Volkswagen's Ethical Lapses and Business Implications: A Report

This report provides an in-depth analysis of the Volkswagen emission scandal, examining the ethical breaches and their impact on the company's success. The report highlights the role of ethics in organizational success and demise, using Volkswagen as a case study to illustrate the consequences of unethical practices. It details the 'defeat devices' used to cheat emission tests, the resulting environmental and health impacts, and the implications for various stakeholders, including shareholders, customers, and the automotive industry. Furthermore, the report discusses measures Volkswagen could have taken to ensure ethical practices, such as external audits and internal transfers. The conclusion emphasizes the critical role of ethical practices in maintaining a positive brand image, attracting customers, and fostering investor confidence, ultimately impacting the long-term viability of the business. The report underscores the importance of ethical conduct in business operations and provides recommendations for promoting ethical behavior within organizations.

Academic and
Professional Skills

EXECUTIVE SUMMARY
This report is based on Volkswagen group which is a multinational brand that
manufacture and market the automotive. In this project there is a detail description about the
unethical practices that are performed by Volkswagen i.e. “Defeat devices” within their engine in
order to pass the emission test. This was the biggest scandal that leads to environmental disaster
that also affect the image of company up to a great extend. At this the statement of Martin
Winterkorn is that “Company has broken the trust of customers and now the main task is to win
again their trust for Volkswagen Group”.
This event has caused Volkswagen to recalled million of car from worldwide that set
aside around €6.7bn for covering up all the cost. However, this was not an end of cost,
Volkswagen have to pay off the fine of $37,500 for each vehicle which has not considered the
standards. Firstly, this report focuses toward several ethical issues involve in case of Volkswagen
along with its influence over stakeholders and measures that it can take to improve its image in
marketplace. At last it has been recommended to Volkswagen that it must perform ethical
practices by involving all the stakeholders in decision making process and performing external
audit of its automotive for avoiding illegal practices.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................2
ANALYSIS......................................................................................................................................2
Role of ethics in the success or demise of an organisation....................................................2
Measures that organisation must take to ensure ethical practices..........................................4
CONCLUSION................................................................................................................................5
RECOMMENDATIONS.................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Academic and professional skill is one of the basic requirement that help a person to
develop their listening, writing, analytical and critical thinking. This in turn support an individual
to purse an effective and successful career path. One among these skill is adoption of ethical
practices while conducting business operations. Ethical practices plays an essential role within
the growth and success of business as it help in improving the brand image in market place at
front of its stakeholders (Pullen and Rhodes, 2015). This report is based on Volkswagen which
is an multinational company headquartered in Germany. It work toward designing,
manufacturing and distributing the passenger car, engines, motorcycles and other vehicles. The
company is best known for designs of its auto-mobile and their durability that made it a
successful brand worldwide. It is also consider as a seventh largest organisation in term of
revenue worldwide. But despite of all its success, an ethical practice ruined the image of
company at large extend, as Volkswagen has implemented cheat devices in the engine of car in
order to pass the emission test because engineers was not capable of achieving high performance
while following regulatory standard. But these cars emitted more then the legal limit while they
drive over roads (Salam, Iskandar and Ibrahim, 2017).
This report focuses toward determining the role which ethics plays in term of an
organisation's success or demise. In addition to this it also talks about ethical practices that an
organisation must ensure along with an understanding of ethical issues faced by Volkswagen and
implication of these issues.
ANALYSIS
Role of ethics in the success or demise of an organisation
Ethics is defined as an morale codes or philosophy that are practised by an individual or
group of people (Bergman and et. al., 2014). It seeks toward resolving the question of morality
by defining the concept of wrong or right, good or evil (McKendry, 2015). In context of
organisation ethical practices plays a crucial role within the growth as well as success of a
company. Ethical practices within a company is generally refers to a way in which an
organisation respond to external environment.
The decision taken and practices performed directly have an influence over the culture of
organisation and also have an great influence over the success as well as demise of a company.

