The Volkswagen Scandal: An Admission to Emissions Fraud Until recently, VW was k

Question

The Volkswagen Scandal: An Admission to Emissions Fraud

Until recently, VW was known for its strong reputation for sustainability. It became the first car manufacturer to adopt ISO 14001 principles, international environmental principles that act as standards for global firms. It adopted a number of sustainability goals in 2002 at a time before sustainability became a hot topic. VW began investing in vehicles that would reduce carbon emissions early, including electric and diesel vehicles. In 2014 VW introduced the VW XL1, which it claimed to be the most fuel-efficient car in the world at the time. The later scandal showed just how misleading these claims really were.

The scandal involved VW’s diesel vehicles, which it claimed were more environmentally-friendly. During lab testing, the vehicles released fewer emissions, satisfying regulators. What they did not know was that VW had installed defeat devices that could detect whenever the vehicle was undergoing emissions testing. During the test, the vehicle would run below performance, thereby giving off more emissions. On the road, however, these vehicles ran at maximum performance and gave off 40 times the allowable limit of emissions in the United States.

European testers noticed that these vehicles did not perform as well on emissions tests on the road as they did in the lab. They asked U.S. testers to perform similar tests as the U.S. has some of the highest emission laws in the world. Using a portable emission system measurement device on the road to detect the emissions, the testers obtained scientific proof that the emissions given off on the road were not nearly as low as those given off during lab testing.

VW admitted to installing defeat devices in its diesel vehicles to fool testers and regulators. A whistleblower at VW came forward and stated that VW immediately began destroying documents that could implicate the firm. VW’s CEO resigned. The company agreed to pay up to $17.5 billion to compensate consumers affected by its defeat devices, which included retrofitting and buying back impacted vehicles. Those who knew about or were responsible for the defeat device’s installation could face jail time. Six executives and employees have been indicted for knowing about the conspiracy. Charges were also filed against German parts supplier Robert Bosch GmbH as it designed the defeat devices and seemed to know that VW was using them to violate laws.

In total, criminal and civil fines and settlements are estimated to cost VW $22 billion in the United States. However, truly restoring its reputation will require VW to incorporate ethics and appropriate practices into the organization from the inside-out, something that was severely lacking in the firm’s corporate culture prior to the scandal. What is most surprising about this scandal is the blatant use of deception to deceive consumers, governments, and testers.

The scandal explained: http://www.bbc.com/news/business-34324772

Questions

1. Explain how the culture of Volkswagen created this ethical scandal.

2. While Volkswagen claimed to support ethics and sustainability, how can they recover from this ethical disaster?

3. Do you believe this scandal will lead to tougher scrutiny of companies’ environmental claims in the future? Why or why not?

Explanation / Answer

1) An organizational structure is the basic outline of the model of organization to be followed by the company to achieve its objectives, all processes operate within this outline and a structure best suited to the exact business needs of an organization goes a long way in defining success. The two major choices in structuring organization are divisional and functional. Divisional structure divides organizational functions on the basis of groups specialized for a product or geographical location. Functional structure groups together people who perform similar tasks or have similar skill sets. Both can work together and many companies now use a hybrid form of this the matrix structure which includes a mix of both models for example a sales team specially handling television sales in a company also selling music systems and computers. The formal organization of a firm is the set of rules, procedures and guidelines which all employees adhere to. It clearly defines hierarchy and organizational structure. Along with job profiles the responsibility, accountability and authority vested in each job and the expectations are clearly defined. The informal organization is the aggregate of interactions among the workforce which builds relationships and parallel connections and is the real way in which work gets done. It is the practical form of implementation of the formal and both are intertwined and one can’t really exist without the other. Organizations again may promote lot of informal interaction and communication and the resultant atmosphere may be informal or contrastingly many may discourage excessive informal communication and flow of information and create a very formal and rigid atmosphere within the company as it suits its goals. Companies handling sensitive and personal client information prefer this practice to avoid unintentional leaks and risks. A balanced approach with both parameters in equitable ratio is mostly recommended and advisable.

With Volkswagen the prevalent organisational culture was strictly hierarchical, which centralisation of power and exclusive management from top down. This creates all responsibility and accountability at the top management level with lower levels mostly performing the jobs delegated to them with clear instructions it is the typical command and control structure which is mostly prevalent within the defence forces. After Diesel Gate, Mathias Mueller the new CEO of Volkswagen who took over a week after the scandal broke, decided to modify the organisational structure to ensure such frauds could not recur, bye improving accountability and responsibility at every level through establishment of inclusive management and introduction of transparency within the entire organisation through decentralization of power. However, given the nature of human beings to resist change and find adaptation to change difficult, it has proved to be an uphill task with moderate success. With an organisation is large is Volkswagen it is important that a clear plan and strategy for implementing the change in organisational structure be worked out, as it is important to understand the level of decentralization to be adopted as any excess could result in disaster. Most mid management personnel are used to being led, rather than be leaders, this country has created mindset of fear resulting in managers attempting to Shield themselves rather than prove their leadership qualities. The preference is to have a scapegoat ready at hand, in case of crisis. The process of course, has been implemented and set into motion how long the transition will take is anyone's guess.

2) Considering the fact that the corporate world is the one with the maximum impact on the environment they need to come up with sufficient measures to ensure environmental protection and promotion of a green initiative which insurance social and environmental responsibility to promoting recycling and controlling carbon footprints as also making safe waste disposal a priority. Extensive biological and ecological research is increasingly proved that all living beings on the planet are interconnected and interdependent for their survival as each is playing a crucial role in promoting natural cycles and preserving balance within the ecological systems. Any substantial damage caused to these cycles and systems, due to them being subjected to extensive unnatural change, can have a massive impact on ability of these species to flourish and survive. The resultant imbalance within the ecology and environment impacts generations of all living beings.

Volkswagen needs to seriously win back the trust of its consumers and rebuild it's image as a responsible organisation morally and socially, by undertaking serious measures towards adoption of green initiatives aimed at protecting the environment. This does not necessarily relate to activities involved with production of vehicles, which is of course essential rather than an option presently for all Global organisations, but also create a brand simultaneous with environment building measures switches forestation projects recycling projects or plastic cleanup projects. This could go a long way in restoring people's faith in the organisation and establish seriousness of their claims of being socially responsible.

3) The scandal will definitely lead to tougher scrutiny of companies environment claims in the future. This is because monetary gains and the major goal of maximization of profits which exists within every business organisation naturally leads to prioritising profitability over morality and social responsibility for many organisations. That is why it is essential that ethics be prioritised within organisations and accountability and responsibility take a front seat at every level of management. Business Ethics, as the term clearly denotes, is application of moral principles and behaviour within corporations and businesses, and their implementation in every decision and action undertaken by them. Morality and ethics is of paramount importance within the corporate environment, considering the massive cascading effect and the widespread influence of actions and decisions of some corporates, on not only their large employee base, but also upon society as a whole. It can effectively impact in a major way or ruin, thousands of lives, with a single immoral decision or unethical action. Such decisions and actions may be based on various factors influencing personal gain be it monetary or otherwise. It may be false representation of products to attract customers and boost sales and profitability, make false representations of corporates accounts to attract investors and finances through this false information.

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