In this case study, please read and respond to the below questions and guide. Th

Question

In this case study, please read and respond to the below questions and guide.

The Volkswagen’ case; morally permissible?

Volkswagen’s carbon emission cheating stirred up a lot of attention during fall 2015 (Guardian, 2015

New York Times, 2015). In the media and public debate the Volkswagen scandal has already got much attention, in which they quickly jump to the conclusion that Volkswagen’s actions are classified as ‘wrong’. This essay aims to deepen the ethical dilemmas in the Volkswagen scandal by answering the following question: To what extent is it morally permissible that Volkswagen used their knowledge to their own advantage to cheat worldwide environmental tests? Volkswagen cheated emission tests by making its cars appear far less polluting than they are. The US Environmental Protection Agency discovered that almost half a million Volkswagen diesel cars in the US were emitting up to a staggering 40 times more toxic fumes than permitted. Since the coming out of the scandal VW has admitted that the cheat affects 11 million cars worldwide (The Guardian, 2015). To be able to accomplish this so called ‘cheat’, VW used a ‘defeat device’. This was in fact not a physical device but a programme in the engine software that lets the car perceive whether it is being driven under test conditions, if this is the case only then all the anti-pollution stops are pulled out. This would not be possible under regular conditions, when the car would need greater performance than on a roller bench (The Guardian, 2015). The scandal was discovered by an NGO, which performed independant on-road emission tests. Following this they contacted the EPA which further looked into it. This resulted in a massive recall of cars and the stepping down of the Volkswagen Group CEO, Martin Winterkorn. Because of the Volkswagen scandal and the media coverage, Volkswagen’s value decreased to of its ‘original’ (pre-scandal) market cap (New York Times, 2016). Moreover, Volkswagen its revenue was influenced as well, it decreased to a $1.84 billion loss in profits and a significant drop in Volkswagen stock price (New York Times, 2016). These are some of the consequences which evolved from Volkswagen’s decision to ‘cheat’ the environmental test. Another important consequence of the scandal is the ‘free fall’ of customers’ trust in the brand of Volkswagen (Financial Times, 2016). This declinement of trust severely damages the brand Volkswagen and damages it sales and strength in the market.

              In order to assess the Volkswagen dilemma and its actions various ethical views are discussed and applied. Amongst are consequentialism, deontology and the shareholder theory (the Friedman doctrine). Consequentialism assess how ethical an action is on the consequences of that action. Deontology focuses on the action itself, and assesses how ethical it is. The shareholder theory created by Friedman (2002) states that the only responsibility of a company is to create value for its shareholders. By applying and assessing those views we come to the judgement to what extent the actions taken by Volkswagen are ethical. Not only the actions of Volkswagen but also the role of the CEO are discussed in the conclusion by using the executive ethical leadership reputation matrix. After this analysis some recommendations are offered from an ethical point of view to regain the trust of the (previous) customers of Volkswagen by more focussing on corporate social responsibility. Case & Dilemma The ‘case’ presented in this paper focuses on the point of view of Martin Winterkorn, the CEO of Volkswagen Group at the time the scandal evolved and became known to the public. The ethical dilemma however focusses on the action which led to the scandal, namely: To use or not to use the technological knowledge to the advantage of Volkswagen to cheat the environmental tests to sell more cars. Although it seems obvious that Volkswagen has an advantage from the ‘cheat device’ so do the customers buying those cars unknowingly (at that time) have as well. Because cars with low carbon emissions have lower tax assessments than cars with high emissions. Given that the CEO is ultimately responsible for the company’s actions. The knowledge he had about being able to create / implement the cheating device and the decision that followed to go through with this. Was this ethically justified? Before analyzing the dilemma the ‘actors’ or parties involved are identified. These parties are: Volkswagen and its employees (incl. the CEO), the customers, the EPA (environmental testing agency) and an indirect party: people living in the countries where Volkswagen sold their diesel cars (because of the emissions which influenced the air quality of that country). Although it is difficult to determine the reason why Volkswagen implemented their ‘defeat device’ to cheat the tests we could assume the following reason: to be able to compete in the market and turn a profit, Volkswagen needs to sell cars, which is made easier by misleading the environmental tests. Moreover, Volkswagen ‘needed’ to cheat those tests to create low polluting values, otherwise they were not allowed to sell their cars in certain countries (like the USA).  

