Impact of Volkswagen's Ethical Failures on Business

This report provides an executive summary and analysis of the ethical issues associated with the Volkswagen diesel emission scandal. It identifies the ethical violations, including breaches of loyalty, responsibility, and justice, and examines their impact on various aspects of the organization, such as revenue, share price, managers, and regulators. The report details the implementation of a defeat device in vehicles, designed to cheat emission tests, and discusses the negative consequences, including financial losses, damage to brand reputation, and legal repercussions. Furthermore, the analysis considers the effects on shareholders and the internal management structure. Finally, the report offers recommendations to mitigate the negative impacts and help the company recover its reputation and brand image within the market. The report concludes with a discussion of the extent to which Volkswagen's reputation has been tarnished as a result of the scandal.

PROFESSIONAL
AND ACADEMIC
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EXECUTIVE SUMMARY
Business ethics are essential to sustain a good and reliable relation between society and
organization. Ethical issues results in creating bad impact on the image of company. These issues
arises when a company chooses unethical alternative rather than adopting fair means to perform
business operations. Main objective of undertaking this report is to analyse the value of ethical
principles in sustaining the position of organisation within marketplace. This report is concerned
with identifying issues and problems that a company faces because of non-fulfilled ethical
standards. Ethical aspects violated by Volkswagen are loyalty and responsibility and justice.
Along with it, this report includes the effect of these issues on various aspects within an
organisation. Aspects which are considered in this report are Revenue, Share price, Managers
and Regulators. Impact of these ethical issues on these aspects is negative. At last, some
recommendations are given which provides solution to reduce the impact of these issues on
working of organisation. These solutions will help the company in recovering their reputation
and brand image within market.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
Analysis ...........................................................................................................................................2
Ethical issues associated with Volkswagen................................................................................2
Impact of issues...........................................................................................................................3
CONCLUSION................................................................................................................................5
RECOMMENDATIONS ...............................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
Ethics is defined as a branch of philosophy that includes defending, systematizing and
analysing concepts which are related with right and wrong conduct. Ethics is considered as a
system of moral values and principles which helps an individual to differentiate between wrong
and right actions. Business ethics is a type of professional ethics which examines ethical issues
that takes place within business environment. It involves the study of business policies and
practices which are concerned with controversial issues like discrimination, insider training,
fiduciary responsibility, CSR and corporate governance (Cavico and Mujtaba, 2016). Business
ethics helps in maintaining the morale of workers and incorporate aspects like honesty, integrity
and justice in their behaviour while working within an organisation.
This report is based on Volkswagen group which is a Germany based automotive
company, headquartered in Wolfsburg, Germany. In September 2015, Volkswagen corporation
publicly admits that around 600,000 cars which are made for US market are fitted with defeated
device that enables the vehicles to clear emission tests. After some time, company announced
they have fitted same device in approx. 11 million cars globally. Michael Horn, Corporation
head of US operations claims in Congressional committee that some software engineers working
under Volkswagen has attempted to deceive regulators. Organisation published a “statement of
facts” after signing an agreement with Department of Justice which includes that Engineers of
Volkswagen faced difficulty while building a diesel engine which delimits harmful emissions
within regulatory standards. Document emphasize that Volkswagen's engineers introduced a
mechanism which reduces harmful emission during testing but while driving on roads emission
reached beyond legal limits (Clemente and Gabbioneta, 2017). This shows that managers of the
company support and implement this system despite many employees were not in favour of it.
Similar situation was faced by Mercedes-Benz models where software was temporary capable to
pass emission tests and some investigations was carried out to confirm whether these allegations
are fake or true. This has impacted the reputation of Mercedes Benz in a negative way,
Reputation of a company decides the value of the brand and product. If market reputation
of an organisation is good, only then customers will like to purchase products and services. For
sustaining a visible presence in market, it is vital for Volkswagen to maintain its reputation as it
benefits the firm in increasing their brand value which results in enhanced sales and profitability.
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Customers prefer to buy those products only which are standardised and reputable. For this, it is
essential for Volkswagen to maintain its brand name and image within market.
Main aim of this report is “ To identify the impact of defected devices on revenue, Share
prices, managers and regulators of Volkswagen group.”
Analysis
Thesis statement: To identify various aspects by which defeated device introduced by
Volkswagen helps in reducing emissions”.
A defeat device can either be a software, hardware or design which interferes with
emission controls during real driving on roads. These devices are developed to reduce carbon
emissions while environmental testing but they are not effective on regular motors. Emission
scandal associated with Volkswagen was began in September 2015 when United States
Environmental protection Agency takes numerous actions against the company for violating the
standardised environmental norms.
