Volkswagen Emissions Scandal: Corporate Governance and Ethical Issues

This report provides an in-depth analysis of the Volkswagen emissions scandal, examining the unethical practices and corporate governance failures that led to the dieselgate crisis. The report begins with an overview of Volkswagen's operations and the events surrounding the scandal, including the installation of defeat devices in millions of vehicles to cheat emission tests. It identifies key corporate governance and ethical issues, such as the company's lack of transparency, disregard for environmental regulations, and the ethical dilemmas faced by the company. The report explores the impact of the scandal on various stakeholders, including customers, employees, and the environment, as well as the damage to Volkswagen's reputation and financial performance. It also reviews relevant ethical theories and frameworks, such as stakeholder theory and utilitarianism, to evaluate the actions of the company. The analysis also includes the ethical dilemma for the company, CSR and culture. The report concludes with a summary of the lessons learned and the implications of the Volkswagen case, including the need for stronger corporate governance, ethical leadership, and a commitment to environmental responsibility. An action plan is also presented.

Action Plan

Table of Contents
What company has chosen for analysis and why ............................................................................1
Description of Events ......................................................................................................................1
Main corporate governance/ethical issues..................................................................................1
CSR/Ethics..................................................................................................................................2
Culture.........................................................................................................................................2
Ethical dilemma for the company....................................................................................................3
Summary .........................................................................................................................................3
Overview of Volkswagen...............................................................................................................4
Main Corporate governance issues with the case.......................................................................4
The Theoretical, Academic, Professional or Legal Literature/Regulation Volkswagen issues.......5
Perception of theoretical, academic, professional and literature sources........................................6
Degree of occurrence of similar events in UK.................................................................................7
General lessons learnt from the case................................................................................................7
Impact of Volkswagen case ............................................................................................................8
Justified ethics evaluation................................................................................................................9
Conclusion ....................................................................................................................................10
REFERENCES..............................................................................................................................12

What company has chosen for analysis and why
The present investigation is based on the Volkswagen which is operating its business in
the auto-mobile sector. It is one of the leading brand and carry out its business activities
successfully. Further it deals with the commercial and passenger auto mobile with the different
brand names such as Man, Neoplan, Scania etc. This organization has been selected for the
analysis due to its several issues related to its unethical practices and environmental issues. This
all lead to directly impact the corporate governance of the business (Aguilera and Jackson,
2010). The selected organisation is involved many scandals due to which its negative image is
created in the market. Further it lead to directly impact the demand of the products and profits.
The environmental protection agency has identified that there are many Volkswagen cars that
are being sold in America and had a defeat device and software in diesel engines which can
detect at the time when its was tested. Further the German car has admitted that its cheat with
emission test in the US. Volkswagen installed the software in more than half of million of its
cars that unable to detect pollution. Further there are many unethical practices within the
organisations were carried out. Volkswagen scandal has led to devastating series of critical
consequence to its stakeholders. The case presented in this paper provide information related to
Volkswagen and its scandal that are evolved and become known to public. The ethical dilemma
focuses on the action which can lead to the scandal.
Description of Events
Main corporate governance/ethical issues
Case & Dilemma
Volkswagen installed the software in more than half of million of its cars that unable to
detect pollution. While at the test time car was fully compliant with all the federal emission level
but at the time of driving it changes the fuel pressure which lead to increase pollution in the
environment (Kowalczuk and et.al., 2011). Few cares such as Audi, Porsche diesel models etc
which are considered as a emission violations by the environmental protection agency.
However, Volkswagen diesel emission fiasco offers a valuable lesson to corporate that the way
they do not carry out unfair practices for earning profit. They were equipped with the software
which are turned on their pollution control system at the time when they were being tested.
Volkswagen admitted that its about 11 millions car in all over the world including 8 million in
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Europe are were fitted with software that is defeat devices. Defeat device is not a physical device
but a computer software which can detect when car is under testing (McCahery, Sautner and
Starks, 2016). At the time of testing the computer signals the engine to switch to more efficient
setting so that mistakes cannot be detect in test. Carbon emission is one of the important figure
that make sure that car is to be sole in the USA market or not. Further, tax band is also determine
as if higher the carbon figure then customer need to pay high tax. The CEO of the company is
involved in this case and it is responsible for the action taken by the company. The knowledge he
has rleated to the cheated and device and instead of resticting it continue to followed to go
through this which is not ethically justified. Before analysing the dilemas there are different
people who are involved in this are employees, customers, and EPA environmental testing
agency and all the indirect party (Oshry, Hermalin and Weisbach, 2010). However it is not easy
to determine why company involved in such type of fraud and the following reasons were
assumed. To compete in the market and earn profit.
