In one of the worst business ethics scandals in history, the world learned in 20
ID: 325642 • Letter: I
Question
In one of the worst business ethics scandals in history, the world learned in 2015 that Volks wagen intentionally circumvented government exhaust emission tests for years by installing
so called “defeat devices” on their clean diesel vehicles.126 This revelation was a shock to
many given the company’s long-standing success in the auto industry. Volkswagen, one of
the world’s most recognized brands, was founded in 1937. The company is headquartered
in Germany but employs more than half a million people around the world.
Researchers at West Virginia University (WVU) first discovered the violation
when they started studying clean diesel engines. When they tested the performance of
Volkswagen vehicles, they were surprised to find that on the road emissions exceeded
government allowances by almost 40 times. Further investigation by the U.S. Environ mental Protection Agency (EPA) found that the vehicles were actually equipped with
software that could essentially trick emission testing systems. The diesel engines could
detect when they were being tested for emissions and changed the vehicle’s performance
to improve testing results. Once on the road, the vehicle would switch out of the test
mode, emitting excessive nitrogen oxide pollutants, as the WVU researchers found.
The EPA’s finding covered about 500,000 cars sold in the United States only. But
Volkswagen later admitted that about 11 million cars worldwide were fitted with this
software. It will be a long time before Volkswagen realizes all of the damage of this
ethical blunder. There will be legal sanctions from governments, private lawsuits, and
consumer bans that will impact the company for a long time to come
How could such a blatant ethical violation occur? It may take years to sort out who
is to blame. CEO Martin Winterkorn, who resigned in response to the scandal, initially
claimed not to know about the devices. While many high-ranking executives were sus pended, no one is sure who knew about or authorized the software. In fact, some believe
that the driven, performance-based culture may be more to blame than any individual.
Winterkorn, who reinforced the unique culture, has been described as a hard driving perfectionist who was committed to securing the top spot among global car
manufacturers. He was known to criticize employees publically, and this generated both
fear among employees and the commitment to do whatever necessary to ensure the
company’s success. The company’s culture has been described as “confident, cutthroat,
and insular.” It is possible that arrogance led Volkswagen managers to assume that U.S.
government or other officials wouldn’t discover the misleading emissions tests.
What’s more problematic is Volkswagen’s response to the scandal. The company
first suggested a technical problem with the cars, but finally admitted the software
devices were designed to cheat the system. Initially, the company reported only a limited
number of cars were affected; however, as more details were uncovered, the company
admitted more cars were fitted with the device and that these actions occurred over a
longer period of time than originally reported. The company’s faulty initial response to
the scandal has clearly made the road ahead a bigger challenge for them. In fact, a recent
poll of Americans’ attitude toward 100 large companies put Volkswagen in last place.
DISCUSSION QUESTIONS
5-18. Are you surprised that an organization as large as Volkswagen was caught
engaging in such unethical behavior? Do you agree that the organization’s
culture could have encouraged this behavior?
5-19. Are there structural variables that may have influenced the unethical behavior
at Volkswagen?
5-20. Evaluate Volkswagen’s actions based on the factors in Exhibit 5-5. How would
you describe the issue intensity of Volkswagen’s actions?
5-21. Moving forward, what do you think Volkswagen needs to do to avoid such an
ethical lapse in the future?
Explanation / Answer
5-18 No. I am not surprised that an organization as large as Volkswagen was caught engaging in unethical behavior. When an organization grows large, it often becomes complex and tedious to handle the entire organization with same policies. For example, multinational companies often need to modify their business practices and policies as per government regulation of the country. While doing so, it is very possible that a loophole in the system is created. Any employee or manager could take advantage of such loopholes.
In addition to that, when an organization is as large as Volkswagen, the management style and company cultures often are diluted. This means that there will be type 2 errors while recruiting a candidate and these employees in future may participate in unethical behavior.
The organization’s culture in particular is not to be blamed here. However, their practice policies and regulations should be consider scrutiny.
5-19 The structural variables for Volkswagen can definitely be considered as factors that may have influenced the unethical behavior. The decision making authority of the organization and managerial levels could have greatly influenced the unethical behavior. In addition, the pressure from higher management on cost reduction and/or increase in profit could have also provided an avenue for such behavior.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.