Volkswagon paper for Business Class
In 2015, the United States Environmental Protection Agency found that Volkswagen (VW) violated the Clean Air Act. The automobile company violated the United States law through the “[selling] of approximately 590,000 model year 2009 to 2016 diesel motor vehicles equipped with “defeat devices" in the form of computer software designed to cheat on federal emissions tests,” (EPA). These devices disguised the fact that certain VW vehicles emitted 40 times more pollution than the US federal emission standards allowed. This violation shed light on VW’s desire to expand its market to the United States while concurrently struggling to handle the stark differences between the European and the United States emission standards. It was recounted from observers that “European Emission standards issued by the United Nations Economic Commission for Europe (UNECE) had been lagging behind the USA, where the compliance level of emissions-control technology was more stringent,” (p. 2, Schuetz, 2016).
Emission standard disparities between Germany and the United States are not the only issue VW struggled with. The automobile company also battled with both nation’s contrasts in corporate governance structures. The United states governance board structure follows the guise of an independent director — a system that supports shareholder’s interests to guide business decisions. In contrast, Germany has a dual-board structure where “labor and capital co-determine a corporation’s activities, so accordingly labor is given certain influence in management through participation in the process of selecting management,” (p.501, Zhao). The German dual-head model is exemplary in it’s approach to impacting a company’s ability to make ethical decisions. This model provides a separation of powers that allows all stakeholders a say in the choices the company makes. The US model of not having all stakeholders involved, most importantly the employees, shows that US companies are more at risk for hiding information and making unethical decisions; “A dual-board approach to corporate governance adds needed checks and balances to help ensure the integrity of the process and monitor whether the corporation pursues its strategic objectives in an ethical manner” (p. 33 Mintz).
In line with German structure, VW has both a management board and a supervisory board; the supervisory board is half elected by employees. This allows employees to have a stake in key decisions in the company. The supervisory board also consists of members from the Porsche and Piech family — the founders and fist stakeholders of VW. However, based on the deception through the “diesel-gate” scandal, it shows that their ethics were not in line with creating transparency and keeping the interest of all stakeholders in mind.
Volkswagen's ethical stance taken in justifying their deception is best characterized as being egoistic and utilitarian. Egoism is the "doctrine according to which the correct moral action is the one that meets the self-interest" (Business Ethics, slide 30). VW's behavior exemplifies that their actions were driven to protect only the self-interest of the automakers bottom-line and to put themselves in a position of personal advantage to meet unrealistically set goals. As stated by the Sales Contract Law, VW had an implied moral responsibility to deliver merchantable goods to their consumers, which they did not do. This egoistic behavior allows VW's to breach the inherent duties and responsibilities they owe their customers and investors. Volkswagen's self-regulated governance code impaired the Audit Committee Chairman's independence, which would provide him the ability to fairly perform its duties. Volkswagen's utilitarianism ethical stance provided them with another means of rationalizing their deception strategy. Utilitarianism states that "an action is morally right if it results in the greatest amount of good [or] happiness for the greatest amount of people affected by the action" ( Business Ethics, Slide 23). Martin Winterkorn, CEO of VW was known for having an "aggressive, demanding leadership style that would not accept failure" (Schuetz, 2016, pg. 4). VW felt the obligation to promote corporate and social well-being and happiness. They felt the responsibility to become a "the most successful, fascinating and sustainable automobile manufacturer, [] while simultaneously aiming to achieve economic, social and environmental sustainability" (Schuetz, 2016, pg. 7). Apart from living up to their high expectations, VW's success sustained many people's livelihood. They employed 600,000 individuals worldwide. The Group's headquarters had become the most thriving city in Germany, where they employed more than half of the population. Through a "utilitarian lens," it is justifiable that the right moral action is one that maximizes the good, in this case, even if it meant lying to many others.
