Reference no: EM132211601
Case Study 2.3: VW’s Massive Deception Between 2008 and 2015, German automaker Volkswagen (VW) installed software in 11 million diesel cars in Europe, South Korea, Canada, and the United States designed to defeat emissions tests. The computer program recognized the difference between the emission test and road conditions and temporarily activated emissions controls. When not being measured, the same vehicles generated up to 40 times the amount of the harmful pollutant nitrogen oxide, which has been linked to lung cancer. The “defeat device” enabled VW cars to pass U.S. emissions tests without the usual loss in fuel economy and engine performance. A group of professors and students at West Virginia University discovered significant differences between the car’s emission results in test and real-life driving conditions in 2013. Officials at Volkswagen initially claimed that the West Virginia findings were inaccurate but later acknowledged the use of the defeat device to environmental regulators in the United States.
VW customers, the public, and government officials wondered how such a massive fraud could continue for so long without being detected. They were skeptical that top executives, who generally have engineering backgrounds, could have been ignorant about a technical device installed on so many of the company’s cars and trucks. The scope of the deception suggests that a number of people knew of the defeat device. Said one auto industry observer, “It seems unlikely that just a few key individuals knew about this.” 1 Company officials hired an outside law firm to conduct an internal investigation to identify the perpetrators. VW employees (who reportedly were reluctant to come forward) were offered amnesty from punishment if they shared what they knew about the defeat software. Ten senior executives associated with engine and product development were immediately suspended and the number of suspensions may grow as high as 100. Suspicion centered on managers who authorized the installation, engineers who installed the device, and those who knew about the programming but did not share that information with their leaders. VW’s culture made it hard for employees to speak up about the defeat device. Decision making is centralized at company headquarters; frank discussion of problems is discouraged; workers and managers are afraid to speak up. According to the director of a German automotive research group, speaking up is “not the usual thing at Volkswagen if you want to make a career.” 2 VW culture has been described as arrogant, insular, isolated, and resistant to change. Engineers are openly disdainful of environmental regulations. Communication within the company is poor, so poor that three Volkswagen board members learned of the defeat device from media reports, not from the company CEO. Losses from lawsuits, government fines, vehicle recalls, and damaged reputation continue to mount. The company initially set aside $ 7.3 billion to cover damages but quickly realized that the amount was not enough. (VW could face $ 18 billion in fines from the U.S. Environmental Protection Agency alone.) Volkswagen may need to cut jobs, and some speculate it might need a German government bailout. To prevent future scandals, VW’s leaders promise to decentralize decision making and the firm’s new CEO, Matthias Müller, vows to practice a more open management style. However, it remains to be seen if these changes will be enough to prompt managers and workers to speak up when they uncover unethical and illegal behavior.
Can you think of other examples of where employees knew of corporate misbehavior and kept silent? Why did they fail to speak up?
What should be the punishment, if any, for those who knew of the emissions software but didn’t report this information?
Is offering amnesty an effective strategy for uncovering fraud?
How much blame for the deception should be placed on top-level VW executives? On the board of directors?