Business Ethics in Volkswagen Emissions Scandal Essay

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Crisis Management in VW’s ‘Dieselgate’ Scandal

Trust is the most important factor in the success of any organization. This trust extends to all levels of stakeholders. If customers feel that they cannot trust the company for any reason, they will not purchase their products. Stakeholders have to trust that the organization will make sound business decisions to keep profits high and manage value. This is becoming even more prominent in the global economy when people of different cultures must interact with each other. The most important factor is that customers and other shareholders have to be able to believe the company when they are told that something is true. This analysis explores the VW ‘dieselgate’ incident involving Volkswagen AG a.k.a. Volkswagen Group, commonly referred to as VW.

Background of the Case

Consumers on a global basis are becoming more environmentally conscious and sensitive to the emissions of their vehicle. Features that promise to improve gas mileage, reduce emissions, and have other positive environmental effects are a big selling point in the global market today. In addition to consumer demands, Federal clean-air requirements are becoming increasingly more stringent, with manufacturing’s having to comply with stricter regulations over time (Bartlett, Naranja, and Plungis, 2017). The case involved several Volkswagen models including the Touareg, Passat, Jetta, Golf SportWagen, Gold, Beetle, several Audi models, and the Porsche Cayenne (Bartlett, Naranja, and Plungis, 2017). Cars involved in the recall included models from 2009-2015.

The problem involves a part called the engine control unit (ECU). The Volkswagen models in question operate in two different modes, on road and dyno. In the models involved in the recall, the dyno mode is considered to be the “test” mode and the “on road” mode to be used for regular driving. The system has the ability to manage engine performance and switch between maximum fuel efficiency and a high-performance mode. In high performance mode, the car has more power, but it also highs high nitrous oxide emissions.

The problem occurred because the engines were switched to high-efficiency mode during the EPA tests, and then this was switched off when the car was sold to consumers. This means that when the car was being used by consumers, it was producing nitrous oxide emissions that were above the EPA standards (Bartlett, Naranja, and Plungis, 2017). Emissions exceeded maximum limits by as much as a factor of 15 to 35% on some models (Bartlett, Naranja, and Plungis, 2017). In addition, Volkswagen admitted to having known about this problem as early as 2008. They knew they were skirting the law and continued to do so up until 2015, when they were caught and issued EPA violations (Bartlett, Naranja, and Plungis, 2017). This analysis will examine the consequences of their actions in terms of stakeholder trust, legal issues, and the future of the company.

Stakeholder Relationships

Stakeholders in the case include consumers, shareholders, company executives, the workers who produce the vehicles, dealerships that sell the vehicles, manufacturing facilities that make parts, and other members of the value chain.

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On a larger scale, stakeholders also include communities and the countries involved. This is especially the case because Volkswagens are manufactured in Germany and shipped to the United States, where the violations were first brought to the attention of the authorities.

It is one thing to make a mistake, but it is quite a different thing to know about an issue and intentionally try to hide it from stakeholders on all levels. It is difficult to identify a group of stakeholders that was not negatively affected by the actions of Volkswagen. Factors that affect one group of stakeholders cannot…

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…remain profitable two years after the scandal was announced. Although it destroyed trust and diesel products, sales of VW products remained strong for their other lines (AFP, 2018).

An important part of corporate governance is brand management. If there is a problem found, such as a defect in a product, this can be easily fixed by repairing and making reparations for the defective part. However, when it comes to cheating, this points to an underlying character flaw or problem within the organizational culture (Lyons, 2015). The core competency of VW is innovation, and they failed to deliver to customers as a result of intentional cheating (Lyons, 2015). This scenario is more difficult to recover from than a product defect that affects a particular brand. One of the most difficult types of crisis to manage is the one that builds slowly and then reaches a tipping point, which is the case with the VW scandal (Continuity Central.com, 2015). It appears that senior managers were unaware of the problem, as the information was not passed up from middle-management (Continuity Central.com, 2015). This points to a significant flaw in communication within the organization.

Prior to the crisis, it seems that VW did everything wrong in terms of communication and taking actions that could destroy consumer trust. One cannot separate the effects on one stakeholder from the others. However, because the diesel sector was only a small portion of VW’s business, they were able to recover and become profitable again within a year. This hints at good risk management strategies. The question is how they recover the reputation of their brand in the eyes of government officials and consumers around the globe. It appears that after the crisis they did everything right in terms of issuing an apology and responding to the crisis quickly. Even though the crisis continues….....

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References

AFP (2018). Five things to know about VW’s ‘dieselgate’ scandal. Phys.org. Retrieved from https://phys.org/news/2018-06-vw-dieselgate-scandal.html

Bartlett, J., Naranja, M., & Plungis, J. (2017). Guide to the Volkswagen Emissions Recall. Consumer Reports. Retrieved from https://www.consumerreports.org/cro/cars/guide-to-the-volkswagen-dieselgate-emissions-recall-

Continuity Central (2015). Five crisis management lessons from the Volkswagen incident. Retrieved from https://continuitycentral.com/index.php/news/business-continuity-news/563-five-crisis-management-lessons-from-the-volkswagen-incident

Crete, R. (2016). The Volkswagen scandal from the viewpoint of corporate governance. Cambridge University, 7(1): 25-31.

Environmental Protection Agency (EPA). (2018). Former CEO of Volkswagoen AG Charged with Conspiracy and Wire Fraud in Diesel Emissions Scandal. Press Release. Retrieved from https://www.epa.gov/newsreleases/former-ceo-volkswagen-ag-charged-conspiracy-and-wire-fraud-diesel-emissions-scandal-0

Ferrell, O., Fraedrich, J. & Ferrell (2013). Business Ethics: Ethical Decision Making and Cases. Stanford, CT: Cengage Learning

GEC Risk Advisory. (2015, Sept. 23). The Volkswagen Emissions Scandal Will Be One for the Books: the Long-Term Effect on Stakeholder Trust. Retrieved from https://gecrisk.com/gec_blog/the-volkswagen-emissions-scandal-will-be-one-for-the-books-the-long-term-effect-on-stakeholder-trust/

Lyons, S. (2015, Dec. 7). Road to recovery: How does Volkswagen bounce back from emissions scandal? Hub. Retrieved from https://hub.jhu.edu/2015/12/07/volkswagen-scandal-explained-sylvia-long-tolbert/

Reputation Institute (2016). How VW Lost the Public’s Trust. Retrieved from https://www.reputationinstitute.com/sites/default/files/pdfs/How-VW-Lost-Public-Trust-2016.pdf

Zhang, B., Veijalainen, J. & Kotov, D. (2016). Volkswagen Emission Crisis – Managing Stakeholder Relations on the Web. In Proceedings of the 12th International Conference on Web Information Systems and Technologies (WEBIST 2016), 1: 176-187. Retrieved from http://www.scitepress.org/Papers/2016/58924/58924.pdf

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