Ethical Principles Decision Making And Leadership In Business

The Volkswagen Scandal

Discuss about the Ethical Principles Decision Making and Leadership.

Ancient Greek word ethikos gave rise to the word Ethics. the word ethos gave rise to the work Ethikos and ethos means habit or custom (Goetsch & Davis, 2014). Axiology is a branch of philosophy named Axiology includes the further branches of ethic sas well as aesthetics, all of which is concerned with values (Crane & Matten, 2016). It is difficult to define precisely the word ethics, but for the purpose of understanding we can say that, it is the code of moral values and principles that is responsible for governing behaviors of a person or a group of people taking into account of right and wrong (Myers, 2013).

Ethical principles endow with the fundamentals for an assortment of modern concepts for business, work and organizations, which expand the individual and corporate priorities further than conventional business aims of profit and shareholder improvement. Ethical factors are also a considerable influence on public sector organizations and institutions, for which the conventional priorities of service excellence and cost management must now progressively more take under consideration of these same ethical issues affecting the business and corporate world. When the actions of a person either cause befit or may harm others then only ethical dilemma arises. (Weiss, 2014).

Most ethical dilemmas involve the conflict between what is needed to be done and what is the right thing to do. Modern principles or sets of morals that administrate deeds and manners of an entity in the business institute is now regarded as Business ethics (Griffin, 2013). Both normative and descriptive approaches are included in business ethics. The field is principally normative when corporate practice and a career specialization is concerned. in order to encompass descriptive methods several theorists is now trying to comprehend the moral principles of business (Wotruba, Chonko, & Loe, 2015).

There have been many business organizations that have encountered ethical dilemmas in the past. For the past two years, we have witnessed many scandals that questioned the integrity and business ethics of those organizations (Valentine, Fleischman, & Godkin, 2015). One such scandal was on 2015 related to the famous German car brand Volkswagen. Emissionsgate or diselgate is the scandal that erupted in 18^th September 2015 when Volkswagen cheated in emissions test. After Environmental Protection Agency (EPA) discovered that Volkswagen (VW) cheated in the emissions testing as they had intentionally planned turbocharged direct injection (TDI) diesel to regulate specific emissions controls only for the duration of laboratory emissions examinations; German automaker Volkswagen Group were delivered with a legal notice of infringement of the Clean Air Act from of United States (Krall & Peng, 2015). The vehicles’ NOx output was able to meet US standards during regulatory testing due to the program but in real-world driving the cars discharge up to 40 times more NOx. The “defeat device” of Volkswagen is not a hardware machine but a software-generated program in the engine that enables the car to detect test conditions and only then activates all the pollution regulatory stops (Blackwelder, Coleman, Colunga-Santoyo, Harrison, & Wozniak, 2016). Exhaust flow technique as well as  air-fuel ration calculations enable clean diesel engines to reduce emissions. However, in some cases injecting a urea-based solution to render NOx harmless was also used though not in most Volkswagen cars (Krall & Peng, 2015). The question is how the car sensed whether it is being tested or not? In majority of the test conditions the cars are adjusted in such a way that first they run at a particular speep for a limited period of time then the speed changes and again the car runs at that speed for a certain time. The central computer of the car can detect whether the inputs match those expected in test conditions (Blackwelder, Coleman, Colunga-Santoyo, Harrison, & Wozniak, 2016). The International Council on Clean Transportation (ICCT) is an NGO who performed did independent on-road particle emissions tests, on the Volkswagen Jetta, the Volkswagen Passat and a BMW X5. The similar routhes that are followed by the EPA simulations are rural up/downhill, suburban, urban and highway driving which the ICCT followed during their exams. The results of the Volkswagen cars were much worse than the BMW’s results were (Burki, 2015). Compelled by such results the ICCT ran tests on a dynamometer. However, in these tests, the cars qualified with excellence. At that point, the ICCT contacted the EPA. This led to further investigations. The California Air Resources Board investigated Volkswagen in May 2014. Scientists of West Virginia University conducted the investigation. They performed emission tests from two Volkswagen models outfitted with the diesel engine turbocharged with four NOx cylinders. Results showed that during road tests, few cars discharged almost 40 times more than the acceptable levels of nitrous oxide. Afterwards, Volkswagen became the object of regulatory investigations in multiple countries and immediately after the news, the stock price of Volkswagen were knocked down by a third within a few days. As a result, Martin Winterkorn who is the CEO of Volkswagen group gave resignation from his post. The company also suspended the brand development head of the company Heinz-Jakob Neusser, Porsche research and development head Wolfgang Hatz and Audi research and development head Ulrich Hackenber  (Ewing, 2015). As a compensatory plan, Volkswagen announced that they will spend 7.3 billion U.S dollars on repairing the emissions problems. However, later the amount increased to 18.32 billion $. Later on, they also gave plans of  renovation for the affected vehicles. German prosecutors gave statement that, Mr. Winterkorn was under investigation for exploitation because he had waited longer than needed to release that the company was facing an inquiry over the scandal of emission gate. On 19^th July 2015, a public complaint was filed against chief executive; Matthias Müller on behalf of the New York attorney general connected (Crête, 2016). This scandal had reached the top level of Volkswagen management. This incident raised consciousness towards the increasing pollution levels caused by all vehicles. A joint study by ICCT and ADAC showed the largest deviations from Volvo, Citroën, Hyundai, Renault, Jeep and Fiat because of which, the diesel market fell considerably (Krall & Peng, 2015).

