The Volkswagen Emission Scandal.pptx
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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.
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The Volkswagen Emission Scandal.pptx
- 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].
- 9. THANK YOU !!! Company Name: Home Of Dissertations Website: https://www.dissertationhomework.com Contact Number:+44 7842798340 Connect Now
Editor's Notes
- Automobile manufacturers have been put under the radar to produce cars that are environmentally friendly through controlled emissions of exhaust gases into the environment (Newman, 2016). The Volkswagen (VW) emission scandal (Dieselgate) was amongst one of the largest scandals to hit the world in 2015 and 2016 (Medland, 2016). The German multinational car manufacturer has been in the news for the wrong reasons after revelations that it had programmed is diesel cars to produce doctored results in emission tests of Nitrous oxides and other particulates (Armour, 2016). More astonishing, even for the misanthropists, is the level to which the scheme was ingrained within the company’s operations. It is reported that up to 500, 000 automobiles were affected within the years 2009 -2016 within the US market alone (Moshinsky, 2015); other markets were also targeted therefore increasing the scale of the malpractice (Armour, 2016).
- Nitrous oxides (NOx) and particulates have detrimental effects on the living environment. More specifically, VW was accused of claims of having produced a greener car while in fact its emission levels were multiple levels above the limit approved by the US Environmental Protection Agency (EPA) (Medland, 2016). This violated the ethical duty of trust, with is scale of deception duping millions of consumers around the world. When the oddities within the emission control systems first came into light, the company initially dismissed the claims as a technical error. However, the company soon admitted to the fatal “error” after facing pressure from various stakeholder groups (Moshinsky, 2015). After a series of internal investigations, Volkswagen asserted that the scandal could have been caused by a few ‘rogue technicians’ (Armour, 2016). However, a more critical approach reveals that the scheme may have involved the senior management. As argued by Armour (2016), the scale at which the ethical malpractice was done is a clear indication of management inaction. Its assertions are also complicated by the fact that VW is the largest car manufacturer by cars sold and the company has been known for its fierce competition.
- The case study can be explained well using the stakeholder theory coined by Friedman (2002). According to the theorist, social responsibility in a company meant its proper use of resources to engage in profit making activities as long as they allowed free and open competition without fraud or deception. In this case, the desire to increase profits while minimizing the costs was viewed as a key motivator of the company’s mischief. The company’s management has increased undue attention on the shareholders in their unrelenting battle for increased market share in a complex market environment (Stern, 2015). The lack of stakeholder management is a clear problem within VW; it is evident that the shareholders, suppliers, customers, employees and members of the community are not included in the boardroom’s decisions. According to Phillips et al. (2003), strategic and ethical considerations always overlap. The agency relationship within the company focuses on corporate growth that benefits employees and shareholders but disregards the costs of environmental protection.
- Litigations- Records indicate that with the advancement of emission technology by its competitors, the costs of production for VW were meant to rise (Baumfield, 2016). Mercedes and BMW utilized ‘urea filtering’, a patented technology that would cost VW up to $ 4.8 billion if utilized. In this case, the company took an alternative route that eventually cost it €16.4 billion in legal and clean-up costs in 2015 as well as a plethora of settlements within the year ended 2016 (Newman, 2016). Reputational losses - The company has also lost its long-standing reputation as a reliable car manufacturer. Stakeholders are now reluctant to trade with the company and it has been forced to sell its products below their market prices to raise capital. Financial losses -Its stocks prices declined rapidly (by 40%) after the scandal and have still not regained their ground in pre-scandal position (Nicholas, 2015). As shown in figure 1 below, its share prices plummeted in an extremely drastic manner that was seen as a terminal problem for the company. US sales (resale values of VW) have since collapsed as European sales fall drastically as the manufacturer continues to face the music for its unsuitable corporate decisions. The scale of corporate irresponsibility still made VW’s operations terminally problematic with the company being wrapped in enormous litigations that could complicate its recovery. Loss of Human resources -Moreover, the pressure at the top management is evident with the exit of VW’s chief executive in the US, Michael Horn (Ruddick, 2016). He left due to fear of litigation.
- The presentation shows the implications of VW’s immoral actions on the stakeholders. In this case, it could be recommended that VW case points at the need for personal liability in the case of corporate governance to counteract the strength of the high-powered incentives given to the managers in performance based compensation (Baumfield, 2016). Moreover, exists the need to publicly enforce directors in case of oversight failure (Armour, 2016). The senior management must also act within the legal framework, while considering the interests of the stakeholders at large (Friedman, 2002). It is astonishing to see minute governance failures in corporate responsibility can lead to massive losses within corporations.