Link to Case
Discuss About The Economizing Carroll Pyramid Of Corporate.
Globalization has tremendously increased the competition among all business sectors, among which automobile industry is one of the most rapidly flourishing industry. management, manufacturers are often found to disregard the environmental sustainability policies by practicing some fake or unethical methods (Lin, Chen & Huang, 2014). Such unethical practices often lead to corporate sustainability issues and extreme negative publicity in the market.
While considering Volkswagen, it has been found that “Volkswagen emissions scandal” is one of the most prominent case that has raised the question of Corporate Social Responsibility in the entire automobile industry (Tse et al., 2017). The organization has been found to violate the “Clean Air Act” in the United States by intentionally programming ‘turbocharged direct injection (TDI)’ diesel engines, which masked the actual carbon emission from engines at the time of testing. The main intention of the manufacturer was to limit the emission output by meeting the US standards during regulatory testing. However, in actual, it was found to emit 40 times the NOx emission limit, which eventually was found to impact the environment by raising the toxicity level of clean air (Rhodes, 2016).
The purpose of the report is to analyze the major management problem, which is Corporate Social Responsibility (CSR). The ethical issues that Volkswagen have raised since 2015 will be evaluated and alternative solutions will be highlighted. Finally, some recommendations will be introduced in support of Volkswagen so that it can restore its CSR practices.
The main argument that will be discussed in this report is regarding the differences between CSR theoretical model and the ways through which Volkswagen have violated the theories. The main theory that will be selected is Carroll’s CSR Pyramid and its pillars will be compared with Volkswagen case.
Figure 1: Outline of the Report
(Source: Created by Author
Volkswagen has been found to be mostly affected due to the lack of independent directors. More than half of the board members were aforementioned labor reps while rest of the members were the representatives of Piech families and Porsche. Therefore, it is clear that the organization was facing severe corporate governance issues. While considering Carroll’s CSR pyramid, it can be said that the ‘Legal’ pillar indicates proper obey towards laws and regulation (Nalband & Kelabi, 2014), however, when compared with Volkswagen, it can be said that shear corporate governance has predominantly resulted in establishing fake sustainability policies. Shaw and Barry, (2015) pointed out that when an organization is highly dominated by specific investor then the necessity of monitoring and investigation becomes scrupulous. However, for Volkswagen, Piech and Porsche families even though owned a huge stage, still they failed to manage organizational governance.
Purpose
The ‘three-way catalytic converter technology’ is quite backdated and for that Volkswagen tried using a ‘common-rail fuel injection’ system. However, since the engine failed to reduce the NOx emission the engineers had to install “rigged software” to control the output logarithm (Stanwick & Stanwick, 2017). According to Ehie, (2016), Carroll’s CSR pyramid indicates ethics to be the most important corporate responsibility so as to create positive publicity and brand image in the global market. However, the factor is quite contrary to Volkswagen as its Inspection and Quality Department was never found to raise the unethical installation of rigged software. On the other hand, Soltani and Maupetit, (2015) pointed out that an organization should have written code of ethics that will make the mission and vison statement to be quite transparent. marketing, since Volkswagen did not have any such CSR principles or those were partially communicated to the stakeholders, it raised to such consequences.
Managementtoday.co.uk., (2018) pointed out that Volkswagen failed to tie the compensation to performance. In between 2011 to 2016, business profits dropped from €11.3bn (£8.9bn) to €8bn, however the executive board earned €400m. Moreover, it has been found that the organization pressurized its sales and marketing team to achieve extraordinary target, however the incentives were of long term and it lacked transparency. According to the viewpoint of Wagner-Tsukamoto, (2015), it can be said that Carroll’s CSR pyramid proposed a balance between all the four corporate responsibilities, however Volkswagen exploited its employees by proposing unrealistic sales target and setting blunt incentive scheme to which they were never clear about. Therefore, the engineering team, project team and audit team tried to make the project go live as early as it was possible so that they might earn huge amount within short time. On the other hand, Kolk, (2016) pointed out that if an organization fails to establish the balance between ethical responsibility and economic responsibility then sustainability might perish in future. This has been the same issue for Volkswagen as it focused more on higher sales, return on investment within very short time and early market entry in developing countries without focusing ethical principles.
While considering the viewpoint of Tricker and Tricker, (2015) it can be said that restructuring the corporate governance is one of the most vital elements that help in establishing better interconnection among organizational stakeholders. On the other hand, Boreiko and Murgia, (2016) pointed out that corporate governance helps in building up the processes, practices and rules in an organization. For an organization that is facing sustainability issues due to poor corporate social responsibility needs to have a concrete operational process that is transparent enough to channelize the responsibilities of stakeholders. Furthermore, Aguilera, Judge and Terjesen (2018) highlighted that restructuring the organizational governance, sets up new mission and vison of an organization, which guides the board of directors and managers to streamline the responsibility of organization towards society.
Argument
Volkswagen needs to focus on its corporate governance at the earliest because it will involve all the directors, chairmen, board of directors, managers and other higher-level employees to restore its social responsibility. It has been prominent enough that Volkswagen has directorial issues due to which it has failed to guide its administration. Since huge amount of its stake is owned by other organizations, hence it has neglected its internal audit and investigation process. Therefore, Volkswagen might able to achieve better CSR outcome through ethical business practice if the core stakeholders stand as the responsible pillar towards sustainability.
