Volkswagen: An Analysis of Ethical Issues and Recommendations Report

This report provides an executive summary of the ethical issues surrounding the Volkswagen emission scandal. It defines business ethics and analyzes the scandal, focusing on the illegal implementation of defeat devices in vehicles to pass emission tests, which led to significant financial and reputational damage. The report examines the impact on key stakeholders, including revenues, managers, customers, and shareholders, highlighting the ethical failures and their consequences. It concludes by emphasizing the importance of ethical practices in maintaining a positive brand image and offers recommendations for Volkswagen, such as setting up clear ethical policies, improving communication channels, and conducting regular audits to regain trust and improve ethical conduct within the organization. The analysis underscores the crucial role of ethical behavior in organizational success, proposing actionable steps to prevent future ethical breaches and restore Volkswagen's reputation.

Academic And Professional Skills

Executive Summary
Ethics can be defined as the moral values of a person that encourages them to judge
other's behaviour. It also guides the individuals to what is right or wrong for them. Case study
which is discussed in this report is Volkswagen that is related with illegal implementation of
defeat devices in their vehicles so as to passing diesel emission test. Due to this implementation,
company has faced various barriers regarding the sales figures and revenues. Suitable
recommendations are also provided in this report so that company can overcome the negative
influences of emission scandals and improve their brand image in marketplace.

Table of Contents
Executive Summary ........................................................................................................................2
INTRODUCTION...........................................................................................................................4
ANALYSIS......................................................................................................................................4
CONCLUSION................................................................................................................................7
RECOMMENDATION ..................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Business ethics are the kind of professional ethics which examines ethical principles
along with ethical difficulties that can arise within the workplace. These business ethics rises
from organisational statements, individuals and legal systems. Business ethics comprises of all
principles and values that is regulated by morale and behaviour of organisation. It is a framework
if that is not ethically structured then it can provide difficulty in gaining moral support from
stakeholders. Stakeholders can either be customers, employees or investors, which are related
with organisation. This report will discuss about the ethical issues that is faced by Volkswagen
along with analysing the impact of these issues on operations of organisation. Analysis is also
framed under this report that identifies assistance of ethics in various aspects like share-price,
managers or customers. Essential recommendation will also provided in the end of report which
will be helpful for the organisation in making strong business ethics.
Present report is related with Volkswagen and its scandal which was happened in 2015. It
was occurred in September 2015 when environmental protection agency have provided notice
that is related with violation of clean air act to the managers of firm. Reason behind receiving
notice that company have implemented defeat system in their diesel engines so that emission test
can be passed by produced vehicles without any problem. Company added defeat devices in their
11 million vehicles due to this it is became a big scandal. After receiving the notice from
governmental authorities, management take comprehensive actions so that irregularities can be
removed. In accordance with this, firm has also carried out external investigation and internal
queries so as to overcome such issues.
ANALYSIS
Role of ethics in success and demise of Volkswagen
Ethics are related with the judgement of individuals about wrong or right situations.
Decisions that are made in the organisation taken by the managers or other authorities but this is
influenced by culture of firm. There are various benefits which can be gained by Volkswagen
through following business ethics. They are, Appropriate business ethics provides benefits in
attracting large number of customers towards the products or services of organisation. It also
provide support to organisation in retaining employees for long time period so that organisational
productivity can be enhanced (Barry, 2016). It also provide some other benefits like attracting

