Volkswagen's Ethical Failure: A Case Study on Business Ethics

This case study delves into the ethical issues surrounding Volkswagen, particularly focusing on the period under CEO Martin Winterkorn, where the company aimed to surpass Toyota in sales. The analysis highlights the ethical violations related to governance, decision-making, and leadership, specifically the installation of 'defeat devices' to cheat on emission tests. The paper assesses the reasons behind these unethical practices, attributing them to pressure, opportunity, rationalization, poor leadership, and fear of failure. Ultimately, the study underscores the importance of ethical conduct and compliance with legal standards for long-term business sustainability, referencing key concepts like Corporate Social Responsibility and ethical leadership within organizations. The document is contributed by a student and published on Desklib, a platform providing AI-based study tools for students.

Case study
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Table of Contents
Introduction......................................................................................................................................3
Brief of the Case..............................................................................................................................4
1). Apply the knowledge of the ethical issues to the given case and analyze the types of ethical
issues being violated in the above situation.................................................................................5
2 ). Assess the reason of unethical practices used in the given case............................................7
Conclusion.......................................................................................................................................9
Reference:......................................................................................................................................10
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Introduction
Due to Globalisation, there are various businesses operating in the global market and in this
regards different types of laws and norms are to be followed by these organisations. It is
necessary that the interest of the consumer is also considered while operating business activities
and making relevant decisions. There are certain duties and responsibilities which are to be
performed by the organisations which include running the business in morally and ethically.
There is an ethical code of conduct of every organisation which is based on the practices and the
laws applicable in the nation in which such organisation is operating its business. This
assignment is based on a case study of the automobile organisation, Volkswagen and the impact
of the ethical code of the conduct on the business of the organisation.
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Brief of the Case
In the given case, the company Volkswagen operated under the leadership of Martin Winterkorn,
who was appointed as the CEO of the company in the year of 2007. The aim of the company was
to sell 10 Million cars annually and to take the crown from the Toyota. The company planned to
expand its business in the market of U.S. and providing diesel cars which will be powerful and
efficient, meeting the standards of America in terms of the emissions released from the car. As
the leaders of the company adopted autocratic leadership to run the company and there focus was
on achieving the objective in any way possible. The employees and the engineers of the company
worked under a lot of pressure as the CEO of the company refused to team up with Daimler, the
product of which neutralises emissions from the car. Therefore, the engineers of the company
had to work from starting and the aggressive nature of the leaders of the company forced them to
cheat by installing software which recognised when the car was being tested for emitting
emission and the defeat device automatically gets on. By this, the company was able to pass the
emission test in the U.S.
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1). Apply the knowledge of the ethical issues to the given case and analyze the types of
ethical issues being violated in the above situation.
It is essential for the survival of the companies like Volkswagen in the global market that the
business activities are performed taking care of the ethics and the values. This also includes the
making of decisions or differentiating between the right and wrong decisions. The recognition of
the company and the performance skills of the employees are affected if the company is unable
to adopt a certain code of conduct, in terms of ethics, for the operations of the company (Shaw,
and Barry, 2015). This concept also includes the concept of the CSR (Corporate Social
Responsibility) in which it is stated that it is the duty of the corporation that it shall contribute in
the development of the society or the community in which it is operating its business.
In case of the ethical issues, an organisation is required to choose from the available options
which may be assessed as ethical and unethical (DesJardins and McCall, 2014). There are
various ethical issues which are faced by the organisation during handling its operating and
functional activities. These issues are as follows:
Governance and Compliance Issues: Operating a business in the multiple nations requires
compliance with different types of the laws and norms. Different nations have a different legal
framework and the different practices are followed in each nation which is to be adopted by the
company for running its business in that particular nation. It is to be ensured by the management
of the company that all the provisions of the applicable laws are complied with in true and fair
manner. In general sense, it can be said that the businesses must follow environmental laws, state
safety regulations, monetary reporting statutes and other applicable civil laws (Allen and
Kraakman, 2016). This is connected with the commitment of the company to comply with the
applicable laws and this is dependent on the governance approach of the company i.e. the
management of the company, employees and other related personnel must work accordingly to
the policies of the code of conduct framed by considering the legal framework of the respective
nation.
Issues in Decision Making: It is a method which includes identification of ethical action plan
and the exploring the ethical problems. This process includes the gathering the information,
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assessing and considering other actions, the possibility of performance, decision-making and the
examining the rightfulness of the decision and the reflection of the result of such decision made.
