Analyzing Volkswagen's Corporate Governance Failure and Impact

This report delves into the corporate governance failures of Volkswagen, specifically focusing on the emission scandal. It examines the core issues of corporate governance, highlighting how the company's unethical practices, including the use of defeat devices to cheat emission tests, led to a significant decline in customer perception and brand image. The report analyzes the importance of corporate governance for Volkswagen, the challenges faced after the scandal, and the potential strategies for improving customer trust and regaining market share. The literature review provides a comprehensive overview of corporate governance concepts, the consequences of its failures, and the significance of ethical conduct in the automotive industry. The report concludes with recommendations for Volkswagen to rebuild its reputation and restore stakeholder confidence by prioritizing transparency, accountability, and ethical business practices. It highlights the importance of aligning business objectives with legal and ethical considerations to ensure long-term sustainability and success.

CORPORATE
STRATEGY

Table of Contents
Topic:-..............................................................................................................................................3
INTRODUCTION ..........................................................................................................................3
1.1 Overview of research........................................................................................................3
1.2 Background of company...................................................................................................3
1.2 Significance of research...................................................................................................4
1.3 Research aim....................................................................................................................4
1.4 Research objectives..........................................................................................................4
1.5 Research questions...........................................................................................................4
Literature Review ............................................................................................................................5
The concept of corporate governance and its failure..............................................................5
Importance of corporate governance for Volkswagen...........................................................6
Challenges faced by Volkswagen after the emission miss-conduct scandal..........................7
Use of corporate governance in improvising the customer perception towards Volkswagen8
RESEARCH METHODOLOGY.....................................................................................................9
Type of Investigation..............................................................................................................9
Research Design ....................................................................................................................9
Research Approach ................................................................................................................9
Research Philosophy ...........................................................................................................10
Data collection......................................................................................................................10
Data Sampling......................................................................................................................11
Ethical Consideration ..........................................................................................................11
Gantt Chart ..........................................................................................................................11
DATA INTERPRETATION AND FINDINGS ...........................................................................12
RECOMMENDATION & CONCLUSION .................................................................................24
REFERENCES..............................................................................................................................28

Topic:-
“To analyse the reason of corporate governance failure and its impact on customer perception in
regard to emissions scandal.
INTRODUCTION
1.1 Overview of research
Corporate governance refers to the mechanism, processes and relations through which a
company is controlled and directed along with balancing the interest of stakeholder engaged with
business. It is considered to be one of the most essential part of organisational functioning that
support it in performing operations ethically and improving the brand image of organisation
among its stakeholder. The current report is about the corporate governance failure faced by
Volkswagen related with emission scandal which affected the image of company in marketplace.
In order to conduct this investigation both primary as well as secondary data collection methods
will be used for presenting more accurate and reliable information. In addition to this, there are
number of tools and techniques will be used in order to evaluate, analyse and interpret data
effectively for making it more understandable to reader (Schiermeier, 2015).
1.2 Background of company
Volkswagen group is a German multinational automotive manufacturing company which
is headquartered in Wolfsburg, Germany. It deals in designing, manufacturing and distribution of
commercial as well as passenger based vehicles, turbo-machinery and engines (Goel, 2015). The
Volkswagen Passenger Cars brand continued its product initiative in 2018, growing its sales
revenue by 6.8 percent to EUR 84.6 billion. Operating profit before special items amounted to
EUR 3.2 (3.3) billion. The total market shares of this enterprise reached to 10.83 million in the
year 2018. Range of brands are covered under the one name which offers product starting from a
basic motorcycle to a luxury car which target the premium customers. Its global presence in the
world makes it more popular and hence the overall business grows. Current report is based on
“reason behind the corporate governance failure and its impact over customer perception regards
to emission miss-conduct performed by Volkswagen”. In this case Volkswagen has applied a
kind of defeat device or software within its diesel engine in order to defeat the carbon emission
test. The main reason behind this failure is that Volkswagen put more emphases toward earning
profit rather then following legal consideration which is very unethical and hence result into

