Volkswagen's Emission Scandal: An Ethical and Business Analysis

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REPORT ON VOLKSWAGEN
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Executive summary
Ethical practices and approached by an organisation helps to manage the brand image and trust
within the society. Reputation is one of the most significant assets of a company which needs to
be managed in order to sustain in the marketplace. Unethical behavior by the company can lead
to major dissatisfaction by the consumers, investors and other stakeholders that can directly
impact on the financial, reputational and business sustainability of an organisation.
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Table of Contents
Introduction......................................................................................................................................4
Analysis...........................................................................................................................................4
Role of ethics in the success or demise of an organisation..........................................................4
Measures to ensure ethical practice.............................................................................................7
Conclusion.......................................................................................................................................9
Recommendations............................................................................................................................9
Reference list.................................................................................................................................10
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Introduction
Ethics in an organisation plays an important role in as it concerns the moral judgment in terms of
right and wrong deeds. An organisation, benefits through approaching ethical behavior and using
corporate social responsibility prospects, which can, in turn, enhances the brand image and
retention. A business, being a social organ needs not to conduct or place actions that might harm
the society well-being along with rising environmental concerns.
This study illustrates the case of an emission scandal of Volkswagen, which has immensely
affected the brand image of the company. The unethical approach by Volkswagen has raised the
ethical concerns in the company and thus has to pay high charges. The report provides insights
on the significance of ethical considerations in the organistaion with reference to recommending
the ideas on managing the ethical behavior in the organisation. In terms of the ethical aspects, a
business needs to behave ethically and morally, whereby the consumers and employees can have
brand retention. Fair treatment in terms of both the environmental and social well-being needs to
be practiced by the organisation, which can help them to enhance their brand. On the other hand,
being fair in the organisation fulfills the basic human needs, which in turn can ameliorate the
satisfaction enhancement of shareholders, consumers, and the customers. Volkswagen, on the
other hand, due to wrongful deeds has lowered down their image of the brand and thus have
impacted their sales. This report focuses on the Volkswagen emission scandal, which led to
strong damage to the brand of the company. The company not only faced the brand image
damage, however, also faced loss in revenue, stock price and numbers of sales. A penalty of
15.8bn$ was also paid by the company with having legal issues under the Environmental Quality
Act.
Analysis
Role of ethics in the success or demise of an organisation
Ethical behavior can provide huge benefits to the business structure of the organization. The
business structure of the company can easily increase in terms of reputation in the global market
as well as the increasing of product sales. The customers can be attracted to the manufacturing
products of the company by ethical behavior and social responsibility (An et al. 2018). The
implementation of the defeat device allows the car holders to pass in the emission test. Thus this
technology boosts up the sales and profit scales of the Volkswagen in the US market. The overall
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turnover of labor can be reduced as well as the overall productivity can be increased with the
ethical behavior of the company. The management of Volkswagen has reduced the turnover in its
industry. Employees get proper job satisfaction in their works and they want to stay with the
business which is the main reason behind the increase in productivity (Andersen et al. 2018).
The engineers of Volkswagen programmed on computers to detecting the emission tests in the
diesel cars. According to the ethics scandal of Volkswagen, the engine operation of diesel
vehicles needs to meet the legal emission standards during the emission test. However, the diesel
cars of Volkswagen have released more emissions into the environment in normal driving
condition. The intention of cheating regarding the emission tests on the diesel vehicles of
Volkswagen has been discovered by the Environmental Protection Agency (EPA) in September
2016. The manufacturing unit of this company has installed a ‘defeat device’ on almost 600,000
diesel vehicles in the US market to pass in the emission tests (Roddy and Wang, 2018). When
the diesel vehicles were entering in the test mode operation as well as in the emission testing lab
the defeat device detects and as a result, this vehicle can easily pass the emission testing
operation provided by the US government and they emitted approximate 40 times than the
allowed amount on road.
The major air pollutants including nitric oxides (NOx) and many other pollutants have been
generated by this scandal. It causes huge global pollution and serious health-related issues in US
society. This scandal by the Volkswagen violates the Environmental Quality Act (EQA) which
examines that this is an unethical move by the Volkswagen (Griffin and Lont, 2018). This act
stated that everyone has a right to live in a healthy environment. Thus the actions and operations
taken by Volkswagen are very harmful to the environment which affected 3 millions of vehicles
in the US.
