Business ethics is the study of moral values and how they apply to institutions and firms that participate in producing and distributing services goods to the consumers, including those people that work within these organizations (Ferrel & Fraedrich, 2015). Legal regulations, on the other hand, are measures put in place by the government to ensure that the organizations responsible for production and distribution of goods and services adhere to standards that guarantee safety for the user of the products and the general public (Batson & Neff, 2001).
Violation of either legal regulations or business ethics by the organizations and the workers at those organizations has adverse effects on the customers, the shareholders, the suppliers and the market for the products involved in the malpractice. Making of an ethical decision is consistent with the notion that a moral decision’s quality influenced by the quality of the prior decisions, which are specified by the knowledge that is managerial, managerial know-how, individual moral stand, individual drive and the critical thinking skills present in a person. These five components determine the strength held by a decision, especially its moral position. The legal implications of a decision explicitly outline in constitutional amendments regarding the issue, and any penalties attached to violations of any legal regulations in place explain for every one of those violations in constitutional clauses. Most of the time, legal rules go hand in hand with ethics regarding business practices (Jennings, 2014).
In the case of Volkswagen’s cheating scandal, the company was found guilty of using the software in the cars they manufactured to reduce the emission of Nitrogen Oxides during car tests in the US (by inhibiting performance) before they got sold to the customers. The software would then turn itself off whenever it detected that it was on the road hence return its performance to standard and increase its emissions by up to 40 times more than the allowed limit (Cavico & Mujtaba, 2016).
It was a result of a desperate attempt by Volkswagen’s engineers to meet the ridiculous requirements by the executives to produce efficient diesel engines with minimal emissions without sacrificing performance, a near impossible feat. As a result of this unethical decision, the company ended up violating the Clean Air Act, a law that holds a significant amount of weight regarding jurisdiction of environmental pollution, which would attract hefty legal penalties when found guilty of the violations (Jennings, 2014). The scandal was ignited efficiently by the company’s thirst for massive success, trying to clock in at sales amounting to 10 million cars per year, which was a milestone that had been set to surpass Toyota as the company with the highest number of vehicles sold per year. As a result, an immense amount of pressure built up in the company, with some employees reporting mistreatment and bullying when they disagreed with the executives.
The management had an autocratic style of leadership, and it was single-mindedly intent on success, at all costs, hence giving way for total disregard for ethical practices. The engineers were therefore under pressure to come up with a solution, and quick, given that Volkswagen’s engineering reputation was on the line if they did not deliver. It’s, therefore, safe to say that managerial skill and managerial knowledge played a substantial role in the execution of the cheating scandal. Personal motivation to commit consumer fraud was also a factor since the opportunity to cheat presented itself in the form of incorporating the cheating software within the millions of lines software code present in most vehicles today. It would reduce chances of detection of the software and would correctly work in lab environments whereby the emission testing would be taking place (Rhodes, 2016).
In light of the cheating scandal, the impact was massive, especially for the company itself, the customers, the shareholders, the Volkswagen car dealers and the general market for vehicles running on diesel engines. The company was affected such that, the production of cars at Volkswagen was halted to give way for an internal investigation to discover the root of the problem. It resulted in the Chief Executive Officer resigning, some engineers losing their jobs and filing of multiple lawsuits against the company due to the violations they had committed. Volkswagen ended up paying billions of dollars to handle the litigations and in research to remanufacture clean diesel engines although their reputation was already down the drain. Meanwhile, the company’s value in the stock market dropped drastically, a massive blow for the shareholders because this meant massive losses. Given that Volkswagen was a multi-billion-dollar company whose stocks were in high demand before the scandal, a drop of that magnitude in the stocks was bound to drastically affect the company’s profit margins and hence the shareholders’ profits (Cavico & Mujtaba, 2016)
Also, the customers lost their trust in the car manufacturer. They felt cheated off their money because the standards that were advertised by the company were way below what they delivered and it almost guaranteed that they would never buy a Volkswagen car ever again. A ripple effect felt by the car dealers who sold Volkswagen vehicles and spare parts. The sales drastically dropped pending investigations and a massive reduction in demand for Volkswagen vehicles. It would eventually result in large amounts of losses for the dealers. It was not only in Europe, the home continent for Volkswagen and the United States of America, where the cheating discovered, but also the rest of the world where many consumers got wind of the company’s fraudulent maneuver (Rhodes, 2016).
The market for diesel automobiles was significantly affected too due to the poor image painted by Volkswagen. Most consumers now considered diesel engine powered motors as air pollutants and the demand for those decreased.
The real amount of emission of Nitrogen Oxide, a deadly air pollutant produced by diesel engines, which emitted from Volkswagen’s engines posed a significant health threat to the people prone to the pollution effect left by the emissions. Most of the diesel engine consumers that still require them in operation are mostly off-road users, primarily using diesel engines for high torque requirements, for example, farming uses tractors, rough terrain vehicles, commercial trucks, and buses. Further investigations proved a large margin between the results of the lab tests and the emissions by the cars on the road. It was not right for vehicles using diesel engines only but for gas-powered engines too. Other brands of car manufacturers for example Jeep and Renault were found to have discrepancies between the lab results and on-road results, leading to further investigations concerning emissions from diesel engines in vehicles (Kjonstad & Willmott 1995).
By installing a device that deliberately circumvents the testing operations required to test emission levels in their vehicles, Volkswagen broke the laws concerning the same and was liable to fines attached to a guilty verdict delivered on those allegations. A United States judge directed the company to pay a sum of 2.8 billion USD as a criminal fine for altering their diesel engines to cheat on government emissions tests that served to ensure the vehicles used in the USA met the Environmental Protection Agency (EPA’s) standards for environmental safety.
Conclusion
Therefore, from the example described above, we can conclude that business ethics is a practice that should be upheld by all organizations responsible for the production and supply of goods and services. In its essence, ethical business practice is vital for the growth of an organization and adherence to legal measures and regulations put in place by the government is in the best interests of both the consumer of the goods and the organization providing the products and services (Kjonstad & Willmott 1995). Once an unethical decision occurred and its effect discovered later, a business loses both its credibility and its ability to grow in the market while making good profits.
To further curb ethical malpractice in business organizations, the government should more also increase the punishments associated with unethical practices so that the organizations can understand the weight of the matter entirely. A scientific study has proven that currently many premature deaths could have averted if production and distribution organizations (in this case Volkswagen) adhered to the regulations put in place by the government to guarantee safety to the users and the general public by minimizing emissions and environmental pollution caused by their products.
References
Batson, T. N. (2001). Business Ethics: Sunday Ethic-Monday World (2nd Ed). Wheaton, IL: Triangle Publishing.
Cavico, F. J., & Mujtaba, B. G. (2016). Volkswagen emissions scandal: a global case study of legal, ethical, and practical consequences and recommendations for sustainable management. Global Journal of Research in Business & Management, 4(2), 303-311.
Jennings, M. M. (2014). Business ethics: Case studies and selected readings. Cengage Learning.
Kjonstad, B., & Willmott, H. (1995). Business ethics: Restrictive or empowering Journal of Business Ethics, 14(6), 445-464.
Rhodes, C. (2016). Democratic business ethics: Volkswagen’s emissions scandal and the disruption of corporate sovereignty. Organization Studies, 37(10), 1501-1518.