Ethical decision making revolves around taking into consideration the interest of the consumer
and the employees of the company and ensuring that all the activities of business is fair and just
and are consistent with the ethical practices applicable on the company (Trevino and Nelson,
2016). As per the code of conduct of the company, there is the violation of ethical practice of
conflict of interest.
Leadership issues: It is well known that the organisation works under the direction of its leaders
i.e. CEO, directors, etc. Therefore, the workforce of the organisation looks up to the leaders as
the ethical role model and putting the efforts to maintain an ethical environment in the
organisation (Johnson, 2017). In accordance with the ethical code of the company, there is
violation of the free and fair competition due to the use of defeat devices.
Issues in terms of Respect: Another issue which is found in the organisations is that top-level
management doesn’t respect the subordinate (Collins, 2012). A person works for income, dignity
and the respect in the organisation and is unethical not to respect the employees.
In the given case of Volkswagen, there are various ethical issues which resulted in the failure of
the company to accomplish the objectives and these issues are as follows:
 The leaders of the company didn’t respect the employees and the engineers employed and
didn’t consider their interest while making decisions such as the setting up the aim of
selling 10 Million cars in a year and not collaborating with Daimler due to which the
engineers of the company had to work from the start. This covers the decision-making
issues and issues related to respecting the employees.
 The company was unable to comply with the ethical code of conduct as by installing
software and with the help of defeat device, the company adopted unfair means to make
things work. This is a clear example of compliance and governance issues and the failure
of leadership.
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2 ). Assess the reason of unethical practices used in the given case.
There are various reasons due to which the unethical practices were adopted by the company in
the given case. In accordance with the given scenarios, the reasons for these unethical decisions
are as follows:
Pressure: In the given case, the workforce i.e. the employees and the engineers of the company
were under immense pressure of accomplishing the organisational goals as the Chief Executive
Officer of the company, Martin Winterkorn only liked good news and if there was any bad news,
this would result in termination of the employees or the engineers. Moreover, the code of
conduct of the company was of no use as the adoption of autocratic leadership style and the
aggressive nature of the leaders declined the performance of adequately trained personnel. In
order to save the recognition of the company in the market and their own recognition in the
company, the engineer adopt took unethical decision for getting through the emission test.
Opportunity: Due to immense pressure and in order to achieve the goals of the organisation and
the lack of time, the workforce of the company had the opportunity to cheat and the install the
software which recognises the time when the car was being tested for the emission and turns on
the defeat device automatically. And due to 100 million line of the software coding, the
authorities will not be able to identify this software for cheating in the emission test.
Rationalisation: In the 19th century, the engineers of the company installed defeat devices in the
car which allowed cheating in the emission test and meeting the emission standards. However, at
that time, the fine of not complying with the standards attracted was $120,000 and it was also
considered that the punishment was also light. In order to accomplish the goals of the goals of
the organisation, the engineers of the company installed the device as it was in favour of the
company and it would be approved by the management eventually.
Another reason for adopting the unfair practices in the given scenario is as follows:
 Poor leadership is one of the reason of the adopting such unethical ways as the decisions
were not made by the leaders taking into consideration the interest of the workforce and
probability of accomplishing the goals.
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 Fear to fail and get terminated is another reason for adopting such practices in the given
case as the workforce of the company feared that if they fail, they will be removed from
the employment.
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Conclusion
From the discussion made above on the significance of the ethics in the business sector, it is
concluded that for surviving in the framework of the legal system and to avoid the legal
consequences which are detrimental for the company, ethical code of conduct must be adopted
and followed by the company. The company has to face various issues in operating the business
ethically which involve issues related to decision-making, compliance with the law, considering
the interest of the workforce, etc. The reason due to which unethical practices were adopted is
also highlighted in accordance with the given scenario of Volkswagen.
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Reference:
 Allen, W.T. and Kraakman, R., 2016. Commentaries and cases on the law of business
organization. Wolters Kluwer law & business.
 Collins, D., 2012. Business ethics: How to design and manage ethical organizations.
Hoboken, NJ: Wiley.
 DesJardins, J.R. and McCall, J.J., 2014. Contemporary issues in business ethics. Cengage
Learning.
 Johnson, C.E., 2017. Meeting the ethical challenges of leadership: Casting light or
shadow. Sage Publications.
 Shaw, W.H. and Barry, V., 2015. Moral issues in business. Cengage Learning.
 Trevino, L.K. and Nelson, K.A., 2016. Managing business ethics: Straight talk about
how to do it right. John Wiley & Sons.
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