Ethics is that branch of philosophy which deals with the decision making of individuals or groups with respect to what is right and what is wrong. In this regard, business ethics is that aspect of ethics which deals with the examination of values, beliefs, practices, systems, techniques, methods, code of conduct, culture, policies and corporate governance of company (Mansouri, 2016). This is related to the study of various areas of business environment so as to determine and ensure that business do not get indulged in unethical practices like stereotyping, discrimination, terrorist financing, money laundering etc. To ensure that an organisation sustain in industry for a long duration of time, it is essential that the make use of such practices that are ethical and do not cause harm to public interest, industry or environment in any way. Over years, business organisations have realised the importance of sustainable and ethical practices to maintain its growth and profitability.
The present report is based upon the case study of Volkswagen which is a world famous automotive brand. This report highlights the unethical practice adopted by company to evade legal procedures. Volkswagen publicly accepted that most of the vehicles manufactured and sold by company worldwide were equipped with defeat devices or software so as to conceal the original diesel emissions of cars (Hotten, 2015). This practice was executed by company so as to improve the performance of vehicles in the eyes of law as well as public. This was done with the aim to pretend that vehicles distributed by company complied with all the emission standards. Consequently, company conducted the test of pollution emission in lab as against on roads.
Similar incidents have happened in many automotive companies over years. Concealment of General Motors’ small car ignition switch, Toyota's sticky gas pedals, Takata’s faulty airbags have been some of the major scams and incidents in the history of automotive industry that have brought defame to vehicle manufacturing sector.
Corporate image hold immense significance for any company functioning as a part of marketplace. A good corporate reputation indicates that customers place trust and belief in the products manufactured and sold by company and thus, prefers to buy them, enhancing the revenue of enterprise.
This report will explore the areas affected by the unethical practices of company and how the scandal defamed company’s reputation.
As a result of Volkswagen’s diesel emission scandal, the global reputation of company was largely affected. Also, the consequences of cheat scandal of company were so huge that management decided to deduct the bonus of chief management of company except one or two persons operating at senior most positions. Besides this, the impact of defeat devices upon the environment was so detrimental that it even caused certain premature deaths. Along with this, the sales and profitability of enterprise fell significantly after the public announcement by company. Furthermore, the scandal caused disappointment to a large number of dealers with which the company shared business relationship.
“Volkswagen cuts bonus as a result of Diesel Emission Scandal”
According to Andreas Cremer, when the company publicly announced that they had fitted defeat devices in their diesel engine so as to improve the vehicle performance and evade the emission test of cars, consequently, the sales and revenue of enterprise fell down immensely. As a result of this, the owners of company decided to cut the bonus of chief management of Volkswagen. The direct meaning of this was that the workforce of entity would not be eligible to receive fair remuneration for conducting the activities and procedures required for manufacturing and other necessary process that are necessary for running of organisation. Along with this, Volkswagen publicly announced a statement in relation to company focussing upon decline in compliance to such models that encouraged a fair and equal remuneration for all the employees of enterprise (VW plans bonus cuts after diesel scandal pressure, 2018). This largely reflected that a rational resolution for the persons engaged in carrying out the operations of entity was totally liberalised. Also, the decline was only constrained to management of company including all such persons that are placed at a designation that directly assist the CEO of company in supervising the tasks that take place within the premises of entity (Krall and Peng, 2015). The only faculty who got redemption from cutting of bonus was the supervisory of Volkswagen except the company’s chairman, Mr. Hans Deiter Poetsch. This caused a huge blow to the overall corporate image and position of organisation in marketplace. Also, as a result of this act of owners to cope with the loss that got incurred due to the dishonest arrangement of cheat devices in vehicles, the management felt cheated and betrayed. They started developing a feeling that they were not being paid fairly as per the work performed by them.
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“Volkswagen scandal caused premature deaths and huge cost for company”
According to Roger Parloff, the unethical arrangement of defeat devices in cars manufactured and distributed by company worldwide cause huge levels of toxic pollution and released it into air which posed threat to safety and security of a large number of persons all across the globe. As a result of these defeat devices and emissions from the engine of vehicles manufactured by company, around 62 premature deaths took place in just a span of few days (Crête, 2016). Over next some years, the large scale of cars produced by Volkswagen released a dangerous gas called nitrogen oxide into the environment which was a threat to the overall health and stability conditions of people of the countries where cars sold by company were run. This largely showed that company was very liberal while complying with the emission standards set by Clean Air Act. Also, nitrogen oxide released by the vehicles of company contributed to the phenomenon of smog as it is itself an important element of the process (Mansouri, 2016). The detrimental impacts of smog are universally known to people. It causes many heart and respiratory health disabilities and diseases. Along with this, it was largely observed that vehicles of Volkswagen created huge air pollution which led to chronic Bronchitis among people. Consequently, the only measure left with company to deal with this was recalling of all of those cars in which the defeat devices were fitted. This caused huge cost to company. Along with this, diesel cars were an addition to the overall cost of vehicles (How VW Paid $25 Billion for 'Dieselgate', 2018). When nitrogen oxide released by cars of company reached an excessive limit, it even caused acid rains which are very harmful for human health and also the nature as well as natural resource. The corporate reputation of Volkswagen across the globe got adversely affected as a result of this and it even caused reduction in sales and profitability of enterprise.
