Volkswagen Emission Scandal: Impact on Strategy and Governance

This report provides a comprehensive analysis of the Volkswagen emission scandal, detailing the unethical business practices employed by the company to circumvent environmental regulations. It examines the factors that led to the scandal, including the desire to reduce product costs and maintain a competitive edge. The report explores the significant impacts of the scandal on Volkswagen's business performance, including reduced stock prices, reputational damage, and changes in consumer behavior. It also evaluates the long- and short-term implications of the case, such as executive resignations, financial penalties, and increased scrutiny from regulatory bodies. Furthermore, the report analyzes the implications of the scandal on Volkswagen's strategy and governance, highlighting the importance of ethical decision-making and robust risk management. It concludes by offering recommendations for improving environmental law enforcement and mitigating future risks associated with unethical business practices and provides insights into the restructuring of environmental law for producing effective measures in order to manage similar cases in the near future.

Running head: VOLKSWAGEN EMISSION SCANDAL
Volkswagen Emission Scandal
Name of the Student
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Author Note

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The paper is focused on the description of the unethical business practices conducted
by one of the renowned organization operating in the automotive industry in the form of
Volkswagen. The paper analyses the Volkswagen emissions scandal and the impact of the
case on the business performances of the mentioned organization. Apart from that, the paper
also provides significant information regarding the impact of the case on the reputation of the
selected organization with a precise focus on the preferences of the customers of the
organization. In addition to this, the paper evaluates the implications of the case on the
strategy and governance of the mentioned organization and provides crucial
recommendations in the aspect of risk management. Apart from this, the paper provides
important inputs regarding the restructuring of environmental law for producing effective
measures in order to manage the cases in the near future.
Factors responsible for cheating:
In the month of September of 2015, the selected organization faced a notice from the
part of the United States Environmental Protection Agency for intentionally violating the
environmental legislation. With the introduction of the Clean Air Act, the United States
Environmental Protection Agency made sure that all the organizations operating in the
region, are effectively aligning their business operations in accordance to the environmental
guidelines (Fortune.com, 2019). The agency was able to put a strong emphasis on the
effective management of emission of the products of the automotive organizations and that
enforced the selected organization in conducting the emission testing for the identification of
the NOx values of the products that the organizations operating in the region were
introducing. In order to manage the design of the products for efficient control of the
emission rates, specifically the NOx rates of the products, the organizations had to face a
design change along with the application of the necessary control methods (di Rattalma,
2017). The restructuring in the design of the products had the possibility of increasing the

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costing of the products for the companies, and that was the main triggering factor for the
mentioned company in conducting the unethical business practice from the part of the
mentioned organization.
Results of the cheating and the impact:
The impact of the event was pretty significant for the mentioned company and their
performances across the globe. The unethical business practice from the part of the
mentioned organization affected the purchase intention of the buyers in a significant manner
as the customer community of the mentioned organization was observed to be concerned
regarding the impact of the emission on their health and the surrounding environment. With a
precise focus on the market of the selected organization, the immediate impact of the case
reduced the stock prices of the mentioned organization and also forced the organization to
undergo several emission related tests in the nations in which it operates
(Cleanenergywire.org, 2019). In addition to this, the criminal charges on the mentioned
company as a result of the case was one of the prime reason of the reputational damage that
the organization had to face and that affected the purchase behaviours of their loyal
customers as well.
Long and Short term implications of the case:
As a result of the case, a series of sacking and suspensions took place inside the
organization which included the head of brand development, Heinz-Jakob Neusser, Audi
research and development head, Ulrich Hackenberg and Porsche research and development
head, Wolfgang Hatz. In addition to this, CEO Martin Winterkorn resigned from his position
as a result of the case (Just-auto.com, 2019). Apart from this, the significant fall in the stock
prices of the company along with the plans of US$18.32 billion for the necessary adjustments

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in the faulty products of the mentioned organization was one of the major short term
consequences that the selected organization had to face (Independent.co.uk, 2019).
In addition to this, the order of the Federal Judge of the nation regarding the penalty
of US$2.8 billion for the intentional rigging of the diesel-powered vehicles in order to
unethically avoid the government emission tests was one of the prime bad remarks that the
organization was able to achieve as a result of the case (Phys.org, 2019). The impact of the
criminal charges was pretty significant for the organization as that not only affected the
organization in terms of the monetary value but also decreased the authenticity of their
business operations across the globe. In addition to this, the products of the mentioned
organization were observed to face a considerable number of strict emission control tests for
a longer period of time in each of the nations in which, it operated.
Implications of the case on strategy and governance:
The case has great significance for the chosen organization as it enables the future
managers of the organization to attain the idea of the impact of unethical business practices.
The case educates the managers regarding the importance of the ethics in the individual and
the collective business performances and the case of the seven-year prison sentence of the
former engineer of Volkswagen, Oliver Schmidt provides a significant lesson to the
employees of the organization (Theguardian.com, 2019). With the idea of the consequences
of the case, the management of the mentioned organization will make sure that they
formulate their strategies in an ethical manner and competes with the other organizations in
the right spirits.
The governance of the organization is expected to be aware of the impact of
greenwashing and the whitewashing lies. As the intentional artificial reduction in the
pollution of the products of the mentioned organization was able to create a significant