CSR/Ethics
The diesel gate scandal is increase major ethical issues and the root of this disaster is
unsound corporate governance within the Volkswagen. If it is seemed from the ethical
perspective Volkswagen did not cheat customer from ethic perspective but it put various effects
on its different stakeholders (Rossouw and et.al., 2010). It is identified that Non toxic fumes
interact with compounds due to which it increases the chance's health issues such as respiratory
problem and heart diseases. Furthermore, this ongoing pollution directly lead to increase the
death rate. There are many corporate governance and ethical theories which can be used for
critically analysis the Volkswagen scandal from various approached and perspective (Shum and
et.al., 2012). Different types of ethical theories are deontological approaches, stakeholder theory,
agency theory etc.
Culture
From the scandal it is revealed that due to bad management and inappropriate corporate
culture allow the complex fraudulent system. It is covered by several layer of management.
Culture plays significant role in the business.
It was reported that there are 9 managers who are involves in the misrepresentation and after
suspect the were suspended. They all take this unethical scandal as because of the mindset in few
department due to which company unable to comply with rule and regulations.
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Ethical dilemma for the company
An ethical dilemma is known as the situation in which different choices or behaviour and
it should have potentially negative consequence. Due to this right and wrong cannot be
distinguish. There are below presented the following approaches which can be used in order to
make proper decisions decision in ethical dilemma:
 Individualism approach: In these actions become ethical at the time when they are
promoted fore the individual best interest. Volkswagen has fixed the defeat device in its
vehicle which is not ethical because it does not provide any welfare to stakeholders.
 Moral right approach: Ethical decisions are those which are best to maintain the
fundamental right of the people who are affected by them (VW Emissions and the 3
factors that drive ethical breakdown. 2017.). The defeat device which is fitted in car is do
not know by the customers which is unethical. It is because customer have full right to
know the standard of quality of products which they are buying.
 Justice approach: In this ethical decision are made on the basis of fairness, impartiality
and standard of equity.
 Utilitarian approach: In this decision is need to be made by the company to produce the
greatest good in the largest number. These unethical practices which are carried out by
the company deceives the customers and other stakeholder of the actual level of
emissions. This lead to increase the bad majority of the stakeholder that are shareholders,
customers and environment.
Summary
It is summarised that at the mid of the year 2015 Volkswagen became one of the number
1 car producer. Further, in the month of September there are many unethical issues and fraud has
been uncovered. Its many cars had a defeat voice or software installed which unable to check
that its vehicle are not pollution free. Volkswagen admitted that its about 11 millions car in all
over the world including 8 million in Europe are were fitted with software that is defeat devices.
The consequences of this is that its stock price fell in value and it had announces its first
quarterly loss for 15 years of 2.5 billion approximately. Further the result of this scandal was that
its Audi and Porsche were suspended.
Key Activities Week Wee Wee Wee Wee Wee Wee Week Week 11
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1 k 2
&
3 .
k 4 k 5 k 6 k 7 k 8 &
9
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Preparation of
Introduction
Literature
Review
Collection of
Secondary
Information
Examination of
the Collected
Data
Research Design
Research
Methodology
Acquiring
Primary Data
Analysing
Primary and
Secondary Data
Conclusion and
Recommendatio
ns
Completion of
Leftover Work
Revision and
Draft
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Final
Submission
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Action plan
Overview of Volkswagen
Auto mobile sector is one of the big sector in which Volkswagen operating its business. It
is one of the leading brand and carry out its business activities successfully. Further it deals with
the commercial and passenger auto mobile with the different brand names such as Man,
Neoplan, Scania etc. In recent time it was involved in the great scandal and joined the fraud
company who is involved in pollution emission test (Foroughi, Marcus and Tehranian, 2016).
There are many fraud cases are uncovered which is the prime reason for selecting this company
for the present report. There are different types of governance issues which are related to the
Volkswagen will be discussed. Along with this literature review part will be carried out for
highlighting the issues faced by the company due to unethical cases. Apart from this, there are
many corporate governance and ethical theories which can be used for critically analysis the
Volkswagen scandal from various approached and perspective (Pies, Beckmann and Hielscher,
2014).
