Volkswagen Emission Scandal: A Case Study in Business Ethics

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BUSINESS ETHICS: A CASE STUDY OF VOLKSWAGEN
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BUSINESS ETHICS: A CASE STUDY OF VOLKSWAGEN
Table of Contents
Introduction......................................................................................................................................3
Revenue.......................................................................................................................................4
Board............................................................................................................................................6
Managers......................................................................................................................................7
Customers....................................................................................................................................8
Conclusion...................................................................................................................................9
Recommendations............................................................................................................................9
References......................................................................................................................................11
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BUSINESS ETHICS: A CASE STUDY OF VOLKSWAGEN
Introduction
Volkswagen has been under a severe scandal which is the result of improper corporate
governance within the company. This stated that during 2015 after the USA environment
protection agency has charged Volkswagen about the violation of clean air act, they found that
Volkswagen has intentionally violated all the rules. They have intentionally activated emission
controls to pass the test of quality control. This made the cars to pass the test of NOx emission in
an illegal manner so that real emission data could be hidden. They have deployed programming
software in around 11 million cars worldwide which have included 5, 00,000 cars within the
United States of America. These models of cars were introduced from 2009 to 2015. The data
was collected from the 15 diesel cars, and the samples were randomly picked. This resulted in 2
out of 3 cars were emitting 40 times more NOx which is very much harmful to the environment.
Volkswagen has violated this rule which has resulted in a massive scandal and has hampered its
brand value. The board has tried to clarify themselves by issuing a statement of facts where they
are showing it as a part of an agreement with the department of justice. The document clarified
that Volkswagen engineers had a difficulty in building a high-performance car with lower
emissions within the limit (Ewing, 2017). Further, the statement said that they found that the
managers supported this cause despite protest from the multiple workers. Based on this, the
research shall focus on ethical dilemmas which have been violated by Volkswagen by
suppressing the emission statistics and polluting the environment. A proper analysis shall be
conducted to find the ethical dilemmas and recommendations will be provided to overcome these
problems.
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BUSINESS ETHICS: A CASE STUDY OF VOLKSWAGEN
Revenue
A company, to sustain in the market, must maintain the ethical integrity within the company. A
strong ethical integrity in the company prevent it from dishonesty of the company and promote
the transparency (Huda and Kartanegara, 2015). The shareholders are attracted towards
companies who are honest and maintain the business ethics. Any dishonesty in the part of the
company can hamper the reputation and goodwill of the company.
The Volkswagen emission scandal began in September 2015, where the United States
Environmental Protection Act (EPA) filed a law suit against the Volkswagen Group for the
violation of the Clean Air Act. Investigations proved that Volkswagen had intentionally injected
the Turbocharge Direct Injection (TDI) diesel engines that activated emission control only during
the laboratory emission check. This resulted in a controlled emission of NOxthat met the US
standards. But in reality the emission was more than the checked amount (Mansouri, 2016). This
has hampered the reputation of the company at a large extent. The scam was a result of a breach
in the ethics of the company.
Volkswagen had faced a huge loss in and around the US market. The scam hampered the
company a large extent. The shareholders started selling their shares and the demand of the cars
also went down. The instance hampered the brand image at a whole due to which the company
had a huge loss in revenue. The sales of the company dropped from $170 billion to below $110
billion in a year (Siano, et al., 2016).
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BUSINESS ETHICS: A CASE STUDY OF VOLKSWAGEN
Figure 1. Fall in the sales of Volkswagen after the instance
(Source: Blackwelder, et al., 2016)
The fraud had a negative impact in the production of the company too. Volkswagen adopted
illegal software to cheat on the government. The instance hampered the environment at a huge
level and this resulted in a drop in the income. The instance had cost the company a large sum of
amount accounted to $27 billion (Krall and Peng, 2015). This hampered the budget structure of
the company and the budget plan went under a vigorous change. The changes took a lot of time
to be implemented which resulted in hampering the overall business plan. The multiple negative
impacts of the scam had forced the company to lose a lot of its competent employees which also
hampered the human resource. The share of the company also faced a vigorous loss in the share
market. The shares were sold at a rapid pace and the new investors were not interested in buying
shares of the company. This resulted in a huge loss in the market capital of the company as well.
There was a huge decline in the market capital where the market capital dropped from $95
billion to $60 billion in few days (Mansouri, 2016). The lack of ethical integration in the
production process led to a huge loss for the company.
