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 auto manufacturing 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 achieved their ten-year goal to become the largest auto manufacturer in the world (Team, 2019), surpassing Toyota at the number one position. Despite being acclaimed for environmental sustainability and corporate social responsibility, during September of 2015 it was reported by the US Environmental Protection Agency Volkswagen had breached the Clean Air Act. The manufacturer installed ‘defeat devices’ in diesel powered cars containing software that altered the vehicles performance in order to pass emission tests. The 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 40 times the legal 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 factors – pressure, opportunity and rationalization led to a catastrophic decision (Santos, 2016). The company’s leadership set aggressive goals, as former employees described the workplace in which subordinates were afraid to admit failure or question superiors (Santos, 2016). Employees were expected to fulfil tasks by any means necessary (Goodman, 2015) pressured with managements autocratic leadership style and need to succeed at any cost (Santos, 2016). The engineer’s future employment was compromised by the ethical dilemma they faced, they could either deceive customers or follow ethical practices. It is evidenced some low-level employees were aware of the emission cheating and were to choose between keeping their employment 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 use of advanced technology to deceive customers, society and government bodies whilst disregarding legal regulations.
As a result of the emissions scandal a range of stakeholders were impacted including internal stakeholders such as shareholders, employees and car dealers. External stakeholders impacted by this ethical issue include the environment, society and government bodies. As a result of the scandal, 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). As the scandal was revealed the VW share price dropped 30% 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 40 times the regulated limit it amassed to 36.7 million kg of excess nitrogen oxide. (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 endanger 60 lives within 10 to 20 years prematurely (Selin, 2015). Further pollution to the environment will result in 210, 000 respiratory related issues, in addition the excess of nitrogen oxide 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), moral responsibilities VW did not adhere to. As a result of this Volkswagen was positively impacted as profits increased through gaining an unfair market advantage against automotive competitors.
The breach of ethics tolerated by Volkswagen tarnished the brand name for an issue in which society is passionate about (DiPietro, 2015). Through the teleological perspective it is clear the environmental damages, long term economic costs, lessened brand image and liability to shareholders outweighed the short-term benefits of increased profitability and market share. The business decision led by VW caused severe financial damages to the company leading to multiple lawsuits against Volkswagen by consumers, shareholders and governments some of which are still on going.
My original view on business ethics has changed as a result of completing this case study and attending lectures. 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 illustrated 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.