Discuss about the Unethical Business Practices of Volkswagen.
The current business state of affairs witnessed some of the most infamous ethical issues with the top business organizations. With time, the risk and probability of emergence of business unethical practices are getting further enhanced due to the reason that competition in every business sector is increasing and organizations are going to any extent to stay ahead in the competition (Bennett et al. 2013). Therefore, they are not restricting them from initiating unethical business practices if that can serve them profit. However, some of the most publicized cases in the recent time proved this concept wrong. It is seen that emergence of the unethical business practices is harming the business organizations to a large extent and their impact is prevailing in the long term.
One of the major cases emerged in the recent time is the emission gate scandal by Volkswagen. This case not only caused Volkswagen going in to turmoil but also shook the entire automobile industry to a large extent (BBC News 2018). The issue emerged when the scandal regarding hiding the actual level of emission from the Volkswagen cars got leaked in public. In addition, the further inefficiency and ineffectiveness shown by the organization in dealing and responding to the issue also caused dent in the goodwill of Volkswagen (Rhodes 2016).
This essay will discuss about the background of the incident and how Volkswagen dealt with it. Moreover, the different responses initiated by them will also be critically analyzed and the gaps in their responses will be identified.
The issue got first publicized in 2015, when the United States Environmental Protection Agency sued Volkswagen. According to the lawsuit, it was stated that the diesel engines of Volkswagen were being fitted with some technical devices, which regulated the emission during the inspection. Thus, in the real world situation, diesel cars from Volkswagen caused huge pollution often estimated as more than 40 times over the prescribed limit. According to the reports, more than 500,000 cars were being affected with the cheated device. It was reported that the main objective of Volkswagen to put the programming software in their diesel cars is to bypass the stringent regulations set up by the United States regulatory authorities. The emission standards of the United States are much strict compared to other regions. However, on the other hand, the major market for Volkswagen is in the United States. Moreover, they were in the race with Toyota in being the largest carmaker in the world in terms of sales volume. With the stricter emission norms in place, it was difficult for them to market their diesel cars in the market of the United States (Crete 2016). Thus, they initiated the use of the programming device that will hide the actual emission and will show much lower level.
However, the benefits gained by Volkswagen is short term and the publication of these practices caused huge adverse on them. Share price of Volkswagen went down along with the resignation of the top brass of the company (www.reuters.com 2018). In addition, the major setback suffered by them is the negative word of mouth. The goodwill got damaged in large extent and they had to pay huge penalties and compensation to the affected stakeholders. On the other hand, the issue got further amplified due to the poor handling and response to the case. Volkswagen was not able to respond quickly and efficiently to the issue and there were a huge communication gap in place. This caused further public outrage and caused further damage to the business potentiality and brand value to the company.
In the initial stage, Volkswagen was reluctant to admit the scandal; rather they went on to say that the discrepancies are happening due to technical issues. The objective of Volkswagen to disagree with the issue is to avoid the further escalation of the case and to cover it up with the technicalities. They tried to run the news as a mere technical issue and will be solved easily. However, it was overlooked by them that the case already affected large number of cars not only in the United Stated but also in some other European regions (Ewing 2015). It was reported that by the time Volkswagen came with their justification, already more than thousands of car got affected. This led to the interference of the United States Environment protection agency in the case. They came up with number of evidences against Volkswagen, which caused further damage in the goodwill of the brand. Thus, confronting the charges rather than admitting was one a bad strategy for Volkswagen (Topgear.com 2018). This caused further negativity in the market and attracted number of lawsuits due to providing false information. This can also be considered as one of the most infamous debacle of communication process. This is due to the reason that proper channel and proper message are not being communicated to the affected and associated stakeholders.
With the growth in the public outrage and evidences against Volkswagen, they were forced to admit their fault. On September 3rd, 2015, Volkswagen came up with the apology through their German executives. However, the apology came from their side only after the steps taken by United States Environment protection agency in banning the future vehicles of Volkswagen and Audi to sell in the American market. Thus, though they have come up with apology, the effectiveness was less and it was perceived that Volkswagen is doing it by force and they do not actually mean it (Siano et al. 2017). This is also can be treated as one of the major communication debacle. This is due to the reason that the basic principle of effective communication process states that the message to be sent to the receiver should be properly communicated and it should be communicated in such a way that the target audience will not perceive something different meanings.