Ethical Theories of Management

The high-level management personals faced huge legal and ethical issues due to this scandal. This incident broke many ethics and business rules. If we take this incident as an example to discuss upon the theories of managerial issue previously elaborated, we will find that this incident broke at least two of the four prime ethical theories of management. If we criticize this scandal from utilitarian approach then we will see that it was morally incorrect for the governing body of the company to cheat on particle emission tests. It violated many environmental treaties among countries. It contributed into causing major environmental pollution for which health issues can be generated. Environmental protection acts exists to serve not only an individual’s needs but to protect the nature from harm. Moreover, the CEO of VW avoided the press release of the scandal in order to protect the integrity of the company leading to causing ignorance of the buyers. It broke consumer’s trust on the company and involved them into the crime they are committing towards government of several countries. This also raises questions regarding the morality of the managerial body. It was an unethical corporate action and cannot be attributed solely to a single manager. From the point of view of moral right approach, this scandal jeopardized the moral rights of the stakeholders. People who invested in the shares of the company suffered huge loss without knowing the reality of the situation. They broke buyer’s trust. From the stakeholders point of view it broke their right to free counsel, right of freedom of conscience as well as their right of life and safety. Apart from these two, this incident also violated the justice theory. As the company broke many rules and committed serious crimes by cheating in the fundamental tests run on vehicles in order for them to acquire permission to launch these vehicles.

There are many ways of approaching an ethical dilemma and one strategy that is based on norms and values may be a good way. Among many approaches that are included in the normative approach, four approaches are relevant to managers for dealing with an ethical dilemma (Ford & Richardson, 2013).

The utilitarian approach or rule based theory dates back to eighteenth century and was first formulated by Jeremy Bentham. Later on John Stuart Mill redefined it (Nahavandi, 2016). The theory reflects upon the consequences of any action on the stakeholders. This theory avoids self-interest and considers interests of all persons affected by an action impartially. Parties who are affected by the result of any actions are stakeholders. This theory implemented when benefits needed to be maximized and overall harm is to be minimized for all the stakeholders. Utilitarian theory recognizes that trade-off is present during decision-making. It includes cost-benefit analysis while taking any decision (Guiso, Sapienza, & Zingales, 2015).

The individualism theory states that, when any act promotes the individual’s best long-term interests at that instance, that particular act is considered moral (Pullen & Rhodes, 2015). A decision’s goodness is calculated in order to determine the best long-term advantage to them. In theory, the greater good is achieved when people learn to help each other for their best personal interest. It is believed that individualism ultimately leads to integrity and honesty because in the end that results in best output. Therefore, this theory ultimately urges people to behave as such they want to receive from others. An important consideration towards this approach is that this theory projects towards short-term variations. This theory is unpopular in today’s society as it argues for immediate self-gain (Guiso, Sapienza, & Zingales, 2015).

Utilitarian Approach

According to the moral rights theory, humans have elementary liberties that no way could be withdrawn by other peoples’ decision. Therefore, a choice that preserves right of all individuals related to an event of concern is said to be an ethical decision. There are six fundamental ethical rights that should be taken into account while making a choice during. First, the right to give approval freely states that any person should be treated as per their consent of free will. Second, the right to confidentiality concerns with the right of a person to abstain information about their private life. Third, the right of freedom of principles ensures that an Individual may abstain from abiding any order that violates their threatens their religious and ethical values. Fourth, the right of freedom of speech provides a person with right to criticize honestly the ethics or legality of other people actions. Fifth, the right of having unbiased decision entitles a person of having an unbiased hearing and proper justice. Sixth, the right of life and security protects an individual’s right to live a safe life and avoiding any situation that threatens it. It is important that managers understand these principles and do not interfere or violate these fundamental principles. (Bowen, 2013).