“Volkswagen’s cheating caused large scale reduction in sales of company”
According to Roger Parloff, the reputation of Volkswagen affected at a huge level after the diesel scandal. The corporate image and position of company was severely impacted. Also, as company publicly announced about its unethical code of conduct and practice, people turned against the brands of company. Consequently, the sales of two most influential brands of company got affected, namely, Skoda along with Audi. The effect of the scandal was so negative that the sales revenue of company fell significantly for the first time in last 11 years (Blackwelder and et. al., 2016). The dominant markets of the organisation over past many years had been China and US. After the public admission of Volkswagen about the defeat devices, the sales generated from these countries got largely affected. The impact could be seen by way of decreased demand for vehicles manufactured by company in these countries especially. As a result of this, there were apparent losses to Volkswagen Group. Thus, to protect its public image and position in marketplace, company publicly made an announcement in relation to improving the loss caused by company to safety and security of persons across the globe and environment. Furthermore, when the sales of major brands of company fell down significantly, the profitability of organisation was also affected. This caused a sudden shift in trust and faith of people in Volkswagen. Also, customer loyalty and belongingness to brands under Volkswagen Group got adversely affected. This happened at such a large scale that many loyal customers of enterprise shifted to substitute brands within the scope of automotive industry. From the year 2002 till the present time, the sale of company increased for the first time in 2015 post the emission scandal (Ewing, 2017). But, company had to spend huge amount as compensation for getting off the charges placed upon them (How VW Paid $25 Billion for 'Dieselgate', 2018).
“Company’s Defeat Devices created disturbance amongst Volkswagen Dealers”
According to Jack Ewing, diesel emission lab test have been executed and provided its results to the targeted audience. It was considered as the specific program that was initiated for the purpose of dealing with retailer of diesel (Supplier’s Role Shows Breadth of VW’s Deceit, 2018). This program have included some specific amount of money in several different forms that is incentives, sales bonus and other subsidiary which were availed to dealers who were facing problems related to low sales and profitability. It has been realised that slow sales and revenue generation is impacting work of dealers as they are not able to survive in the same industry. As per evaluation, it has been observed that major concern of company and its dealer was to utilise the entire given fund in operational as well as marketing areas in effectively so that its better outcome can be carried out in effective way (US Volkswagen Dealers Want VW to Pay, 2018). It can be said that if any scandal or mischievous activity is taking place in the company then it is directly impacting over its name at international level as well as its customers. It also places negative impression over customers, as a result, their trust over company reduces. Along with this, it is not only impacting customers but it also increases question mark on the job security of customer. Because of the scandal, employees may also lose their job.
From the above report, it can be concluded that the corporate image of Volkswagen was immensely affected by their public announcement of equipping of defeat devices or cheat software in vehicles manufactured by them. Also, it can be analysed that the emission scandal in which the company got indulged led to slump in bonus of chief management. Furthermore, it can be seen that the unethical and illegal practice of company to evade and pass pollution emission test caused decline in sales and profitability of enterprise. The sales got reduced to a limit where it had not reduced so much in last 11 years of company’s operations. Besides this, when the company admitted their practice of fitting defeat devices, trust and belief of customers in entity fell down significantly leading to fall in share prices in marketplace. Along with this, it has been observed that engine of company was designed in a way that it released huge amount of nitrous oxide which caused acid rain as well as smog and also, caused detrimental health impacts upon the mankind and environment. Thus, it can be largely said that it is required by enterprise to adopt such measures that can enhance the reputation and position of brand across the globe.
As a result of the unethical practice that Volkswagen indulged in, it gave way to the huge diesel emission scandal. Consequently, the reputation of company across different parts of world was adversely impacted. To deal with this, company can adopt three basic measures through which the position and image of brand would be enhanced. It is highly recommended that company should consider restructuring its code of conduct and practice along with the corporate culture. The governance of management should be such that it clearly specifies the role, duty and authority of each individual present in the organisation. Also, any unethical practice suspected or reported by any employee of the enterprise should be firmly taken into account and dealt with strictly. Another measure that can be adopted by company is pooling with various independent verification agencies irrespective of the fact that enterprise has its own team for examination of emission levels of vehicles so as to gain the trust of public along with improving overall image and position in marketplace. Lastly, company should sign a bond stating that they will not get involved in any unethical or illegal practice in future that would pose threat to people or environment at such a large scale. Also, company should make a public announcement of this bond as this would succeed in making the audience believe that company is guilty of its activity and customers will then be persuaded to, again, consider buying the vehicles manufactured by company. As a result of all these courses adopted by company, the worldwide corporate reputation of Volkswagen would improve and company will again be able to function as a reputed brand in marketplace.
- Blackwelder, M. and et. al., 2016. The Volkswagen Scandal.
- Crête, R., 2016. The Volkswagen scandal from the viewpoint of corporate governance. European Journal of Risk Regulation. 7(1). pp.25-31.
- Ewing, J., 2017. Faster, Higher, Farther: The Inside Story of the Volkswagen Scandal. Random House.
- Hotten, R., 2015. Volkswagen: The scandal explained. BBC news, 10.
- Jung, K., Chilton, K. and Valero, J. N., 2017. Uncovering stakeholders in public–private relations on social media: a case study of the 2015 Volkswagen scandal. Quality & Quantity. 51(3). pp.1113-1131.
- Krall, J. R. and Peng, R. D., 2015. The Volkswagen scandal: Deception, driving and deaths. Significance. 12(6). pp.12-15.