This scandal keeps effects on the sales scale of Volkswagen in international markets. This
potential negative effect keeps the huge negative impact on the financial scandals according to
their marketing sales and the industrial scandals including the customer and the future of the
Volkswagen industry (Painter and Martins, 2017). The company has faced major pollution
scandals thus the engineers of the company installed software with the implementing of the
detect device in the diesel cars. The company breaks the Kyoto protocol on the basis of global
warming with the implementation of this software (Rhodes, 2016). It affected the organisational
growth of the company where the scale of selling vehicle has been felt approximate 5% in the
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US markets, where Volkswagen was the second biggest car manufacturing industry behind
Toyota and sold 5 million vehicles in worldwide.
In the US markets Volkswagen has a strong brand image to its customers. Due to the
Volkswagen scandal, the management of the company has to a fine of 15.8bn$ to the US
government which is the biggest problems for the company. As a result, the company cuts 1bn$
from its research and development budget which keeps a huge impact on the organisational
growth of the Volkswagen (Sianoet al. 2017). Thus the management of the company needs to
convert all its development regarding the future aspects of the electric operated cars. Volkswagen
has launched this vehicle with electric architecture for the new generations worldwide.
The automobile engineer who designed and installed the defeat device to the diesel vehicles of
Volkswagen violated the Engineers code of ethics. They need torespect their commitment and
value toward humans and make their performance on the environment and on the life of human
beings. They provide an illegal practice in their profession which was the main reason behind the
organizational damage of Volkswagen. The ethics scandal of Volkswagen has affected the
systemic risk and potential spillover of the German economy (Stanwick and Stanwick, 2017). It
is one of the largest employers in Germany that it employes approximate 250,000 German
people in its industry. This scandal was only affected the diesel motor cars and it is the main
reason that the Volkswagen scandal does not have an impact on overall car manufacturing
industry.
A business based on the trust and relationship with the consumers, stakeholders, and customers.
However, with the outflow of the Volkswagen scandal, the company failed to sustain its trust and
relationship with the consumers, which directly affected the sales and brand image of the
company (Tarsa, 2017). Volkswagen, through the unethical approach, failed to deliver the
rational dimensions, which included reputation and support of stakeholders.
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Figure 1: Stock price impact of Volkswagen Scandal
(Source: Fortune, 2015)
The loss in support from the stakeholders, in turn, affected directly to the financial results.
Volkswagen had to pay €6.7 billion in order to fix and recall the affected vehicles from the
unethical approach. The stock price of Volkswagen has been observed to be lowered down.
Generally, cheating is an immoral action that can be considered as a deontological theory which
indicates the unethical actions.
Measures to ensure ethical practice
In order to ensure the ethical practices in the Volkswagen, the management of the company
needs to have regular monitoring approach that can ensure if the operations and workings in the
company are meeting the legislative goals. On the other hand, organisational policies in terms of
ethical practices needs to be approached that can help to manage the ethical practices. The defeat
device in the diesel vehicles of Volkswagen broke the law which creates a lack of business ethics
(Tarsa, 2017). This is the main reason behind the massive pollution which causes the premature
deaths and other effective losses for its stakeholders. The emission of NOx is generally cause of
premature deaths and other health issues.The human being to nature and others all part of
stakeholders of the company are extremely affected by the actions of Volkswagen. The ethical
egoism and utilitarianism are including under the technological theory and thus can be related to
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the emission scandal of Volkswagen. It is analyzed with the maximum ethical consideration to
increase happiness and decrease the health issues in the environment (Valentini and Kruckeberg,
2018). “For the greater good” is the ethical approach which determines the living of human life
in the healthy environment. The customers of Volkswagen were satisfied with their cars and
there were a maximum number of shareholder wealth in the competitive market of the US.
However, the cheating decision in the emission test lowered downthe brand image in the
international markets. The company acted on interest when the management of Volkswagen
cheated the emission test by installing the defeat device on its diesel vehicles for economic
reasons and developing the wealth of the director and shareholders globally, where improper
management can be seen. Thus, in order to ensure the ethical practices, communication is one of
the utmost important factors to be considered in the organisation, which needs to be cleared to
each of the employees and stakeholders
Figure 2: Market capital loss of Volkswagen after emission scandal
(Source: Forbes, 2015)
Major viability in terms of the Volkswagen revenue has been seen in the company, where a huge
loss of market capitalization has been seen which directly affected the revenue of the company
due to unethical practice.
Ethical egoism denotes the interests of the customer’s acts in their own self-interest are
beneficial for the company (Stanwick and Stanwick, 2017). The management of the firm was
performing very well under its strategy regarding the stock performance and the overall net
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income of the company. Volkswagen gets several benefits from these actions which regarded
under the ethical egoism theory.
