The Volkswagen Emission Scandal

1. The Volkswagen Emission Scandal Company Name: Home Of Dissertations Website: https://www.dissertationhomework.com Contact Number:+44 7842798340 Connect Now

2. Introduction and Background • Scandal has been a part of the contemporary business environment as companies use all means to maximize their profits. • The Volkswagen company was recently caught up in one of the largest scandals of the decade, the Dieselgate scandal. • The company manipulated vehicle software to cheat exhaust emission tests conducted to register lower levels of pollution than they produced. • Up to 11 million vehicles with the deceptive software were released. • Although senior management first attributed the scandal to ‘rogue technicians’ , they later admitted to be aware of the scheme (Armour, 2016). • The company has since been involved in a major clean-up of the scandal that has had major effects on it.

3. Ethical Issues • The main ethical issue in the case is about the action which yielded the scandal: Using technological knowledge to dupe consumers about the environmental friendliness of their vehicles. NB: The emissions include gaseous compounds of carbon and nitrogen that have detrimental effects to the living environment. • The parties involved within the case include the company (management, employees and shareholders) and its employees , its clients, the regulatory authorities and the society in general. • The company’s installation of the defeat device could most probably be attributed to their desire increase their market share and in an increasingly competitive environment. • In this regard, doctoring values of the tests increased the acceptability of the company’s products in countries such as the US where environmental preferences determined the adoption of technological devices.

4. Applying the Stakeholder Theory • According to Friedman (2002), social responsibility in the stakeholder theory in a company means its proper use of resources to engage in profit making activities as long as they are engaging in free and open competition without fraud or deception. • The theory asserts that all stakeholders within the company are important; only a company that abides to the needs of the stakeholders will survive for longer and perform better. • The company engaged in the proper use of resources , but used them in a deceptive way. In this case, VW’s actions were NOT socially responsible. • It can be argued that the senior management of VW created value for its shareholders; however, all of the value disappeared once the cheating was unveiled • We can arguably assert that the company’s actions were not in line with all the stakeholder’s interests.

5. Consequences of Corporate Misconduct • The company has faced a plethora of problems following its scandal. • Litigations - Amounting to approximately €16.4 billion for the year ended 2015 with several other lawsuits still pending in courts - If the company had bought the technology from its main competitors, it would have spent only $ 4.8 Billion! • Reputational losses – Have affected VW in its sourcing activities • Financial losses • Loss of Human Resources

6. Implications for Corporate Governance and Conclusions • The case represented severe issues in the corporate governance practices. • To begin with, it exposes the flaw of performance based compensation where managers are given high-powered incentives to deliver positive performance. • There is the need for personal liability to prevent extreme practices in profit maximization. • The case also exposes weaknesses in enforcing oversight failure • There is the need to publicly enforce directors in oversight failures • The senior management needs to act within the legal framework, while considering the interests of the stakeholders at large. Overall, the case study presents an overview of how simple issues in corporate responsibility and governance can create complex circumstances that can create terminal problems for an already profitable firm.

7. References • Armour, J., 2016. Volkswagen’s Emissions Scandal: Lessons for Corporate Governance? (Part 1). [Online] Available at: https://www.law.ox.ac.uk/business-law-blog/blog/2016/05/volkswagen%E2%80%99s-emissions-scandal-lessons-corporate-governance-part-1[Accessed 9 January 2017]. • Armour, J., 2016. Volkswagen’s Emissions Scandal: Lessons for Corporate Governance? (Part 2). [Online] Available at: https://www.law.ox.ac.uk/business-law-blog/blog/2016/05/volkswagen%E2%80%99s-emissions-scandal-lessons-corporate-governance-part-2[Accessed 9 January 2017]. • Baumfield, V. S., 2016. Stakeholder Theory from a Management Perspective: Bridging the Shareholder/Stakeholder Divide. Australian Journal of Corporate Law, 2016(31), pp. 1-23. • Friedman, M., 2002. The social responsibility of business is to increase its profits. Applied Ethics: Critical Concepts in Philosophy, 5(57). • Little, I., 2015. The People's Bandwagon Unhitched. [Online] Available at: http://www.global-thematic.com/managers-diary/2015/21.09.15.asp[Accessed 9 January 2017]. • Medland, D., 2016. Volkswagen: When 'Hubris' Leads To A Corporate Governance Disaster -- And Shareholder Pain. [Online] Available at: http://www.forbes.com/sites/dinamedland/2016/03/12/volkswagen-when-hubris-leads-to-a-corporate-governance-disaster-and-shareholder-pain/3/#6101317b726c[Accessed 9 January 2017].

8. References • Moshinsky, B., 2015. Anatomy of a cheat: Here’s what Volkswagen did and how they got caught. [Online] Available at: http://business.financialpost.com/business-insider/anatomy-of-a-cheat-heres-what-volkswagen-did-and-how-they-get-caught[Accessed 9 January 2017]. • Newman, C., 2016. Exhaust and Ethics. [Online] Available at: https://news.virginia.edu/content/volkswagen-and-power-ethics-uva-darden-students-take-vw-case[Accessed 9 January 2017]. • Nicholas, J., 2015. CHART: This is what happened to Volkswagen after the emissions scandal. [Online] Available at: http://www.businessinsider.com.au/chart-this-is-what-happened-to-volkswagen-after-the-emissions-scandal-2015-12[Accessed 9 January 2017]. • Phillips, R., Freeman, R. E. & Wicks, A. C., 2003. What Stakeholder Theory is Not. Business Ethics Quarterly, 13(4), pp. 479 - 485. • Ruddick, G., 2016. Volkswagen's handling of emissions scandal a shambles, say investors. [Online] Available at: https://www.theguardian.com/business/2016/jun/22/volkswagen-handling-emissions-scandal-shambles-investors-agm-german-carmaker[Accessed 9 January 2017]. • Stern, S., 2015. VW has myopic view of stakeholders. [Online] Available at: https://www.ft.com/content/54eb7548-636c-11e5-9846-de406ccb37f2[Accessed 9 January 2017].

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