Ethical issues associated with Volkswagen Ethical issues about loyalty and responsibility: As per case study, it has been identified
that out of many ethical standards that are violated by Volkswagen group, one is loyalty
and responsibility. Organisation has introduced Defeat device software to reduce harmful
carbon emissions of motor vehicles at the time of testing (Crane and Matten, 2016). Due
to this company has lost the trust among customers, shareholders and regulators. This has
also impacted the revenues and market shares of company in a negative way. To acquire
a good position in market, it is important for Volkswagen group to maintain its ethical
business standards in an appropriate manner.
 Ethical issues about Justice: Business ethics helps an organisation to conduct their
operations by fair means. One of the most important ethical aspect while maintaining
business standards is justice which is violated by Volkswagen group. Justice is related
with equality, entitlement and fair means while offering service to customers. Company
has used defeated device software in motor vehicles due to which customers and market
personnels feels cheated. Due to this unfairness, revenues and share prices of company
has reduced as well as customer base is also dissatisfied.
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Impact of issues
This issue has ascertained several impacts on the working of organisation. Aspects which
are affected due to this scandal are share-price, managers, board, revenues, customers,
shareholders, regulators and industry. Impact on some of these aspects are mentioned below in
detail:
 Revenue: In the beginning company faces a loss of 20% due to diesel emission scandal.
This is due to decrease in the sale volume of company. In November 2015, company
encounters the biggest loss they have faced in last 20 years and Company has pay a fine
of around €16.3 billion to compensate for this violation. Branded and expensive cars of
the company have been worst affected by this outrage and their sales have reduced
considerably. SMMT claims that in September 2015 there was around 13000 VW
registrations compared to 16,200 registrations of last year (Crête, 2016). Pre-tax profit of
company also falls from €3.97bn to € 3.2bn in the first quarter after scandal as
organisation admits that they have installed defeat software to cheat emission tests UK.
Volkswagen signs a deal with Department of justice in UK to compensate approx
500,000 Americans which were impacted due to emission cheating. For the year of 2016,
company face a fall of 5% in revenue as compared with revenues of 2015. This this
defeated devices has a considerable impact on the reputation, revenue and sales of
Volkswagen and company faces heavy loss due to this. In 2016, company has managed to
earn a net profit of 5.1 billion euros. Due to this “diesel-gate scandal” company is still
facing lawsuits from customers around world and paying compensations & fines as they
have violated ethical aspects like justice, responsibility and loyalty while performing their
business operations (VW profits down 20% after diesel emissions scandal. 2018).
 Share-price: Company has developed a device to reduce carbon emissions that generated
in motor vehicles but this defeat device software was able to pass only US emission
test,in real world this device was not capable to reduce emissions. Due to this company
had faced a huge loss of revenue along with reduced share-price in market. In September
2015, Stock price of company accounts a fall of 30% in marketplace and share-price of
VW falls approx 50 dollars. Company has faced a downfall of 40% in share price as
compared with results of may2015. Due to this issue, share prices of Volkswagen has
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fluctuated and suffers 35bn euros hit. Before this scandal takes place investors were
trading at approx € 165 but then plunged up-to € 92 as stocks were dumped by investors.
 Shareholders: After the scandal takes place, shareholders of Volkswagen vented their
anger on the administrative authority due to Diesel emission scandal and they asked for
reformation in corporate governance. For this, many shareholders agreed for shake-up of
supervisory board which results in more independent directors to take accountability of
operations carried out by organisation (Ewing 2017). The car-maker has admitted about
the cheat company has done by introducing illegal software to pass US emission test and
around 11 million cars were modified by installing this defeat device worldwide. This has
resulted in heavy loss of revenue and shares to the company. Shareholders associated
with the company have charged 1670 claims on Volkswagen and demands for around 9.5
billion euros for damages that takes place due to scandal but only some of these claims
are considered valid. Shareholders also claims that they are facing several problems
because organisation is slow in disclosing the scandal and associated issues. Beside this,
regional court of Braunschweig, near to the main office of Volkswagen in Wolfsburg,
around 1500 complainants against the company has been registered form individuals and
shareholders. They seeks a compensation of 8.2 billion euros for the damages. Company
has loses the trust of shareholders due to the Diesel-gate scandal and shareholders are not
satisfied with investing their shares in company due to the huge loss they face.
 Managers: Volkswagen group has introduced a software which is defeat device to
reduce the carbon emission which generates from diesel motor vehicles. This has resulted
in evolving as a big issue which gains wide coverage from media. Shareholders and
customers associated with the company become highly unsatisfied and feel cheated. Due
to this company faces several lawsuits and paid billion of fines for the damages. It is the
responsibility of manager in Volkswagen to monitor and analyse the products which are
offered by company to the customers. Checking all environmental and standardised
norms before launching a motor vehicles in market is under the supervision of managers.