              Consequentialism There are many varieties of consequentialism, here the focus will be on J.S. Mill’s utilitarianism. Utilitarianism is about what an action accomplishes and whether this results in something that is for the overall greater good. Utilitarianism is about maximizing pleasure, whereby you should always choose for the option that increases pleasure for the most possible people. According to utilitarianism everything in life and every choice can be reduced to a score of pleasure or happiness, even if there are lives at stake. Utilitarianism applied to the Volkswagen dilemma, as described in the introduction, involves several parties. These parties are: Volkswagen and its employees (incl. the CEO), the customers, the EPA (environmental testing agency) and an indirect party: people living in the countries where Volkswagen sold their diesel cars. According to act utilitarianism VW’s actions were not permissible, given that they did not maximise the greater good. Especially in the end, after the cheating was discovered no one was left happy. Since permissibility and goodness are distinguished by praiseworthiness, it is worth looking into this for the VW case as well. Volkswagen was blameworthy for their actions. since they knew that what they were doing was wrong, because they developed software to be able to cheat the system. This might have created utility for the company, but did not strafe towards the greater good overall. In this case punishment would be morally obligatory for VW, since according to act utilitarianism punishment is permissible when it would lead to greater utility. This would prevent, at least warn, VW to not do something like that again. The same goes for other car manufacturers. In reality VW is currently undergoing punishment, via class action lawsuits, a drop in stock price and profit. In addition Volkswagen lost a big chunk of their market share for diesel cars.   In the end it is all about whether it will maximise the greater good. Volkswagen in this case did not aim for the greater good when it came to cheating their way into selling more cars. Deontology This section discusses the view of deontology on the Volkswagen case. Deontology, like utilitarianism, belongs to the normative theories. It focusses on the moral action itself, the choice someone (or a company) has. These choices can be morally required, forbidden or permitted (Alexander, 2007). Kantianism is an important ethical stream of deontology. Kant (1785), as stated in Sandel (2010), argues that one can act ethically right if they obey the categorical imperative. For Volkswagen this means that they should act according to their own set of principles. Those principles and its goal is already touched upon in the introduction. Volkswagen, as according to the categorical imperative, should offer attractive, safe and environmentally sound vehicles which can compete in an increasingly tough market and set world standards. When taking Volkswagen its actions into account it can be argued if they acted ethical according to the categorical imperative.

In respect to their vehicles, their ‘cheat device’ did not affect the vehicle its attractiveness or safeness, which can be assumed, but did hugely affect how environmentally sound it is. The action by using that device (or software to be more precise) mislead the environmental testing agencies. Therefore the car could be sold in various markets as lawmakers thought those cars had low emissions of gasses. Customers could also experience more taxes as their Volkswagen diesel cars discard more gases than allowed. Rawls (1989) created a 4 stage procedure of the categorical imperative to check if the moral action is permissible. This 4 stage procedure is visualized and explained below to the case of volkswagen: (1) Identify a Maxim Volkswagen implemented a cheating device and kept it a secret, in other words lied about it. (2) Universalize the Maxim: Also known as the conception test, in other words, universalize the action of Volkswagen. What if everybody would cheat environmental tests and lie about it. Would it be possible for Volkswagen to even sell cars this way? (3) Establish the Maxim: Volkswagen sold cars which specifications were wrong and its emission was way higher. Imagine this is the rule in the world that every company lies about its products and the emissions of those products. (4) Will the Maxim as a law: Would that be a good world to be part off? The visualized world is a world where this maxim is carried out but companies and/or people do not will to live in such a world. In other words, it is not ought to do the Maxim. It then implies that the action of the Maxim is impermissible. Moreover, when arguing from a deontological point of view that cheating environmental tests is wrong it is not morally the right thing to do. The act is also against their moral duty; Volkswagen is acting against what the moral law implies they ought to do. When people, or in this case a company, acts morally wrong it or he/she has to be punished.    Shareholder theory In order to explain the social responsibility of a company, Volkswagen to be exact, we introduce the notion of the shareholder theory. Friedman (2002) created the shareholder theory to explain what the social responsibility of a business is. In other words, it is a shareholder approach to determine the social responsibility of a company. In short, it explains that the shareholders are the initial economic drive (or engine) of a company and this group, the shareholders, is the only group to which the company is socially responsible. In order to do so a company should maximize its profits and return (parts of) that profit to the shareholders in the form of dividend. Value needs to be created for the shareholders, for example in the form of stock value. In turn, the shareholders themselves can decide what social initiatives they should take part in, rather than having the board or appointed executive decide for them.   Volkswagen has been selling its cars with the cheating device since 2008/2009. The graph below shows the development of value of the Volkswagen stock for a period of 5 years (year to date).