Conclusion
The using of various ethical theories was analysed by emissions scandals of the Volkswagen.
The overview regarding their corporate structure has been critiqued from the governance theories
and codes provided by the UK Government. The intended action including ‘cheating’ the
emissions test is generally a vital factor in the deontology ethics for Volkswagen. In the other
hand, the corporate culture of Volkswagen has been analysed by the managers of the company in
order to achieve the target sales of their products. Teleological ethics examined the unethical
consequence action of the Volkswagen which keeps a negative impact on the stakeholders as
well as increases the pollution level in the environment. The lack of independence in the
Volkswagen business structure was being noticed in the interest of the shareholders and
customers.
Recommendations
A huge negative impact on Volkswagen can be seen from the above analysis, which has
impacted on stock price, brand image due to unethical practice of the company. In order to avoid
the unethical issues, following recommendations can be approached by the company
● Public relation
Proper justification for the unethical practice needs to be justified to the public, which can help
the company to regain the trust and relationship with the consumers and other stakeholders. The
management of the company needs to provide stringent policies in terms of practicing the ethical
behavior by the employees and in the operations, which can help them to avoid such ethical
issues.
● CSR
Corporate social responsibility is one of the approaches that can be approached by the
organisation in order to provide the social and environmental well-being. Volkswagen, as has
lost the brand image and reputation, thus, enhancement of reputation is one of the major needs
for the organisation. Thus, approaching the corporate social responsibility through taking actions
in favor of environment and society can help to enhance the trust and a strong positive brand
image.
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Reference list
An, Q., Christensen, M.G., Ramachandran, A., Mukkamala, R.R. and Vatrapu, R., 2018, June.
Volkswagen’s Diesel Emission Scandal: Analysis of Facebook Engagement and Financial
Outcomes. In International Conference on Big Data (pp. 260-276).Springer, Cham.
Andersen, O., Upham, P. and Aall, C., 2018. Technological Response Options after the VW
Diesel Scandal: Implications for Engine CO2 Emissions. Sustainability, 10(7), p.2313.
Griffin, P.A. and Lont, D.H., 2018. Game changer?The impact of the VW emission-cheating
scandal on the interrelation between large automakers’ equity and credit markets.Journal of
Contemporary Accounting & Economics, 14(2), pp.179-196.
Painter, C. and Martins, J.T., 2017.Organisational communication management during the
Volkswagen diesel emissions scandal: A hermeneutic study in attribution, crisis management,
and information orientation. Knowledge and Process Management, 24(3), pp.204-218.
Rhodes, C., 2016. Democratic business ethics: Volkswagen’s emissions scandal and the
disruption of corporate sovereignty. Organization Studies, 37(10), pp.1501-1518.
Roddy, A. and Wang, Y., 2018, September. Groups Decision Making Under Uncertain
Conditions in Relation—A Volkswagen Case Study. In International Workshop of Advanced
Manufacturing and Automation (pp. 406-410).Springer, Singapore.
Siano, A., Vollero, A., Conte, F. and Amabile, S., 2017. “More than words”: Expanding the
taxonomy of greenwashing after the Volkswagen scandal. Journal of Business Research, 71,
pp.27-37.
Stanwick, P. and Stanwick, S., 2017. Volkswagen emissions scandal: The perils of installing
illegal software. International Review of Management and Business Research, 6(1), p.18.
Tarsa, K., 2017. Won't Get Fooled again: Why VW's Emissions Deception Is Illegal in Europe
and How to Improve the EU's Auto Regulatory System.BC Int'l & Comp. L. Rev., 40, p.315.
Valentini, C. and Kruckeberg, D., 2018. “Walking the environmental responsibility talk” in the
automobile industry: An ethics case study of the Volkswagen environmental scandal. Corporate
Communications: An International Journal, 23(4), pp.528-543.
Websites
Forbes. (2015). Here's Why The Market Reaction To Volkswagen's Emissions Scandal Is
Justified. Available at: https://www.forbes.com/sites/greatspeculations/2015/10/01/heres-why-
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the-market-reaction-to-volkswagens-emissions-scandal-is-justified/#368b6ddf4940[Accessed
3/4/2019].
Fortune. (2015). Here’s a timeline of Volkswagen’s tanking stock price. Available at:
http://fortune.com/2015/09/23/volkswagen-stock-drop/ [Accessed 2/4/2019].
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