Soon after admitting that they had used cheating devices on millions of their vehicles, the automobile company realized that not only would they break the law by committing an environmental crime; they also broke the trust of their consumers and investors. This was evident when their stock plummeted 40% by the end of the following month after the scandal was made public. Their inherent responsibility is to follow normative theories of ethics, which are meant to establish "rules and principles that [help us] determine right and wrong for a given situation" (Business Ethics, Slide 10). By following these standards, VW would have avoided tarnishing the Volkswagen label they had so arduously built. Through an "internal investigation [it] was concluded that three factors led to the creation of the defeat device—a mindset that tolerated rule-breaking, weaknesses in reporting and monitoring processes, and the delinquency of individual employees" (Krok, 2015). In order to prevent a similar crisis in the future, they need to adopt internal control measures that ensure independence is not impaired in any part of their operations. Like the government, every entity should have some checks and balances for different branches of their operations to reduce mistakes and prevent improper behavior. "One of the most major changes [for VW] going forward will be third-party verification of emissions output" (Krok, 2015). This process will ensure that an independent party evaluates future emission tests. This process should not only be applied to emission tests, but it should also be a protocol that is implemented to verify independence and excellence in any part of operations that has to measure up to a defined standard. Douglas Adams said it best, "to give real service you must add something which cannot be bought or measured with money, and that is sincerity and integrity".
Volkswagen is an automobile company found in 1937 by the German front and at the request of
Adolf Hitler known for the beetle headquartered in Wolfsburg. It is the flagship brand of
Volkswagen group the largest automaker by worldwide sales in 2016 and 2017 the group biggest
market is in china. Every company has its own up’s and down of the company Volkswagen has
structure flaws in the corporate governance in VW the board is responsible for the management
and monitoring of an important corporate decision. Volkswagen business adopts a two-tier
corporate structure, consisting Two independent boards working together to govern the firm.
Board Supervised the Volkswagen equal shareholder and employee Representatives. Which
includes other brands under the same Company Such as Porsche and Piech families which is
about 5 seats and the other 2 seats brands are the state of lower saxony and Qatar investment
Holding including both which account for almost 90% of the voting Rights of the shares
(The Columbian law school.2016)
YASMINA SERGHINI-DOUVIN vice president and senior credit at Moody’s explained VW’S
emission has brought to light serious corporate governance issues within the company which we as non-positive credit. These deficiencies include ineffective internal controls to uncover
improper activity and poor risk management by VW’S management and supervisory boards.
This has effected the VW’S adverse on it’s coming earnings and cash flows.
VW has to focus on their board team, loyalty and trust of his Customer. Daniel Hudson Burnham
once said “make no little plans; they have no Magic to stir men’s blood” in the corporate world,
however, big plans Require a big effort (Diligent.2017)
For example Cola-Cola Company and Bank of America have such Confidence in their corporate
governance policies that they post them to their websites. When it’s comes to guarding the trust
of VW’S
Customers is to build a strong team of board of directors who can take Their decisions Real quick
when it’s about gaining trust effectively. corporate governance exists to help companies carry
them out by Providing a framework of rules and procedures that extends to Everyone from board
directors and senior management to shareholders and customers. The corporate governance can
create a strictly following rules for the employers to be followed
in my manner by the companies order corporate governance should stands for responsibility
and transparent corporate management and supervising the aims to add by long-term profits.
If good corporate governance it’s should not stick to be limit lasting corporate success but also
A key condition for strengthening the trust of our shareholders, customers. Employees and
truth with their teammates and financial markets. The company should accept internationally
accept standards of corporate governance. As a rule, the government contained a code to
recommends and suggestions for good and responsible corporate management.
