The Volkswagen Emission Scandal
The following report is performed on ethics and sustainability issues that businesses face particularly when dealing with a large operation and globally dispersed markets. The report discusses the techniques or the strategies that businesses essentially apply when dealing with complex ethical issues. Discussion has been made on the basis of ethical and sustainability issues faced by Volkswagen- a car manufacturer. The report also analyses the impact of external market trends on the ethical and sustainability issue observed in Volkswagen. On the basis of the analysis, three different alternative solutions have been generated in the report and one particular suggestion has been proposed to address the type of ethical challenge faced by Volkswagen.
The “Environmental Protection Agency” found that several VW cars were being sold in America, which was designed with fake software or a device associated with the engine, which exceeds the range of carbon emission legally allowed by US. The CEO of Volkswagen targeted US market to gain optimum success (Ruddick 2018). Volkswagen had observed a major push to increase the sales of diesel cars in United State with the support of a huge marketing campaign promoting low emissions. So, to deal with the market needs, Volkswagen engineers were required to design powerful diesel cars whose emission should pass the test of America’s stringent pollution regulations.
In the middle of the implementation, VW has changed their idea by going with an innovatively designed diesel cars, which was expected to reach the fuel efficiency range. However, the end design generated more pollutants compared to gas powered cars (Siano et al., 2017). At a press conference, it was found out that VW had issues of aggressive leadership goals and engagement of senior executive in minor decisions. There was no input from the internal environment, as former employees described the workplace claiming that subordinates were afraid to admit failure as well as contradict superior. By going with the decision of CEO and due to the constant manufacturing pressure, engineers installed fake device with the engines. Consequently, the Environmental Protection Agency findings include 482,000 vehicles in US, with the inclusion of VW manufactured Jetta Beetle, VW manufactured Audi A3; specially it was found almost 11 million cars of VW globally are designed with a “So-called “Defeat Device” (BBC News 2018).
Although there are several theories of stakeholders in strategic management, Freeman’s “Strategic Management: A Stakeholder Approach (1984) delivers a managerial as well as real-world scope. Even though it does not formulate any particular theory but it develops a fundamental base for the foundation of the stakeholder theory. According to Sama, Welcomer and Gerde (2004), the Normative theory developed by Freeman is about the identification of moral or philosophical guidelines related to the management of corporate businesses. The major objective of normative theory is to find out answers of the questions what are the responsibilities of the organizations with respect to stakeholders? and why organizations should take care other interest besides stakeholders’ interest?. More specifically, the normative theory is aligned with moral values, philosophic purposes.
Freeman’s Normative Stakeholder Theory
However, Freeman (2001) mentioned that stakeholders should have a genuine interest in Multinational Corporation and their interest must hold intrinsic values. Notwithstanding Freeman thinks each corporate agency should adopt moral dimension even. Freeman et al., (2004) also mentioned that the relationship between the corporation and stakeholders should be based on moral commitments and it should not cease to optimization of profits managing stakeholders relationship in a broad way. Likewise, Freeman in his “Strategic Approach to Stakeholders” mentioned that each business should include core moral principles and apply the principles as the foundation for decision-making (Freeman, 2010). Another backbone of normative theory is that organizational decisions affect stakeholder consequences as well as need to be ethic. In a simple sense, action of an agent impacts the other agent; so, the business has to develop ethical principles. Decisions made without any consideration of the impact on the stakeholders involved in the business, are generally known to be unethical. The mistake, which Volkswagen has committed, is being arrogant about its business goals, while forgetting the interests of customers, employees, external bodies such as government, shareholders and communities.
One of the principles of Normative Stakeholder theory is that stakeholders have an intrinsic value not directly sitting beside organization’s interest; thereby, a business should not shy away the claims of stakeholders simply as honoring them does not meet its strategic purpose. Volkswagen did not think of the over-stress put on the workers for the race of being a fuel efficient diesel car in US market (Krall & Peng, 2015). Engineers of VW had no choice but to eliminate the research on engine manufacturing to deal with internal operational pressure coming from the top management. Moreover, when it comes to external stakeholders such as the communities where it serves, Volkswagen did not have any environmental sustainability plan against the carbon emission, which, at least would have lessened the impact of negative brand image caused by “Defeat Device” (Ewing, 2017). However, other large car manufacturing brands like Tesla meets stakeholders interest through a CSR approach that include sustainability and environmental friendliness of automotive, energy storage as well as energy generation products. In the context of Stakeholder interest, Friedman mentioned that responsibility of a corporate organization is to make as much money as possible while complying with the fundamental rules of the society (Friedman & Miles, 2002).