The justice theory states that, moral choices must be taken based on the terms of equity, impartiality and fairness. Aristotle and Plato did the foundations of justice theory in the fifth century B.C. However, a significant contemporary contributor to this theory is John Rawls.  Fairness, equity and impartiality are the major components of justice theory. There are three types of justice that concerns managers of any organization are; 1. distributive justice 2.  procedural justice and 3. compensatory justice (Veríssimo & Lacerda, 2015). Distributive justice contemplates that difference in treatment towards people should not be based on random personality. Similar people concerning a decision should receive similar treatment. For example, gender bias should not reside in a work place. Female and male employees should receive similar salary if they perform similar duties. However, people who endowed with different jobs or if they have different skills, their salary may vary among them (van Gils, Van Quaquebeke, van Knippenberg, van Dijke, & De Cremer, 2015). Procedural justice ensures fair administration of rules. Before enforcing any rule, it should be stated clearly and consistent as well as impartial enforcement should be done (Ferrell & Fraedrich, 2015). Compensatory justice says that people who are responsible for any injustice or fault that have occurred must compensate for their actions. Moreover, people are not to be receiving punishment over matters one have no control (Asif, Searcy, Zutshi, & Fisscher, 2013). Appreciating these approaches is a first step; managers will have to think of ways to implement them (Jin, Drozdenko, & DeLoughy, 2013). These approaches present common principles that managers can be familiar with while making ethical decisions.

The managers in the fraud in question, should have considered the the morals and ethics of the situation before committing such crimes. The situation demands for the managers to undergo procedural justice as well as compensatory justice. To certain extent, steps were taken in order to compensate for the losses the stakeholders suffered when VW announced to rebuild the engines. However, the agencies and the secondary consumers or the target customers were not compensated. The internal stakeholders who were not aware of the crimes the governing body was committing were also affected. In general, this scandal not only affected the justice system but also the entire society and more broadly it jeopardized the entire environment contributing to increase in global warming. The company deceived the society in so many ethical levels if we consider that when they were caught, VW officials denied what they did. Their unsympathetic attempt to compensate the people they deceived by presenting them merely $1,000 and free of cost emergency roadside aid was not enough. According to Yotam Lurie who is a senior lecturer of business ethics at Ben-Gurion University in Israel it was acceptable for the software engineers to avoid their responsibility as professionals. Even if it was less efficient or economical, it was their liability to ensure safety, which in this case is the environmental safety. This scandal showed that ethics is just a word written in books that most people fail to follow. People are disobedient in nature. Agencies like the EPA enforce rules but professionals do their jobs in as they think is right as long as they do not get caught. It implies that it is okay to violate rules unless you are exposed. For such a fundamental systemic problem, there exists no particular solution. However, to prevent such scandals a routine study of ethics and principles for the leasers of the world is necessary. Volkswagen is not the first organization to commit such a felony and will not be that last one. Business and corporate ethics programs can outline the consequences of ethics violations so that one rethinks before committing such felony. Nearly all incidence of corporate felony, result in penalty but not criminal charges and prison sentences.

Moral Right Approach

The question is who will ensure that organizational or corporate decisions will be taken ethically? The burden always falls upon the leaders to enlighten the followers about morals and ethics. Here the leaders will not only be the leaders of the particular organization in question but also the government leaders as well. Leaders before taking any decision or passing judgment should analyze whether the decision or the judgment was ethical of not. In order to lead an organization in a just way it is important to have regards towards ethics and morals. Having principles and morals improves a person’s character. For government leaders they have the responsibility to abide by law as well as law enforcement. Making strict laws against such felonies may ensure that these corporate organizations abide by ethics. A lot of companies and business organization face trouble because people have misunderstanding that, law or free will governs choices. People have a tendency to think presume that if something is not illegal, then it must be moral. However, ethics and morals have very different meaning from legality of any decision or situation. People must understand that there is a third domain that something could be legal and unethical at the same time. When values of an individual of values of a society are in conflict at that situation ethical dilemma arises. A person who is under the burden of taking moral decisions and implementing ethical decisions is the moral agent. These choices can be regarding personal choices, decisions to be taken for any organization or may be regarding society or any social issue.

