Volkswagen: A Report On Business Ethics

Edited by Aruna Nidamarthy



What does it mean for the environment?

It means far more harmful NOx emissions, including nitrogen dioxide, have been pumped into the air than was thought –based on one analysis, between 250,000 to 1 million extra tonnes every year. The hidden damage from these VW vehicles could equate to all of the UK’s NOx emissions from all power stations, vehicles, industry and agriculture.


How did they do it?

VW’s “defeat device” is not a physical device but a programme in the engine software that lets the car perceive if it is being driven under test conditions - and only then pull out all the anti-pollution stops. “Clean diesel” engines cut emissions through techniques such as adjusting the air-fuel ratio and exhaust flow, and in some (though not most VWs) injecting a urea-based solution to render NOx harmless. When running normally, requiring greater performance, VW’s controls would not operate in the same way.


How does the defeat device know it's being tested?

The EPA tests have known practices and profiles. In many cases, the test vehicles are put on rollers and run at a certain speed for a certain time, then at another known speed for another known period. The car's central computer can detect whether inputs match those expected in test conditions.


What does the defeat device do if it detects test conditions?



How were VW found out?

An NGO, the International Council on Clean Transportation (ICCT), performed independent – and crucially on-road – emissions tests, on the VW Passat, the VW Jetta, and a BMW X5. These tests followed five routes on similar lines to the EPA simulations: highway, urban, suburban and rural up/downhill driving. The emissions performance of the Volkswagen (but not the BMW) cars was so much worse than expectations that the ICCT ran further tests on a dynamometer. In these circumstances, however, the cars passed with flying colours. It was at this point that the ICCT contacted the EPA.

What does it mean for your health?

The Fumes can cause inflammation of the airways and worsen breathing for anyone. But NOx emissions can also react with other compounds to cause more serious respiratory conditions and aggravate heart problems. Long-term exposure to the pollution hastens death: research this year linked high levels of NOx to 9,500 premature deaths annually in London alone.


Road Map for Rebranding After a Corporate Governance Failure



The Volkswagen case is an example of how business dominates policymaking. Politics shape corporate governance by setting rules that companies are bound by and financial incentives often play a large role in shaping political preferences. Shareholder ideology says that managers have the obligation to maximize the rate of return and they are often the ones who have to face conflicts of interest. Whether it is from sources of income or conflicts of interest from separate shareholders or public/social goals. Owners, managers, and workers are responsible for getting the laws and regulations they want to the public arena to obtain their preferred corporate governance outcome. If corporate governance reporting standards are high, then it will be more difficult for companies to commit fraud in the future.

“Lack Of Action May Spark a Consumer Boycott”

The Volkswagen Group is now faced with a problem of establishing credibility to its consumers and stakeholders. There are no set guidelines on what to do when a company’s reputation is damaged. However, three possible solutions can be explored:

· Volkswagen restarts business under a new name.

· Join an independent verification agency; or

· Set up a bond.

Volkswagen should implement as many measures as possible to restore credibility to its company. The worst case scenario would be lack of action that may spark a consumer boycott. This would lead to a decrease in sales and the eventual collapse of this company.

“Rebranding - How can Volkswagen make the Beetle Go Green?”

In the last 60 years, Volkswagen has become a global brand and it is the biggest car company in the world. While some believe that the scandal will be forgotten soon, other Volkswagen directors have discussed the possibility of restarting the company under a new name. If the company restarts under a new name, this may improve brand image to have a company that is smaller and more efficient than the current Volkswagen Group. Re-branding will make it easier for the company to speed up efficiency programs and potentially save the company.

Rebranding can be expensive and risky, but it may reduce the negative publicity that was caused by the scandal. It is important that the rebranding not only focuses on exterior changes, but also changes in other aspects of the company.

The Volkswagen group is headed by the group chief executive - Matthias Mueller. The management board includes 9 bosses led by Herbert Diess, the Volkswagen car chief. The management board oversees the supervisory board which is composed of 20 members, including key investors, led by Berthold Huber, interim chairman. Most shockingly, Martin Wintercorn is likely to receive two years pay and a pension of more than £22 million. This is the same man who first tried to cover up the scandal by claiming the company did not lie but faced a “technical problem.” Bernd Osterloh, the Chairman of the General and Groups Works Council of Volkswagen AG, has suggested that a new CEO who has a deep knowledge of technology needs to be appointed. He stated, “We need changes in our corporate culture. For the future we need a climate in which problems are not concealed, but rather are openly communicated to management.” A new CEO will bring a new lease of life into the organization and lead to a change in business strategy, competitive position, and business environment. A change in the governance process such as shareholder process, open election of directors, and wide inclusion of membership may also prove to be beneficial to the new company.