This is because an ethical practice help an organisation to attract customer toward firm's
practices, boosting up sale, reducing labour turnover and recruitment cost that all contribute
toward its success. In addition to this, ethical practices also support in attracting larger number of
investors to invest in business and support them in their business practices which further help in
protecting the business from takeovers or threat of competitions.
But apart from this unethical behaviour in business practices may damage a firm's
reputation and present it less appealing to other stakeholders which left an negative impact over
the success of organisation. A great example of unethical practices performed by business is
Volkswagen that left as a down turn in the journey of its business (Cheng and Chu, 2014). This
is because company is best known for its business practices and is one of successful brand as it
was seventh larger organisation at international market in terms of revenue. But the engineers of
Volkswagen has implemented a cheat device within their car engine as they have struggled to
make diesel engine which perform well and also meet stringent US emission standard. So in
order overcome this issue engineers of Volkswagen has inserted a cheat devices in car engine so
that they would be able to pass emission test. This was an unethical practice as the manager of
company repeatedly sanctioned the use of these devices instead of having an objection from
employees in this regard and also encourage engineers to hide these practices (Hoffman,
Anderson and Gustafsson, 2014).
These unethical practices left an huge over the success as well as profitability of
Volkswagen up-to a great extend. As after this event the net profit within third quarter fell up to
50% i.e. around 1.1 billion euro after it set aside €2.6 billion to repairing the diesel cars in US
that are having illegal emission-cheating devices (Cost of Volkswagen Scandal Could Hurt
Company’s Electric Vehicle Push, 2019). This scandal also disappointed loyal customers of
Volkswagen that have an huge impact over goodwill of company and as a result of which its
overall sale of its new cars fell down by 1.3% to 1.354 million cars and trucks. In addition to this
it also influence the company's shareholder as they sue over Volkswagen in Germany court for
seeking compensation regarding the plunge in their shares due to cheat device scandal.
The Media Manager of Volkswagen also have the information about this scandal but still
they promoted brand in a way that “emit less harmful gases and being tested by expertise to meet
up all the standards”. But in reality car emit less carbon in factories but when run over the roads
they emit extremely higher which is beyond the standard fixed by government. Hence it is an

unethical practice performed by media manage that if avoided at that time then it won't affect the
goodwill of company.
Therefore, it can be said that ethics plays a crucial role in the success as well as demise of
an organisation which can be seen in case of Volkswagen (Jorge and Peña, 2014). This is
because company is having a good reputation in marketplace due to its performance and high
performance of vehicles but a miss-conduct related with emission scandal has ruined away all its
goodwill. This unethical practices have an huge impact over stakeholders whose contribution is
very essential for the growth and success of company. Hence, unethical practices performed by
Volkswagen has demise its business practices as well as market image that results into loss in
term of sales and profitability.
Measures that organisation must take to ensure ethical practices
Ethical business practices are considered to be most essential part of an organisational
practices as it contribute toward improving the brand image of company in front of its customers,
investors and other stakeholders. As unethical practices affects the sustainability and profitability
of an organisation that results into business failure (Dierksmeier and et. al., 2016). Volkswagen
cheat device scandal is also an example of this in which organisation has implement a device
within the engines of its car in order to hide their carbon emission from the governmental test.
This case involve several ethical issues that are given below:
 Around 600000 cars had been fitted with these devices in order to pass emission test that
are then send to US market. This will be then increased up to 11 million cars that are sold
worldwide (Former Volkswagen boss charged with fraud over diesel scandal, 2018).
 The cars manufactured by Volkswagen emits less at the time of testing but the emission
would be far beyond while drive over roads which is more then the standard limits fixed
by government.
 This practice of engineers also affected the environment as well as health of people as
cars emit two type of nitrogen oxide into atmosphere that causes smog, respiratory
infections and premature death.
These all are the ethical issues that are being happened by the practices conducted by the
engineers of Volkswagen that has an negative impact over the image as well as success of
company (Boyd, Henning and et. al., 2017). These ethical issues have a negative implication
over the various stakeholders of organisation, some of them are explained below:

 Implication for Volkswagen Shares:- After this incident, this has a negative reaction
over the shares of VW as it losses c.35% of its market capitalisation within two days.
This is because market has struggled to pay off he cost of recall and potential fines that
has been claimed by customer as well as shareholders.
 Implications for industry:- This scandal also left an negative impact over the car
industry as a result of which shares of BMW, Renault, Nissan, Peugeot etc. has dropped
by 2 to 4 percent after this situation. In addition to this diesel car market has also been
reduce and governmental standards has also get much tougher.
 Implications for customers:- After this scandal the customers base of the company has
been fallen as a result of which sale get reduced up-to 1.3% to 1.354 million cars. This
scandal had a great impact over the goodwill of company as customer get disappointed
from such practices and also some of them claimed company to compensate or pay of
recovering cost of cars.
These all are the negative implication that has been experienced after the conduction of
cheat device scandal by Volkswagen which has an huge impact over sale as well as goodwill of
the company (Nicholls, 2014). So in order to overcome this company can consider following
measures that help it in moving toward ethical practices.
External audit:- This scandal of Volkswagen is performed by engineers of company as
they are not able to produce an engine that is of high quality and at the same time meet with the
legal standards of US government. So in order to avoid such unethical practices company can
adopt an option of external audit where after performing an factory check over cars functioning it
again will be checked outside the organisation to determine its performance over road that help
in avoiding such unethical practice. This further support in improving its goodwill at
marketplace.
Internal transfers:- In order to adopt ethical practices and avoid illegal practices
conducted by employees within the organisation it must develop a system where some
employees get transfers to different location so that they would not be able to perform some
miss-conduct within the operations of organisation (.McKendry, 2015). In case something
happen wrong then this internal transfer help in shedding up light over such actions so that
timely measures can be taken to improve them.