5 Source: Bloomberg (2016) Volkswagen stock is compared to two big competitors from Germany, Daimler and BMW; although we are not creating a financial analysis we point out the ‘free fall’ of Volkswagen its stock since the scandal became known to the public in 2015. Over the last year Volkswagen its stock declined with 36, 37%. It can be argued that Volkswagen did indeed created value for its shareholders during the period it was selling its diesel cars with the cheat device (approx 2008 - 2015). But in the long run value disappeared into ‘thin air’, because the cheating was known and risks of class action suits arise and Volkswagen is not permitted to sell its cars anymore. Friedman (2002) also writes that: “There is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”. Volkswagen dits deceive both governmental agencies as well as customers. Therefore it can be argued that they failed their social responsibility and their actions are ethically highly questionable.      

              6 Conclusion This essay ‘solves’ or explains the Volkswagen case by analyzing the case through three ethical theories. Please recall that the research question is stated as follows: To what extent is it morally permissible that Volkswagen used their knowledge to their own advantage to cheat worldwide environmental tests? It can be said that in short every theory concludes that Volkswagen actions were morally impermissible. Both deontology and utilitarianism would say that Volkswagen should even be punished for their actions. The shareholder theory shows that Volkswagen acted morally impermissible because they omitted deception and some could argue even fraud. We agree with the conclusions drawn on the three theories because the support for each case is overwhelmingly.    Not only how morally permissible Volkswagen actions are discussed but here would we like to opt for recommendations how Volkswagen could regain the trust of both the customers and the shareholders. We think a strong new, and mostly ethical, leader should be able to bring Volkswagen back onto the market. According the Executive Ethical Leadership Reputation Matrix (see Appendix) by Trevino & Brown (2004), a recommendation for Volkswagen would be to employ a so called ‘Ethical Leader’. This being a strong moral person, as well as a strong moral manager.

INSTRUCTIONS

Prepare a PowerPoint presentation.

In your presentation make sure to include the following:

Identify a current ethical dilemma

Provide background information about the dilemma

Present the ethical issues in the dilemma

Ethics in finance

Whistle-blowing

Discrimination

Etc.

Provide a response on how to handle the issue

Provide a framework on how to prevent similar ethical dilemmas from occurring in the future

You may also use these questions for additional guidance in your presentation:

1. What is the ethical issue/problem, in one sentence? State this in the form of an ethical question a business practitioner would need to consider.

2. What facts have the most bearing on the ethical decision you must render in this case? Note: facts do not include ethical judgments at this point.

3. Are there any other external or internal factors to be considered? (Economic, political, etc.)

4. Who are the claimants and in what way are you obligated to each of them? (List all affected by your decision.)

5. What are the operant ideals? Note: ideals are values and behaviors based on them.
• For you
• For the client/organization/profession

6. Do any of these ideals conflict? In what order would you honor them?

7. What are your options, and which would be favored by each affected party? (List at least three.)

8. Which options could cause harm to any claimant?

9. Would honoring any of the ideals listed above invalidate any of your options?

10. Are there any rules, principles or codes (legal, professional, organizational, or other) that automatically invalidate any of your options?

11. Which ethical theories support or reject which options? Explain.

Utilitarianism

Kant's theory

Other duties (religious, etc.)

12. Determine a course of action based on your analysis.

13. Defend your decision in writing to your most adamant detractor.

Explanation / Answer

Identify a current ethical dilemma: This violates the ethical principle of non maleficence and beneficence.

Provide background information about the dilemma: current ethical dilemma is about the greater good of the people. Ultimately, cars are designed so that they could be of greater advantage to the people and make their work easier. But in this case in the lieu of saving taxes and selling greater number of cars, the people at Volkswagen, designed a car which ultimately is going to affect the health of the people with violating the environmental laws.

Present the ethical issues in the dilemma; ethical issues here are beneficence, non maleficence, and no informed consent as the customers aren’t aware of the reality and respect for autonomy as arising from informed consent.

1. What is the ethical issue/problem, in one sentence?

Cheating with the main stakeholders, the customers.

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