Harvard Case - Volkswagen's Emissions Scandal: How Could It Happen?
"Volkswagen's Emissions Scandal: How Could It Happen?" Harvard business case study is written by N. Craig Smith, Erin McCormick. It deals with the challenges in the field of Business Ethics. The case study is 23 page(s) long and it was first published on : May 28, 2018
At Fern Fort University, we recommend a comprehensive overhaul of Volkswagen's corporate culture, focusing on ethical leadership, transparency, and accountability. This requires a multi-pronged approach encompassing a robust code of conduct, enhanced corporate governance, and a commitment to stakeholder engagement. By prioritizing ethical decision-making at all levels, Volkswagen can rebuild trust with its stakeholders and regain its reputation as a responsible and sustainable company.
2. Background
The Volkswagen emissions scandal, which unfolded in 2015, revealed that the company had installed 'defeat devices' in its diesel vehicles to cheat emissions tests. These devices allowed the vehicles to emit significantly higher levels of nitrogen oxides (NOx) than permitted by law, ultimately leading to a severe public backlash and significant legal and financial consequences. The scandal exposed a systemic failure within Volkswagen, highlighting a lack of ethical leadership, transparency, and accountability.
The main protagonists in this case study are:
- Volkswagen AG: The German multinational automotive manufacturer at the heart of the scandal.
- Martin Winterkorn: Former CEO of Volkswagen, who initially denied any knowledge of the emissions cheating.
- The United States Environmental Protection Agency (EPA): The agency that uncovered the emissions fraud.
- Consumers and stakeholders: Those who were directly affected by the scandal, including car owners, investors, and the general public.
3. Analysis of the Case Study
This case study can be analyzed through the lens of stakeholder theory and corporate social responsibility (CSR).
- Stakeholder Theory: The scandal highlights the importance of considering the interests of all stakeholders, not just shareholders. Volkswagen prioritized short-term profits and market share over the well-being of its customers, employees, and the environment. This disregard for stakeholder interests ultimately led to a loss of trust and a significant decline in the company's reputation.
- Corporate Social Responsibility: The scandal demonstrates the critical need for companies to integrate ethical considerations into their business practices. Volkswagen's failure to uphold its corporate responsibility and engage in ethical decision-making resulted in a major breach of public trust and a significant impact on its stakeholders.
Key issues identified in the case study:
- Lack of ethical leadership: The company's leadership failed to create a culture of ethical behavior and accountability.
- Absence of transparency: Volkswagen concealed its emissions cheating from regulators and the public for years.
- Conflicts of interest: The company prioritized its financial interests over the well-being of its customers and the environment.
- Failure of corporate governance: The company's internal controls and oversight mechanisms were inadequate to prevent the emissions fraud.
- Insufficient whistleblower protection: Employees who raised concerns about the emissions cheating were not adequately protected.
4. Recommendations
To address the issues highlighted in the case study, Volkswagen must implement a comprehensive strategy that prioritizes ethical leadership, transparency, and accountability.
1. Establish a robust code of conduct: This code should clearly define ethical standards for all employees, including expectations regarding environmental stewardship, data privacy, and labor rights. It should also include a strong whistleblower protection policy to encourage employees to report any unethical behavior.
2. Strengthen corporate governance: Implement a more robust system of internal controls and oversight mechanisms to prevent future instances of misconduct. This includes independent audits, increased transparency in financial reporting, and a more diverse and independent board of directors.
3. Promote ethical leadership: Appoint leaders who are committed to ethical decision-making and who demonstrate strong moral character. Provide training and development programs for all employees on ethical principles and best practices.
4. Foster a culture of transparency: Be open and honest with stakeholders about the company's operations and performance. Regularly communicate with the public about its environmental impact and sustainability initiatives.
5. Engage with stakeholders: Actively listen to and engage with stakeholders, including customers, employees, investors, and the community. Seek feedback on its policies and practices and work to address concerns.
6. Implement a comprehensive sustainability strategy: This strategy should encompass a commitment to reducing emissions, promoting green business practices, and engaging in ethical sourcing of materials.
7. Invest in research and development of clean technologies: This will help Volkswagen to transition to a more sustainable future and regain the trust of consumers.
8. Seek external oversight: Engage with independent organizations and experts to provide external oversight and ensure that the company is meeting its ethical and sustainability commitments.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations align with Volkswagen's core competencies in automotive manufacturing and its mission to provide sustainable and innovative mobility solutions.
- External customers and internal clients: The recommendations address the concerns of external customers who demand ethical and environmentally responsible products and internal clients who expect a fair and transparent work environment.
- Competitors: The recommendations enable Volkswagen to compete effectively in the increasingly competitive automotive market by positioning itself as a leader in sustainability and ethical business practices.
- Attractiveness: The recommendations are attractive as they have the potential to restore Volkswagen's reputation, enhance its brand value, and improve its financial performance in the long term.
6. Conclusion
The Volkswagen emissions scandal serves as a stark reminder of the importance of ethical leadership, transparency, and accountability in business. By implementing the recommendations outlined above, Volkswagen can rebuild trust with its stakeholders and become a leader in corporate social responsibility. This will require a fundamental shift in the company's culture, a commitment to ethical decision-making at all levels, and a long-term focus on sustainability.
7. Discussion
Alternative approaches to addressing the scandal include:
- Focusing solely on legal compliance: This approach would prioritize meeting regulatory requirements but may not address the underlying ethical issues.
- Ignoring the scandal and hoping it fades away: This approach would be short-sighted and could further erode public trust.
The recommendations outlined above are based on the assumption that Volkswagen is committed to making a genuine and lasting change. The key risks associated with these recommendations include:
- Resistance to change: Some employees and stakeholders may resist the changes required to implement the recommendations.
- Lack of commitment from leadership: The success of the recommendations depends on strong leadership support and commitment.
- Insufficient resources: Implementing the recommendations may require significant investment in resources and expertise.
8. Next Steps
To implement the recommendations, Volkswagen should:
- Develop a detailed implementation plan: This plan should outline the specific actions to be taken, the timeline for implementation, and the resources required.
- Establish a dedicated team: This team should be responsible for overseeing the implementation of the recommendations and reporting progress to the board of directors.
- Communicate transparently with stakeholders: Volkswagen should regularly communicate with stakeholders about its progress in implementing the recommendations.
- Monitor and evaluate the impact: The company should regularly monitor and evaluate the impact of the recommendations on its business and its stakeholders.
By taking these steps, Volkswagen can begin to rebuild its reputation and emerge as a more ethical and sustainable company.
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Case Description
The case is a detailed 'inside' account of the 'dieselgate' scandal at Volkswagen which revealed how engineers had programmed software that enabled its card to cheat emissions tests. It explores the origins of internal and external forces that propelled the company to market environmentally sustainable "clean diesel" cars while using engine management software to conceal on-the-road emissions of over 40 times the permitted levels. The scandal - one of the biggest of the decade - illustrates contributing factors that are common to many instances of organizational misconduct: obedience to authority, organizational culture, goal-setting, and corporate governance.
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