Ethics Report: Volkswagen Emission Scandal, Ethical Decision Making

This report critically examines the ethical dimensions of the Volkswagen emission scandal, focusing on the actions of Volkswagen and its impact on stakeholders. It begins by defining ethics and its role in business, specifically corporate ethics. The report then outlines the details of the scandal, where Volkswagen was accused of using 'defeat devices' to cheat emission tests in its vehicles, leading to financial losses for consumers and legal repercussions. It explores various ethical decision-making approaches and theories, including consequentialist (utilitarianism, common good) and non-consequentialist (deontological, rights, fairness, divine command) theories, and agent-centered theories like virtue ethics. The report applies these theories to the Volkswagen case, highlighting the applicability of deontological and common good approaches. It emphasizes the importance of the issue, discussing the consequences of implementing and not implementing ethical theories, and concludes with a summary of the key findings, including the need for Volkswagen to compensate consumers and adopt ethical practices. The report uses various sources to support its claims.

Running head: Ethics
Ethics

Ethics 1
Executive Summary
Ethics can be defined as a branch of philosophy which comprises of organized and suggesting
concepts which define the right and wrong acts of the individuals. The word ethics is derived
from Greek terms ethikos and ethos which means habit or customs. Ethics attempt to solve the
doubts relating to moral values through the explanation of concepts such as good and bad,
virtues, right and wrong and justice and crime.
In the commercial context, ethical issues arise as result of interaction of the organization with its
personnel. So, ethical issues are the problems or conditions which require an individual to select
between the various options that must be examined as right and wrong or ethical and unethical.
So, in this report, the various ethical issues related to the Volkswagen emission scandal will be
evaluated and it will be resolved in the light of various ethical decision making theories and
approaches. The importance of the issue would also be stated along with analyzing the results of
the implementation and non-implementation of the ethical decision making model.

Ethics 2
Contents
Introduction.................................................................................................................................................3
Discussion of the case.................................................................................................................................3
Ethical Decision Making Approaches & Theories.......................................................................................5
Ethical decision making approaches applicable to the issue........................................................................6
The importance of the issue and consequences of the implementation and non-implementation of the
ethical theories.............................................................................................................................................7
Conclusion...................................................................................................................................................8
References...................................................................................................................................................9

Ethics 3
Introduction
Ethics play a crucial role in the business. Corporate ethics is a branch of ethics which describes
the ethical principles to be applied in ethical problems that emerge in the routine life of business.
It is applicable to all the aspects of business and can be implemented upon the behavior of
individuals and the whole organization (Sroka and Lőrinczy, 2015).
Ethics emerge from the interaction amongst the individuals, organizational and legal systems.
Theses ethical and unethical practices, norms and values guide the business. They assist the
business to maintain a better relation with the stakeholders. Business ethics comprise of
organizational standards, a framework of norms and values and principles which guide the
actions and behaviors of the individuals in the organization. It has two aspects namely
descriptive business ethics and normative business ethics (Trang, 2015).
The Volkswagen Group has wished a ‘tough luck to the drivers of Australia’ as its emission
regulating software has not complied by the Australian Law (Farnsworth and Armitage, 2018).
According to Volkswagen (2018) the company was formulated in 1957 in Australia by the
name of Volkswagen Australia Ltd. Its parent company was originated in Germany by the name
of Volkswagen AG. It was sold to Nissan in the year 1976. Its headquarters are located at
Wolfsburg, Germany.
Discussion of the case
It was alleged in the year 2015 that Volkswagen and its sister concerns Skoda and Audi are
involved in deceptive and dishonest behavior in Australia. It was revealed that the cars which
were sold in the US were fixed with software designed to avoid emissions. As a result the
company had to recompense its consumers in US and Canada but in Australia it refused to
respond to the case (SBS News, n.d.).
It has been three years since it was discovered that the vehicles were installed with devices which
could trace the test conditions and decrease the diesel discharges accordingly to improve the
results. However the company denied answering the case in Australia as it claimed that the
approval for the vehicles was acquired in Europe prior to their export to Australia. The motorists

