Reference no: EM133330863
1. Outline the main points of the emissions scandal.
2. Analyse, using Rest's four stage model of ethical decision-making, at what stage VW deviated from the model in its decision-making processes regarding the attempted cover-up.
3. How can individual decision-making theories (e.g. Cognitive Moral Development and Moral Intensity) be applied to this case?
4. How can the theories of Utilitarianism and Moral Duties be applied to this case?
5. Do you think that VW's senior management handled the scandal well? Could earlier admission of the fraudulent activities have reduced the negative impact on the firm?
6. How could VW seek to improve their approach to ethics management in the future? Can claims that the firm has so quickly changed its culture stand up to scrutiny?
This case examines the (un)ethical decision -making of the Volkswagen Group leading up to the 2015 emissions scandal, as well as the attempted cover-up. The case focuses on the details of the scandal, its context and eventual discovery, as well as subsequent investigation and actions taken by Volkswagen. It draws upon a range of themes, particularly influences on ethical decision-making, moral development, and organizational culture.
Founded in Wolfsburg, Germany in 1937 as a military vehicle manufacturer, The Volkswagen Group or 'VW', grew over the course of the 20th century into a mass manufacturer of card, motorbikes and commercial vehicles, its fame grew with the introduction of classic models such as the beetle, Gold and Polo. And it thrived due to the acquisition of and investment in a growing number of other well- known brands, most notably Audi, Seat and Skoda.
By the beginning of the 21st century, the VW group had not only become a global automotive giant but one of the biggest companies in the world. In 2014 it employed 590,000 employees, generated sales of Euro 202.5 billion and delivered more than 10 million vehicles to its customers, Alongside its core mass market brands. It boasted a stable of luxury, iconic brands from Porsche and Bentley to Bugatti and Lamborghini. It was feted for its social and environmental credentials, emphasizing that it believed in championing responsible business, with a long-term focus on the benefit of its customers, employees, the environment, and society.
Yet by the end of 2015, it had become clear that VW had pro-actively engaged in cheating US legislation concerning vehicle emissions through the manipulation of software in 11 million cars worldwide. Beyond the environmental damage caused, in due course the scandal would come to cost the company at least $25 billion, a drop in the company's share of the European car market, an almost 50% drop in share price, the resignation of Martin Winterkorn, Chief Executive of the US division, and the arrest of Rupert Stadler, AUDI CEO.
The origins of "Emissions gate"
A swath of environmental legislation was formulated and implemented at the turn of the 21st century, for example the Environmental Protection Act was passed in Demark in 1992, while the Environmental Act was passed in the UK in 1995, and the Canadian Environmental Protection Act was introduced in 1999. This new legislation included in many cases, heightened scrutiny and control of the environmental impact of automobiles. This was perhaps most apparent in the US, where the introduction of the 1990 Clean Air Act Amendments precipitated a tightening of light-duty vehicle emission standards designed to reduce environmentally damaging emissions, such as carbon and nitrogen. When introduced in the noughties, this legislative shift led to pressure on a automotive manufactures for a new generation of vehicles which adhered to new emissions standards. However, commercial pressures necessitated that such alterations would not compromise on performance and efficiency, which would heighten the running cost and [potentially impact sales.
VW, at a presentation to US regulators in September 2008, promoted their response to the legislation: a generation of re-designed diesel automobiles, which met the country's pollution laws, thus minimizing the smog, soot, and harmful emissions long attributed to diesel engines, while not compromising on performance. Regulators satisfied, this new generation of diesel cars were put on sales to the general public by VW, who were hoping to finally crack the US car market.
However, unbeknownst to US regulators, this new generation of vehicles did not meet the newly imposed emissions legislation as it had proved too difficult to design vehicles which would allow the required balance between emissions and performance. Instead, VW engineers had designed 'defeat devices', which ensured that, when fitted to VW's cars, the vehicles passed the regulatory, lab-based emissions test. These defeat devices could detect when such a test was being performed through the measurement of factors such as steering patterns, atmospheric pressures and engine use, and would accordingly alter emissions controls to switch on fume cleaning technology. However, when used on public roads, some models would pump out nitrogen at up to 409 times the legal limit.
Uncovering the problem
In early 2014, transport campaigners Peter Mock and John German set out to prove to Europe that clean diesels cars could exist; the US had appeared to achieve a fantastic result: diesel cars that could pass its strict emissions test without compromising performance. A 1,300-mile test journey was undertaken from San Diego to Seattle using a number of car models to prove their point. Despite all the models having lab-based emissions test, the VW's tested gave some unusual result, appearing to emit dangerous levels of toxins, some at 35 times the legal limit. As a result of this the US Environmental Protection Agency (EPA) launched an investigation in May 2014. Volkswagen, after repeating the test themselves, asserted that the results we caused by a minor software error, which was easily fixable through the issue of a product recall. This denial continued for over a year after the EPA had first launched its investigations until August 2015 when VW finally came clean to senior officials, the EPA, and the California Air Resources Board, admitting that the automotive manufacturer had deliberately misled US regulators through the alteration of vehicle software to cheat emissions test VW's confession was allegedly only precipitated by both bodies threatening not to certify the company's 2016 diesels models. Over the following month, the company revealed further details regarding exactly how the software worked to the US regulators and the regulators devised its response to the news before, finally, in late September, news of VW's wrongdoings broke to the public.
