Please read case study and answer questions below: Case Study 2.3: VW’s Massive

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Please read case study and answer questions below: Case Study 2.3: VW’s Massive Deception Between 2008 and 2015, German automaker Volkswagen (VW) installed software in 11 million diesel cars in Europe, South Korea, Canada, and the United States designed to defeat emissions tests. The computer program recognized the difference between the emission test and road conditions and temporarily activated emissions controls. When not being measured, the same vehicles generated up to 40 times the amount of the harmful pollutant nitrogen oxide, which has been linked to lung cancer. The “defeat device” enabled VW cars to pass U.S. emissions tests without the usual loss in fuel economy and engine performance. A group of professors and students at West Virginia University discovered significant differences between the car’s emission results in test and real-life driving conditions in 2013. Officials at Volkswagen initially claimed that the West Virginia findings were inaccurate but later acknowledged the use of the defeat device to environmental regulators in the United States. VW customers, the public, and government officials wondered how such a massive fraud could continue for so long without being detected. They were skeptical that top executives, who generally have engineering backgrounds, could have been ignorant about a technical device installed on so many of the company’s cars and trucks. The scope of the deception suggests that a number of people knew of the defeat device. Said one auto industry observer, “It seems unlikely that just a few key individuals knew about this.” 1 Company officials hired an outside law firm to conduct an internal investigation to identify the perpetrators. VW employees (who reportedly were reluctant to come forward) were offered amnesty from punishment if they shared what they knew about the defeat software. Ten senior executives associated with engine and product development were immediately suspended and the number of suspensions may grow as high as 100. Suspicion centered on managers who authorized the installation, engineers who installed the device, and those who knew about the programming but did not share that information with their leaders. VW’s culture made it hard for employees to speak up about the defeat device. Decision making is centralized at company headquarters; frank discussion of problems is discouraged; workers and managers are afraid to speak up. According to the director of a German automotive research group, speaking up is “not the usual thing at Volkswagen if you want to make a career.” 2 VW culture has been described as arrogant, insular, isolated, and resistant to change. Engineers are openly disdainful of environmental regulations. Communication within the company is poor, so poor that three Volkswagen board members learned of the defeat device from media reports, not from the company CEO. Losses from lawsuits, government fines, vehicle recalls, and damaged reputation continue to mount. The company initially set aside $ 7.3 billion to cover damages but quickly realized that the amount was not enough. (VW could face $ 18 billion in fines from the U.S. Environmental Protection Agency alone.) Volkswagen may need to cut jobs, and some speculate it might need a German government bailout. To prevent future scandals, VW’s leaders promise to decentralize decision making and the firm’s new CEO, Matthias Müller, vows to practice a more open management style. However, it remains to be seen if these changes will be enough to prompt managers and workers to speak up when they uncover unethical and illegal behavior. Can you think of other examples of where employees knew of corporate misbehavior and kept silent? Why did they fail to speak up? What should be the punishment, if any, for those who knew of the emissions software but didn’t report this information? Is offering amnesty an effective strategy for uncovering fraud? How much blame for the deception should be placed on top-level VW executives? On the board of directors?

Explanation / Answer

FIFA Scandal: FIFA officials had long been suspected of taking bribes in exchange for granting broadcasting rights for games and hosting rights for events like the World Cup.

Toshiba accounting scandal: Toshiba admitted that it had overstated its earnings by nearly $2 billion over seven years, more than four times its initial estimate.

2. In a company the employees should be bound by some guidelines in order to give them a clear idea about the functioning of the company and its idea of business values but along with that freedom of expressing themselves should be intact. Employees should be at liberty to use their innovations and judgement well within the boundaries of well articulated and well framed guidelines. In the case of VW employees were not able to express themselves or their issues as the system was centralised and they feared that coming out with a problem may hamper their career badly.

3. Those who knew about the emission software and did not report were not much at fault because they were under pressure and fear of being removed if they reveal the information. Instead of punishing the employees those involved in the idea and implementation of such emission software should be punished who were the real culprits and some regulations should be there in the law where corporations need to follow a corporate set up to allow freedom to the employees.

4. Amnesty may be considered a good strategy to uncover the fraud because it would allow the people who were not actually the culprits but were silent out of fear, to come out and speak up.

5. Top level executives and board members should be equally blamed because its their responsibility to monitor any mishappenings or wrong practices carried out in the company. Without their knowledge such things cannot take place. And even if some of them were not aware then its their fault as its their responsibility to make the company atmosphere free for employees to speak up on issues and decentralisation of the system.

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