Discuss about the Volkswagen Gas Emission Scandal.
Cooperate governance could simply be described as the system of rules procedure and practices that direct and control a firm’s daily activities essentially for catering the interest of the firm’s stakeholders which mainly constitutes consumers, the community the government as well as the firm’s shareholders. It basically illustrates how crucial an effective cooperate governance is to the success of a firm’s growth and development, it should constitute some of the governing concepts that contribute to a good corporate governance such as integrity and accountability in the long run[1]. Volkswagen(VW) is a German automaker founded in 1937 the German Labor Front under Adolf Hitler and headquartered in Wolfsburg. It’s among the oldest and operational automaker firms that has its operations worldwide. Being the largest car produce in Europe, it has spear headed Germany to be the world’s leading automobile and commercial vehicles produce. However, V.W has long been characterized by hybrid family leadership and poor corporate governance structure. This type of leadership and governance in the firm has long been a breeding ground for scandal, this came to light when it was involved in a gas emission scandal.
In 2015 the automaker was caught in a gas emission scandal where it installed complex software in the cars that assisted the firm in cheating the American Air pollution test, this software so was good that it was able to sense Air pollution tests and it would adjust the numbers according to the required international and American standards[2]. The scandal also revealed that VW has been using the software known as defeat devices since 2008 which indicated the contribution of the profits earned in that period. The scandal affected the firm’s revenue in 2015 where it met its first loss in 15 years that attributed to 18 billion dollars[3]. Part of the losses was incurred heavily due to the money set aside for covering expenses and settlement when solving the scandal[4]. This lead to the then CEO Martin Winterkorn to resign and be replaced by Matthias Mueller who has so far been putting the company back on track and slowly gaining its reputation.
In 2006 the performance of VW in the American market was embarrassing in comparison with Toyota which has been it biggest rival for decades[5]. They had to enter the market by introducing the new diesel mortar cars that have been doing well in other international markets and would compete with Toyota’s hybrid vehicles. However, there was one problem, the cars did not meet the strict requirements of American emission standards. Stuart Johnson, head of VW’s Engineering and Environmental Office was the then anonymous whistleblower who was present in an executive meeting at VW headquarters in Wolfsburg in mid-2006 stated that an agreement was made to install the illegal software that would detect emission test and crank up control to show standardized results with the help of Robert Bosch who owned a German automaker firm[6], he was to provide the necessary engine accessories secretly[7]. In 2013 a team from west Virginia whao were the first gatekeepers, conducted a test on whether diesel car produces more emission during normal driving than in test. They discovered that two VW diesel cars emitted far more than expected. The California Air Resources Board who were the second gatekeepers opened an inquiry after the publication of the study by west Virginia. Other gate keepers such as the International Council for Clean Transportation (ICCT) joined the inquiry where VW executives and engineers tried to cover up the scandal by feeding the authorities with false and misleading data but they later admitted in their plea agreement. The emission scandal was not a surprise to many experts who criticized the cooperate governance and the governing culture of VW for long. According to Charles M. Elson , professor of finance described the VW governance, as a breeding ground for scandal. The emissions scandal was not a surprise to him at all, it was an incident waiting to happen. Since the establishment of the firm the cooperate governance and that governing structure has been awful. It had long been characterized by hybrid family control dictatorship and even labor influence even. Although it’s among the oldest and largest profit earning firm in Germany. Markus Roth, an expert in European corporate governance describe VW corporate governance as a soap opera since the beginning rating it to be even worse by German standards.
Although VW finally admitted to the scandal after vigorous investigation it led to the implication of nine managers and a few engineers who were suspended which lead to the then CEO Martin Winterkorn to resign further investigations Martin Winterkorn received a report on the incident which would have caused no more than 30 million dollars to fix but scooped it under the hood a further depiction of abuse of the whistleblowers and gatekeepers who discovered the incident. another key participant was Robert Bosch, a German auto supplier knowingly participated in the evading us emission laws according to lawyers of U.S citizens were owners of the diesel environment polluting vehicles[8]. However, in the long run, the scandal as most experts agree was caused by poor cooperate governance and governing structure did not allow a conducive environment gatekeepers and whistleblowers concepts to take charge.