corporate failure (Krall and Peng, 2015). In addition to that after getting informed about this
shareholders immediately reacted over this and as a result of which share price get dropped.
Apart from this after hearing about this scandal customers refused to buy VW cars in future and
also some of them performed legal actions over company in order to get cost of repairing. So,
this is the major corporate governance issue which affected the market value as well as image of
brand up-to a great extend and in order to overcome this they have company is required to focus
more over corporate governance and strategy.
1.2 Significance of research
By conducting this investigation, Volkswagen will be able to deeply analyse the impact
that this scandal have over its stakeholders and other area of business. So this information can be
further used to determine the strategies or solution that can be adopted to get ride of this situation
(McCahery, Sautner and Starks, 2016). Apart from this it will help researcher in enhancing their
knowledge in this regard and addition to this it will further be able to improve research skill, data
collection and interpreting skill that support them in conducting future research in more effective
manner. Despite of that, this investigation also help in determining the perception that customers
have toward brand after this emission scandal (Stanwick and Stanwick, 2017). This data will
help in forming up strategies to improve their customer perception as well as contribute toward
improving brand image in marketplace. In addition to this if this research will further used for
academical purpose then it support in enhancing the knowledge of student in this regrading along
with the measures that are taken by company to over come this issue.
1.3 Research aim
To analyse the reason of corporate governance failure and its impact on customer
perception in regards to emission miss-conduct performed by company. A case on Volkswagen
1.4 Research objectives
 To analyse the concept of corporate governance and its failure.
 To identify the importance of corporate governance in the context of Volkswagen.
 To determine the challenges faced by Volkswagen after emission miss-conduct scandal.
 To access the use of corporate governance in improving the customer perception towards
Volkswagen

1.5 Research questions
 Explain the concept of corporate governance and its failure?
 What are the importance of corporate governance in context of Volkswagen?
 What are the challenges that Volkswagen has faced after the emission miss-conduct
scandal?
 Describe about the use of corporate governance in improvising the customer perception
towards Volkswagen

Literature Review
Literature review is defined as the process of performing a comprehensive summary by
evaluating and interpreting the previously performed research. This summary is basically
performed after reviewing the number of sources such as books, articles, scholarly papers and
other relevant sources.
The concept of corporate governance and its failure
As per the view point of James McRitchie (2019), Board of director are consider as the
central of corporate governance whose relation with other primary participants such as
management and shareholder is very essential for the proper management of business. These all
are responsible for governing the organisational operations performed by considering all the
legal as well as ethical norms. Because an effective corporate governance is one whose
framework is formed by integration of regulatory, legal, institutional and ethical environment of
community. These all support an organisation to perform its operations ethically which in turn
also reduces the external risks that may harm brand image at marketplace.
The constituents of corporate governance are transparency, accountability and security
which are of great importance to be maintain specially in automobile industry. It is so because
hiding any valuable fact from the customer may affect the purchasing decision of clients which is
not ethical. Also, when a particular amount is paid by the user against the car or any automobile
than the accountability of the seller is established and they have to make sure that all what is
assured to the customer at the time of purchase is true and I not than proper justification is given.
According to the author, business which follow all these constitutes of corporate governance is
capable of developing goodwill in the market and can do a good business in the long run. In case
of Volkswagen, company has used cheat devices in their engine to fool the emission detector that
has a great impact over the market image as well as customer perception toward it. This happen
due to unethically practices performed by company which is a result of Corporate governance
failure as it get distracted from the adherence of legal standards. It highly affect the customer
perception as they feel cheated and refused to buy car of this brand that in turn affected the
market share of company. These impact have a negative influence over customer loyalty just
because of corporate governance failure as company has adopted unethical and illegal practices
to earn profit despite of serving its customer ethically.

According to the view point of James Chen, 2018, Corporate governance is considered as
a set of rules, processes and practices by which firm get controlled and directed. It basically
involve the practices that work toward balancing the interest of company's stakeholders such as
customers, financier, government and community. It is very essential for the sustainability and
success of business when performed effectively. But there are some reasons which leads to
failure of corporate governance such as
 Improper governance mechanism which causes due to lack of board meeting or
committees.
 Management that deliberately underestimate the role of several governance structure by
avoiding the internal control and misrepresenting the auditor and boards. In case of
Volkswagen the engineers circumvented the internal system and attached the cheat
devices in engines of its car in order to misrepresent the vehicle quality in term of less
emission.
 Not properly qualified members, for instance, audit committee members that don't have
proper accounting and financial qualification for analysing the key business transactions,
family members holds up the brand position without any appropriate knowledge
McRitchie (2019).
These all leads to business failure in implementation of corporate governance and as a
result of which massive problems get arises in front of company as it was in case of
Volkswagen. In which company get failed to work by considering corporate governance
standards and practices which in turn also affected its brand image in front of customers and
other stakeholder that leads to heavier loss of Volkswagen.
Importance of corporate governance for Volkswagen
According to Tricker (2015), Corporate governance is considered as one of the essential
implication in forming up a marketplace confidence by performing all the activities in ethical
manner. By performing its operation along with considering the implication of corporate
governance, Volkswagen being able to maintain as well as attract new investors with in the
organisation. In addition to this by promoting good corporate governance, Volkswagen will be
able to maintain its sustainability, reducing risk of any allegation and achieving better standard
of performance. Apart from this Corporate governance practices also help Volkswagen in
improving its organisational culture in which everything get permeates from the ethical practices.

