Analysis of Ethical Issues and Impact on Volkswagen Group's Functions

This report provides an in-depth analysis of the ethical violations committed by the Volkswagen Group, specifically focusing on the 'defeat device' scandal. The executive summary highlights the importance of ethical principles for organizations and identifies the ethical issues of fidelity, responsibility, and integrity that Volkswagen violated. The report examines the impact of these violations on revenue, managers, shareholders, and customers, revealing significant negative consequences across all aspects. The analysis delves into the scandal's effect on financial performance, managerial oversight, shareholder trust, and customer relationships. The conclusion emphasizes the critical role of ethical principles in maintaining a positive reputation and strong relationships. The report concludes with recommendations for Volkswagen to overcome these issues and improve its brand image, including suggestions for managerial improvements and overall development. The report is a comprehensive assessment of the scandal's impact and offers insights into the importance of ethical conduct in business.

Academic and
professional skills

EXECUTIVE SUMMARY
Main purpose of preparing this report is to identifying the importance of ethical
principles for an organisation. This report is analysed about the identification of the issues of
which are faced by an organisation due to non fulfilment of ethical standards. The ethical aspects
which are violated by Volkswagen includes fidelity and responsibility and Integrity.
Also, in this report analysed about the impact of these on the different functions of an
organisation. The aspects which are analysed in this report is about Revenue, Managers,
Shareholders and Customers. It is ascertained that violation of ethical issues has negative upon
all the aspects.
At last, recommendation is provided which includes the three different possible solutions
to overcome from the issues and improve the present reputation and brand image of an
organisation.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
INTRODUCTION...........................................................................................................................2
Analysis ...........................................................................................................................................2
Ethical issues persistent to the act of an organisation............................................................3
Impact of Issues .....................................................................................................................3
CONCLUSION................................................................................................................................6
RECOMMENDATION...................................................................................................................6
REFERENCES................................................................................................................................8
2

INTRODUCTION
Ethics is study of philosophy which includes recommending, defending and
systematizing concepts of wrong and right conduct. Ethics want to solve issues of human
morality by describing concepts like crime and justice, evil and good, vice and virtue and good,
right and wrong. Moral philosophy is connected with the areas of value theory, descriptive ethics
and moral psychology. Ethics maintain the moral of the employees in the company and also
maintain their behaviour which increase the standard value of an organisation.
In this report chosen organisation is Volkswagen Group. In September 2015, the
Volkswagen company publicly admitted that almost 600,000 cars made for the US market had
been fitted with “defeat devices”, which is a device used in order to enable the vehicles to pass
emissions tests. Soon after this, they announced that the same devices were fitted on some 11
million cars worldwide. The corporation’s Head of U.S. Operations, Michael Horn, went on to
sit before a Congressional Committee to claim that the attempt to deceive the regulators was the
work of “a couple of software engineers”. The company went on to admit this when it published
a “statement of facts” as part of an agreement with the US Department of Justice (Ajanovic and
Haas, 2017). This document clarified that Volkswagen’s engineers had difficulty building a
diesel engine that was capable of achieving high performance while keeping emissions within
regulatory standards.
Reputation is very important for Volkswagen Group because it enhance the brand name
which increase the sales volume in the market as well as profit of the company. If effective
reputation is exists, then customers purchase the product by only its brand name not with that
particular product that influence the entire company (Zhou, 2016).
Main aim of this report is “To analysis the impact of “defeat devices on revenue,
managers, shareholders and customers of Volkswagen Group”.
Analysis
Thesis statement: To analysis the different aspects through which defeated device can help them
for reducing emissions”.
A defeat device is identify as any motor vehicle software, hardware or design that
interferes with or change emissions controls in real-world driving positions, even if the motor
vehicle passes formal emission testing (Anenberg and et. al., 2017). The emissions scandal of
1