investors, reduction in unessential costs etc. whereas, if unethical ethics are practised by the
managers of organisation then it can adversely impact on profit margins and brand image of firm
in front of investors. In accordance with this, if Volkswagen will follow business ethics in proper
manner then it will help them in achieving their desired goals but if code of conduct of
organisation will lacks then it influences on the working morale of staff members due to which
productivity or profitability of organisation will be reduce.
Ethical issue faced by Volkswagen
Volkswagen is a re-known German car producer that is popular for manufacturing
comfortable vehicles. For sustaining with a good brand image in market, it is very essential for
the organisation to manufacture the products as per the expectation and desires of customers. For
achieving better outcomes, Management of Volkswagen should follow the business ethics in
good manner so that brand image of firm would be maintained in marketplace. Emission scandal
that was occurred in 2015 has disfavoured the organisation. Main reason behind this scandal is
the illegal implementation of defeat device in vehicles which was implemented for passing the
emission tests (Bowie, 2017). Performing of this activity was ethically wrong because of which
company has faced a lot of issues like reduction in revenues, employee turnover etc. Due to
installation of defected devices in 11 million cars expectation of loyal customers of Volkswagen
was destroyed. Software which was used in 11 million vehicles was globally against the
regulations and were also against the customer expectations. Issue has become an ethical
dimension because numerous vehicle were emitting harmful nitrogen oxide which was 40 time
higher from the legal standard. Scandal of this kind have adversely impact on the firm as the
result of it company have faced a loss of 26 billion euros. This kind of unethical practice has
impacted revenue and brand image of organisation in negative manner as for the first time in
their 20 years history they have faced a loss of 1.6 billion euros (Everything You Need to Know
About Volkswagen Diesel Emission Scandal, 2018).
Key stakeholders and impact on them Revenues: Volkswagen is a multinational company which operates its operations across
the world. Company was negatively influenced by the errors which were done in vehicles
of firm. As company is operating its functions at international level then it is very
essential for them to follow ethical standards and norms so that brand image or market
position can be maintained. However, issues was occurred due to illegal installation of

defeat devices in the vehicles was not an ethical practices and that has adversely impacted
the brand image of firm. Due to this, brand image of firm were decreased, the customers
are dissatisfied and as a result of it, they have shifted their perceptions towards another
brands. It negatively influenced sales figures and revenue of company such as company
has to recalled the defected vehicles from the market. Revenue of company which was
depends on sales and profitability were decreased due to not following ethical practices
and standards. Apart from that, if company has designed and manufactured the vehicles
as per the ethical norms then this issue wouldn't be taken places. Therefore, it can be said
that revenue plays very crucial role in sustaining of firm in marketplace. Managers: Managers of Volkswagen are guilty because they have guided their
employees for installing defeat devices for passing the pollution test. However, the given
statement of managers is defined that they were not involved in scandal but it is known
by everyone that such installation can't be done without guidance of higher authorities.
Managers are still trying for separating themselves from the scandal and also provided
statements that appropriate actions would be taken against the faulty who was involved in
scandal (Rhodes, 2016). Managers should perform their activities in an ethical way so
that brand image or productivity of organisation should be maintained in marketplace.
But managers of Volkswagen have done unethical practices in production of cars due to
which customers, suppliers, distributors all have faces unaffordable loss. Due to this
scandal, employees of firm were also got influenced that leads employee turnover rate in
the company.
 Customers: Another stakeholders which have experienced influences of this scandal are
customers who have purchased cars that were not designed as per the legal requirements.
Due to implementation of wrong devices they have faced various issues at the time of
riding these cars. Due to which customers were felt dissatisfied with the company and
shift their perceptions towards other brands. This scandal has also impacted on customer
base of firm in negative manner and as a result of it, revenues and market presence of
organisation were reduced. As company was not satisfying the needs of customers and
customer base is reducing then management of Volkswagen have decided to apologise
from the customers and taking measures for overcoming the issues that have taken places
due to scandals. Hence, it can be said that ethics plays very important role in making