This will support Volkswagen in demonstrating its social responsibility efforts and principles
through which it can shape the way organisation leaders lead, employees work. These practices
also support it in improving the way in which customers think about the company and form up
their purchasing decision.
As per the view point of Nicholas and Price, (2017) the benefits of corporate governance
can't be denied in such a progressive and aggressive business environment of car industry as it is
very crucial for achievement of new frontier of profitability and competitive advantage. It is
crucial for an organisation as it highly affect the organisational practices i.e. from
communication to leadership and strategic decision making by getting involved with board of
directors. Therefore corporate governance is considered to be one of the most essential factor
that Volkswagen must consider in its practices as well as operations performed by them. This is
because it help in increasing the interest of investors and other stakeholders within the
organisational practices. This will further help Volkswagen to get support from its stakeholders
in order to deal with external threats and practices. In addition to this, implementation of good
communicational skill helps in building up a foundation of transparency, trust and accountability.
This ensures that the practices performed by the workforce of Volkswagen would be more
effective and performed in ethical manner by complying with all the ethical as well as legal
standards of automotive industry. It help in improving the goodwill of company at marketplace
that directly linked with the sales as well as profitability of Volkswagen.
Challenges faced by Volkswagen after the emission miss-conduct scandal
As per the view point of Neal E. Boudette (2019), after the Volkswagen admitted that
company was using a cheat device on emission test, it has to face various challenges. These
includes Volkswagen was hit by the federal investigation and lawsuits from the dealers as well as
customer which in turn affected its image in market up-to a great extent. In addition to this
various American consumer also change their priority in term of brand choice which results in
loss of company's sale as well as profitability. This in turn has reduces the overall sale of its car
due to company's affected image. The scandal that took place affected the interest of many
stakeholders which resulted into overall decline in the business of the company. Investors
withdraw their amount from the brand which was a major challenge to the management. Also to
develop the faith of customers in brand again become difficult as their safety was kept at stake
by the company. In this it has been found that the industry is decline this year after the growth of

seven years growth which was recorded as the sale of approx. 15.5 million cars and trucks within
year 2016. In addition to this, Volkswagen lead to modify more then 308,000 vehicles within
United State which results into heavier loss. This in turn also affected its brand image in
marketplace and because of which other competitors get a chance to attract the customers in
order to grab up larger market share by performing a negative publicity of Volkswagen. These
all created a number of challenges in front of Volkswagen as because of this scandal company
started loosing its market share as well as its sale. Apart from this customers also sue the
company in order to get their compensatory amount regarding the losses they face and asked
company to repair their vehicles. For this Volkswagen have to pay off around $37,500 for its
vehicle that are not manufactured as per the standards fixed by government. Apart from this the
net profit of Volkswagen has fallen up to 50% i.e. around 1.1 billion euro after keeping €2.6
billion aside for the repairing the diesel cars. The major challenge in front of Volkswagen after
this scandal is to regain its sale as it has been fallen down by 1.3% to 1.354 million trucks & cars
(Cost of Volkswagen Scandal Could Hurt Company’s Electric Vehicle Push, 2019).
Use of corporate governance in improvising the customer perception towards Volkswagen
As per the view point of Davies (2016), in order to regain its market position as well as
positive image in front of customers, Volkswagen is required to improve its business practices.
For this company must put more emphasis toward the implementing corporate governance in its
managerial operation and perform its marketing as well as operational activities by considering
all the legal and ethical norms. By emphasising over corporate governance, Volkswagen will be
able to perform its operation in systematic and ethical manner that also help company in
improving its image in market place. This will further contribute toward vanishing the bad
publicity of company due to emission scandal. In addition to this, Volkswagen must also try to
improve its legal policies by considering all legislator standards and implementing it through
Corporate governance strategy in order to improve its customer perception and brand image in
marketplace.
According to the view point of Dr Alessandro Merendino, (2019) products are basically
move through life cycle which includes stages like birth, growth, maturity and decline, but in
case of Volkswagen it is on decline stage. This is because of fraud it has performed by applying
cheat devices within its engine in order to pass on the emission test, but as a result of which
Volkswagen vehicles are emitting more carbon even then the fixed amount over roads. This has