Political: Emission scandal at Volkswagen turned out to be a significant trading clash with United State and German. The incident caused a significant damage in the trading and political relation between Germany and United State. The governments of United State went forward to arrest VW engineer Oliver Schmidt. In addition, the organization also faced the penalty of 18.0 billion from the EPA, US (Ruddick, 2018). The actions largely affected the global market positions of VW and oppositions democratic and republic parties in US stood against sustainability of VW in US market.
Impact of the Volkswagen Emission Scandal
Economical: When VW admitted to the international fraud charges, stock price of Volkswagen decreased by 20% as well as the market value declined by US26.8 billion. Such economic downturn compelled VW to recall 11 million affected vehicles globally BBC News, 2018). In addition to this although, the organization fixed the deal by compensating a huge amount, the negative impression also put the UK automotive market in risk, Jung, Chilton & Valero, (2017) mentioned that decreasing sales of diesel cards have driven UK’s auto sector to the brink of crisis cutting several manufacturing jobs.
Social: The scandal created a huge social impact as even though 11 million cards worldwide had defeat device but potential customers of VW started frowning when selecting VW. On the other side, the luxury VW manufactured Audi also observed a significant decline in its sales. The customers have significantly become way of their next purchase. Consequently, VW got into the clash with other manufacturer in the industry as their market share kept plummeting (Crête, 2016). In addition, the cost of potential class action lawsuits, emphasized R&D to meet emission requirements as well as reputational effect on the volumes add complexity to the problems.
Volkswagen emission scandal put several other car manufacturers at risks as the governments, especially in Europe and United States, car manufacturers are strictly asked to control the emission rate. All diesels cars small in size have been recommended with an emission control technology which must include a “lean NOX” tap and it takes up less space and better than other solutions regarding emission control. Nonetheless, the issues regarding the lean NOX tap of Volkswagen increased hesitation of other manufacturer due to customers concerns
It has been identified that Volkswagen emission scandal causing 11 million cards to pollute the environment. According to the EPA report, almost 11 million vehicles worldwide were spewing more pollution into the environment. EPA mentioned that particularly VW in US are emitting between 10,392 and 41751 tons of toxic nitrogen oxides into the atmosphere every year. Park (2018) mentioned that VW particularly added 10 and 40 times higher NOx pollution into the environment that EPA considers safe for people to breath. Furthermore, Jung, Chilton and Valero (2017) performed a study and calculated the amount of ozone pollution between 2009 and 2015 and suggested VW stop another 130 early U.S deaths by recalling all affected cars in United State by the end of 2016.
Stakeholder Management
Legal impact: As put forward by Crête (2016), environmental campaigners have long argued that the rules of emissions are being flouted as well as in European markets diesel cars tend to operate with worse technology compared to US. On the other side, in UK market almost 60,000 people have signed up to sue German carmaker VW over its emission scandal (Fortune 2018). The High Court was approached to approve an application by law firms for a unanimous litigation order, which is quite similar to a US class action lawsuit.
Stakeholder management: As discussed in the Normative Stakeholder theory, VW should respond to the stakeholder concerns performing responsibilities and meeting stakeholders’ needs. The organization needs to think of the interest of external customers and communities where it serves. This means before selling a car VW needs to ensure that customers face no further trouble and they receive an intrinsic value with the product such as long-term sustainability of the product and significant contribution to the environmental sustainability initiatives. Likewise, for the interest of the communities, the brand needs to ensure that the businesses meets all environmental guidelines and runs under a legal framework (Mansouri, 2016). Most importantly, VW needs to create a healthy balance between own interest and stakeholder interest.
