The Volkswagen Scandal: Questionable Business Ethics And Organizational Conduct

Introduction to the Volkswagen Scandal

In business, there are certain codes of ethics which must be followed by an organization. Irrespective of the kind of industry, every company is obligated to abide by certain codes and regulations which seek to regulate an ethical system of operations. However, in recent times, there have been several instances of questionable practices and scandal by some of the world’s leading organizations. In September of 2016, it was discovered by the Environmental Protection Agency or EPA that the renowned automobile company, Volkswagen had installed certain defeat devices into its diesel vehicles. These devices were intended to mislead emissions tests, thus yielding inaccurate results (Mansouri 2016). This instance of questionable practice caused a dent in the reputation of Volkswagen around the world.

In 2016, the EPA announced that Volkswagen had devised measures to evade the emission tests. Defeat devices were installed in the diesel vehicles introduced by the brand which would detect when these vehicles were being tested. Once an alarm was released, the devices would enter into test mode, which would regulate the emission levels to accepted ranges (US EPA 2018). The EPA showed that the actual emissions were at least forty times more than the revealed amount. The EPA had begun to impose severe regulations and strict policies with respect to the emissions released by exhausts of cars (Blackwelder et al. 2016). Most of the pollutants released by the exhausts of vehicles include nitric oxides, which not only cause air pollution but are also harmful for human beings (Krall and Peng 2015). The Environment Quality Act states that every human being has the right to quality air and healthy environment. However, this unethical step by Volkswagen is clearly a violation of the law. Volkswagen was consequently was accused of rigging the emission tests and cheating on these tests and thus on the customers as well.

Initially, it was reported that around nine managers had been involved in the rigging of these emissions. After the company was accused of such unethical practices, the chairman of Volkswagen announced that the reason why such a drastic measure had been taken was because of the unfavorable mindset of some departments within the company (Boston, Varnholt and Sloat 2015). It was also announced that only a few members of the organization had been involved in the scandal. An investigation into the incident further revealed that around fifty members of the Volkswagen organization were wholly aware of the rigged emission tests (BBC News 2015). Later, it was discovered that some of the technicians and engineers in the company tried to warn the supervisors about this incident (Crête 2016). However, their warnings fell on deaf ears.

Details and scope of the rigged emission tests by Volkswagen

It is assumed that the emissions emitted by the exhausts of vehicles can lead to more than a hundred deaths all over the world. Accordingly, the Engineer’s Code of Ethics was devised which stated that each engineer had a responsibility to respect the quality of life of human beings and take into consideration the consequences of their work on others. However, the team of engineers failed to live up to these standards, and was thus accountable for the scandal. In 2016, Volkswagen and its board members were found guilty on a number of charges including obstruction of justice and conspiracy. Further, their false statements proved to be all the more damaging.  

The stakeholder theory can be used to study the consequences of Volkswagen’s questionable practices. The theory, which was formulated in the late 1900s by Ian Mitroff, takes into account two main aspects, business ethics and organizational management. Mitroff was of the opinion that every organization has its own set of stakeholders, and it is the responsibility of the organization to look into their interests (Jensen 2017). The stakeholders affected by Volkswagen scandal were mainly the customers of the company. When a customer purchases a vehicle from a reputed brand like Volkswagen, they expect the best quality product with improved testing systems. Providing them with rigged emission test systems was a way of deceiving them. As such, Volkswagen failed to live up to the expectations of their customers (Jung, Chilton and Valero 2017). Another theory pertaining to organizational morals would be that of ethics in business. According to such theories, there is a code of ethics at every organization which must be adhered to. The purpose of implementing such ethical corporate cultures into an organization would boost the morale of the internal stakeholders or employees and improve their performance and productivity levels as well. However, this scandal wreaked havoc within the organization as well. The employees who were unaware of the rigged tests were astonished and lost faith in the organization. The company also lost the goodwill of their customers (Rhodes 2016). After the revelation of the scandal, the sales rates of the company fell by almost thirty five per cent. Most customers refused to buy vehicles from the same brand (Oldenkamp, van Zelm and Huijbregts 2016). However, the brand positioning of the company proved to be a saving grace. Some of the customers still opted to purchase non diesel vehicles from the brand which were not affected by the scandal. Despite the company’s lack of consideration for the environment and complete dishonesty, Volkswagen still managed to retain some of its loyal customers.

Consequences of the Volkswagen Scandal

As a matter of fact, it is important to understand who exactly was responsible for the questionable practices and the resulting scandals that rocked the automobile industry worldwide. It would be important to stress the role of the chairman and the board of directors in the scandal. No movement could have been made or no defeat device could have been installed without the knowledge of the top authorities (Kottasova 2017). The team of engineers is responsible for the scandal as well. They should have abided by the code of ethics that is demanded of their profession (Elson, Ferrere and Goosen 2015).  Although the Chairman shirked all responsibilities and pretended to not have any knowledge of this practice, the investigators deemed this impossible. Either way, the scandal was a result of lack of efficient management skills and strong leadership on part of the organization management.

