Volkswagen's Ethical Lapse: A Case Study in Business and Law

Desklib provides past papers and solved assignments. This case study analyzes Volkswagen's emissions scandal.

A CASE STUDY ON VOLKSWAGEN
BUSINESS & LAW
2019

Executive Summary
In this assignment we will be giving a brief about what Volkswagen group is, we will also
analyse the impact of Volkswagen, (a world biggest car manufacturing company) emissions
scandal on its organization performance, customer base, brand image and other external as
well as internal factors and how they misguide the board by using device which control
emission of NOx during Lab tests. We will also be studying how the management handle the
situation and what all corrective measures they took to get a clean chit from the regulatory
authority for doing further business with the current global partners and suppliers. It will also
guide you that how the company maintain its customer base and trust. We will also be
mentioning the measures might taken by the company to avoid such situations.
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Table of Contents
Executive Summary...............................................................................................................................2
Introduction...........................................................................................................................................4
Analysis.................................................................................................................................................5
Discuss to what extent ethics plays a part in the success or demise of an organisation?....................5
What measures can an organization take to ensure ethical practice?.................................................7
Conclusion.............................................................................................................................................8
Recommendation...................................................................................................................................9
References...........................................................................................................................................10
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Introduction
Volkswagen a German car manufacturing company started his company in May; 1937who’s
current market base is 10.83 million till 2018 along with 302,554 employees till date (Annual
Report, 2018). The company is the world largest car manufacturer which made all type of
vehicles: commercial, motorcycle, engines, turbo machinery etc. and also provide financing,
leasing etc. it has also been ranked as 7th largest automaker company in the year 2018
according to Fortune globe 500. The company divides its functioning into two parts
automotive and financial. It also had tie-up with other passenger cars like: Audi, Porsche,
Lamborghini, Ducati, Scania, Skoda etc (Lohr, 2015).
But the company growth got stagnant in the year 2015, cause of some scandals and conflicts
which took place within the organization. This scandal cause huge impact on various aspects
of internal as well as on external factors. This assignment is based on all those issues which
the leading European Car manufacturing company Volkswagen faces due to own false notes
and commitments they made to German and US Environment regulatory authorities. The
company has to pay huge amount to the board as penalty. They also have to invest more on
the recovery part of all those vehicles in which they have putted those devices which controls
Nitrogen emission during Lab test (Annual Report, 2018).
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Analysis
Discuss to what extent ethics plays a part in the success or demise of an organisation?
Ethics plays a vital role in the success or failure of any organizations; it is also an important
part of external factor. In other words ethics involves the legal functioning of any
organization. This includes various aspects like: internal working of an organization set under
company laws, rules and regulations made by regulatory board to run the organization etc,
these rules and regulation may vary industry to industry.
We will be analysing that how contravention of laws create impact on the working of
Volkswagen and how they deceive the US Environmental Protection agency on their cars that
there emission rates are less.
1. Regulatory: they have some standards for the car manufacturing companies that the
rate of Nox emission in the environment should be very less so that it may not harm
the air quality. Tocheck this board do Lab testing of every car before the company
launches the model, in this test the board check the rate of gases release when the car
runs. Volkswagen engineers made a device for diesel cars which control the gas
emission at the time of lab test and deactivated when the car move on roads. They
were doing this from 2008 till 2014 and have putted the device in almost 11 million
cars. This Contravention came into notice when one of his board members made
complaint about this to the US Environmental Protection agency. Then the board did
investigation and find the Volkswagen group guilty in this matter.
2. Revenue: the company admitted his fault and charged huge penalty by the regulatory
board which make the company revenue 2 year backward cause this penalty was not
only impose by US authority but many other countries worldwide did the same on
Volkswagen, cause the cars were not only sold in US but it has cover every corner of
the world.
3. Managers: the company CEO’s Martin Winterkorn and Michael Horn both were
aware about this fraud going on into the company but they don’t mention any
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comments on it and keep the work going on in the same momentum. Later when the
issue came into notice they mention it as the engineers programming fault. But, when
proper investigation took place both the CEO’s have asked to put their papers down
by other board members. Similarly the team who have performed this task have also
allowed putting their paper down and making their way out of the company (Aeppel,
2015).
4. Share Prices: during the year 2015 till 2016 the share prices of the company goes
down up to 23% and shareholders put complaints against their losses and ask the
company to compensate them. The company has to face down fall till 2017 quarter.
5. Public Relation/ Media coverage: during the year 2015 the company was
highlighted almost in all the big news channels and papers like: business times,
financial times, CNBC news, BBC news etc. The image of the company during that
period became a huge controversial issue for all the other big car manufacturing
companies. Everyone was putting allegations and was trying to make the best possible
use the scandal. But the company handle the situation were smartly and use the media
to highlight all his measures and actions which they are performing to rectify the
situation like: resignation of their CEO’s along with the team who has perform this
task. The internal and external investigation they made to regain the confidence of the
Regulatory board. They also pay the entire charges amount to the regulatory board.