Main Corporate governance issues with the case
Volkswagen is dealing in the different product types which are highly in demand in the
market and its also make sure that its products and services do not negatively impact the
environment and customers in any way (Al-Malkawi, Pillai and Bhatti, 2014). Currently the
organisation has involved in the various issues which directly impact the image of brand and due
to which its profit also get decrease. It is so because once the firm is involved in any kind of
misconduct then it leads to directly impact the demand of its product and revenue which it
generates through profit (Hoffman, Frederick and Schwartz, 2014). There are some issues in
which company is engaged that are as follows:
Environmental issues:
Environmental issues is one of the biggest issues in which Volkswagen is involved.
Harming the environment directly impact the life of human being and it is one of the main
concern for customer, government and companies (Hoenen and Kostova, 2015). People and
government are highly concerned toward the protection of environment. While Volkswagen has
impact the environment negatively due to which its negative image is created in the market. It
was identified that the cited organisation is creating much pollution to the surroundings'
environments (Honoré, Munari and de La Potterie, 2015). At the time when research is
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conducted it is identified that there are many vehicles of the Volkswagen that are creating
pollution which were actually disclosed. It emits tons of toxic nitrogen oxides which is very
harmful fr the atmosphere.
Ethical issues:
It is essential for the company that at the time of carrying out business activities that it
focus on the ethics. Volkswagen wants to earn higher profit for this purpose it need to focus on
ethics and do not avoid its responsibility toward the society (Misangyi and Acharya, 2015).
However, the organisation has developed the software that can cheat the pollution testing device
as it is completely unethical. Hence, it can directly impact the buyer who do not like product that
harm the environment and then can retired vehicles to the company. Therefore, it shows the
misconduct by the professional which are included in the development of the software and they
produced software with wrong intentions (Mswaka and Aluko, 2015).
Audit related issues: At the time when is identified that company is involved in the unfair
practises and it charged with high penalty then it impacts the image in market.
The Theoretical, Academic, Professional or Legal Literature/Regulation
Volkswagen issues.
 Stewardship theories: As per the theory of stewardship in the firm an individual who
working on the particular position is highly responsible to carry out all the duties in an
ethical manner without any misconduct (Bosse and Phillips, 2016). However it is a
contradict of the agency theory which state that employees need to act properly and they
are not evaluated. Further leader and stakeholders need to carry out their work with
loyalty and then need to continuously monitor the performance of employees that they
are working in an ethical manner or not. At the time when any false activity is identified
then they need to take action and rectified it in the given time.
 Stakeholders theories: There are different stakeholders of the organisation that are
customers, employees, suppliers, government etc. They also directly and indirectly affect
the performance of the company. (Tricker and Tricker, 2015) As per the stakeholder
theory whenever manager take decision it need to make sure that it do not affect the
stakeholder and it is for their benefit to. Therefore it is essential for the Volkswagen to
ensure that it work in an right manner and provide benefits to its stakeholders. Further it
is important for the company to understand the stakeholder theory. It is because
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stakeholder theory shows the social responsibility of the company (Alam Choudhury and
Nurul Alam, 2013). On the other side it can be stated that it is approach to understand the
social responsibility of the company. Shareholders are important economic drive and it is
important for the firm to become socially responsible for maximising the profits. Further
it can be stated that company need to create value for its stakeholder so that it can make
strong relation with customers.
 Agency theory: This theory defines the relation between the representative of the firm
and its principles. It tried to solve different issues which are faced by the company and its
employees so that all the business operation can be carried out in an right manner. The
criticisms of the agency theory is that is unrealistic because it is too narrow (Chakrabarty
and Bass, 2015).. In the present case investor are not involved due to which this theory is
entangled. As per the agency theory director tried to make its position over the interest of
owners. Shareholder wants high profit and it lead to involve director interest in conflicts.
Perception of theoretical, academic, professional and literature sources
The brand name of the Volkswagen is highly influenced in the month of 2014 at the time
when emission scandal took place. It leads to create air pollution and badly harm the
environment. Further it can be stated that this was not just and accident as this type of practices
is carried out by company as they known it very well. This lead to the result in the falling of
share price, sales and profit of the company. Since company is working hard for gaining the
position in the market through making product which are environmental free. Questions raise
against the false intention due to which company is come under the pressure and it becomes
responsible to answer the questions. Since from the past few years company dealing with the
scandal which have deeply dented the integrity of the company.