If Volkswagen chooses to rebrand, it should try to develop a company that is more green and has better corporate social responsibility practices. Studies show that “greenwashing”, when a company tries to portray itself as more environmentally minded than it actually is, has become increasingly prevalent in recent years.

What Volkswagen can be Perceived As?

The reputation of a company has become an increasingly big factor when it comes to consumer decisions. The new company should try to work with organizations such as the Federal Trade Commission to focus on sustainability of work and collaborate with suppliers, universities, and other scientific institutions to embed its corporate social responsibility practices in every sector of the new company. For example, in order to compensate for the previous emissions, employees could change the way they travel or business trips could be replaced with internet conferences.

The new company should focus on reducing energy consumption, reducing carbon emissions, saving water, and reducing waste. The new company should also design ex-post evaluations to test the efficiency of new programs. The new company may also engage with local communities or NGOs to show the public that they care about society and sustainability. After all, NGOs are powerful vigilantes best suited to hunt down new information. They are often the ones who go out to scream and yell to get the public’s attention about sustainability issues. An updated website illustrating all of their practices and an annual report would greatly improve the company’s image. Clear financial statements are necessary to show the public where the money comes from and where it goes within the company. It would be helpful to use social marketing as part of an overall strategy to increase transparency within the company.

Joining an Independent Verification Agency

While Volkswagen has its own internal team that examines vehicle emissions, the company should also partner up with other independent verification agencies to rebuild consumer trust. Some agencies that the company could consider partnering up with include the World Business Council for Sustainable Development (WCSBD), Fair Labor Association (FLA), Federal Trade Commission (FTC), and the Landfill Methane Outreach Program (LMOP).

The WCSBD is “a CEO-led organization of forward-thinking companies that galvanizes the global business community to create a sustainable future for business, society and the environment.” The WCSBD already works with a global network of over 65 independent national and regional business councils and partner organizations and their executive committee meets three times a year to tackle the latest sustainable development issues.

The FLA has their own Workplace Code of Conduct and a sustainable compliance methodology that gauges normal working conditions and uncovers root causes of problems so issues are fixed in a lasting way. The FTC is an independent agency of the US government that focuses on consumer protection and addressing deception practices. The LMOP is a voluntary assistance program that aims to reduce methane emissions from landfills by using landfill gas as a renewable energy resource to fuel power plants, manufacturing facilities, vehicles, homes, etc.

If Volkswagen decides to partner with independent groups, then not only will it rebuild consumer trust, but gain recognitions and rewards from NGOS that rank and test companies based on corporate social responsibility practices. For example, the Dow Jones Sustainability Indices is the longest-running global sustainability benchmark worldwide and has become a key reference point in sustainable investment because they conduct analysis on corporate, economic, environmental, and social performance. The index is updated annually and this is better than the Institut der Wirtschaftsprüfer, a non-profit company based in Germany that focuses on carrying out quality assurance procedures, but only publishes reports for the German public.

Stronger Credibility for Volkswagen

If Volkswagen joins more prestigious international organizations, this will give them stronger credibility. Posting a Bond One final method to regain consumer trust is for Volkswagen to post a bond that assures the public nothing like this will happen again. A bond is an indicator of credibility. Perhaps Volkswagen can state that if any fraud happens again within the company, they will pay a bond out to the European Commission automotive industry. This will motivate the European Commission regulators to be stricter and thorough with their audits.

The money can also be used towards the research and development of green vehicles, de-carbonization of conventional engines, safety, and informational technology infrastructure. The bond needs to be set at a really high amount so that consumers will know that Volkswagen truly regrets cheating emissions standards. Volkswagen is a big company with a lot of assets and well-known brands. In order to finance this bond, Volkswagen should sell one of their brands.

Hive Off MAN SE

Out of the current companies that Volkswagen owns, it may be wisest to sell their big truck manufacturing company MAN SE. MAN SE generates approximately €14.68 billion revenue and its subsidiaries include MAN Truck & Bus, MAN Diesel & Turbo, MAN Latin America, Neoplan, Renk, Sinotruk (Hong Kong), and ÖAF.

Money acquired from this sale can be used in posting the bond. The money could also be used to pay out claimers and governments. Of course, Volkswagen will most likely try to solve this problem without selling any brand. Volkswagen has become a fairly lucrative brand the past few years and it would be best to compensate claims and governments from its own resources, but the company also needs to spend money on innovation. Volkswagen has to invest in new technologies to create better, more efficient engines and environmentally friendly cars. This is why the most feasible option may be to sell one of their brands and dedicate their resources on research and development. Today, oil demand continues to rise and air pollution becomes an increasingly pressing problem.