The involvement of the upper level management came much later with then CEO of Volkswagen, Martin Winterkorn stated apology in public. However, he just stated the apology rather than going deep in the matter. He was also not bothered about taking the responsibility of his own for the nature (Fortune 2018). In his apology statement, it was stated that the entire issue caused due to the fault of a few people in the organization. This is one of the prime examples of delegating mistakes to other. It was expected that as the CEO of the company, he will take the entire responsibility, which he refused (chicagotribune.com 2018). Moreover, the statement of fault of few people diluted the importance of the entire case and it was perceived that Volkswagen is seeing the matter as a mere mistake rather an ethical issue. It was also a bad strategy due to the reason that the unethical practice followed in Volkswagen was in large scale and it cannot be initiated without the knowing of the top level management. Moreover, the CEO should have step down in order to have fair trails in the case (Elson, Ferrere and Goossen 2015). It was also reported that Martin Winterkorn was not ready to step down from the position following the incident. However, on 23rd September, 2015 he resigned from his job.
Finally, in the first half of 2016, Volkswagen came up with practical responses. They stated that they will accept US$ 18.2 billion for covering the cost of the emission scandal. In addition, it is also stated that they will settle the customer and environmental loss and will buy back the defective cars directly from the customers (chicagotribune.com 2018). Dealers are also said to be compensated according to their losses. However, these responses were taken much late and in that time the bad already happened. Some of their executives including a top executive from Volkswagen United States were arrested by FBI (Nytimes.com 2018).
The ethical issue emerged from the emission gate scandal of Volkswagen caused less damage compared to the damage being done due to wrong communication shown by them. At the very first stage of the publication of the issue, it was important for Volkswagen to come out clear about the entire issue and taking necessary steps. This was important due to the reason that message should get clearly communicated at the initial stage. Message is one of the major elements of effective communication process. Message should be clear and effective in order to transmit proper and accurate information to the target receivers (Biocca, David and West 2014). However, in the case of Volkswagen, denying the entire fact and confronting it caused transmission of wrong message to the receivers. It was perceived that Volkswagen is trying to hide their unethical practice even when they are given evidences and proof. This communication issue caused Volkswagen to increase the complexities of the issue (Austin and Pinkleton 2015).
It was also reported that one year prior to the emission scandal, auto component maker Bosch asked Volkswagen to not initiate the using of cheating devices in their diesel cars (www.autonews.com 2018). Thus, the warning was there along with the idea about the potential consequences. This was entirely avoided by Volkswagen. Publication of this news further sealed the fact that Volkswagen was aware about the scandal and they intentionally tried to hide it, which caused reduction in the effectiveness of the steps taken by them in the later stage. The communication process followed by Volkswagen after the publication of the issue is also contradicting in nature (Hakim 2018). This is due to the reason that at the very first stage, Volkswagen refused to accept the scandal but after much internal pressure and public outrage, they accepted the truth and also agreed to pay compensation and penalty. This caused damage in the trustworthiness of the brand (www.latimes.com 2018). The contradicting nature of their responses caused stakeholders disbelieve in their every steps taken.
The channel chosen by Volkswagen in stating their apology was also wrong selection in the initial stage. This is due to the reason that at the first stage, the top executives of the company briefed in the United States congress and not briefing to the customers. However, customers are the one who are the most affected and who felt victim to the emission scandal (Barrett et al. 2015). Thus, it was important for Volkswagen to communicate their response to the public with using proper channel. It would cause proper message with the customers and they may get assured that Volkswagen is doing the needful.
Resistance to change is also visible and evident in the case of Volkswagen. This is due to the fact that after the publication of the scandal and attracting number of lawsuits, the then CEO of the company refused to resign rather they mitigated the responsibility entirely on a few executives. However, in the case of the effective communication, the source should be flexible enough in order to communicate right message to the audience. Resistance to change was perceived negatively in the public and it showed the wrong value and attitude of the company when they are accused in the scandal.
However, the major change initiated by Volkswagen was by appointing Hans Dieter Poetsch as the new chief financial officer and initiation of the public statement of compensating the affected stakeholders. This was the most effective response initiated by Volkswagen and it should have taken in much earlier stage. They also set up different facilities for the customers to get their car checked for the defective devices and rectify it at free of cost (www.bbc.com 2018). Initiation of these responses in the initial stage should have avoided amplification of the issue.
Conclusion
Thus, it can be concluded that the emergence of the unethical business practices caused Volkswagen a huge loss. However, ineffectiveness and inefficiency in dealing with the situation caused further escalation of the case. In this essay, it is discussed that the responses of Volkswagen from the initial stage of the scandal were not effective and wrong communication elements are being initiated. This caused issues among the associated stakeholders. This essay also critically analyzed the limitations of the responses initiated by Volkswagen. It is concluded that the final response initiated by them should had been taken earlier.
References
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