Lloyd, Mey and Ramalingum, (2014) placed a viewpoint regarding the monitoring policies of the administrative positions in an organization. Often it is found that higher-level executives are corrupt and favor such practices that prove to earn advantage to specific individual rather than a stakeholder group. Therefore, in such organization external audit teams must be hired so that long term projects are properly scrutinized before those are launched. This will also help in monitoring the performance of bureaucrats over the progress of time. On the other hand, Weiss (2014) pointed out that an inspection and quality team is highly required for any manufacturing project so that internally any quality standard acceptance issue is highlighted. However, Trevino and Nelson, (2016) argued and pointed out that only quality team might not be effective enough, therefore quality standard maintenance policy statement has to be documented so that any unethical practice is highlighted and escalated to higher department before it is shared in the market. Similarly, Volkswagen might achieve better corporate administration if it is able to introduce quality and audit team who will need to comply with quality standard maintenance policy.
On the words of Harrison, Freeman and Abreu, (2015), CSR primarily involves satisfaction of employees through proper remuneration and compensation package as this creates a healthy culture and well-being associates. This also indicates ethical business law process. On the other hand, Zhu et al., (2015) pointed out that an organization needs to establish strong and transparent commitment towards its employees by setting up clear achievable target within stipulated timeframe. This helps in earning competition among operational teams. Furthermore, Manroop, (2015) proposed the viewpoint where both the economic and ethical responsibility of an organization can be balanced through clear objectives, mission and vison statement. In order to achieve higher revenue and better return on investment, an organization must not exploit its human resource or falsify its principles by breaching its code of conduct. While comparing the viewpoints with Volkswagen it can be said that the organization will need to reduce the long-term incentive to short-term incentive policy. This will help the employees of all the department to receive financial benefits within short term and eventually, they will not undertake any unethical practice for gaining money.
Poor Stakeholder Management
According to the viewpoint of Burgess, (2017), it can be said that an organization might need to document its Code of Ethics as it creates a set of guidelines and principles that help professionals to carry out the business honesty and with integrity. Moreover, Moon, Uskul and Weick, (2018) pointed out that the Code of Ethics document outlines the organization values and mission, ethical principles, core standard and values that portrays a business to be ethical. Similarly, Volkswagen will need to create its Code of Ethics at the earliest. This is because it will help the internal stakeholders to understand the change in corporate governance and principles and that they need to act through integrity or otherwise they will be held responsible against any unethical practice that portray negative brand image on the society.
While considering the viewpoint of Carlos Pinho, Paula Rodrigues and Dibb, (2014), it can be said that organization culture is the root cause for acting ethically. A culture that propagates positivity and morals among associates will ultimately help in spreading the importance of ethics across all departments. However, Guiso, Sapienza and Zingales, (2015) argued that not all the employees believe in morals as they focus more on quantifiable outcome rather than long-term descriptive result. Therefore, in such a situation, employees will need to extend their relationship cross-departments and establish the importance of ethics. Volkswagen will need to create and reestablish its corporate culture by inducing the values of ethics and its outcome. The benefits of informal corporate culture will help in escalating any unethical practice irrespective of hierarchy.
Bernardo, (2014) affirmed that an organization fails being sustainable when it is not able to innovate. Even though an organization is able to innovate it might fail to comply with quality standards. Since the amount of resource expenditure in R&D is becomes quite limited, low standard products are made to go live in market. However, Lopez-Valeiras, Gomez-Conde and Naranjo-Gil, (2015) argued that organizations need to indulge more time and expense for R&D purpose as it is the primary stage of sustainability. Volkswagen will need to focus more on the R&D department in future so that it can set up new engine by using diesel as the fuel and at the same time lowest NOx emission. Alternatively, it can invest more on electric car manufacturing as it will be the complete new segment where the impact on environment is the least.
Unethical Corporate Bureaucrats
Chi et al., (2017) asserted that for a manufacturing organization, audit is very necessary after every project deliverable accomplishment because it helps in proper documentation of authenticity and quality standards. Volkswagen has been found to get audited from external source at the last stage and each of the project proceedings were being audited internally. Therefore, in future it is required for Volkswagen to deal with external audit firms to check its product quality standards so that all the transparency is restored. Moreover, it can publish its quality standard fulfillment in official websites.
Wagner-Tsukamoto, (2015) highlighted that an organization is often found to focus more on revenue earning by ignoring its ethical standards. However, it is required to create the balance between ethical principles and economic outcome. Volkswagen must not exploit the environment by increasing the level of toxicity but it must put more effort on vehicle design and engine remodulation. It must take into consideration the societal moral standards and must not harm the community. Redesigning the ethical conduct will help Volkswagen to get directed towards better innovation through R&D, which will ultimately help in achieving better economic stability along with ethical responsibility.
Conclusion
Volkswagen has been found to violate its Corporate Social Responsibility by practicing unethical ways of faking its toxic emission. Both the community and business economy has been found to get impacted due to such unacceptable activities. Considering the Carroll CSR pyramid, it has been clear that none of the pillar has been satisfactorily achieved by Volkswagen. Therefore, it has been recommended that Volkswagen will need to create new Code of Ethics that will redefine its vision, mission, objectives, goals, principles, procedures and rules. This will also involve revising the corporate culture by triggering the importance of ethical business process across all departments. Finally, it has been recommended that Volkswagen will need to focus more on research and development so that innovation process is strengthened and none of the stakeholder in the society gets affected through unfair business practice.
References
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Improper Compensation Management
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