If manager have given proper consideration to all the aspects before introducing the
device, ethical standards like loyalty, justice and responsibility would not have been
violated. Company faced the scandal in September 2015 when 600000 cars in UK were
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found having defeat device in it (Hoffman, Frederick and Schwartz, 2014). It was the
duty of manager to incorporate changes so that fraud have not takes place. Managers in
Volkswagen have to examine software and devices before introducing them in market.
According to the facts gathered by media, three managers of research and development
department of three brands namely Porsche, Audi and VW were involved in this. They
were suspended during the investigation. If these managers have performed their duties
appropriately, reputation and brand image of company have not suffered. Also, managers
of some other departments are also suspended due to their negligence and carelessness.
Main reason behind this Fraud is the negligence of managers while performing their
duties. If they have been more careful, this issue have not take place.
Evaluation of the extent to which reputation of Volkswagen has been tarnished
Diesel-emissions-scandal has a direct impact on the reputation and revenue of the
Volkswagen group. Due to this issue, market shares and brand image of company has faced a
considerable downfall. Before this scandal, company was successful in sustaining an effective
position within marketplace (Klier and Linn, 2016). In September 2015, company have installed
defeat device in cars due which was capable of passing emission test only. In reality, that cars
would have emitted 40 times more population. Due to this issue, company faces a loss of around
15% net shares and paid heavy fines& penalties.
CONCLUSION
From above discussed report, it has been analysed that to sustain an effective position in
market it is vital for organisations to follow ethical principles and values. Ethical principles
motivate an organisation to conduct their business operations and activities in a fair manner. It is
vital for the company to build an effective relation with shareholders, customers and other
business personnels to achieve their targets and objectives. Violation of these ethical principles
can degrade the reputation of company in market which results in decreased shares and revenues.
RECOMMENDATIONS
From above carried research it can be recommended that managers are the main assets of
an organisation. To maintain their effective position in market, management of Volkswagen
needs to recruit skilled, hard-working and efficient managers which are capable to manage the
work under changing and complex situations. Focused and alert managers are able to monitor all
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the operations in an appropriate way. Training sessions and seminars should be arranged for
managers which helps them in increasing their working capabilities. Main objective behind
running and managing a business is revenue & profit generation. To achieve this, it is vital for
Volkswagen to incorporate strategies which helps them in improving their brand image and
value in a desired manner. To attract more customers, company needs to provide standardised
services. This will enhance sales which results in profitability and revenue generation.
Shareholders and investors can invest more in company, this will allow the company to offer
standardised facilities to customer. To gain trust of shareholders, management authority of
Volkswagen can arrange meetings, seminars and discussions at regular basis. By this,
shareholders will be familiar with the strategies and policies that is company going to implement.
Along with this, company needs to check and monitor their vehicles and devices properly before
introducing them into market. This all aspects will help Volkswagen in reducing the impact
which takes place due to diesel-emissions-scandal.
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REFERENCES
Books and Journals
Cavico, F. J. and Mujtaba, B. G., 2016. Volkswagen emissions scandal: a global case study of
legal, ethical, and practical consequences and recommendations for sustainable
management. Global Journal of Research in Business & Management. 4(2). pp.303-
311.
Clemente, M. and Gabbioneta, C., 2017. How does the media frame corporate scandals? The
case of German newspapers and the Volkswagen diesel scandal. Journal of
Management Inquiry. 26(3). pp.287-302.
Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
Crête, R., 2016. The Volkswagen scandal from the viewpoint of corporate governance.
European Journal of Risk Regulation, 7(1). pp.25-31.
du Plessis, H. and Van Niekerk, A., 2014. A new GISc framework and competency set for
curricula development at South African universities. South African Journal of
Geomatics. 3(1). pp.1-12.
Ewing, J., 2017. Faster, Higher, Farther: The Inside Story of the Volkswagen Scandal. Random
House.
Hoffman, W. M., Frederick, R. E. and Schwartz, M. S. eds., 2014. Business ethics: Readings
and cases in corporate morality. John Wiley & Sons.
Klier, T. and Linn, J., 2016. Comparing us and eu approaches to regulating automotive
emissions and fuel economy. RFF Policy Brief, pp.16-03.
Lane, E. L., 2016. Volkswagen and the High-tech Greenwash. European Journal of Risk
Regulation. 7(1). pp.32-34.
Mansouri, N., 2016. A case study of Volkswagen unethical practice in diesel emission test.
International Journal of Science and Engineering Applications. 5(4). pp.211-216.
Nicholls, G., 2014. Professional development in higher education: New dimensions and
directions. Routledge.
Rienties, B., Brouwer, N. and Lygo-Baker, S., 2013. The effects of online professional
development on higher education teachers' beliefs and intentions towards learning
facilitation and technology. Teaching and teacher education. 29. pp.122-131.
Zuber-Skerritt, O., 2013. Professional development in higher education: A theoretical
framework for action research. Routledge.
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>.
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