Volkswagen: Impact of the Emission Scandal
Volkswagen, established in 1937, is a German manufacturer of vans and automobiles. The company has its headquarters in Wolfsburg and employs more than 117,000 worldwide (Jung and Valero 2017, p.1114). The automaker is part of the Volkswagen Group along with other multinational companies. Volkswagen has enjoyed considerable competitive advantage in Europe and in the U.S (Jung and Valero 2017, p.1116). The company’s long period of existence has allowed it to build a global profile. The paper will discuss the impact of the emission scandal that rocked Volkswagen in 2015.
The Ethical Scandal and Deceptive Software
The ethical scandal was discovered after an NGO elected to conduct independent tests on Volkswagen vehicles (Jung and Valero 2017, p.1118). The tests revealed that the company’s cars behaved differently under test conditions and when on the road. Certain software had been fitted into the diesel engines to detect when test conditions were activated. During such moments, anti-pollution mechanisms would work sufficiently to ensure an acceptable level of emissions. When the car was driven under normal conditions, the software would deactivate itself and allow the engine to yield greater power. It was determined that the emissions produced by Volkswagen were around 40 times higher than the acceptable levels (Siano, Vollero, and Amabile 2017, p.29). The company routinely rigged the stringent environmental tests in the U.S. for several years.
Top-Level Executives and Shareholders Dilemma
Volkswagen's top-level executives faced an ethical dilemma concerning whether to admit its culpability or blame the engineers. The company wanted to succeed in the American market and compete with rivals such as Toyota (Moravcsik 2017, p.183). It was difficult for the company to multiply its sales while adhering to the regulations concerning diesel emissions. The American market had a high demand for diesel-powered cars as opposed to hybrid vehicles. Besides, diesel cars had higher rates of fuel efficiency while remitting substantial power. Volkswagen’s engineers faced a dilemma since diesel cars would almost certainly violate American laws on emissions (Moravcsik 2017, p.185). Top-level managers demanded quick results at all costs. Engineers ultimately decided to install deceptive software to guarantee compliance while retaining maximum output.
Admission of guilt would expose Volkswagen to court cases in all markets where cars had been sold. The company’s shareholders experienced an ethical dilemma in denouncing the automaker’s actions. Many shareholders reaped considerable profits while the company made illegitimate sales. It was unlikely that any stockholders would report the automaker’s actions to environmental regulators. Hence, shareholders face a dilemma when choosing to sell their stock to prospective buyers. Volkswagen Group CEO was conflicted whether to accept responsibility or claim innocence (Jung and Valero 2017, p.1123). If the CEO claimed to be unaware of the ethical violation, this would make him appear negligent. On the other hand, accepting responsibility for the violation could expose him to personal lawsuits.
Impact on Stakeholders and Environmental Impact
Several stakeholders were impacted by Volkswagen’s decision to manipulate emissions data. The federal government established laws on diesel emissions to protect the environment and reduce climate change. Greenhouse gas emissions had a significant impact on global warming and other undesirable outcomes. The disingenuous actions of Volkswagen harmed the environment and prevented the Environmental Protection Agency from achieving emission targets (Siano et al. 2017, p.32). Volkswagen was also deeply affected by the ethical violation. For instance, the company’s stock value plunged to around a third of its initial estimation. The company lost significant revenue due to recalls and loss of consumer confidence (Preston 2015, p.382). Considerable funds were also used to respond to lawsuits and pay fines imposed by the courts.
Consequences and Impact on the Business
The total recall of 11 million cars exposed the company to the brink of economic collapse (Jung and Valero 2017, p.1124). Volkswagen group CEO was forced to resign while senior managers and engineers were either terminated or suspended. Shareholders lost hefty amounts of money after attempting to sell their stake in the aftermath of the scandal. Many customers felt betrayed since they had purchased Volkswagen cars believing that the vehicles were environmentally-friendly (Preston 2015, p.386). Such disillusionment dissuaded potential buyers from purchasing Volkswagen vehicles. Therefore, the company lost its image and credibility after the ethical violation.
Evaluation of Decision Making
The decision made by Volkswagen’s engineers was quite unethical since it was intended to foster deception. Regulators would be fooled into thinking that the company’s vehicles were compliant with existing environmental laws (Siano et al. 2017, p.33). In addition, buyers would be required to pay exorbitant prices for deficient cars. The decision made by the head of the Volkswagen Group was ethical since it allowed for independent investigations. Engineers and managers culpable for the lack of oversight were required to relinquish their roles. Volkswagen’s decision to recall affected vehicles was ethical since it could repair manufactured cars. Financial reimbursements increased the company’s goodwill and lessened the impact of the violation.
Reputational Damage and Lessons Learned
Volkswagen was adversely affected by the decisions made by top-level managers. Pursuing success at all costs would certainly lead to the violation of ethical guidelines. The desire to make profits and appear competitive had plunged the company into ruin. European markets also responded to the accusations of deception. Competitors took advantage of Volkswagen’s misfortunes by taking control of significant portions of the consumer market. The reputational damage due to the fiasco would frustrate the company for several years (Preston 2015, p.389). It would be quite difficult to restore previous levels of consumer confidence. Therefore, the business would be negatively affected by the scandal.
Changing Views on Business Ethics
My original view of business ethics was motivated by the consequences suffered by unscrupulous professionals such as Bernard Madoff. I felt that individual managers and executives had the utmost responsibility to adhere to established ethical standards. However, my views have changed slightly after attending lectures and completing the case study assignment. I now consider ethical behaviour as a manifestation of organizational culture. Companies with competitive, cut-throat attitudes have a higher chance of engaging in ethical violations. The tremendous pressure placed on Volkswagen’s engineers along with lack of proper oversight contributed to the automaker’s deception. My current views are different since I previously felt that top-level executives were individually responsible for any reported violations. Notwithstanding, my views are similar since I appreciate the potential impact of ethical violations. Organizations that betray public trust and violate established standards eventually lose more than they gain.
Conclusion
Indeed, Volkswagen’s case illustrates the value of adhering to ethical guidelines. The automaker deceptively fitted software that would manipulate emission tests. The discovery of the scandal caused numerous detrimental effects on the company’s reputation and profitability. Volkswagen’s CEO relinquished his role while the firm’s stock value plunged. The case demonstrates the stupidity of violating ethical standards in pursuit of higher revenues. Companies would often lose value and credibility whenever their duplicity was documented. Although Volkswagen enjoyed decades of success, the scandal caused financial ruin.
References
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): 1113-1131.
Moravcsik, A. (2017). Faster, Higher, Farther: The Volkswagen Scandal. Foreign Affairs, 96(5): 183-186.
Preston, B. (2015). Volkswagen scandal tarnishes hard-won US reputation as green company. The Guardian, 25: 377-414.
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: 27-37.
