The Volkswagen Scandal: An Ethical Management Essay.

One of the biggest and most talked about scandals of recent times, VW have become embroiled in numerous court cases and seen their reputation tarnished. The installation of software to cheat emissions regulations is an extraordinary case of corporate dishonesty. The impact is widespread, through cheating regulations VW also lied to consumers.

How could this happen? VW claimed it was a small number of employees that were responsible – the classic ‘Bad apples’ argument.

Take a look at this story:

https://www.ft.com/content/d5fab184-4dcd-11e6-8172-e39ecd3b86fc

The story outlines the VW initial assertion that a limited number of employees had acted independently – and without management knowledge. However, the story argues that the cause of the scandal is a culture that pervaded the whole company.

Your task is to explore this issue from the perspective of ethical management.

Your assessment into two parts with part 1 being further split into two. Read the requirements below and attempt all three parts:

1. You are required to write a brief report to senior managers at VW from the perspective of a middle manager tasked to outline the ethical dimensions of the scandal. Clearly VW have been forced to confront its own wrong doing, your report should nevertheless to written for senior managers outlining the scandal from the perspective of an ethical analysis You will need to explore a number of factors including  - Why should this be explored as an ethical question? How might the company want to think about the role of business in society and its obligations to society? You will also need to outline who the key stakeholders are and in what way they are affected. For this example you might also want to think about exploring writing on corporate culture – the paper from week 1 on why good people do bad things may be very helpful. You should include research into examples of how ethical choices impact on other companies (e.g where is there research that shows good choices benefit companies and bad choices have a negative impact?). Finally you should conclude with some recommendations for what the company should do.
2. For this part you should again use the case study – but this time choose TWO ethical theories and demonstrate that you can apply these to the case to show how your chosen theories lead you to a view on the ethics of the case.

Part 2 is NOT related to the case study. This section requires you to discuss what makes an ethical leader and how you would, as an ethical manager, manage your business and/or others to a high ethical standard.

You will need to think about personal ethics, about the conditions that bring about unethical organisations and practices, about organisational values and methods of compliance. This part can be written in a more reflective style, where the first person can be used.

Ethical considerations

In the past few years, there has been a growing awareness and consciousness about the impact of business operations on the surrounding society and more importantly, the environment. Phenomena like commercialization, globalization and widespread industrialization have adversely affected the environment. As a result, the onus is on the organizations and businesses to minimize their impact on the environment. However, Volkswagen has recently been charged with violations of the Clean Air Act, which regulates vehicular emissions of nitrogen oxides, which is considered to be one of the most potent pollutants in the environment at present. In September of 2015, the United States Environmental Protection Agency or EPA accused Volkswagen of willingly cheating on their emission tests (Blackwelder et al. 2016). Volkswagen had apparently installed emission controls in their engines, which were programmed in such a way that they would be activated only during the emission testing in the laboratories. Volkswagen had used this software in more than 11 million vehicles worldwide. The discovery of this scandal led to a worldwide uproar, with Volkswagen being forced to call back more than 5 million cars (Krall and Peng 2015).

Since the 1970s, the EPA has imposed stringent policies which regulate vehicular emissions in the case of all vehicles. This is because vehicular emissions consist of harmful pollutants like carbon monoxide and nitrogen oxides which detrimental to both the environment and the people who are exposed to it. The new emission standards which had been posed on the automobile companies proved to be a challenge for brands like Honda, Nissa, Hyundai and also Volkswagen. In the year 2015, Volkswagen consequently deployed a diesel dupe, which would rig the emission tests that the vehicles are subjected to. This particular software ensured that the emission controls were activated during the tests, so that the vehicles demonstrated lower levels of pollution that what they actually emitted (Mansouri 2015). A defeat software or device had been embedded in the diesel engines of more than 11 million vehicles, which would change the emission performance of the vehicle to the desired results. In other words, for quite a long time, Volkswagen had been pretending to meet the emission standards, whereas in reality, it was simply cheating its customers (Ragatz 2015).

More importantly, the attitude of the Volkswagen management and the public statements made were unethical in nature (Siano et al. 2017). Following the discovery of the scandal, Volkswagen suggested that the people involved in rigging the emission tests and had worked independently. In short, it was suggested that the management of the company was completely unaware of the implementation of such a software. In 2015, only 9 managers were accused of partaking in the scandal and they were suspended. It was a classic “bad apples” case and Volkswagen publicly stated that the unethical behavior on their part had been due to the mindset of a few employees and their inability to comply with the rules. However, internal investigations conducted later showed that at least 50 managers had been aware of such a practice. The technicians involved in the process had reportedly informed the supervisors, who had chosen to turn a blind eye. In other words, there were several people involved in the scandal, which makes the entire company responsible for the fiasco which erupted.