affected the brand image in front of its stakeholders. It can only be recovered by effective
corporate governance practices that help in steering the company as well as its image in front of
customers by improvising the practices and service quality. For this company can release
improved code or guidelines which are released by regularities which help in strengthening and
improving the practices of top management. By strengthening the regulatory guidelines
Volkswagen can also improve the monitoring tools in which operations performed by middle
and lower management will regularly evaluated and rectified. This help in ensuring that
operations are performed by considering ethical and legal practices that further help in avoiding
future crises. These all contribute toward improving brand image and regaining the trust of
customer that further support in repositioning the brand by enhancing the sale and profitability.
RESEARCH METHODOLOGY
This section describe about the specific set of techniques or procedure that are used for
selecting, evaluating and analysing the data regarding particular topic of concern. In an
investigation, research methodology part will help a reader in evaluating the validity as well as
reliability of project (Tuck and McKenzie, 2014). This is the most important part of an
investigation work as it is effective in providing an effective direction to the researcher to carry
out the work in right direction and also provide support to the literature. This part is emphasises
on various applications that collectively performs a vital role in completion of the work in right
manner. The suitable applications for the section of methodology are described as below:
Type of Investigation
The potential obligation of an investigator is to select the type of research for the purpose
of implementing the investigation activities in potential manner. A research is either qualitative
or quantitative in nature, thus the selection is based on the data accumulated by the researcher
that covers the aim and objective of the research (Kamil and et. al., 2016). Qualitative
investigation is based on qualitative means of data, as in this theoretical investigation is done
through accumulation of descriptive data and on the other side quantitative research is conducted
on the basis stats and figures. In this particular investigation qualitative investigation has been
applied by the researcher, thus it is most suitable tool for developing a theoretical base with the
support of detailed investigation. It is more preferred in this particular research as through this
method issue will be discussed in more detail that will help user in getting a better understanding

of the topic. The facts that will be highlighted by the qualitative method will assist in reaching to
the conclusions more easily.
Research Design
This is also an imperative part of research methodology which works as a blue print of
the research and assist a clear direction to conduct research actions in proper manner. This
section is emphasising on three major aspect i.e. descriptive, exploratory and experimental
research design (Fox and Alldred, 2015). In this present investigation work descriptive research
design has been applied by the researcher because it is most effective and significant tool for
conducting qualitative research because it provides an effective descriptive analysis on study.
This particular method is suitable here sin this research as through this the given situation and
topic will be discussed in detail covering all the valuable aspects. Hence using this the
understanding of the topic would be more effective.
Research Approach
This can be measured as the important aspect of research methodology and this section of
investigation is classified among two different tools likewise, inductive and deductive research
approach. In the case of deductive approach research work can be moving forward through
observing existing facts and figures which are collected for the purpose of addressing any
specific area of study. On the contrary, inductive approach is based on new theories which are
based on creating hypothesis. In this case outcomes are fixed by observing theories and
hypotheses related with similar area of study (Patten and Newhart, 2017). In this current
research inductive research approach has to be taken into proper action as the whole research
work is based on qualitative means and this tool provide support through suitable theories or
hypothesis.
Research Philosophy
Research philosophy is the key area of an investigation as it helps in providing support to
the literature by proper source of information. Research philosophy deals with the source, nature
and development of knowledge in a specified area. In another words, a research philosophy is
belief about the structure in which data about a phenomenon should be collected, analysed and
used. This section is categorised on the basis of two different aspects one is interpretivism and
other one is positivism. In this present investigation work Interpritivism philosophy has been

applied by the researcher because it is most suitable tool for qualitative research also also
provide support to the literature through analysing the views and opinion of various authors and
writers.
Data collection
It refers to the process of gathering data regarding the particular topic of concern so that
reliable information can be collected that support in objectives behind conducting the research.
The data collection method are of two types which are explained below:
Primary data :- It refers to a type of data collection method in which fresh information
is collected which is not yet been gathered by any other person (Gnan, Montemerlo and Huse,
2015). The main reason behind gathering primary information is that it help in collecting more
reliable and specific data as it is collected through one to one interaction which help in exploring
information most effectively. In order to conduct this research close ended Questionnaire will be
used to collect primary data.
Secondary data :- It is a method of data collection in which data is gathered from the
information which is already being searched by some another person. This information is
collected with the help of sources like internet, article, books or journals (Ocasio and
Radoynovska, 2016). The main reason behind collecting secondary data is that it help in forming
up a base or hypothesis over which further information can be explore to achieve research
objectives. Under this research literature review will be used to gather information as per view of
several authors.
Data Sampling
This is the most significant section of research methodology which emphasizes on
choosing the sample which replicates from the original population. In this section researcher
having choice to select probabilistic or non-probabilistic sampling methods which suits the most
for research work (King and Mackey, 2016). In this present investigation work random sampling
tool from the non-probabilistic section has been chosen by the researcher in respect to
accumulation of information in appropriate manner. In this particular research sample size of 40
respondents are taken into proper action to collect reliable and valid information.