Volkswagen Emission Scandal: Case Analysis

Subject: Case Studies
Pages: 3
Words: 958
Reading time:
4 min
Study level: Bachelor

Introduction

In September 2015, it became public that the automobile manufacturer Volkswagen (VW) had been installing special software into over eleven million cars to deceive emissions tests since 2005. The software, designed by the German auto supplier Bosch, activated equipment to reduce emissions when it sensed it was being tested to be compliant with federal norms (Reynolds, 2018). The equipment switched to a different mode during normal driving, improving torque and acceleration while releasing smog-forming pollutants up to forty times over the federal limit (Gates et al., 2017). The reveal of this deception led to a 14.7 billion dollar settlement with the U.S. Department of Justice and a 24 percent drop in share price (Reynolds, 2018). While it is unclear if top management was aware of the issue, critics blame VW’s cutthroat environment and autocratic leadership style for enabling it.

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Top Management Accountability

VW claimed that a group of engineers was responsible for the misconduct and that board members were completely unaware of the fraud. It is theorized that the VW engineers devised this solution when they realized they could not deliver the management’s demand for high gas mileage and low emissions. Others believe that VW’s pattern of hiring career-obsessed workaholics created a toxic work culture that led to the normalization of deviance. However, this explanation for the emission scandal is unacceptable because it shifts the focus onto employees and thus absolves VW’s leadership of any accountability for their actions.

Board members could have willfully ignored any signs of misconduct to maintain plausible deniability in case of lawsuits. They may even have instructed their subordinates to withhold information from them as long as the cars seemingly passed federal emissions testing to be protected from potential legal repercussions. A corporation’s main goal is to produce profit, and any regard for safety or the environment is imposed by the law and the wishes of consumers. Since it became public, the board members may pretend to feel outraged and betrayed, but they benefitted from the profits of the fraud for over a decade. If they were oblivious to a decade-long ruse to fool federal guidelines, it is because they wanted to be. Employees should not be used as scapegoats while the rich and powerful maintain their positions of superiority. Although it might be impossible to hold VW’s top management legally accountable, they should at least be judged in the court of public opinion.

Changing Corporate Culture

Since the CEO and a key board member resigned once the deception became public, VW must now find a replacement that will begin to change its cutthroat corporate culture. There are three specific actions that the new leadership must take. Firstly, they must establish a clear and consistent corporate code of ethics. A booklet with formal, written statements about VW’s purpose, values, and principles should be distributed to all employees. Leadership must fully endorse and reference the code during critical decision-making moments (Reynolds, 2018). Secondly, a compulsory and comprehensive ethics education program should be held annually. Workshops about hypothetical ethical dilemmas would ensure employees understand how to apply the code of ethics in real-life situations (Reynolds, 2018). Furthermore, all levels of the organizational hierarchy should be involved to display the company’s commitment. Thirdly, an internal social audit should be conducted to assess whether VW is meeting its ethical and social responsibility goals in other areas (Reynolds, 2018). This audit would communicate to employees that VW is dedicated to fully eradicating misconduct and promoting ethical behavior. A formal code of ethics, annual training, and a social audit would help create a more ethical work environment at VW.

Bosch

Bosch supplied VW with the code that instructed cars to emit lower emissions when tested in laboratory settings. This code was the basis for VW’s illegal software, and Bosch was instructed to pay U.S. consumers over 300 million dollars as compensation for their role in the deception. Although representatives argued they were not responsible for what VW chose to do with their devices, I believe Bosch should be sanctioned further and admit their wrongdoing. In June 2008, an executive from Bosch demanded that VW pay any penalties if they were discovered using the device (Ewing, 2017). This letter illustrates that they were aware of the device’s existence, and its potential for misconduct and fraud, and yet kept silent for almost a decade.

Observers argue that the supplier could not refuse VW’s request given that it is the biggest automobile manufacturer in the world, but this point of view underplays Bosch’s market and bargaining power. It might be applicable if Bosch was small, relatively unknown, and relied solely on VW for business. However, it is a multibillion-dollar corporation and one of the world’s largest privately held companies (Ewing, 2017). Secondly, it supplies components to almost all the biggest carmakers, including BMW and Daimler (Ewing, 2017). Thirdly, and most importantly, it is widely accepted that Bosch is indispensable to VW’s success (Ewing, 2017). Given these reasons, I believe Bosch had the power to either refuse VW completely or report them once they were aware of potential illegal activity, and they should be sanctioned for failing to do so.

Conclusion

To avoid this type of situation occurring again, everyone complicit in the Volkswagen emissions scandal needs to be held accountable. The board members were probably aware of misconduct but chose to ignore it to maintain plausible deniability and keep the profits. The Bosch letter reveals that the supplier knew about the device, and keeping silent for over a decade is inexcusable given their market and bargaining power. VW’s cutthroat corporate culture needs to be overhauled completely, and the new leadership should emphasize the importance of ethical standards by establishing a formal code, annual ethics training, and conducting an internal social audit.

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References

Ewing, J. (2017). Supplier’s role shows breadth of VW’s deceit. The New York Times. Web.

Gates, G., Ewing, J., Russell, K. & Watkins, D. (2017). How Volkswagen’s ‘defeat devices’ worked. The New York Times. Web.

Reynolds G. W. (2018). Ethics in Information Technology (6th ed.). Cengage Learning.