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amount of dissatisfaction and concern amongst the customers of the organization, the CSR
whitewashing and the impact of the greenwashing was pretty prominent (di Rattalma, 2017).
Hence the case will provide a lesson to the organization for making sure that mode of
governance effectively avoids these sorts of reputational crisis.
Risk Management:
The mentioned case is of great significance in providing a quality lesson in the
effective management of the reputation of the organization. One of the major resources of
modern organizations is the reputation or brand awareness. Companies like Volkswagen is
able to spread their business owing to their excellence in brand management. However, the
case was one of most significant threat for the mentioned organization in managing their
reputation in an effective manner so that they be able to place themselves in front of their
customers in an attractive manner. The case provides the perfect lesson to the organization in
managing their brand and along with that, it also enables the organization to be aware of the
techniques for the effective management of the financial risk that is associated with the
reputational damage that the mentioned organization was facing (Lexology.com, 2019). The
initiation of effective integrated marketing communication from the part of the mentioned
organization will be crucial for the organization in the effective management of the
reputational crisis (Tarsa, 2017).
Modifications:
Apart from laboratory testing, the concerned authority responsible for conducting the
environmental tests and for the design of the business and environmental law, is in need to
make sure that they be able to test the emission of the vehicles in the real time scenarios so
that they achieve the idea of the actual pollution (Fung & Suen, 2014) and along with, they
are required to make sure that they impose significant fines for the organizations conducting

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such significant unethical business practices (Fung & Suen, 2014). In addition to this, the
legal authorities need to make sure that the legislation have the provisions for stopping the
business operations of such organizations as well.

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References:
Cleanenergywire.org (2019). "Dieselgate" - a timeline of Germany's car emissions fraud
scandal. [Online]. Available at:
https://www.cleanenergywire.org/factsheets/dieselgate-timeline-germanys-car-
emissions-fraud-scandal
di Rattalma, M. F. (Ed.). (2017). The Dieselgate: A Legal Perspective. Springer.
Drivespark.com (2019). Study Reveals New Diesel Cars Are Better For Environment.
[Online]. Available at: https://www.drivespark.com/four-wheelers/2017/new-diesel-
cars-better-for-environment-study-023044.html
Fortune.com (2019). How VW Paid $25 Billion for 'Dieselgate' — and Got Off Easy.
[Online]. Available at: http://fortune.com/2018/02/06/volkswagen-vw-emissions-
scandal-penalties/
Fung, F., & Suen, B. (2014). Improving Hong Kong's Emission Inspection Programme for
On-road Diesel Commercial Vehicles. Civic Exchange.
Independent.co.uk (2019). Volkswagen emissions scandal [Online]. Available at:
https://www.independent.co.uk/topic/volkswagen-emissions-scandal?CMP=ILC-
refresh
Just-auto.com (2019). Former VW CEO charged with four others over 'dieselgate'. [Online].
Available at: https://www.just-auto.com/hot-issues/volkswagens-emissions-
crisis_id548.aspx
Lexology.com (2019). Emissions testing: fraud and the dangers of cartels. [Online].
Available at: https://www.lexology.com/library/detail.aspx?g=28597a08-b695-4adf-
9349-aecf9599a054

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Phys.org (2019). VW hid 'devastating' result from diesel exhaust tests on monkeys. [Online].
Available at: https://phys.org/news/2018-01-vw-hid-devastating-result-diesel.html
Tarsa, K. (2017). Won't Get Fooled again: Why VW's Emissions Deception Is Illegal in
Europe and How to Improve the EU's Auto Regulatory System. BC Int'l & Comp. L.
Rev., 40, 315.
Theguardian.com (2019). Oliver Schmidt jailed for seven years for Volkswagen emissions
scam. [Online]. Available at:
https://www.theguardian.com/business/2017/dec/06/oliver-schmidt-jailed-
volkswagen-emissions-scam-seven-years

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Bibliography:
Dailymail.co.uk (2019). The deadly diesel deception: We were bullied into buying diesel car.
[Online]. Available at: https://www.dailymail.co.uk/debate/article-2617425/The-
deadly-diesel-deception-We-bullied-buying-diesel-cars-help-fight-global-warming-
Now-experts-say-green-fuel-killing-thousands-us.html