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BUSINESS ETHICS: A CASE STUDY OF VOLKSWAGEN
Figure 2. Drop in the Market Capitalisation of Volkswagen
(Source: Mansouri, 2016)
Board
The main problem was found in the boardroom of Volkswagen which was the result of an
accident that was bound to happen. The hybrid and complex governing structure which was run
by the family was the main reason for the scandal. The board could not decide and take proper
decisions where the corporate governance was missing (Blackwelder et al., 2016). The engineers
who were supposed to be looked upon carefully for making such high efficiency cars were not
looked upon properly. The board had two directors who were not properly educated and made
the environment within the company a deep-rooted hostility where the regulations that were
supposed to be maintained were not looked properly despite the protest from the workers. The
directors have violated the ethics of good business practice (Ewing, 2017). Further, the pressure
from different unions to make full employment in some manufacturing plants forced the board to
undertake certain revenue generation methods which were unethical in nature. This made
Volkswagen to undergo a national mission of providing jobs to everyone in Germany. This made
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BUSINESS ETHICS: A CASE STUDY OF VOLKSWAGEN
them to generate 10 million cars which were emitting harmful gases into the environment by
passing the tests conducted by the environment regulatory boards (Siano et al., 2017).
Managers
For any organisation, the importance of managers is not only immense, but also integral as well
as critical due to the fact that managers are able to hold and maintain all the aspects of the
business within the organisation. A manager is also able to sustain and manage ethical practices
within the organisation and it is their responsibility so that it would not affect the future of the
company in terms of business and reputation. From the research works of Miller, Kark, and
Zohar (2019), it has been found that one of the major key roles of managers in the context of any
organisation is to promote ethical practices as well as virtues amongst the employees. This
benefits the organisation in numerous ways such as good customer relationship, enhanced brand
reputation, and many more. However, if the managers were to take any unethical measures,
actions, or practices within their business operations, it would not only affect their brand image
and reputation, but it would also affect their revenue generation (Camillo and Camillo, 2019).
In the context of the Volkswagen Scandal, the managers would have taken an ethical approach in
their tests of the cars to check the emission but instead, the managers let the defeat device to be
installed in the cars while being fully aware of the situation. This was due to the fact that the
CEO of the company at that time, Martin Winterkorn, was in charge of the entire process and
under whose orders, the managers were able to execute such unethical practices. The head
manager, Giovanni Pamio, was also arrested due to his involvement in this unethical conspiracy.
However, Giovanni Pamio admitted that he was under pressure from his seniors and due to
which he could not do anything. This describes the hierarchy of the managerial system where the
orders of the top management and executives are followed by the lower managers (Neamțu and
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BUSINESS ETHICS: A CASE STUDY OF VOLKSWAGEN
Bejinaru, 2019). Due to such unethical case, not only were the managers involved arrested and
lost their jobs, but the reputation of the company was also damaged considerably as well as their
revenue generation affected
Customers
Maintenance of business ethics and integrity is one of the major components that help the
organisation to create an effective brand image in the global market. In this world of
globalisation brand image is one of the significant character that helps a company to retain the
sustainable consumer base in an efficient manner (Pearson, 2017). The Corporate social
responsibility and maintenance of the business ethics is important to attract consumers.
Volkswagen is a company that has sustainable client base but after the emission scandal of 2015
is was seen that brand image of the company was decreased .Almost 30 %of the consumers in
the USA market felt that the company cheated the consumers and the transparency in the
business was not maintained.
This had an adverse effect on the consumer psychology. Since the scandal was huge, the global
consumers also turned their face away from the Volkwagen that is projected in the revenue
report of the company in the year of 2015 when the incident happened. In the words of Maniora,
(2017) the consumer perception is a dynamic matter and it is dependent on many parameters of
the company. One of the major parameter is the ethical integration that helps in sustainable
development of the organisation in an efficient manner (Lindebaum, Geddes, and Gabriel, 2017).
If the company policy is transparent to the shareholders and the consumers then consumer
retention also increases by almost 10 per cent. Moreover, another important point is the use of
the transparency is maintained then consumer’s retention and brand awareness of the company
should increase by 5%in the global market.