Conducting business on the global scale has a massive impact on society, so firms need to have a comprehensive CSR program to mitigate the adverse effects they have from operations. Volkswagen (VW) needs to have special considerations considering the industry's potential externalities and the scale on which they operate. VW’s 2019 nonfinancial report lays out several concepts under CSR, including responsibility, sustainability, the environment, and people. VW’s places particular concern with responsibility since they are still living in the shadow of the diesel scandal; thus, they have made significant changes to the decision-making process at every level of the organization. Shifting towards electric vehicles will require new resources to be included in the supply chain and VW has joined the Responsible Sourcing Blockchain Network to assess the cobalt supply chain performance and network. This partnership comprises Ford, BM, and LG, amongst others, and offers transparency and insight into the supply chain. (Volkswagen, pg 41). The automotive industry will always have a significant impact on the environment. All automakers are striving to improve, and VW is a leader in this arena, boasting the largest decarbonization initiative, aiming to be carbon neutral by 2050 called the “goTOzero” pledge. According to the data represented in their nonfinancial report, battery powered EVs have the lowest carbon footprint of any vehicle for 200,000 KM driven. (See Fig 1) (Volkswagen, pg 63.) A rapid push into battery vehicles will help VW achieve these goals. Another avenue VW could explore to enhance their responsibility to the environment would be to contribute to independent compliance organizations in the automotive industries. These organizations will prove invaluable to ensure the entire industry conforms to the new standards. VW has taken strides to create a workplace that is acceptable to all and strives for maximum inclusivity. VW has even set up five production sites for the Skoda brand for people with disabilities(pg83). VW is attempting to bolster the ranks of women in the workplace. However, the results seem less than favorable, see figure 2. ( Volkswagen,pg87)
VW has implemented two programs to keep decision making at every level honest and transparent, the Integrity Program and the Role Model 2.0 program. The Integrity program is to ensure that integrity is an obligatory criterion for all the Board Management decisions. (Volkswagen, pg 24) The Integrity Program provides decisions made at the top level that are both legal and ethical. The Role Model 2.0 program involves middle management operations. The program inspires an open culture type of discussion that encourages all ideas without fear of sanctions. (Volkswagen, pg25) A repercussion of the diesel created a lack of trust between the board and the stakeholders. In conjunction with the Integrity program, VW has increased the panel of major stakeholders from 150 to more than 300 and implemented the "Best Governance Model." ( Volkswagen, pg34). The best governance program is a series of surveys and interviews to gauge trust between the board and major shareholders. An additional remedy to trust and legal issues at VW is their strong advocacy of the whistleblower program.
VW is interested in catching any major ethical or legal breaches and dealing with them quickly. An additional tarnish on VW's reputation is its stance on human rights. A byproduct of the diesel cheat had a massive impact on financial costs due to health hazards. With an estimated 946,691 annual tons of NOx emissions at the estimated cost of $7,300 per ton, the monetary damages realized by governments, insurance companies, and individuals are immense. They are not located on a balance sheet. (Iovenko, pg 83) If VW truly wants to advocate human rights, the least they can do is ramp up their timeline on their zero-emissions pledge.
However comprehensive their CSR strategy some areas need re-evaluating. Comparing VW to another multinational, multi-brand manufacturer, General-Motors, VW’s approach in some aspects of CSR could use a more aggressive method. Based on a comprehensive CSR score from CSRhub.com, GM and VW are very similar, 91 and 92 respectively(CSRHUB). Gm has taken a stricter stance on their 0-emission platform, with their goal set at 2040. General Motors has also championed the cause of racial injustice and has donated 10 Million to various organizations and an additional 1 million to the NAACP Legal Defense and Educational Fund. (Bara). General Motors is responding better to significant automotive business issues, and VW should reconsider some of its CSR programs to become a better leader in the industry.
References:
Mintz, Stevens. 2006 January. Research Gate Online. Comparison of corporate governance systems in the U.S., UK and Germany. https://www.researchgate.net/publication/298035839_A_comparison_of_corporate_governance_systems_in_the_US_UK_and_Germany
Schuetz, Marcus. 2016. Dieselgate – Heavy Fumes Exhausting the Volkswagen Group. Harvard Business Publications.
Volkswagen Violations. United States Environmental Protection Agency (EPA). https://www.epa.gov/vw/learn-about-volkswagen-violations
Zhao, Jun. 2010. Comparative Study of U.S. and German Corporate Governance: Suggestions on the relationship between independent directors and the supervisory board listed companies in China. Michigan State Journal of International Law. https://digitalcommons.law.msu.edu/cgi/viewcontent.cgi?article=1027&context=ilr
Krok, Andrew (2015, December 10)
How Volkswagen plans to prevent another Dieselgate
https://www.cnet.com/roadshow/news/how-volkswagen-plans-to-prevent-another-dieselgate-emissions-scandal/
Schuetz, Marcus (2016) HK1089
Dieselgate: Heavy Fumes Exhausting the Volkswagen Group. Harvard Business Publications.
Hove, Tad (2021) Business Ethics PowerPoint
CBU: Business Ethics-Ethical Theory
Adams, Douglas (ND)
Forbes. Quotes
https://www.forbes.com/quotes/2196/