And the changes they will make to those defective cars (Leggett, 2018).
6. Customers: the company has huge market base and great demand in the market for
their cars. After this scandal a survey was conducted to find out customer reaction on
the matter. The Survey speaks half of the market is still in favour of the company and
says that it will come out with clean chit (Hennessy, 2015). Customer also says that
other car makers had also did some fraud which might not cot by the board but they
were cot and handle the situation smartly. The company also give comfort to their
customer by announcing that all those who have purchased the cars during this period
they will get a call for fixing up their cars. The company did not launch any further
car during that tenure and took one whole year to rectify the issue.
7. The Industry or Sector: this scandal put other car manufacturer also into the frame
check of the regulators of all those market in which they were serving. The owners of
other manufacturer says that this scandal may affect the working of all the companies
as the regulatory body became more strict on these aspects and might conduct a
surprise visit or may demand the report of air emission done my their vehicle during
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the test. Slow down into the sale of the car also be seen during that period not only in
Volkswagen but other manufacturer cars also.
Ethics plays an important role in every aspect of the organizational goals.
Yes falls practice of this could lead to demise the image, performance and market
base of the organization. It can also affect the profit of the organization. Like in above
case the scandal creates huge impact on the revenue and on the psyche of the
employees. The wrong practices made by one of the senior management people make
other people suffer because they follow the orders. This creates a wrong impact on
other employees also. Revenue also fall done for few years but the image won’t get
affected because of the customer strong faith in the group (Isidore, 2015).
What measures can an organization take to ensure ethical practice?
The organization can take numbers of actions to make ensure ethical practices are taken place
in the organization or not:
1. They can put quarterly internal investigation to keep check on the process and
performance of the management.
2. They can also add some points in the performance sheet of the employees for
performing ethically.
3. They should make their rules, vision and mission as per the norms made by the
regulatory board.
4. They should avoid putting those managers into the system which promotes such
unethical practices to avoid negative impact on other employees and managers.
5. The organization can display the rules and regulations on the notice board so that
each and every one can read it.
6. They can take strict actions or can impose penalty on the violation of the rules.
7. They must be aware about all the certification which an organization must have to
run its business and should have all of them.
8. The company must conduct monthly meeting to discuss the norms of ethical
behaviour in the organization (Hotten, 2015).
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Conclusion
From this above assignment we can find that just because of one wrong practice done by
senior management the company has to face many issues and challenges to recreate its
market and shareholders trust. They also have to face number of charges and penalties
imposed on them by Air Regulatory board of various countries. We can also say that the
company play fair and took all the charges. Along with this they also rectify the error and
bring change in the management structure by removing all those members who were involves
knowingly or unknowingly in the matter. With all this we can also find that the trusts which
they have created on their customer were so strong that they became market leader in 2018
with 7th position in the world after facing such big scandal (The Local, 2018).
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Recommendation
With this analysis we can say that fraudulent practices make create huge impact on the
working and performance of the organization. Many companies can overcome such issues but
some face shut down of the organization like: Satyam Scandal which brings shut down of the
company. But in this case the company took initiative to rectify all its wrong practices and
misrepresentation done in the Lab test.
Below are the suggestions which a company can follow to avoid such situation:
1. The CEO must have taken step at the initial stage only when he gets into the notice of
this wrong practice.
2. The engineers can also deny from following the instructions given by the top
management to create such device.
3. The CEO must also inform the other members about the notice received from the
regulatory board in spite of hiding it form them.
4. The company must follow the norms made by the Air regulatory and should not show
deceiving results to them at the time of Lab Test (Grieb, 2015).
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References
 Aeppel, T., 2015. Nissan CEO says it would be hard to hide any effort to
falsify emissions data. [Online] Reuters. Available at:
https://www.reuters.com/article/us-usa-volkswagen-ghosn/nissan-ceo-says-it-
would-be-hard-to-hide-any-effort-to-falsify-emissions-data-
idUSKCN0RM2TK20150922 [Accessed 7 May 2019]
 Annual Report, 2018. Full Speed ahead to the future. [Online] Volkswagen.
Available at: https://www.volkswagenag.com/ir/Y_2018_e.pdf [Accessed 6
May 2019]
 Grieb, D., 2015. Volkswagen's Reputation Takes Big Hit with Vehicle Owners;
AutoPacific Predicts Tough Road Ahead. [Online] AutoPacific. Available at:
https://web.archive.org/web/20151006140117/http://www.autopacific.com/
news-app/story.248/title.volkswagen-s-reputation-takes-big-hit-with-vehicle-
owners-autopacific-predicts-tough-road-ahead [Accessed 4 May 2019]
 Hennessy, J., 2015. VW messed up, but the emissions scandal won't turn off
customers. [Online] Fortune. Available at:
http://fortune.com/2015/10/09/volkswagen-emissions-scandal-wont-turn-off-
customers/ [Accessed 8 May 2019]
 Hotten, R., 2015. Volkswagen: The scandal explained. [Online] BBC News.
Available at: https://www.bbc.com/news/business-34324772 [Accessed 4 May
2019]
 Isidore, C., 2015. Volkswagen sold 3,060 diesels in U.S. last month before
scandal. [Online] CNN. Available at:
https://money.cnn.com/2015/10/01/news/companies/volkswagen-emission-
scandal-sales/index.html [Accessed 7 May 2019]
 Leggett, T., 2018. How VW tried to cover up the emissions scandal. [Online]
BBC News. Available at: https://www.bbc.co.uk/news/business-44005844
[Accessed 4 May 2019]
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 Lohr, J., 2015. Two-thirds of Germans still trust Volkswagen after emissions
scandal. [Online] The guardian. Available at:
https://www.theguardian.com/business/2015/oct/20/two-thirds-of-germans-
still-trust-volkswagen-after-emissions-scandal [Accessed 5 May 2019]
 The Local, 2018. Volkswagen profit roars back two years after 'dieselgate'.
[Online] The Local. Available at:
https://www.thelocal.de/20180224/volkswagen-profit-roars-back-two-years-
after-dieselgate [Accessed 2 May 2019]
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