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BUSINESS ETHICS: A CASE STUDY OF VOLKSWAGEN
Conclusion
The above written study critically analyses the concepts of ethical and unethical practices using
the case study of Volkswagen scandal. The study analyses the ethical and unethical practices
with respect to the case study of Volkswagen scandal and evaluates the revenue, board,
managers, and customers aspects. From the study, it has been found that the importance of ethics
for any organisation is immense and that ethical practices help the organisation to benefits
themselves in numerous ways. However, unethical practices are not only problematic, but they
should also be avoided indefinitely as unethical measures, actions, or practices within the
business operations of an organisation would not only affect their brand image and reputation,
but it would also affect their revenue generation. In the context of Volkswagen, this has been
evaluated to be true as it affected the company heavily. However, from the study, it can be
concluded that while the practice of ethical measures is immense and should always be followed.
Recommendations
 Maintenance of business ethics: Transparency should be maintained in an effective
manner in the management of the organisation so that ethical perceptive is maintained in
a prominent manner. The business ethics may be maintained by the top management and
the message in the company should be clear that no compromise with the business ethics
in any level should be tolerated by the organisation
 Ethical code of conduct: The ethical code of conduct is one of the major components
that should help in the mitigation of any ethical breach in the organisation in a prominent
manner. The ethical conduct should be same for the top management to the line
managers. Any breach in work ethics and management decision should be monitored and
penalty should be done to employees involved in breaching the work ethics
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BUSINESS ETHICS: A CASE STUDY OF VOLKSWAGEN
 Proper formation of monitoring committee: The formation of the monitoring
committee is essential for constant monitoring of the ethical perceptive in the
organization. The monitoring commission should document every business operation and
the technology that is being used in the company. The committee should give detailed
report to the shareholders so the brand image of the Volkswagen may be recovered in the
global market in an effective and efficient manner.
 Transparent Audit report: One of the major component that is considered as one of the
prime ethical component is the audit of the business transaction and the technological
parts that enhances transparency.
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BUSINESS ETHICS: A CASE STUDY OF VOLKSWAGEN
References
Blackwelder, B., Coleman, K., Colunga-Santoyo, S., Harrison, J.S. and Wozniak, D., 2016. The
Volkswagen Scandal.
Camillo, I.C. and Camillo, A.A., 2019. Strategic Managerial Communication in the Digital Era:
Implications for Ethical-Unethical Behavior. In Handbook of Research on Strategic
Communication, Leadership, and Conflict Management in Modern Organizations (pp. 360-389).
IGI Global.
Ewing, J., 2017. Faster, Higher, Farther: The inside story of the Volkswagen scandal. Random
House.
Huda, M. and Kartanegara, M., 2015. Ethical Foundation of Character Education in Indonesia:
Reflections on Integration between Ahmad Dahlan and al-Zarnūjī. In International Conference
of Malay Muslim Prominent Scholars. Selangor: KolejUniversiti Islam Antarbangsa (KUIS).
Krall, J.R. and Peng, R.D., 2015. The Volkswagen scandal: Deception, driving and
deaths. Significance, 12(6), pp.12-15.
Lindebaum, D., Geddes, D. and Gabriel, Y., 2017. Moral emotions and ethics in organisations:
Introduction to the special issue. Journal of Business Ethics, 141(4), pp.645-656.
Maniora, J., 2017. Is integrated reporting really the superior mechanism for the integration of
ethics into the core business model? An empirical analysis. Journal of Business Ethics, 140(4),
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Mansouri, N., 2016. A case study of Volkswagen unethical practice in diesel emission
test. International Journal of Science and Engineering Applications, 5(4), pp.211-216.
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BUSINESS ETHICS: A CASE STUDY OF VOLKSWAGEN
Miller, Y., Kark, R. and Zohar, N., 2019. Her/his ethics? Managerial ethics in moral decision-
making from a contextual, gendered, and relational perspective. Sex Roles, 80(3-4), pp.218-233.
Neamțu, D.M. and Bejinaru, R., 2019. ETHICS PERSPECTIVES IN LEADERSHIP. The USV
Annals of Economics and Public Administration, 18(2 (28)), pp.79-88.
Pearson, R., 2017. Business ethics as communication ethics: Public relations practice and the
idea of dialogue. In Public relations theory (pp. 111-131). Routledge.
Siano, A., Vollero, A., Conte, F. and Amabile, S., 2016. “More than words”: Expanding the
taxonomy of greenwashing after the Volkswagen scandal. Journal of Business Research, 71,
pp.27-37.
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