Virtue theory
The virtue theory is a philosophy which is based on the ethical and it determine the type of
individuals. In virtue ethics it seeks to discover the character of traits which is constituted the
goo and human life these characteristic are known as the virtues. In virtue four main characters
are included that are self control, fairness, honesty and courage. However, Volkswagen is failed
to fulfil all this four virtues (Pies, Beckmann and Hielscher, 2014). The organisation is actually
not courageous because it uses defeat device in its vehicles for hiding the emissions. Further the
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virtue of honesty is also not shown in this regard because its employees and manager are
involved in this scandal. This entire issues occur because company was not honest from the
starting (Hoffman, Frederick and Schwartz, 2014). The organisation has designed the device in
respect to hide their unfair work further when it was tested it was shut off which is completely
unfair practices. No company should have to lie with government for continue their business and
earn high profit through fraud. Further, company should work hard so that it can produce
products of quality instead of defected piece. Hence, it can be stated that entire fraud can be
avoided if company follow all the four virtues.
According to the view of Author, Volkswagen corporate governance issues is one of the root
cause of this fraud (Hambrick, Misangyi and Park, 2015). From this emission scandal it is proved
that there are different issues of the company which related to corporate governance and culture.
Its different types of issues are related to the accountability, leadership, and independences.
 Agency theory:
This theory takes pace between principal and agent. It is the relationship between principal and
agent. This takes place because of difficulties obtained in sharing of risks between these two
parties in organisation. Here, agents are management of company and principals are referred to
shareholders which has subscribed shares of it. As such, it is useful theory to structure and design
governing and control in the firm. It is important for designing good framework in the
organisation so that risks can be effectively shared between them. It highlights various strengths
and weaknesses and apply with context in organisation (de Andreotti, 2014).
◦ Agency theory is management theory that states relationships in organisation. It also
includes delegation regarding control in the organisation. As it is observed that in the
case, ethical measures were being avoided by Volkswagen company which had lead
to fraud by the company. As such, such violations should not be attempted by
organisation which destroys its brand image and which leads to public scandal. With
regards to this theory, Volkswagen company needs to re structure its supervisory
services so that improvement can be done so that in future this incident do not
happen. The ethical issues regarding is that company should be able to satisfy
customers so they may be enhanced. Next, customers should not be cheated as it was
observed in Volkswagen company's case (Northouse, 2015). It is because customer
pay price for the product and it should be appropriate and in accordance with the
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features of car so that customer may get clarity regarding the product's feature in
totality.
◦ This theory also focuses on relationship between management and shareholder that
there may be transparency and clarity should be there so that risks are shared
effectively. The ethical issues should be improved by organisation so that it may fulfil
its duties and responsibilities in effectual manner and which leads to enhanced
customer's satisfaction.
Stewardship theories:
This theory is an alternative of above said agency theory. Steward theory states that someone
who takes care of others to protect the interests of others in effectual manner (Baumgartner,
2015). This theory lead emphasis on protecting the interests of other people in organisation so
that it may safe them from any shortcomings or risks which might occur in company. The main
goal of this theory is that company personnels take care of interests of shareholders so that they
may not be influence by the risk. This helps owners to get protection if any risks occur in the
organisation. It has the objective to maintain prosperous organisation which ultimately helps
owners to get risk free and organisation provides effective results in the manner which achieves
its goals in effectual way.
◦ This theory can be liked to case of Volkswagen company which has violated the rules
and has cheated customers. The company has cheated the shareholders as emissions
test was not done and this has impacted whole organisation and has lead to bad
reputation at large. The ethical issues observed in this case was not adequate to
shareholders. As, ethical practices was not followed. This has lead to no satisfaction
of shareholders in the company (Arnaldi and Bianchi, 2016). The objective of
stewardship theory is that shareholder's care should be taken in effective way so as to
give them protection from any type of risks.
◦ The ethical issues observed in this case that designing of governance was not done
and which lead to confusion. The shareholder's interest should be successfully
achieved by it so that organisation can protect the interests of shareholder.
Stewardship theory laid emphasis on taking care of the shareholders so that no
violations are being observed. Management should take care of the interests of
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