According to Friedman (2002),  the only rule of business is to increase profit without jeopardizing any law or commit any fraud or scam (Christensen, Mackey, & Whetten, 2014). Volkswagen did mislead both governmental agencies as well as customers. Here they did not abide by any laws, they broke environmental protection laws, and they cheated their customers as well as the society. They followed neither any law nor any ethics. For a brand of such a status, they have a responsibility towards world and society. Such brands tend to influence young minds. Leaders of such huge organizations tend to become role models for young minds. In order to bring a change in such cases a strong leader with morals and principals should be chosen to lead an organization. It would be the leader’s responsibility to implement the ethical code to the employees so that the organization does not face such situation again. Government laws against such scandals should also be very strict. In these situations as money tends to resolve matters it should be taken into account that this scenario ay influence young minds into thinking that it is okay to commit felony if they can pay their way out of legal proceedings. Laws regarding such issues need to be improvised. As a concluding not it can be added that, people need to apply moral and ethical codes in practical lives rather than just talking about it theoretically.

Asif, M., Searcy, C., Zutshi, A., & Fisscher, O. A. (2013). 14. Asif, M., Searcy, C., Zutshi, AAn integrated management systems approach to corporate social responsibility. Journal of cleaner production, , 7-17.

Blackwelder, B., Coleman, K., Colunga-Santoyo, S., Harrison, J. S., & Wozniak, D. (2016). The Volkswagen Scandal.

Bowen, H. R. (2013). Social responsibilities of the businessman. University of Iowa Press.

Burki, T. K. (2015). Diesel cars and health: the Volkswagen emissions scandal. The Lancet Respiratory Medicine, 3(11), 838-839.

Christensen, L. J., Mackey, A., & Whetten, D. (2014). Taking responsibility for corporate social responsibility: The role of leaders in creating, implementing, sustaining, or avoiding socially responsible firm behaviors. The Academy of Management Perspect, 164-178.

Crane, A., & 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. Eur. J. Risk Reg., 7, 25.

Ewing, J. (2015). Volkswagen says 11 million cars worldwide are affected in diesel deception. The New York Times, 22. New York: The New York Times.

Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson Education.

Ford, R. C., & Richardson, W. D. (2013). Ethical decision making: A review of the empirical literature. . In Citation classics from the Journal of Business Ethics, Springer Netherlands., 19-44.

Goetsch, D. L., & Davis, S. B. (2014). Quality management for organizational excellence. Upper Saddle River, NJ: pearson.

Griffin, R. W. (2013). Fundamentals of management. Cengage Learning.

Guiso, L., Sapienza, P., & Zingales, L. (2015). The value of corporate culture. . Journal of Financial Economics, 117(1), 60-76.

Jin, K. G., Drozdenko, R., & DeLoughy, S. (2013). Qualitative research in business and management. Journal of business ethics, , 15-24.

Krall, J. R., & Peng, R. D. (2015). The Volkswagen scandal: Deception, driving and deaths. Significance, 12(6),, 12-15.

Myers, M. D. (2013). Qualitative research in business and management. sage.

Nahavandi, A. (2016). The Art and Science of Leadership -Global Edition. . Pearson.

Pullen, A., & Rhodes, C. (2015). Ethics, embodiment and Organizations. Organization, 22(2), 159-165.

Valentine, S., Fleischman, G., & Godkin, L. (2015). Rogues in the ranks of selling organizations: Using corporate ethics to manage workplace bullying and job satisfaction. Journal of Personal Selling & Sales Management,, 143-163.

van Gils, S., Van Quaquebeke, N., van Knippenberg, D., van Dijke, M., & De Cremer, D. (2015). Ethical leadership and follower organizational deviance: The moderating role of follower moral attentiveness. The Leadership Quarterly,, 190-203.

Veríssimo, J., & Lacerda, T. (2015). Does integrity matter for CSR practice in organizations? The mediating role of transformational leadership. Business Ethics: A European Review,, 34-51.

Weiss, J. W. (2014). Business ethics: A stakeholder and issues management approach. . Berrett-Koehler Publishers.

Wotruba, T. R., Chonko, L. B., & Loe, T. W. (2015). Wotruba, T. R.,How Do Codes of Ethics Affect Managerial Behavior? The Impact of FAmiliarity. In Proceedings of the 2000 Academy of Marketing Science (AMS) Annual Conference. Springer International Publish, 430-430.