As usual VW responded the crisis by deeming the scandal terming it as preposterous accusations. however, after vigorous investigations by the authorities as well as cooperation, the firm later admitted guilt citing it will cooperate fully with the authorities as well as conduct its internal investigations. Moreover, there was additional pressure from the investors and stakeholders who complained on the management and governing structure of the frim citing it to be poor. The stake holders also demanded compliance with the authorities which saw the then CEO Martin Winterkorn to resign as, moreover 10 senior executives and a several engineers were suspended and indicted. VW set aside money for settlements and fines which made it incur huge losses. It recalled all the cars affected and fixed them according to the required standards. Moreover, the new CEO seems to be building the reputation of the firm aggressively by incorporating new strategies that would prevent other scenarios especially since it was an internal issue. The ‘TOGETHER- 2025 strategy’ which aims the firm to be eco-friendly through the productions of the provision of electric and hybrid cars by 2020 and 30 electric cars by 2025 which would later lead to a full-scale production in the future[9]. Although the strategy seems to be working a few touches need to be done on the cooperate governance and governance structure which has long been characterized by hybrid family control dictatorship and even labor influence even.
Conclusion
In conclusion, what firms can learn from the VW scandal is the importance of an effective Cooperate governance which translates to a good governing structure. This means a good Corporate governing structure should entail governing concepts such as integrity, honesty, and accountability which seriously lacked at VW. Moreover, gatekeepers and whistleblowers are the key to a good corporate governance, they can be third parties or internal staff member who value the interest of the firms as well as the stake holders. The gatekeepers perform audits and check whether there is and imbalance disruption from the normal activities. They further protect the firm reputation and brand by ensuring compliance with local and international regulations[10].
Ayuso, Silvia, Miguel A. Rodríguez, Roberto García-Castro, and Miguel A. Ariño. “Maximizing stakeholders’ interests: An empirical analysis of the stakeholder approach to corporate governance.” Business & society 53, no. 3 (2014): 414-439.
Connor, John M. “The German Auto-Emissions Scandal: Likely US Antitrust Response.” (2017).
Cremer, Andreas, and Edward Taylor. “Volkswagen Takes $18 Billion Hit over Emissions Scandal.” Reuters. April 22, 2016. Accessed June 25, 2018. https://www.reuters.com/article/us-volkswagen-emissions-germany-probe-idUSKCN0XJ19U.
John A. “Volkswagen’s Emissions Scandal: Lessons for Corporate Governance? (Part 1).” Oxford Law Faculty. May18,2016. https://www.law.ox.ac.uk/business-law-blog/blog/2016/05/volkswagen’s-emissions-scandal-lessons-corporate-governance-part-1.
Law, Christopher M. Restructuring the global automobile industry. Vol. 4. Taylor & Francis, 2017.
Minter, S. “VW scandal lowers Germany’s brand value by $191 billion.” Industry Week (2015).
Nelson, Josephine Sandler. “The Criminal Bug: Volkswagen’s Middle management.” (2016).
Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and practices. Oxford University Press, USA, 2015.
Volkswagen group, A. G. “„TOGETHER?Strategies 2025,“.” (2016).
Walters, Joanna, Graham Ruddick, and S. Farrel. “VW emissions scandal could snare other firms, Whistleblower claims.” The Guardian (2015).
[1]Ayuso,, et al. “Maximizing stakeholders’ interests 414-439.
[2]John “Volkswagen’s Emissions Scandal 32.
[3]Cremer and Edward. “Volkswagen Takes $18 Billion Hit over Emissions Scandal.” .
[4]Minter, “VW scandal lowers Germany’s brand value by $191 billion.”
[5]Law and Christopher. Restructuring the global automobile industry.
[6]Walters. “VW emissions scandal could snare other firms, Whistleblower claims.” 108
[7]Nelson, and Josephine . “The Criminal Bug: Volkswagen’s Middle management.” 35
[8]Connor, The German Auto-Emissions Scandal 78
[9 Volkswagen, A. G. “„TOGETHER?Strategies 2025”, .
[10]John Volkswagen’s Emissions Scandal: Lessons for Corporate Governance
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