CONCLUSION
From the above given report it can be said that ethical practices plays a crucial role in
success or failure of a business. This is because an ethical practices help a business in improving
its brand image, attracting customers to purchase their product or services and influencing
investors to invest in business for its growth at marketplace. But on the other side an unethical
practices followed by a business leads to its failure as it has an huge impact over the purchasing
behaviour of customer which in turn reduce sales as well as profitability of company. This has
been seen in the case of Volkswagen, the defeat device scandal was a major down turn for the
organisation which has a huge influence over stakeholders such as customer claim for
compensation over company, investors refuse to invest, government has penalise the
organisation due to its unethical practices. This case has affected the companies image in
marketplace that also leads to reduce in sale as well as profitability at large scale.
RECOMMENDATIONS
From the above case study it has been determined that Volkswagen has performed
several unethical practices and as a result of which it suffered from huge losses. Hence in order
to overcome this it is very essential for Volkswagen to work over adopting ethical practices in
term of its business operations for regaining its position within market. Following are
recommendations for Volkswagen:
 VW must focuses toward creating an environment where there must be regular inspection
would be perform over the practices that are conducted by employees in order to
determine whether these are conducted by focusing over ethical principles or not.
 It must focuses toward improving its internal audit practices so that proper test can be
performed over the car and illegal conduct must be rectified. In addition to this it must
ensure that manufacturing must be perform by considering all the standards that are fixed
by governments for automotive.
 There must be more involvement of higher management so that decision can be taken
effectively . In addition to this organisation must also involve other stakeholders in
decision making process so that decision can be taken in ethical manner by the
acceptances of other parties. So that main focus should be over high quality services that
leads to maximum profit and stakeholder supports.

 Company must adopt corporate governance strategy in term of performing its business
operations much effectively. This help Volkswagen in creating a business structure which
is according to the governmental norms as well as standards that support in performing
business practices in ethical manner.
 Company must try to adopt CSR practices in term of promoting environmental safety by
using such devices in their manufacturing process which doesn't harm echo-system in any
manner. This contribution of company toward environmental safety help in improving
brand image in front of customers and other stakeholders.

REFERENCES
Books and Journals
Bergman, J. Z. and et. al., 2014. Narcissism, materialism, and environmental ethics in business
students. Journal of Management Education. 38(4). pp.489-510.
Boyd, B., Henning and et. al., 2017. Hybrid organizations: New business models for
environmental leadership. Routledge.
Cheng, P. Y. and Chu , M. C., 2014. Behavioral factors affecting students’ intentions to enroll in
business ethics courses: A comparison of the theory of planned behavior and social
cognitive theory using self-identity as a moderator. Journal of Business Ethics. 124(1).
pp.35-46.
Dierksmeier, C.,and et. al., 2016. Humanistic ethics in the age of globality. Springer.
Hoffman, M. E., Anderson, P. V. and Gustafsson, M., 2014, March. Workplace scenarios to
integrate communication skills and content: a case study. In Proceedings of the 45th
ACM technical symposium on Computer science education (pp. 349-354). ACM.
Jorge, M. L. and Peña, F. J. A., 2014. Determinants of corporate social responsibility and
business ethics education in Spanish universities. Business Ethics: A European Review.
23(2). pp.139-153.
McKendry, S., 2015. Critical thinking skills for healthcare. Routledge.
Nicholls, G., 2014. Professional development in higher education: New dimensions and
directions. Routledge.
Pullen, A. and Rhodes, C., 2015. Ethics, embodiment and organizations.Organization. 22(2).
pp.159-165.
Salam, M., Iskandar, D. A. and Ibrahim, D .A., 2017. Service learning support for academic
learning and skills development. Journal of Telecommunication, Electronic and
Computer Engineering (JTEC). 9(2-10). pp.111-117.
Online
Former Volkswagen boss charged with fraud over diesel scandal. 2018. [Online] Available
through:<https://news.cgtn.com/news/3d3d414e7855444d34457a6333566d54/
index.html>./
Cost of Volkswagen Scandal Could Hurt Company’s Electric Vehicle Push. 2019. [Online]
Available through: <https://www.nytimes.com/2017/10/27/business/volkswagen-
scandal-electric.html>./