Volkswagen Corporation and the Scandal Over Diesel Emissions

A non-governmental organization made the stunning allegation in the fall of 2015 that the parent corporation of various luxury automakers, including Porsche, Audi, Bugatti, Lamborghini, and Bentley, had cheated on its emissions test. Multinational corporations like Volkswagen have the capacity to influence ethical, political, and legal issues in the communities in which they operate. An illustration would be the scandal's unparalleled financial and legal effects on Volkswagen. I'll use the Volkswagen corporate strategy, which sought to make the Automobile Corporation the world's largest automaker by the year 2018, to put this in perspective. They were on target to achieve this feat before the expose which clipped one third of the company’s market share (Russell 2016). The scandal came out at a time when the world is increasingly wary of the impact of climate change and is concerned with how to mitigate its effects. The backlash from the public was swift and brutal. For this research paper I would like to find what went wrong at Volkswagen and provide recommendations on the way forward for the company.

The corporation needs to act swiftly to save its brands’ reputation which has been hard hit. The problem was obviously internal hence the first thing that should be done is to get the opinion of a second party. This case should be reviewed from end to end by an independent or outside party. This party should investigate the source of the problem, those responsible as well as the appropriate steps required to contain the damage that resulted from the scandal. The source of the problem is obviously that the development team for the catalytic converter is the same one that ran the tests on the emissions from the car engines. These two teams should operate independent of each other to avoid collusion that compromises integrity. Everyone on the team involved who had any knowledge of this cheating was culpable and should be fired with immediate effect. However, if they were acting under strict instructions from those in the management they might be given some leeway.

The independent party in charge of reviewing the case should also provide recommendations to contain the damage wrought by the scandal. The first thing to do is set things straight with the corporation’s loyal customers. The company’s management should get in front of the public and take full responsibility for the scandal as fast as possible to avoid disinformation and rumors which are more damaging. Give details of the scandal; how long it is been going on and all those who are culpable. The management should admit straight up admit that there exists is a problem and the company is willing to take the necessary actions to fix it. Such actions include firing all those employees actively involved in the cheat scandal.

In addition, the Chief Executive Officer and all the managers who supervise all the departments involved should resign with immediate effect. A scandal such as this one does not only affect the customer base but also other stakeholders as well. Employees are at the core of the success of a labor intensive organization such as Volkswagen. Employees should not feel like they are being victimized. Instead they should be motivated and empowered to step up their efforts for the good of the company. This is because employees and their motivation levels are going to determine the success of the company’s new direction.

If Volkswagen’s strategies or actions were involved is a very important question. There is no justification for a company pulling a stunt like this as far as morality and ethics are concerned. A company should not use its technological prowess to cheat on an emissions test in their drive to economic success. What actions should the company take to fix the damage from the scandal? Speedy reaction is required because lack of one could result in consumer boycott. From here on then it is downhill as the sales crash and the company follows suit. There are three options that are available to Volkswagen to repair its damaged public image. The first and foremost is rebranding or restarting under a new name.

Volkswagen is a sixty year old brand and the biggest in the automobile industry. Starting over might not be favored by the top management because it not only means starting a brand from scratch, but it also means building customer loyalty from zero. The pros of a rebranding approach however is that a new beginning means a clean slate. Efficiency programs can also be sped up potentially saving the company from catastrophe. Even though this alternative as expensive as it risky, it decreases the negative exposure that the scandal caused the company. Change in leadership is also part of rebranding, the company needs to appoint a new C.E.O, a new board of directors as well as new managers in several of their key areas. The old leadership is responsible for one of the worst corporate cover-ups in history. (Hotten 2016) A new leadership team goes to show that a new culture is in place; a culture of transparency that frowns upon concealment of important matters.

The second alternative for Volkswagen would be to join an independent verification agency that has no relation to the company. An outside party to verify the tests run by its internal team is a sure way to restore customer loyalty in the company’s products. Moreover, the rankings done by these bodies have worldwide recognition and will bolster the strength of the company’s brand. Federal Trade Commission (FTC), the Fair Labor Association (FLA), the Landfill Methane Outreach Program (LMOP) as well as the World Business Council for Sustainable Development (WCSBD) are just some of the options for an external partner available for Volkswagen. Last but not least the company can post a bond to guarantee such an event will never happen again. A bond indicates credibility because the sum posted is payable to the European Commission’s Automotive Industry. This shows remorse on the part the company played in the scandal and might be an effective way for the company to rebuild trust. The demerit of this is that a bond big enough would involve a huge sum of money. This compounded by the amount to be paid in compensation would dent the company’s pockets and the company would have to consider selling one of its brands to cover the cost. Considering how lucrative its brands are, this might not be the best alternative.