Role of the business in the society

The economy of a particular country or a state would depend on the business and trade in that region. Every business is regulated by a certain code of ethics and morals, which determine how the people involved in the organization should act and behave. It must also be asserted that that since a business of any kind would use resources from the surrounding communities and society, it is also the responsibility of the business corporation to take care of the society they are dependent on. In other words, the society and the business that operates within in are interdependent entities. Business ethics refer to moral principles and rules which are not legally binding, but every company is expected to abide by it. The purpose of business ethics is to ensure that a company is able to regulate its impact on the society.

The key stakeholders who were affected are as follows:

• Customers – The customers of Volkswagen felt cheated and deceived. Moreover, they were forced to deal with the hassles involved in recalling the vehicles, the additional costs and also the embarrassment that followed.
• Employees – The employees had to put up with the humiliation and investigations that followed (Jung, Chilton and Valero 2017).
• Dealers – The company lost the goodwill of the dealers, who had to manage the hassle involved in recalling majority of the vehicles that were sent out.
• Shareholders – The scandal also resulted in erosion of the trust of the shareholders, who suffered equity losses which were not recoverable.

It was estimated that the total number of individuals who were responsible for the scandal were more than 50. In other words, at least 50 managers were aware of the practice of rigging the emission tests. Despite the fact that the Volkswagen management denied any kind of involvement in the matter initially, they were proven to be equally guilty with internal investigations. Thus it can be claimed that organization culture was partly responsible for the failure to impose business ethics. Volkswagen spokespersons commented that the mindset of the individuals involved in the process were to blame for the failure to comply with stringent environmental policies (Lane 2016). Corporate culture refers to the working environment, or the culture prevailing in an organization, which has an impact on the decision making process of the employees, along with how they address ethical factors or incorporate ethics into the decisions (Crete 2016). Maintaining a favorable corporate culture in the workplace which incorporates ethics as an integral part of its moral principles would ensure that each employee abides by the code of ethics in the workplace. Corporate culture, depending on its nature, may very well be both the source or the solution for ethical issues at an organization. Suitable management in charge of corporate culture would set an example for the employees and impact their attitude towards their responsibilities and duties (Rhodes 2016).

Making ethical choices would have the following impacts on Volkswagen:

• Ensuring ethical practices in the workplace would boost the morale of the employees and even secure their loyalty. It would also lead to a strengthening of the bond with the management.
• Ethical choices would also affect the profitability of the company for both short and long term goals. Volkswagen’s unethical practices resulted in calling back millions of vehicles across the world, which resulted in significant and unrecoverable losses for the company.
• Ethical choices would also affect the overall reputation of the company. Due to one mistake in decision making, Volkswagen’s reputation has been forever tarnished. The reputation of a company would play an integral role in determining the investment value of the organization (Schiermeier 2015).

The following recommendations can be made in this case:

• The first step in this case should be to deal with the customers. Volkswagen should either attempt to fix the vehicles and send them back or cancel the loans altogether.
• Compensations should also be provided to the customers and dealers around the world, who were greatly affected by the scandal and suffered financial losses because of it.
• Rebranding the brand should be one of the strategies adopted by Volkswagen. For instance, Volkswagen could undertake environmentally conscious projects which would exhibit their inclination towards corporate social responsibility.
• Strict measures need to be implemented keeping in mind the EPA. Emissions and the pollution caused from them are important aspects for the EPA. Thus, a new plan must be implemented by the Volkswagen management which abides by the EPA measures. Internal investigations must also be carried out from time to time to ensure that these measures are in place (Zhou 2016).

Conclusion 

In conclusion, it can be said that the Volkswagen scandal was quite damaging for the organization which had emerged as a force to be reckoned with in the automobile industry. The most important aspect to be considered during such a scandal is the damage to reputation. The above report identifies the stakeholders who were affected as part of the scandal, and even provides recommendations for the same.

The Volkswagen scandal may be analyzed from two perspectives, using ethical theories, namely utilitarianism and virtue of ethics. According to the normative ethical theory of utilitarianism, the concept of what is right and what is wrong would depend on the ultimate consequence. The theory asserts that the most ethical choice or decision will be one which produces the best results. For instance, according to this theory, an unethical act may be called right or may be justified if it succeeds in producing the benefits or advantages for parties concerned (Mill 2016). It is a reason based approach to determining what is right and what is wrong. Now there are two aspects to the Volkswagen scandal. The company owes all its stakeholders transparency in terms of policy and also environment friendly measures against the diesel emissions which are harmful in nature. From an utilitarian point of view, the question arises as to whether the actions of the company which are not entirely illegal, can still be immoral or unethical and thus warrant consequences.

