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Introduction
Ever since the theory of global warming has made its way into the general public’s minds, environmental concerns became some of the most pressing issues for large-scale production companies. Car manufacturing companies all over the world are fighting to get a competitive advantage by implementing sustainable production practices and developing their vehicles to be more environmentally friendly by cutting down emissions and developing alternative types of fuel. However, some producers remain ignorant of environmental concerns. For Volkswagen, the emission scandal that broke out in 2016, resulted in a civil settlement of about $15 billion, which makes it one of the most expensive settlements in the history of the car industry (The Star’s Editors, 2016).
The Scandal and Its Effects
The scandal arose when it was discovered that Volkswagen attempted to avoid environmental laws by installing “defeat devices” on millions of its diesel cars sold worldwide (The Star’s Editors, 2016). The devices controlled the work of pollution control systems, only permitting to turn them on when the cars were tested; as soon as the cars got on the road, pollution controls were disabled (The Star’s Editors, 2016). In this way, the company could still provide an official report, which shows that the vehicles are environmentally stable, when in reality the emissions of nitrogen oxide during use reached over 40 times the federal limit (The Star’s Editors, 2016). The information was leaked back in 2014; however, the scandal is still on-going: in January 2017, the company’s executive Oliver Schmidt was arrested and charged with conspiracy in the effort to mislead the U.S. regulators (Colvin, 2017). According to Colvin (2017), the debacle may drag on for years more, and the main reason for the difficulties in its settlement is the turmoil caused by the situation and the Volkswagen’s handling of the scandal.
There were three key ethical issues in this case. First, the company went against the regulations that are designed to protect the planet from the harmful impact of cars. These regulations have been in place for several years and are applied to the production processes in other companies. By going against them, Volkswagen showed that the company has no regard for the environment and the laws in place to protect it. Secondly, the scandal proved the absence of a healthy corporate culture. Clearly, the installation of devices was not a mistake or one engineer’s decision, but an approved company’s plan to cheat on the environmental sustainability tests: “VW must have had a chain of management command that approved fitting cheating devices to its engines” (Hotten, 2015, para. 5).
Moreover, instead of admitting its failures and promising to change its ways, the company denied most of the accusations until substantial evidence was presented: “When regulators later accused VW of installing the so-called defeat devices in more vehicles than originally thought, the company flatly denied doing so – until authorities produced the evidence” (Colvin, 2017, para. 4). Finally, another ethical issue is that the company has betrayed the customer’s trust. One of the company’s goals was to make “environmentally sound vehicles” (Jurevicius, 2013, para. 3), and the customers perceived their vehicles as such. The scandal proved that the company has deceived not only the government but also its loyal customers. Therefore, the scandal involved an entire range of stakeholders: the customers, Volkswagen’s management and engineering teams, the government officials, and other car companies.
The customers were affected by having their vehicles recalled and being forced to wait for new vehicles, as well as by having their trust in the company betrayed. Government officials, on the other hand, were also part of the conflict as they needed to investigate the scandal; moreover, they could decide to impose additional environmental controls on car companies and other large manufacturers. Volkswagen’s managers and engineers were involved in the scandal, even if they were not part of the test cheating plan; moreover, the managers that did not participate in the plan now have to devise a strategy for restoring the company’s image and winning the customer’s trust back. Finally, other car companies could be affected by a rising distrust in the manufacturer-buyer relationship, as the customers’ negative experience with Volkswagen could also affect their perception of other brands. Increased environmental control as a result of the incident would also cost other companies a lot of money and effort.
Reasons for the Scandal: Poor Vision and Mission Statements
Some of the primary reasons for the emission scandal, according to Argenti (2015) are the company’s unrealistic business objectives and expectations of its employees. In his article, Argenti (2015) explores several large companies that were subject to great scandals because of selling faulty or expired products. The author argues that even though the employees are not told explicitly by the company to sell those products, there is usually no need to: if the business objectives and employees’ individual targets are too high, the workers will try to achieve them by any means (Argenti, 2015). An international survey of Business Ethics showed that 70% of employees felt that pressure to meet unrealistic business objectives was likely to cause them to compromise their ethical standards (Argenti, 2015).
In this case, the blame lies equally with the employees who decided to go against the regulations and with the company that had failed to set clear and achievable goals. Argenti (2015) points out that Volkswagen’s example is similar to other cases of employees’ ethical misconduct, and the reasons for the scandal are also similar. Indeed, the company’s vision as of 2013 was product-centered and ambitious: “The Group’s goal is to offer attractive, safe and environmentally sound vehicles which can compete in an increasingly tough market and set world standards in their respective class”(Jurevicius, 2013, para. 3). The company’s vision or strategy, on the other hand, was not outlined at all. A combination of the two factors created increased pressure on the employees to ‘set world standards’ but at the same time gave them no realistic vision to work by, which might have been the main reason for the scandal.
Conclusion
Today, Volkswagen is in the midst of a significant change process. One of the major improvements is that the company’s vision is now clearly outlined on its website and features a particular emphasis on sustainability: the current goal of the company is to become a globally leading provider of sustainable mobility launching more electric cars and expanding battery technology and autonomous driving (Volkswagen AG, 2016). A clearer, more focused vision is one of the factors that could contribute to the restoration of the company’s image after the scandal and its return to the sustainable mobility market. However, more changes will be required to promote a better corporate culture and business ethics to prevent similar incidents in the future.
References
Argenti, P. (2015). The biggest culprit in VW’s emissions scandal. Fortune Insiders.
Colvin, G. (2017). Why Volkswagen’s Emissions Scandal Has No End. Fortune Leadership.
Hotten, R. (2015). Volkswagen: The scandal explained. BBC News.
Jurevicius, O. (2013). Mission statement of Volkswagen. Strategic Management Insight.
The Star’s Editors. (2016). VW scandal: A case study in bad corporate ethics. The Kansas City Star. Web.
Volkswagen AG. (2016). Volkswagen Group at a glance. Volkswagen AG Official Website. Web.
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