Volkswagen began in 2015, when the USEPA (United state Environmental Protection Agency)
issued a violation notice of the clean air act.
Ethical issues persistent to the act of an organisation
Ethical issue about fidelity and responsibility: According to the case study, one of the
ethical standard which is violated due to the act of organisation is about fidelity and
responsibility. Defeat device software is implemented by the company to reduce amount of
emission at the time of testing of the cars. Thus, it reduce the trust among managers, customers,
shareholders as well as also impact on the business revenue. Thus, it is the responsibility of an
enterprise that they must ensure that all the ethical standards are followed and complied while
they are operate their business operations. The impact of this issue can be directly ascertained
upon the different determinants of an organisation such as revenue, managers, customers and
brand image.
Ethical issue about Integrity: This is one of the most important ethical aspect which us
required to be followed by an organisation while performing their business functions. This will
depicts the quality about to be Honest and having strong moral principles. The act which is done
from the organisation side is totally unethical in manner and violate the ethical standard of
integrity as they are not honest with their government personnels and for their customers too.
Impact of Issues
The impact of these issues can be ascertained upon the different aspects of an
organisation that can be understood from the description which are mentioned below. The
aspects which are covered while providing the impact of these issues are Revenue, manager,
shareholder and customers. Description of all the impacts understood from the points defined
below:
Revenue
Profit of Volkswagen tumbled just about 20% at the beginning of this time period as car
sales continued to tumble in the wake or effect of the diesel emissions scandal. In April,
Volkswagen recorded its basic annual loss in more than twenty years and thy pay for costs linked
to the scandal to approximately €16.2bn. Branded cars of Volkswagen have been worst-hit by the
outrage. In this operating profit of the business is plunged to about €73m from €514m earlier
basis (VW profits down 20% after diesel emissions scandal, 2018). An organisation pounded to
its predict of fall of up approximately five percent in year 2016 group revenue contrast with past
2

year, developing on conditions of economic particularly in Russia and South America. It is
expecting a marked fall in traveller car sales revenues. Thus, defeat devices is highly impact on
the business revenue as well as effect on performance and productivity at the same time. Apart
from this, net NPV of the cost of all dieselgate scandal of for organisation, including,
government settlements, fines, recall expense, private settlements and future sales loss could be
up to $34.5 billion. Fraud of Volkswagen has develop the market wary of its challenges too,
which marketing diesel vehicles in the United State and other market place (Wang and et. al.,
2016). In bigging, in the US it was approximately 482,000 unites that were described to have
been suited with a defeat device. It would support in reducing emissions while state tested, as
contrast to actual road situations.
Managers
Volkswagen has developed a device known as defeat device to cover the the scale of
pollution occurred due to its vehicles. This is a serious issue occurred in media which violated
the ethical standards related to Fidelity and responsibility and Integrity. The company found to
erupt in the scandal in the month of Sep. 2015 when 600000 cars were sold in United states and
found the defeat device attached in it (Barrett and et. al., 2015). The manager of Volkswagen has
the duty of managing the operation smoothly and accurately so that any fraudulent will be
avoided to occur. This disrupts the image of the company in the minds of its stakeholders and in
customer. Manager has to examine this device when it is manufacturing so that it cannot be
caught by the government officials. The manager also has to keep in mind the the focus of
manufacturing the device such that it will pass the pollution emission test. As per the media
reports, three managers of R&D were involved at three brands VW, Audi and Porsche are
suspended at the time of investigation of such device. If the manager of company perform their
roles and responsibility in proper manner than this fraudulent can be caught by the officials and
the brand image of company will not disturb. Some managers of different departments also
found guilty in this defeat device manufacturing in US. A manager has to plan the decision and
system like that it will fulfil all the decision of the organization easily. The main reason of this
scandal is that the managers does not focused on this scandal and thus all the process of this
fraud has done (Holland and et. al., 2016). They are totally responsible in impacting the
reputation and goodwill of the organization.
Shareholders
3

Shareholders of the Volkswagen have accused its administration of overseeing a
demanded and shambles variations to the structure of management in the first annual
conversation since the maker of car became involved in the diesel emissions scandal. Beside this
investors followed the meeting or conversation in Hanover to point out the German based
organisations board for its managing of the scandal as well as call for the dramatic
redevelopment of its corporate governance (Hou and et. al., 2016). The car-maker admitted past
September that approximately 11m diesel cars had been suited with software that permit them to
cheat or avoid emissions tests. Volkswagen has fixed aside €16.2bn (£11bn) in order to trade
with a scandal that guide to the car- maker's first yearly loss in twenty years. It also look a string
of legal cases and regulatory around the globe (Upadhyay and Singh, 2016). In addition, A court
has been flooded with innovative lawsuits opposed to Volkswagen from capitalist who say they
mislaid billions as the quantity of the car-maker's percentage fall after its diesel emissions
scandal. Apart from this, In country, a regional regime in Braunschweig, close Volkswagen’s
central office in Wolfsburg, determined it had certified approximately 1,400 complaints from
individual and institutional shareholders seeking about 8.2 billion euros, and approximately $9.2
billion, in damages. An organisation had already reached about $15 billion settlement in the US
and set aside €17.8 b for costs linked to the deception. It also look a raft of issues from clients in
Europe, via regional law way it is difficult for disaffected vehicle businessman to unite to sue the
car-maker.
Customer
Defeat device is also impart on the customer’s behaviour and mind set towards business
brand. Volkswagen's reputation and image along with the value of market go decreased which
negatively and direct effect on customer’s as well as an organisation (Jonson and et. al., 2017).
Defeat device was not appropriate and inaccurate in monitoring environmental pollutions. This
output to reduce customer trust as well as business reputation at marketplace. This was one of the
effective scandal from which company faces different number of issues about customer loyalty
and public relationship. Thus, it directly and negatively impact on the customer’s and business
image as per the same.
Evaluation of the Extent to which company's reputation has been damaged
Defeat devices of Volkswagen Scandal is directly impact on business reputation and
image at marketplace (Swanton and et. al., 2015). Goodwill and reputation of the company is
4

