A Report on

Volkswagen Emission
Scandal

Submitted by
Akash Gupta (2015PGP016)
Avijeet Boparai (2015PGP064)
Bhabna Roy (2015PGP070)
Chandra Prakash Verma (2015PGP084)
Maheshwari Ruchika (2015PGP193)
Nikita Singh Parmar (2015PGP229)
S.Priyatham Swamy (2015PGP318)

Volkswagen An ethical dilemma

Shareholder value maximisation is a myth. The belief that investors care
only about the stock price, and not the impact on society is a myopic one.
A very recent example of this is the Volkswagen (VW) emission scandal.
In September 2015, VW came under the scanner of the Environmental
Protection Agency (EPA) for having installed "defeat device", a software
in diesel engines of many of the cars sold in America, that could detect
when they were being tested, changing the performance accordingly to
improve results. The German car giant has since admitted cheating
emissions tests in the US.
Not only had VW violated emission norms, but also undertook a huge
marketing campaign trumpeting its cars' low emissions. There were more
than 400,000 VW cars with defect device on road at the time. EPA has
fined the company $37,500 on each vehicle exceeding the limits. VW saw
its stock dropped by 20% and the CEO resigned after the scandal.
It is alleged that people in positions of authority have been involved in
devising this scheme that the engineers deliberately signed off a code
that would defeat the purpose of EPA and Clean Air Act regulations, and
that the massive cheat was allowed to continue for seven years until it
was finally detected. This incident brings out the grim reality of todays
corporate world which seems to believe in the ends justify the means
culture.
Navigation Wheel

Law: Is it legal?
Volkswagen faced hefty costs, fines and damage claims after U.S
environmental regulators found out that they intentionally installed
software in some of its cars that allowed vehicles to perform better on
emission tests than they would on the road. They have committed fraud

on a massive scale, bilking millions of people, which will lead to criminal

charges. There are 400,000 cars with the defeat device installed and the
company faced a penalty of $37500 for each vehicle not in compliance
with regulation imposed by EPA. The scandal was not legally valid.
Ethics: Can it be justified?
Organisational silence is exacerbated in highly competitive cultures where
there are low levels of trust. So while analysing the scandal through ethics
lens, it is seen that in companies with stiff competition between
individuals and departments, people do not risk their positions by raising
alarms. So in such a hard charging environment, bosses get what they ask
for, they just dont care how. VW saw the resignation of its CEO, Martin
Winterkorn, as his cars might not have directly killed people but the car
emissions do and therefore this act of VW is not justified.
Economy: Is it in accordance with the business objectives?
The company has been obsessed with surpassing Toyota and becoming
the worlds biggest car company despite making little money from its
most high volume products which is why they had to increase their market
share by producing more SUVs which Americans covet and getting
Americans keen on fuel efficient diesel engines was another obvious
strategy. Emission problems can be solved if you throw engineering and
money at it and VW is known to spend more on R&D than any other
company on the planet. Therefore, VWs move was in accordance with
their business objectives, albiet in the short term.In the long term, it has
proved detrimental.
Reputation: Does it affect our goodwill?
VW brand traces its roots back to Nazi Germany, owning some of the
worlds best car brands, including Lamborghini, Bugatti and Bentley. VWs
didnt put anyone in immediate danger but the deceit is hard to take as it
was a blatant deliberate lie done for no other reason than to sell more
cars. The company saw a severe tainting of image post the scandal and
saw a plummet in share prices. Investors felt cheated as it is not just
profits that they look for but also the societal impact that a company
makes. Therefore, it affected their goodwill.
Morality: Is it right?
VW stole from its own employees who were unaware of this scam and
could lose their jobs as sales plummet--if Germany finds itself faced with

thousands of unemployed auto workers, VW will be paying fines. It stole

from its many dealers who now will lose billions in business, costing jobs
and perhaps pushing some dealers out of business--there could be many
lawsuits coming. It stole from its competitors who tried to play by the
rules, costing them lost sales. It stole from its customers, who own cars
illegal to drive--class action lawsuits are now starting to be filed, and more
will come. It denied its crimes until confronted with undeniable proof.
Therefore what VW did was undeniably wrong.
Identity: Is it in accordance with our values?
The value statement of Volkswagen states that they claim to conduct their
business activities on a responsible and long term basis and do not seek
short term success at the expense of others. They had a long tradition of
resolute commitment to environmental protection. They also believe in
informing and engaging their employees. The scandal is a proof of double
standards on their part as they covered up their defect over 7 years
unless they were confronted. Therefore their activities were definitely not
in accordance with their values.
Normative Grid Approach:
Consequentialism i.e. whether an act is morally right depends only on
consequences (as opposed to the circumstances or the intrinsic nature of
the act). Categorical imperative says that one should always act in such a
way that one is willing for it to be a universal law. Volkwwagen officials
shouldve asked themselves what is everyother carmaker also starts
gaming the system by forging emission test results.
Why did VW take the risk of cheating, given the devastation that has
followed? The company has an overwhelming desire for size. It has been
obsessed with the desire of surpassing its competitor to become the
worlds biggest car company. To achieve this goal, it has employed
underhand measures which according to them justifies the ultimate goal
of size, market share and profitability. They shouldve treated the
customers as end in themselves rather than means to achieve objectives
like profit.
Their act was unjustified and wrong irrespective of the consequence.
Managers need to consider the triple bottom line: people, planet and
profit. Corporations must balance shareholders desire for rising earnings
with the dual objectives of looking after other stakeholders (such as
employees) and respecting the environment. It may be costly to resist

sending production to countries with worse working conditions, or to

implement environmentally friendly solutions. But these are the right
choices for both companies and shareholders. Research shows that
cutting R&D to meet short-term earnings targets or to maintain a desired
credit rating is associated with lower shareholder value later on.