Initially, when news of the unethical decision-making relating to emissions fixing of 600.000 VW diesel cars in the United States broke, public dismay was evident. However, Michael Horn, head of US operations, assured a congressional committee that the wrong doings were the result of 'a couple of software engineers' and Dr Winterkorn, VW CEO, publicly stated that he was aware of no wrongdoing on his part. However, the case spiralled, with VW being forces to admit the cars in Europe were also affected later in 2015, increasing the total number affected to 11 million diesel cars across a number of the firm's brands: VW, Audi, Seat, Skoda, as well as 800,000 petrol cars being affected. Eventually, after investigation by US regulators, it became apparent that the fault did not lie with a small number of rouge software engineers but was in fact a far larger conspiracy involving senior figures within the company and extensive attempts to cover up the wrongdoing.
The roll call of unethical decision-makers
As part of a plea bargain with the US Government, an agreed statement of facts between the US Department of Justice and VW in 2017, and investigations by German authorities, it became clear that the conspiracy had most likely started as early as 2006, when company executives met in Wolfsburg to discuss the intentional inclusion of software that would defeat emissions testing in its vehicles. Accordingly, on top of mangers sanctioning the use of these defeat devices in millions of cars that were delivered to customers over a six-year period, from 2009 to 2015, engineers at the company were encouraged to hide their usage, despite objections.
The scandal appears to have become even murkier when a cover-up operation began in response to US investigators commencing their 2014 investigation. Specifically, VW set up a taskforce to handle officials enquiries, designed to give the appearance of co-operation while in fact obfuscating the existence of the defeat device from regulatory bodies. The cover-up, between 2014 to 2015, involved VW executives and engineers feeding regulators false and misleading data, the company issuing a bogus recall of cars which allowed them to inform the regulators that the issue had been rectified as a result of software updates, and thousands of incriminating documents being destroyed just a month before the scandal was made public.
After the scandal broke, German police searched the houses and offices of dozen of VW executives and, in mid-2018, another senior figure within the company, Audi CEO Rupert Stadler, was arrested in Germany due to fears that he might prevent, obstruct, or hinder the investigation. Meanwhile, in the US, authorities indicted six former VW executives, and Oliver Schmidt, VW's former US environmental and engineering manager, was prosecuted in 2017 for being a key conspirator, accused by the US government of misleading investigators and deliberately destroying documents, and sentenced to seven years in prison on top of a $400,000 fine.
The conspiracy took a more serious turn in 2018, when an indictment by US authorities against Micheal Winterkorn, former VW CEO, was released, claiming that he not only had full awareness of what engineers were doing but also authorized a continued cover-up. The indictment asserted that engineers at the company had become aware of a study by the International Council on Clean Transport in 2014, which had concluded that CW diesels were producing higher emissions on the road than they were in laboratory test, and the senior managers were informed, including a memo written concerning the test which was sent to Dr Winterkorn. Additionally, in July 2015 it is alleged that Dr Winterkorn was given a presentation about the situations, which supposedly included details of the cover-up and the consequences of the regulators finding out, a month before any admissions were made to authorities.
Moreover, in 2017, Robert Bosch, auto components maker, although not conceding any wrongdoing, agreed to pay $327.5 million in compensation for its role in supplying the cheating software, suggesting awareness of the conspiracy was not just confined to individuals within VW.
VW turn over a new leaf Despite the eruption of the emissions scandal in late 2015, the ensuing public outrage at the dishonesty and disingenuous actions of VW, the enormous financial cost to the company, and
the detrimental environmental consequences of its actions, after an initial dip, VW's latest financial result suggest that the company has managed to shrug off any wrongdoing. In fact, if an individual had invested in VW a day before the emissions scandal broke in 2015, as of the beginning of 2018 the stock would be up 10% having outperformed both BMW and Daimler. Sales at VW exceed those prior to the scandal breaking in 2015, cost have declined, employee numbers have gone up, and plans to release a large range of all electric cars by 2025 have impressed investors and the public alike.
Arguably this is the result of a maelstrom of apologies from the company , massive levels of compensation and fines , damages from the scandal currently totalling $25 billion and a total restructuring of the group whistle -blowing system, However , Extensive investigations by US and European authorities were required to expose the depth of the scandal and its cover-up and as of 2018 aftermath appears not to have run its courses , Despite it being three years since the scandal initially broke. In addition to this , Evidence suggests that the environmental and human costs of the fraud dwarf the financial costs incurred by VW , with experts calculating that it directly resulted in 526 k tones of nitrogen oxides being emitted above the legal limit, This equates to an economic valuation of life lost totalling $ 39 billion dollars , not accounting for the incalculable human value of these lost years, Meanwhile , Since 2015 , questions have been raised about endemic cultural issues of unethical practices and behaviours within the wider automotive industry. Nissan, Daimler, General motor, Suzuki and Mitsubishi have all been found to be knowingly engaging fraudulent practices regarding emissions fixing and fuel economy figures since the VW scandal broke.
Accordingly, the depth of VW's deception, along with its considerable attempts at a cover-up, in tandem with the news that they are not the only automobile manufacturer with the same problem. Has led many to question whether these practices have truly been stamped out within the industry or whether future scandals are perhaps an inevitability.