much better previously but after this issue, company reduce their image among customers,
shareholder, public, etc. On 18th September, Volkswagen installed and developed a Defeat device
software, it means they cheat on emission test, it means diesel car give approximately 40 time
more population. After this, company reduced their share price up to 18% which show negative
reputation and image of an organisation at marketplace.
CONCLUSION
From the above mentioned information, it can be concluded that ethical principles is
more essential and important for the company to follow it and make better reputation at
marketplace. Ethical principles would support an organisation to run their business operations
and functions in smooth manner. It is also essential and significant for the organisation to retain
strong long lasting relation with the customers, shareholder, managers etc. Thus, it is the role and
responsibility of company to increase trust and loyalty among customers, managers, goverments
towards their brand.
RECOMMENDATION
From the above report it can be suggests that managers are the main key indicators of a
company. So, it necessary to the Volkswagen Group to improve their managers performance of
quality, their capacity, ability to influence the employees etc. They should provide overall
development of their managers in which managers can give their best to the company and
achieve company's goals with the employees. Revenue and profit maximisation is the main aim
of the company. So, its necessary to the company to enhance their brand name in the market for
gaining more and more profit in the company. Company should create effective customer base
because customers are who can increase and decrease brand value and demand of the company's
product. Customers are the main aspects of the company. So, it should be take care of their
customers and their demands. Volkswagen company should satisfy all the demands and needs of
the consumers effectively and provided services timely. Investors can increase the market share
of the company by invest in a company. Company should manage the all aspects relating to
shareholders. They should arranged general meeting and extra ordinary meeting in fixed period
of time and provide notice relating to meetings timely. Beside this, company should provide
better quality in their products and services which will help them to maximise customer base and
achieve better results within predetermined time duration. Along with this, Volkswagen should
5

provide training classes to their managers so that they are able to check pollution report which
will also essential and significant for the success and development of an organisation in limited
time period. In order to overcome impact of defeat devices on investors and revenue, company
should retain better relationship with them and collect more amount of money for their daily
routine activities and functions.
6

REFERENCES
Books and Journals:
Ajanovic, A. and Haas, R., 2017. The impact of energy policies in scenarios on GHG emission
reduction in passenger car mobility in the EU-15. Renewable and Sustainable Energy
Reviews. 68. pp.1088-1096.
Anenberg, S.C. and et. al., 2017. Impacts and mitigation of excess diesel-related NO x emissions
in 11 major vehicle markets. Nature. 545(7655). p.467.
Barrett, S.R. and et. al., 2015. Impact of the Volkswagen emissions control defeat device on US
public health. Environmental Research Letters. 10(11). p.114005.
Holland, S. P., Mansur, E. T., Muller, N. Z. and Yates, A. J., 2016. Damages and expected
deaths due to excess NO x emissions from 2009 to 2015 Volkswagen diesel
vehicles. Environmental science & technology. 50(3). pp.1111-1117.
Hou, L., Zhang, K., Luthin, M. A. and Baccarelli, A. A., 2016. Public health impact and
economic costs of Volkswagen’s lack of compliance with the United States’ Emission
Standards. International journal of environmental research and public health. 13(9).
p.891.
Jonson, J.E. and et. al., 2017. Impact of excess NOx emissions from diesel cars on air quality,
public health and eutrophication in Europe. Environmental Research Letters. 12(9).
p.094017.
Swanton, C., Boffetta, P., Peston, R. and Soria, J. C., 2015. Environmental emissions, public
health and lung cancer risk.
Upadhyay, G. A. and Singh, J. P., 2016. Spinal cord stimulation for heart failure in the
DEFEAT-HF study: lost battle or lasting opportunities?.
Wang, T., Jerrett, M., Sinsheimer, P. and Zhu, Y., 2016. Estimating PM2. 5-associated mortality
increase in California due to the Volkswagen emission control defeat
device. Atmospheric Environment. 144. pp.168-174.
Zhou, A., 2016. Analysis of the Volkswagen scandal possible solutions for recovery.
Online
VW profits down 20% after diesel emissions scandal. 2018. [Online]. Available
through.<https://www.theguardian.com/business/2016/may/31/vw-volkswagen-profits-
down-20-diesel-emissions-scandal>.
7

8