Volkswagen Emission Scandal

A Report on Volkswagen Emission Scandal

Submitted by – Akash Gupta (2015PGP016) Avijeet Boparai (2015PGP064) Bhabna Roy (2015PGP070) Chandra Prakash Verma (2015PGP084) Maheshwari Ruchika (2015PGP193) Nikita Singh Parmar (2015PGP229) S.Priyatham Swamy (2015PGP318)

Volkswagen – An ethical dilemma Shareholder value maximisation is a myth. The belief that investors care only about the stock price, and not the impact on society is a myopic one. A very recent example of this is the Volkswagen (VW) emission scandal. In September 2015, VW came under the scanner of the Environmental Protection Agency (EPA) for having installed "defeat device", a software in diesel engines of many of the cars sold in America, that could detect when they were being tested, changing the performance accordingly to improve results. The German car giant has since admitted cheating emissions tests in the US. Not only had VW violated emission norms, but also undertook a huge marketing campaign trumpeting its cars' low emissions. There were more than 400,000 VW cars with defect device on road at the time. EPA has fined the company $37,500 on each vehicle exceeding the limits. VW saw its stock dropped by 20% and the CEO resigned after the scandal. It is alleged that people in positions of authority have been involved in devising this scheme that the engineers deliberately signed off a code that would defeat the purpose of EPA and Clean Air Act regulations, and that the massive cheat was allowed to continue for seven years until it was finally detected. This incident brings out the grim reality of today’s corporate world which seems to believe in the” ends justify the means” culture. Navigation Wheel

Law: Is it legal? Volkswagen faced hefty costs, fines and damage claims after U.S environmental regulators found out that they intentionally installed software in some of its cars that allowed vehicles to perform better on emission tests than they would on the road. They have committed fraud

on a massive scale, bilking millions of people, which will lead to criminal charges. There are 400,000 cars with the defeat device installed and the company faced a penalty of $37500 for each vehicle not in compliance with regulation imposed by EPA. The scandal was not legally valid. Ethics: Can it be justified? Organisational silence is exacerbated in highly competitive cultures where there are low levels of trust. So while analysing the scandal through ethics lens, it is seen that in companies with stiff competition between individuals and departments, people do not risk their positions by raising alarms. So in such a hard charging environment, bosses get what they ask for, they just don’t care how. VW saw the resignation of its CEO, Martin Winterkorn, as his cars might not have directly killed people but the car emissions do and therefore this act of VW is not justified. Economy: Is it in accordance with the business objectives? The company has been obsessed with surpassing Toyota and becoming the world’s biggest car company despite making little money from its most high volume products which is why they had to increase their market share by producing more SUVs which Americans covet and getting Americans keen on fuel efficient diesel engines was another obvious strategy. Emission problems can be solved if you throw engineering and money at it and VW is known to spend more on R&D than any other company on the planet. Therefore, VW’s move was in accordance with their business objectives, albiet in the short term.In the long term, it has proved detrimental. Reputation: Does it affect our goodwill? VW brand traces its roots back to Nazi Germany, owning some of the world’s best car brands, including Lamborghini, Bugatti and Bentley. VW’s didn’t put anyone in immediate danger but the deceit is hard to take as it was a blatant deliberate lie done for no other reason than to sell more cars. The company saw a severe tainting of image post the scandal and saw a plummet in share prices. Investors felt cheated as it is not just profits that they look for but also the societal impact that a company makes. Therefore, it affected their goodwill. Morality: Is it right? VW stole from its own employees who were unaware of this scam and could lose their jobs as sales plummet--if Germany finds itself faced with

thousands of unemployed auto workers, VW will be paying fines. It stole from its many dealers who now will lose billions in business, costing jobs and perhaps pushing some dealers out of business--there could be many lawsuits coming. It stole from its competitors who tried to play by the rules, costing them lost sales. It stole from its customers, who own cars illegal to drive--class action lawsuits are now starting to be filed, and more will come. It denied its crimes until confronted with undeniable proof. Therefore what VW did was undeniably wrong. Identity: Is it in accordance with our values? The value statement of Volkswagen states that they claim to conduct their business activities on a responsible and long term basis and do not seek short term success at the expense of others. They had a long tradition of resolute commitment to environmental protection. They also believe in informing and engaging their employees. The scandal is a proof of double standards on their part as they covered up their defect over 7 years unless they were confronted. Therefore their activities were definitely not in accordance with their values. Normative Grid Approach: Consequentialism i.e. whether an act is morally right depends only on consequences (as opposed to the circumstances or the intrinsic nature of the act). Categorical imperative says that one should always act in such a way that one is willing for it to be a universal law. Volkwwagen officials should’ve asked themselves what is everyother carmaker also starts gaming the system by forging emission test results. Why did VW take the risk of cheating, given the devastation that has followed? The company has an overwhelming desire for size. It has been obsessed with the desire of surpassing its competitor to become the world’s biggest car company. To achieve this goal, it has employed underhand measures which according to them justifies the ultimate goal of size, market share and profitability. They should’ve treated the customers as end in themselves rather than means to achieve objectives like profit. Their act was unjustified and wrong irrespective of the consequence. Managers need to consider the “triple bottom line”: people, planet and profit. Corporations must balance shareholders’ desire for rising earnings with the dual objectives of looking after other stakeholders (such as employees) and respecting the environment. It may be costly to resist

sending production to countries with worse working conditions, or to implement environmentally friendly solutions. But these are the right choices for both companies and shareholders. Research shows that cutting R&D to meet short-term earnings targets or to maintain a desired credit rating is associated with lower shareholder value later on.