Ethics 4
of Australia had sued the company for the financial loss they have suffered due to the scandal
(Financial Review, 2018).
The company had argued that there is no case of cheat devices in Australia and thus refused to
offer any compensation to the drivers of Australia. Surprisingly, despite of paying heavy amount
of compensation and pleaded guilty of criminal charges in US and Canada, the company never
admitted that the installed software were intended to outperform the emission tests. It did not
even call the witnesses in the case when the court decides to make the proceedings complicated.
It was claimed that Volkswagen group had declared in 2015 that the installed software was
unlawful, moral disaster and manipulative it breached the faith of the consumers (Packham,
2018).
It was affirmed that around 100000 owners of VW, Audi and Skoda cars had underwent a
financial loss. It was claimed that the company had sold affected diesel vehicles by declaring
them as environmentally friendly cars though it knew that the devices were deliberately installed
to alter the emission test results. In fact, EA 189 1.6 or 2.0 liter diesel engines which were
installed in the vehicles were not registered in Australia.
The cases are being filed in Australia by the Australian Competition and Consumer Commission
and will concentrate on the points such as the reasons for using the defeat devices and if the
devices affected the performance of the vehicles. The company earlier paid $24 Billion of
compensation to the motorists of US who were influenced by the diesel emission scandal along
with reimbursing damages amounting to $2.4 Billion in Canada.
However, the company continues to claim that it did not breach the consumer laws of Australia.
The case is under investigation and the defendant continuously claims that its vehicles satisfy the
emission standards of Europe and Australia and the engine control software are being updated
from time to time. It further stated that the software of almost 42000 vehicles or 53% of the cars
were updated complimentarily as compensation. The company is also alleged for misleading the
consumers through its publication which said that the cars were ecofriendly (Limaye and Pande,
2015).

Ethics 5
The company has certainly breached the trust of its consumers and they should be entitled to
compensation in a manner they wish. If they want the refund for their purchased vehicles they
should be compensated back. If they want to get an appropriate legitimate solution for the losses
they have suffered, they must be able to receive it from the company. Proper laws should be
framed for such wrongful acts of the companies and they must be punished for such crimes.
Ethical Decision Making Approaches & Theories
The main aims of the company should be increase its worth for its stakeholders. Prosperous
companies must perform within the norms of the society and maintain its worth and reliability.
Through corporate governance, the organizations manage and regulate their transactions in such
a manner that the interests of the stakeholders are safeguarded and they are protected from any
frauds (Chadegani and Jari, 2016).
This responsibility can be undertaken by the board voluntarily or it can be an obligatory process
directed by law or a combination of both the methods. It is mandatory for the organizations to
take the responsibility for the impact they create on the society and the stakeholders.
The ethical theories relevant to this context are Non –Consequentialist, Agent Centered Theories
and Consequentialist. The Consequentialist theory lays stress upon the ethical results of the
organizational activity whereas the Non- Consequentialist theory explains that the purpose of
the personnel involved in the process related to decision making process , is important than the
result of the act. The Agent theories are more directed towards the overall virtual status of the
personnel (Kaptein, 2017).
The Consequentialist theory has several approaches. Utilitarianism is amongst them. It defines
that the degree of happiness and discomfort created by the organizational activity decides how
good or bad the activity is. Therefore, the ethical action is the one which creates the maximum
amount of happiness and minimum joy.
The Common Good approach states that the pure intention of the personnel assists in creating the
best society. As a result, it would generate good for the people residing in that society. It
emphasizes on the respecting and helping others especially the weak and downtrodden section of
the society.