Internal management effectiveness: The internal investigation of VW scandal indicates the facts that there was a communication gap between top management and manufacturing segment. Volkswagen needs to follow a horizontal structure for a healthy flow of communication. This means that it needs to develop a direct communication mode between the board of directors and manufacturing segments. Regular way of communication will help to identify the issues that occur in the operational departments.
Involvement with an Independent Verification Agency
As VW has its own internal team which investigates vehicle emission, the organization should also tie up with other independent verification organization to regain the trust of customers. Some particular agencies should consider the involvement with World Business Council for Sustainable Development, Fair Labor Association (FLA) and Federal Trade Commission (FTC).This might help the organization to create a sustainable future for business, environment and society.
Volkswagen should dedicate all its efforts as well as resources into re-building the credibility with the business. VW should choose to amend to its stakeholder management practices to include stakeholder values and principles into the business ethics. This would help to deal with the external needs both internal and external environment, while restructuring the business to create a clear flow of communication is also required. Horizontal communication would help to give and collect feedbacks from each department, which particularly help to avoid the deliberate mistakes in business. As there is a huge environmental impact due to the increasing carbon emission, VW should also be involved in carbon mission control initiative publicly.
Conclusion
In conclusion, it is worth mentioning that emission scandal put Volkswagen reputation at stake; however, it also lead the entire car manufacturing sector under scrutiny. The organization should reconsider its stakeholder policy management. The leaders and the managers in the organization should act in the interest of stakeholders to maintain the survival of the organization.
References
BBC News. (2018). Volkswagen: The scandal explained. [online] Available at: https://www.bbc.com/news/business-34324772 [Accessed 16 Aug. 2018].
Crête, R. (2016). The Volkswagen scandal from the viewpoint of corporate governance. European Journal of Risk Regulation, 7(1), 25-31.
Ewing, J. (2017). Faster, Higher, Farther: The Inside Story of the Volkswagen Scandal. Random House.
Fortune. (2018). https://fortune.com. [online] Available at: https://fortune.com/2017/01/11/volkswagen-emissions-scandal-2/ [Accessed 16 Aug. 2018].
Freeman, R. E. (2001). A stakeholder theory of the modern corporation. Perspectives in Business Ethics Sie, 3, 144.
Freeman, R. E. (2010). Strategic management: A stakeholder approach. Cambridge university press.
Freeman, R. E., Wicks, A. C., & Parmar, B. (2004). Stakeholder theory and “the corporate objective revisited”. Organization science, 15(3), 364-369.
Friedman, A. L., & Miles, S. (2002). Developing stakeholder theory. Journal of management studies, 39(1), 1-21.
Ft.com. (2018). Volkswagen scandal is rooted in technology shortcomings | Financial Times. [online] Available at: https://www.ft.com/content/58975016-720f-11e5-9b9e-690fdae72044 [Accessed 16 Aug. 2018].
Jung, K., Chilton, K., & Valero, J. N. (2017). Uncovering stakeholders in public–private relations on social media: a case study of the 2015 Volkswagen scandal. Quality & Quantity, 51(3), 1113-1131.
Krall, J. R., & Peng, R. D. (2015). The Volkswagen scandal: Deception, driving and deaths. Significance, 12(6), 12-15.
Mansouri, N. (2016). A case study of Volkswagen unethical practice in diesel emission test. International Journal of Science and Engineering Applications, 5(4), 211-216.
Park, M. (2018). Environmental impact of the VW emissions scandal. [online] Vwemissionsaction.com. Available at: https://www.vwemissionsaction.com/news/environmental-impact-of-the-vw-emissions-scandal [Accessed 16 Aug. 2018].
Ruddick, G. (2018). VW makes management changes following emissions scandal. [online] the Guardian. Available at: https://www.theguardian.com/business/2015/dec/17/vv-management-changes-emissions-scandal-german-carmaker [Accessed 16 Aug. 2018].
Sama, L. M., Welcomer, S. A., & Gerde, V. W. (2004). Who speaks for the trees? Invoking an ethic of care to give voice to the silent stakeholder. Stakeholders, the environment and society, 140-165.
Siano, A., Vollero, A., Conte, F., & Amabile, S. (2017). “More than words”: Expanding the taxonomy of greenwashing after the Volkswagen scandal. Journal of Business Research, 71, 27-37.
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