Volkswagen Ethics Case Study PDF

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Volkswagen Ethics Case Study

Business ethics deals with moral dilemmas in the business environment. The incorporation of business ethics is an important component in the decision-making process, as ethical practices are expected in contemporary society. This case study will outline the ethical dilemmas of Volkswagen’s emission scandal further exploring the impact amongst stakeholders, from the business ethics perspective.

Volkswagen (VW) is a German automotive company established in 1937, operating in 153 countries worldwide with a revenue of US $278B in 2018. It’s currently the second-largest automotive producer behind Toyota. In 2015 Volkswagen became the largest automotive manufacturer in the world (Team, 2019), surpassing Toyota at the number one position. Despite being acclaimed for high standards of corporate social responsibility and environmental sustainability, during September of 2015 a study led by John German found VW had breached the Clean Air Act. VW installed ‘defeat devices’ in their diesel cars containing software that modified the vehicles performance in order to cheat on emission tests. These devices enabled emission controls when the car was in a lab setting, although when on road conditions the device would switch off improving the fuel economy while nitrous oxide emissions increased up to 30-40 times the regulated limit (Mathiesen & Neslen, 2015).

Volkswagen’s aggressive stance on profitability and market share worsened the consumer perception of the company as a result of poor professional behaviour and lack of integrity. The combination of three elements - opportunity, pressure and rationalization led to the unethical decision (Santos, 2016). Management set aggressive goals, as former employees described the work environment as hostile as employees were often afraid to question superiors or show signs of failure (Santos, 2016). Employees were expected to complete tasks with no mistakes under strict deadlines (Goodman, 2015) pressured with an autocratic leadership style and necessity to succeed (Santos, 2016). The engineer’s future employment was compromised by the ethical dilemma they faced, they could either deceive customers or follow ethical practices. Some low-level employees were aware of the emission cheating and were to choose between deceiving consumers and keeping their job or blowing the whistle.

In light of technological shortcomings, managers were faced with the ethical dilemma of cheating on the emissions test (Varnholt, Sloat & Boston, 2015). This dilemma led mangers to choose between their integrity or increased costs, as evidenced by the scandal, VW intentionally manipulated their product through the use of advanced technology to deceive customers, governments agencies and society while disregarding environmental laws.

As a result of the emissions scandal a range of stakeholders were impacted, internal stakeholders include shareholders, employees and car dealers. In addition, external stakeholders impacted by this ethical issue include the environment, society and government bodies. Employees remained concerned over job security as reputations had been tarnished even amongst those who had no involvement. Although 10 senior executives were suspended with the prospect of facing criminal charges (Milne, 2015). When the emission cheating was unveiled the VW share price decreased by 31% with billions of dollars wiped in share value heavily affecting shareholders (Gomez, 2016). Car dealers were further affected by the aftermath as dealers suffered from slow sales and low-profit margins (Mansouri, 2016). Discretionary funds were given to dealers based on sales volume, in order to stabilise the sluggish sales.

Furthermore, external stakeholders were impacted as the pollution caused by Volkswagen threatened people’s health and the environment. As VW diesel cars produced nitrogen oxide 30-40 times the regulated limit it amassed to over 35 million kg of nitrogen oxide in surplus. (Mansouri, 2016). Exposure to nitrogen oxide can cause respiratory disease, heart disease and lead to premature death. Researchers estimate that the nitrogen oxide produced by VW cars will threaten 60 lives within the next 10 to 20 years prematurely (Selin, 2015). Further pollution to the environment will produce 210, 000 respiratory related issues. The increase of nitrogen oxide within the environment may lead to acid rains which is detrimental towards the natural environment (Mansouri, 2016).

Volkswagen acted unethically in regard to their ethical dilemma impacting the business both negatively and positively. Volkswagen acted deceptively in misleading government agencies, consumers and shareholders in regard to their vehicle emissions. Ethical conduct relates to the influence of moral principles within the decision-making process upholding honesty,

responsibility, fairness and compassion (Macquarie University 2018) are moral values VW did not adhere to. As a result of this Volkswagen was positively impacted as profits increased, gaining an unfair market advantage against competitors.

The breach of ethics tolerated by Volkswagen tarnished the brand image as society is passionate about sustainability (DiPietro, 2015). Through the teleological perspective it is clear the environmental damages, long-term economic costs, lessened brand image and liability to consumers contrasted the benefits of increased profitability in the short term. The business decision led by VW caused severe financial damages to the company leading to multimillion-dollar fines and multiple lawsuits against Volkswagen by consumers, shareholders and governments some of which are still ongoing.

As a result of completing this case study and attending lectures my original view on business ethics has been redefined. Previously my understanding of business ethics determined that each company has a certain code of ethical conduct reflected by the company’s values and goals, in which every employee must follow. This case study has further expanded my understanding of ethics to which it is defined differently by each individual within the company. Business ethics is defined through moral principles and societal standards, which influence an individual’s decision-making process when phased with an ethical dilemma. My view has changed in the sense not all companies follow one set of ethical rules, as it is influenced by many factors such as the internal working environment, variety of leadership styles, personal moral values and external factors such as societal trends. Although the decision between right and wrong may seem simple it is important to understand the influence behind that process. In the case of VW, engineers were pressured within a harsh working environment in which they feared for job security and as a result sacrificed their integrity to maintain employment.

As evidenced by the Volkswagen emission scandal business ethics played a pivotal role within the company’s operations, as a result of poor professional behaviour VW damaged their brand image resulting in a vast array of negative impacts amongst both internal and external stakeholders. Furthermore, this case study has deepened my understanding of

business ethics as it has redefined the influences behind choosing between right or wrong in an ethical dilemma.

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