Ethics 6
The Non – Consequentialist theory describes the ideology which is based on duty or actions
being performed by the organizations. It is better known by the term Deontological ethics and it
states the importance of the intention and desire of the personnel involved in the decision
making process. It was proposed by Kant. According to him, the righteous actions depend upon
the purpose of the person performing the activity. The ethical action emerges from the desire of
the person to accomplish the act.
The right approach is another ideology of the non- consequentialist approach. It describes that
the greatest good safeguards the rights of the stakeholders affected by the act. The approach that
humans have the right to live a respectful life form the basis of this ideology. The fairness and
justice approach describes that the human beings must be considered in an equitable manner. It
explains the procedure for performance of good deeds but does not mention about its
consequences.
The divine command approach is the last ideology of the non- consequentialist approach. It
explains that good activities performed by the managerial personnel are guided by God and the
standards governing the ethics are formulated according to His will. So if a person follows His
instructions for performing a particular activity, he is following the ethical standards.
The Agent centered theories include virtue ethics. They suggest that human virtues are associated
with the ethical actions. The person who has attained ethical values is a person with good
character. They remain associated with the individual throughout his life and he has to be trained
to attain the values within himself (Ferrell, and Fraedrich, 2016).
Ethical decision making approaches applicable to the issue
Deontological or duty based approach and the Common Good approach are applicable to the
above mentioned case study. Using the deontological or duty based approach, the employees of
Volkswagen can justify themselves by satisfying the needs of the consumers and safeguarding
their interests by manufacturing the vehicles which complied with the Australian norms and
regulations (Davidson and Forsythe, 2016).
This philosophy focuses on the act and not its results. It is the moral obligation of the employees
to perform their activities in such a manner that the consumers are not cheated. It believes that

Ethics 7
the highest virtue is result of ethical acts of the personnel of the company. So, the management
should compensate the consumer for the losses incurred and take a resolution that it would
manufacture vehicles which could genuinely pass the emission tests and not mislead the
consumers. It suggests that what matter is doing the duty honestly and not deceiving the
consumers which can have negative impact on the goodwill of the company and hence its sales
can lower down (Ogbari et al., 2016).
While explaining the ethical dilemma, the Common Good approach can be helpful to resolve the
issue. It regards all the individuals as a part of the larger society. For a society to flourish, the
management is required to safeguard the interests of its consumers for the good of all the
members of the society specially the weakest ones. Some of the things that develop a healthy
society are fair trade and commerce, just legal systems, accessible technological environment
and well maintained infrastructure. So, the company should compensate its consumers for the
losses done to them. It should take a resolution in future that the activities performed by the
company will safeguard the interest of its stakeholders.
The importance of the issue and consequences of the implementation and non-
implementation of the ethical theories
The importance of the issue can be determined by the fact that around 100000 motorists had
signed an appeal related to the financial harm caused to them by the car manufacturer
Volkswagen and its sister concerns Audi and Skoda by installing such software in the cars which
could trace the test conditions and cut its pollution levels to improve the results.
The company has misled the consumers in order to increase the sales and outperform the
competition in the Australian car market. If the ethical theories of common good approach and
duty based approach are implemented in the company, it would enhance the goodwill of the
company and safeguard the interests of the stakeholders. According to Ryan (2016) the common
good approach ensures that the policies and procedures of the organization are aligned with
obeyance of the laws of the nation.

Ethics 8
The business has some duties and obligations for the stakeholders according to the deontological
approach. If this theory is implemented in Volkswagen, then it would endeavor to safeguard the
interests of its stakeholders (Rhodes, 2016).
If the theories are not implemented in the organization then it may face legal problems and loads
of monetary penalties. The penalties can be severe including the legal fees and sanctions by the
governmental agencies. Unethical acts also result in consumer dissatisfaction which may reduce
the goodwill of the company. The company may also lose its valuable employees as nobody
wants to be associated with an unethical brand (Morrison, 2015).
Conclusion
Hence to conclude, it can be said that business ethics are surrounded by interpersonal
relationships of the company. These relationships exist amongst the business and its customers
on various levels. So, business ethics describe the relationship of the individuals and the business
and extend its scope to its employees and different areas of government and the society.
The ethical theories help in safeguarding the interests of the stakeholders thereby promoting
sustainable business practices. With the enhanced expectations and rights of the consumers, the
scope of business ethics is increasing in the commercial fraternity. Developing proper ethical
infrastructures will assist in the ways of conducting business in a better way in the 21st century.

Ethics 9
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