There are also other options available in order to pass an accountability test after this scandal. The technical part of an accountability policy includes ensuring that customers always get what they buy in the future. Consumer confidence in Volkswagen products took a huge hit. Another scandal involving the company’s dishonesty would destroy the company. Ethical considerations for an accountability test would involve holding all those involved culpable as well having an independent party verify tests on their cars. It would also incorporate setting up a whistleblowing policy to encourage employees to report unethical practices that might be taking place in the offices. The merits of having a whistleblowing policy is that unethical practices are discovered long before they blossom into full-blown scandals. In addition, a whistleblowing policy protects employees from victimization because it is supported by management. On the downside, the policy might result in mudslinging that might do more damage to the company. Another option available is establishing a no-tolerance policy. As a pro, a no tolerance policy makes it abundantly clear that unethical practices are not tolerated. Moreover, it enhances the image of the company in the public domain. On the flip side it might lead to cover-ups as employees fear repercussions. Also, an annual code of ethics training programme needs to be instituted to enable employees to have a firm grasp of what the company stands for. A training programme also allows the company to update the employees on any changes in policy and refresh o their knowledge.

Financial considerations for an accountability test include buying back cars affected and repairing the damage caused. This also has its merits and demerits. Apart from the logistics nightmare that is involved, it a very expensive exercise to undertake. On the good side however, it allows the company to show its willingness to take responsibility for its errors. This is good for public relations. Second, the company can extend warranties on the cars that are faulty. Extending warranties is good because it shows the company is willing to fix the problem. It gives the customers peace of mind and enables the corporation to work on a solution in due time. On the con side, extending warranties has come to be associated with faulty products, this is bad for a company already struggling with its reputation. Volkswagen should also invest heavily in green or clean tech to ensure that its automobiles are in full compliance and to restore consumer confidence.

Volkswagen reaction to the initial reports of the cheating scandal was not good enough as would have been expected considering the magnitude of the deception. Marin Winterkorn, then the chief executive officer of Volkswagen despite admitting that the company had broken the trust of its customers as well as other stakeholders still played down the wrongdoing by attributing to a few individuals. In addition, he resisted initial calls to step down and when he did he denied any responsibility. This was ill-informed, I mean the C.E.O’s unwillingness to shoulder the blame and instead choosing to throw some of his subordinates under the bus does not inspire confidence on the part of employees. The company has already alienated its client-base and it cannot afford to alienate its personnel as well.

The company responded with a mass recall of automobiles manufactured between 2008 and 2009. (Sandel 2016) this move was lauded by the public because it signified that the company was willing to make amends. Through various media outlets the company announced it would everything possible to restore the lost confidence in its products. It also announced it would pay up any taxes owed to governments as a result of their green washing. In addition, Marin Winterkorn stepped down as the chief executive officer of Volkswagen paving way for the company to flourish under new leadership. Managers in critical positions were also replaced. Internally, the company has assured its clients and shareholders that their departments are now independent to ensure collusion does not occur.

Moreover, the company has spent a considerable amount of money to research greener technologies for their automobiles. This move was seen by the public and other stakeholders as an indication of the new direction the company was taking. The company also compensated those affected by offering monetary rewards to those who wanted trade-in for their cars. In addition, a claims fund was established to offer full compensation packages including but not limited to replacement, repair, extension of warranties, and buy back of cars as well as monetary compensation. Some members of the public were however not convinced that Volkswagen was doing enough. This was understandable since it is expected that it will take a while to restore confidence in their brands. There is no denying that the company handled the scandal as well as could have been expected under the circumstances. Its stakeholders were also very receptive of its efforts with most governments having lifted the sanctions they had imposed on the automobile manufacturer. Consumer confidence is also well on its way to recovery.

Conclusion

In conclusion, Scandals have brought big conglomerates and multinationals to their knees overnight. It is like the old saying goes, ‘destroying what you’ve built in a lifetime can be done in an instant.’ Scandals erode the trust that companies have built around their brands effectively alienating their loyal customers. In the world we live in, companies are increasingly overlooking the importance of ethics in their pursuit of profit maximization. Volkswagen’s ‘defeat device’ scandal had a huge impact on the profitability of the company proving that the modern customer still perceives ethics as inseparable from enterprise. (Topham 2015) The actions of Volkswagen are not permissible on moral and ethical grounds. The scandal’s impact will be felt long after it happened. The company will definitely recover from the negative publicity over time but it needs to implement several measures to mitigate the impact as well as to prevent a repeat of the same.



References

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