In 2016, certain solutions were provided by the EPA and other governing bodies about what Volkswagen’s next course of action should be. It was estimated that the defeat devices had been installed in more than eleven million vehicles. The governing bodies suggested that the company would have to take back its vehicles and fix them and cancel all future sales. The company’s reputation seemed permanently damaged after the scandal. Even for a company like Volkswagen, a scandal of such massive scale could prove to be irreversible. However, a few recommendations can be made based on the gravity of the situation. They are as follows:

• In the past sixty years, Volkswagen had emerged as one of the most powerful and prominent automobile vehicle companies in the world. Although it can be assumed that scandals like these can be suppressed and soon forgotten, rebranding of the company can be a probable solution. The company took take up requisite measures to revamp its marketing strategies and consider a new target audience. Launch of a new product, which attempts to rectify the mistakes of the prior models, could be a good way to fix the brand’s reputation. The company has still managed to retain its loyal customers, and it could make the most of such an opportunity. Coming up with efficiency programs or eco friendly programs could help in reducing the effect of negative publicity that the scandal brought along. Greenwashing, as this strategy is called, would require the company to emphasize more on its corporate social responsibility (Siano et al. 2017).
• Independent verification agencies could be used to restore the company’s reputation. It is expected that a brand like Volkswagen would have its own set of engineers and technicians who are entrusted with the responsibility of testing the vehicles before they enter the market. However, customers have lost faith in the promises made by the company. Thus, Volkswagen could pair up with independent external agencies who would test and verify the quality of the vehicles on behalf of the organization.
• After the scandal, the customers and the general public are essentially looking for a confirmation that a scandal like this will not be repeated again. Accordingly, Volkswagen could post a public bond stating the same. The top authorities of the company need to realize that customer trust is imperative to survive in the industry. Naturally, stricter measures and better standards of quality must be implemented by the organization. For instance, audits need to be more thorough and stricter in nature. Research into decarbonization of vehicle emissions, development of greener vehicles and engine safety should be incorporated as part of its strategy.

Conclusion:

To conclude, it can be said that ethical conduct and organizational morals are of crucial importance for any organization. Questionable practices on the part of an organization like Volkswagen could prove to be permanently damaging for its reputation. Volkswagen’s blunder with its rigged emission tests cost the company in millions when discovered. More importantly, customers around the world lost faith in the company. At the end of the day, it can be said that the company’s top authorities were responsible for the scandal. Accordingly, certain recommendations have been made which would help the company win back the goodwill of their customers.

References:

BBC News., 2015. Volkswagen staff acted criminally, says board member. [online] Available at: https://www.bbc.com/news/business-34397426

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

Boston, W., Varnholt, H., & Sloat, S., 2015, December 10. Volkswagen Blames ‘Chain of Mistakes’ for Emissions Scandal, The Wall Street Journal. Retrieved from https://www.wsj.com/articles/vw-shares-up-ahead-ofemissions-findings-1449740759.

Crête, R., 2016. The Volkswagen scandal from the viewpoint of corporate governance. European Journal of Risk Regulation, 7(1), pp.25-31.

Elson, C. M., Ferrere, C. K., & Goossen, N. J., 2015. The Bug At Volkswagen: Lessons in Co?Determination, Ownership, and Board Structure. Journal of Applied Corporate Finance, 27(4), 36-43.

Jensen, M.C., 2017. Value maximisation, stakeholder theory and the corporate objective function. In Unfolding stakeholder thinking (pp. 65-84). Routledge.

Jung, K., Chilton, K. and Valero, J.N., 2017. Uncovering stakeholders in public–private relations on social media: a case study of the 2015 Volkswagen scandal. Quality & Quantity, 51(3), pp.1113-1131.

Kottasová, Ivana., 2017. Dieselgate isn’t over: Volkswagen’s CEO is now under investigation. [online] CNN Money. Available at:     https://money.cnn.com/2017/05/17/news/volkswagen-ceo-market-manipulation-investigation/index.html 

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

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.

Oldenkamp, R., van Zelm, R. and Huijbregts, M.A., 2016. Valuing the human health damage caused by the fraud of Volkswagen. Environmental pollution, 212, pp.121-127.

Rhodes, C., 2016. Democratic business ethics: Volkswagen’s emissions scandal and the disruption of corporate sovereignty. Organization Studies, 37(10), pp.1501-1518.

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.

US EPA. 2018. Learn About Volkswagen Violations | US EPA. [online] Available at: https://www.epa.gov/vw/learn-about-volkswagen-violations