good customer base as if management have performed their each function in ethical
manner then market presence of firm wouldn't be decreased.
 Shareholders - Volkswagen has large number of shareholders who have invested funds
in various operations of Volkswagen so as to gaining good value of invested amounts.
However, scandal had also impacted the hope of shareholders in negative manner due to
which they have stopped their investments in each functional activities of organisation.
Due to installation of wrong devices in vehicles, shareholders have not received expected
returns on their invested amount of funds and a result of it shareholders has demanded
their money back from the management. Company have faced a loss of 37% when
reports of investigation were disclosed in public. Apart from that, if managers of
Volkswagen have taken proper suggestion from their stakeholders then they wouldn't be
bounded for paying fine (Wallace, 2015). Management of Volkswagen have not
discussed about the scandal with the shareholders of firm due to which they have sued on
the managers for securing the important information. In accordance with this, company
have paid an amount of 27.4 billion euros in a form of fine to their stakeholders due to
which brand image of firm is decreased in the marketplace. Apart from that, if managers
have discussed all necessary informations with their stakeholders then it wouldn't be
impact in adverse manner on the brand image of organisation.
CONCLUSION
It has been summarised from the above discussed report that ethics of business plays very
essential role in making positive working culture in the organisation. Organisation who does not
adhere ethical requirements have to face losses in form of revenue, customer base etc. Due to
practising illegal practices in workplace employees feels dissatisfied and as a result of it,
employee turnover of firm may be increased. Illegal ethical practices also leads the firm towards
decreasing performance and productivity which is not beneficial for the brand image of
organisation. If managers of organisation will not take support of shareholders in decision-
making then it will impact on the profitability and revenues in negative manner. Hence, it can be
said that ethics are very essential for the organisation in making good brand image in
marketplace. In addition, it is also very important for the managers to follow all ethical and legal
requirements carefully so that losses or adverse influence can be prevented in easy manner.

RECOMMENDATION
After analysing above discussed case study of Volkswagen different kind of conclusion
are made that are related with requirements of organisation to form organised framework and
ethical thinking. There are some important recommendations which should be adhere by the
managers of organisation so that lost reputation or brand image of firm can be attained in a small
period of time. Some of these recommendations are given as follows: Setting up policies: Volkswagen is recommended to formulate different policies by
introducing ethical framework in its deigning and manufacturing processes. These
policies are required to consider each resource and procedures which are adopted by
company. Manager of the company is recommended to follow all ethical and legal
regulations formulated by government & stakeholders in a sincere manner so that all the
work can be carried out in a systematic way. Communication: It is an another recommendation which is given to the managers of
Volkswagen to build strong communication channel so that works should be managed as
per the ethics. It is also required for the company to regain trust of their workforce,
clients so that brand image can be repaired in marketplace. Formulated policies should be
communicate with each stakeholders of company so that ethics of firm can be maintained
in good manner. Duties of staff members should be communicated to them clearly so that
tasks would be done by them as per the ethical standard.
 Regular Audits: Another major recommendation which can be provided to the firm is
following audits on regular basis. It is also an important practice which will ensures the
consistency of organisational ethics. External audit provide support the management
because with the help of it they can easily determine limitations and shortcomings and
take effective measures for removing them from organisational procedures.

REFERENCES
Books and Journals
Barry, N., 2016. Business ethics. Springer.
Blackwelder, and et. al., 2016. The Volkswagen Scandal.
Bowie, N. E., 2017. Business ethics: A Kantian perspective. Cambridge University Press.
Nelson, J.S., 2016. The Criminal Bug: Volkswagen's Middle Management. Available at SSRN
2767255.
Oldenkamp, R., van Zelm, R. and Huijbregts, M.A., 2016. Valuing the human health damage
caused by the fraud of Volkswagen. Environmental Pollution. 212. pp.121-127.
Pearson, R., 2017. Business ethics as communication ethics: Public relations practice and the
idea of dialogue. In Public relations theory (pp. 111-131). Routledge.
Rhodes, C., 2016. Democratic business ethics: Volkswagen’s emissions scandal and the
disruption of corporate sovereignty. Organization Studies. 37(10). pp.1501-1518.
Wallace, M. and Sheldon, N., 2015. Business research ethics: Participant observer perspectives.
Journal of Business Ethics. 128(2). pp.267-277.
Online
Everything You Need to Know About Volkswagen Diesel Emission Scandal. 2018. [Online]
Available through: <https://www.news18.com/news/auto/everything-you-need-to-
know-about-volkswagen-diesel-emission-scandal-1784005.html>
How VW Paid $26 Billion for 'Dieselgate'. 2018. [Online]. Available Through:
<http://fortune.com/2018/02/06/volkswagen-vw-emissions-scandal-penalties/>.