd.edu/_files/faculty/gourevitch/gourevitch_cs_zhou.pdf
 Lee, J. (2016). The Volkswagen & Turing scandals: Lessons learned. Retrieved from
http://www.accaglobal.com/in/en/student/sa/features/vw-turing.html
 Lynch, L., & Santos, C. (2016). VW emissions & the 3 factors that drive ethical
breakdown. University of Virginia: Darden Business Publishing.
 A look at the Volkswagen emissions scandal. Retrieved from
http://indiatoday.intoday.in/auto/story/a-look-at-the-volkswagen-emisions-scandal/
1/520067.html
 Mansouri, N (2016). A case study of Volkswagen unethical practice in diesel
emission test(5th vol). International Journal of Science and Engineering applications.