Key stakeholders who were affected

If the utilitarian theory is applied to the Volkswagen scandal, one would have to look at the outcomes. In this case, the emphasis would be the good results (Lyons 2015). In other words, the emphasis would have to be placed on the benefits rather than the negative outcomes. For instance, the company’s logic in this case would be this – the rigging of the emission tests meant that the vehicles would be performing at higher rates than other vehicles. The measures imposed by the EPA were a hindrance as far as performance was concerned. Thus, the speed and the performance of the vehicles with rigged systems resulted in satisfied customers which would please the employees as well. As a result, this would be considered more significant as compared to the pain of those people who on being exposed to the vehicular emissions would suffer from respiratory diseases (Oldenkamp, Van Zelm and Huijbregts 2016). This is all the more poignant since no laws had technically been violated. However, the major problem with utilitarianism is that there is no actual way to make the decision objectively. The consequences or the negative effects on Volkswagen have not had much of an effect on its profitability either. Volkswagen admitting its mistakes and calling back its vehicles would not have much an effect on the cash flow and Volkswagen’s reputation.

Virtue ethics or virtue of ethics is another normative ethical theory which may be applied in this case. This theory emphasizes on the virtues involved in character and mind. A theorist who delves into virtue ethics would deal with the issue of ethics and the related problems. For instance, the theory covers how these ethics are acquired in real life and how they may be applied to a context. The virtue ethics theory differs from the theory of utilitarianism with regards to context and mode. While utilitarianism believes that if an action has a positive impact or a benefit associated with it which outweighs the negative consequences, then the action can be termed as ethical or right (Hursthouse 2013). However, the theory of virtue ethics emphasizes that the consequence of a particular action is of prime importance. A person or organization following the virtue ethics theory would treat others in the same manner as he himself would like to be treated (Sandler 2013). If this theory is applied to Volkswagen, then the action on part of the management was gravely wrong. The act of rigging the emission tests was not only morally wrong but also had a negative consequence (Barrett et al. 2015). The company was pretending that its vehicles abide by the measures imposed by the EPA, but in reality, it was simply cheating its customers. Moreover, the action had an impact on the people who were exposed to the harmful emissions of the vehicles as well, potentially resulting in respiratory diseases in the victims (Burki 2015). Keeping this in mind, the virtue ethics theory suggests that the actions on part of Volkswagen cannot be justified even if it proved to be beneficial for the company in terms of benefits.

From a personal point of view, I believe that the following factors make an ethical leader:

• Trust is one of the most important factors which contribute to ethical leadership. A leader is expected to set an example for the rest of the organization and the other employees. In other words, a leader is supposed to inculcate a sense of moral and ethics into the organization culture. If the leader is able to win the trust of the employees, they would follow his example of a moral and ethical practice. The first step to ensuring trust of the employees is extending it. An ethical leader would not suspect his employees without reason. Extending trust to the employees would win their favor (Yukl et al. 2013).
• Open lines of communication between the management and the employees plays a key role in ensuring ethical choices at an organization. At Volkswagen, there was clearly a communication gap between the management and the people who were involved in the scandal. On the contrary, ensuring open lines of communication would make sure that ethical choices are made at an organization. This would mean that the employees feel comfortable in opening up to the management and vice versa. Moreover, if there are unethical practices implemented at an organization, employees should be able to approach the management for help (Yidong and Xinxin 2013).
• Moral authority is another important factor. A leader should be able to exert a moral authority amongst his subordinates. This could cultivate a culture of lasting loyalty, which also boosts employee morale. A common vision and mission along with shared values must be inculcated amongst the employees (Jordan et al. 2013).
• An ethical leader would stand for what he believes in. In the case of the Volkswagen scandal, the measures put forth by the EPA had not been implemented properly because the leaders themselves did not believe in them. It was failed leadership which had led to such a mindset amongst the employees at Volkswagen. On the contrary, an ethical leadership should be able to stand for what he believes in and inculcate the same amongst the employees at his organization.

In order to manage a business according to ethical standards, I believe that a manager should be an effective leader who is able to reinforce compliance at various levels of the organization. The following things are to be kept in mind:

• Every organization should have an effective internal communications policy. This would ensure that a two way communication channel is maintained within the organization. It would also encourage people to come up and speak their mind in case of unethical choices being spotted within an organization (Demirtas and Akdogan 2015).
• An internal investigation team must be introduced in every organization, who would be responsible for ensuring that ethical standards are followed at every organization. The internal investigation team would examine the operations at the organization and ensure that ethical standards are followed.
• Ethical standards must be followed with respect to the environment. For an automobile company, it is imperative to follow strict measures and policies which have been prescribed by the EPA. In that case, it is the responsibility of the leader to ensure that these policies are adhered to.
• An environment or culture of ethics and morals must be cultivated into the organization at the grassroot levels. The management and the leadership at the organization are responsible for that. The leaders of the organization should ensure that a moral example is set for the subordinates to follow (Brown and Trevino 2014). The mindset of the employees should be shaped in such a way that they are programmed to adhere to the ethical standards of the organization. This would prevent any unethical practices at an organization in the long run.
• In case of unethical practices, restructuring and rebranding of the organization would be immensely helpful. It must be remembered that scandals are usually never forgotten, especially one that involves the public interest. However, rebranding the organization so as to portray the organization in a different light would help in winning back the favor of the customers.

References:

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