Suggestions

· Volkswagen should sell one of its companies to focus on creating cleaner hybrid and electric vehicles.

· They should work with policymakers to encourage the expansion of the electric vehicle industry and consumer acceptance.

· The money from selling a company could go towards offering lower prices on their new electric vehicles since one of the biggest barriers of expansion is that electric vehicles are still much more expensive than gasoline fueled vehicles.

· Governments around the world continue to raise fuel prices to push consumers towards higher mileage vehicles and hopefully electric vehicles. If Volkswagen can capitalize on this market, then it has a hope of regaining its leading position in the global auto industry.

Recommendation

At the moment, Volkswagen should dedicate all efforts and resources into re-establishing credibility with the company. Volkswagen may choose to re-brand, although this option is fairly unlikely. It can also join independent verification agencies, which is more feasible and fairly easy to accomplish. Finally, the costliest option would be to sell one of its brands and post a bond. This is the most expensive option and probably a method of last resort, however it would also restore the most faith in the Volkswagen brand. A combination of the second and third option would be the best recommendation. As consumers slowly regain trust in the brand, the sales will most likely gradually increase.

Consumers are currently debating on purchasing the cheap Volkswagen stock because many have faith that the company will take the necessary steps towards mediating the scandal. It is doubtful that the stock prices will return to previous levels anytime soon, but if Volkswagen shows consumers that it regrets deceiving consumers and is dedicated towards better corporate social responsibility practices, then perhaps it can regain its status in the global auto industry.

Bibliography

• Annual Report 2010 (MAN Group, 2011). Accessed March 16, 2016 http://web.archive.org/web/20110812235358/http://www.man.eu/MANDownloadgalleries/All/3Investor_Relations/Geschaeftsbericht/2010/gb_2010_online_e_s .pdf

• Clifford Atiyeh, Everything You Need to Know About the VW Diesel Emissions Scandal, (Car and Driver, 2016). Accessed March 16, 2016. Clive Coleman, VW Could Face Long Legal Nightmare (BBC, 2015). Accessed March 16, 2016 http://www.bbc.com/news/business-34352243 • David Gelles, Social Responsibility That Rubs Right Off (The New York Times, 2015). Accessed March 16, 2016 www.nytimes.com/2015/10/18/business/energyenvironment/social-responsibility-that-rubs-right-off.html?_r=0 • Exposure of the Volkswagen Scandal: The Full Story Explained (Amazon Digital Services LLC, 2016), 22. • Jack Ewing, Volkswagen Says 11 Million Cars Worldwide Are Affected in Diesel Deception (The New York Times, 2015). Accessed March 16, 2016 www.nytimes.com/2015/09/23/business/international/volkswagen-diesel-carscandal.html • Jim Brunsden and Christian Oliver, Volkswagen Emissions Scandal: Noxious Omissions (Financial Times, 2016). Accessed March 16, 2016 www.ft.com/intl/cms/s/0/f8aafc92- bae4-11e5-bf7e-8a339b6f2164.html • Julia Bradshaw and Jon Yeomans, VW Scandal: Porsche Boss Named New Volkswagen Chief Executive- As it Happened (The Telegraph, 2015) • Landfill Methane Outreach Program (EPA). Accessed March 16, 2016 https://www3.epa.gov/lmop/ • Overview: Business Solutions for a Sustainable World (WBCSD). Accessed March 16, 2016 http://www.wbcsd.org/home.aspx • Peter Gourevitch and James Shinn, Political Power and Corporate Control: The New Global Politics of Corporate Governance (Princeton University Press, 2005) • Peter Gourevitch, What Do Corporations Owe Citizens, (Springer Science, 2007) • Sonari Glinton, How a Little Lab in West Virginia Caught Volkswagen’s Big Cheat (NPR, 2015). Accessed March 16, 2016 www.npr.org/2015/09/24/443053672/how-a-little-labin-west-virginia-caught-volkswagens-big-cheat • Stefano Pagliari, Making Good Financial Regulation: Towards a Policy Response to Regulatory Capture (Governor House Publishing, 2012). • The First Decade: 1999-2009" (Dow Jones Indexes, 2009) Accessed March 16, 2016 • Volkwagen Faces £2.5bn Lawsuit From Investors (The Week, 2016). Accessed March 16, 2016 http://www.theweek.co.uk/65351/volkswagens-us-boss-steps-down-withimmediate-effect

https://www.theguardian.com/business/ng-interactive/2015/sep/23/volkswagen-emissions-scandal-explained-diesel-cars

https://gps.ucsd.edu/_files/faculty/gourevitch/gourevitch_cs_zhou.pdf



Recent Posts

See All

Powered by panocraft