THEORIES OF ETHICS

MM 5001 – Business Ethics, Law and

Sustainability

YP59C
Ariq Wynalda (29118031)

Lecturer :
Andika Putra Pratama MSM,Ph.D
Team Member :
Fajarina Ambarasari 29118048
R. Muh. Alif Bryan R. 29118021
Michael Steven Adrian 29118037

Master of Business Administration

School of Business and Management
Bandung Institute of Technology
2019

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Ariq Wynalda
29118031/YP59C

Volkswagen’s Diesel Emissions Control Scandal

On September 18, 2015, the U.S. EPA announced that Volkswagen had
installed a defeat device software code in the diesel models sold in the States since
2008. The code was designed to detect an emissions test being conducted and alter
emissions controls for better compliance. Off the test stand, the controls were
relaxed and emissions jumped 35 to 40 times regulatory levels according to
investigators at West Virginia University and the California Air Resources Board. The
defeat device was installed on 482,000 vehicles in the U.S. resulting in a potential
$18 billion ($37,500 per violation) in fines, penalties, and criminal and civil ligation
(Spector & Harder, 2015). In all, analysts and researchers estimated the entire U.S.
and European settlement charges and penalties would be a record $50 billion
(McGee, 2017). The scandal also caused VW’s stock to lose 35% of its value in the
week following the announcement with a continued underperformance for months
afterward.

The VW emission scandal probe went beyond the company when

investigators expanded their examination to include Robert Bosch GmbH, one of the
world’s biggest auto suppliers (Campbell & Stothard, 2016). In a june 2008 email
from a Bosch employee concerned about being discovered suggested that Bosch rig
engines to recognize testing. In another email exchange between the two
companies, Bosch demanded that Volkswagen indemnity it of any anticipated liability
arising from the Bosch-created defeat device.

The main factors behind this whole scandal are: 1) Ambitious sales goals (to
become the number one global brand in total units and revenues by 2018). 2) High
labor and manufacturing costs (The engineers of VW experienced difficulty in
developing a diesel-powered engine that could deliver on both its carbon emissions
and MPG (miles per gallon) efficiency goals). 3) The Volkswagen Group’s system is
bad (The VW group system was considered as an extremely complex for having
several layers of family and state ownership on its Board. This affected the decision
making of the board because of family and connection biases in the group) (Milne,
2015).
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Michael Horn (VW U.S. President) reported that he had recently learned that
the cheating was the work of senior engineers Ulrich Hackenberg, Audi’s chief
engineer; Wolfgang Hatz, developer of racing engines; and Hienz-Jakob Neussr,
head of development for the Volkswagen brand (Spector & Harder, 2015).

Ethically Questionable Identification

 The installment of a defeat device software code to alter emission controls for
better compliance.

Case Analysis
Altering emission controls for better compliance is illegal because every
country has their own regulations regarding this. Not only that, having a lot of
vehicles operating in a high emission rate will endanger our health and also
endanger the world through global warming. There is an important reason why
every country strictly regulates this emission control and why people should not take
it lightly or even worse manipulating the outcome of the emission test.

There are 6 ethics that I found relatable to this case analysis:

1. Deontological Ethic.
This ethic is based on the rightness or wrongness of the actions themselves,
inherent in the actions themselves. In this case, they tried to defend their
company’s reputation by lying to their customers and then they tried to justify
their wrongdoings by shifting the blame to technical error, quoted from the
case, “We had not the right interpretation of the American law, we didn’t lie.
We didn’t understand the question first” (Smith & Parloff, 2016).
2. Consequentialism-Utilitarianism.
This ethic is based on the consequences of one’s action and/or the utility
of the actions. In this case, the act of installing the defeat device to alter the
emission control is the proof of this ethic. “A defeat device to alter the
emission control” as the utility, and “Passing the emission test by giving fake
result” as the consequences. There was also another example of this ethic
stated in the case, where, VW did cost cutting efforts by laying off some of
the employees.
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3. Ethical Egoism.
This ethic is based on reasonable self-interest. In this case, it’s stated that
one of the main factor of this scandal was the ambitious revenue that they
wanted to reach (to become the number one global brand in total units and
revenues by 2018). It was set by Martin Winterkorn, CEO of Volkswagen
Group (resigned after the scandal).
4. Stakeholder Theory.
This ethic is based on consideration of multiple stakeholders, which are:
o Descriptive Use (Stakeholders to identify and research).
o Instrumental Use (Stakeholders as instruments to achieve
organizational goals).
o Normative Use (Stakeholders having intrinsic value).
o Managerial (Stakeholders to be taken to account when making
decisions).

In this case, I found 2 related aspect from the stakeholder theory. Those are:

 Instrumental Use.
In the case, there are several parties involved like BoscH (the supplier
of the defeat device), Winterkorn (former CEO of Volkswagen Group,
the one who negotiated the rig divice) senior engineers Ulrich
Hackenberg, Audi’s chief engineer; Wolfgang Hatz, developer of racing
engines; and Hienz-Jakob Neussr, head of development for the
Volkswagen brand.
 Managerial.
In the case, the bad Volkswagen Group politic in the higher-ups has
bad influence toward the company (Board of Director). The VW group
system was considered as an extremely complex for having several
layers of family-related positions and state ownership on its Board.
This affected the decision making of the board because of family and
connection biases in the group.
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5. Divine Command Theory.

This ethic based on what God commands human beings to do. In this case
the root problem of the unethical action is lying and cheating about the defeat
device that alters the emission control. Also if I agree with this, I would also
considered as taking part in making the world having global warming,
because high emission will hurt the world and cause global warming. I believe
that in every religion you are prohibited of doing misdeed such as lying and
cheating, and even worse the reason behind the lie and cheat is really
threatening the health of the world, which is global warming.
6. Virtue Ethic.
This ethic is based on individual moral characters. In this case, getting caught
doing misdeed like lying and cheating using the defeat device will impact the
customers by making them losing faith to the company. It will make the
company looks like they are lacking virtue.

Solution and Recommendation

From this case we can learn that the procedure of emission standard is strict and
everyone should obey the regulations made by the country. There is a greater goal
behind this emission regulation, which to keep the world at a healthy level. At the
end of the day, to prevent scandals like this happened again in the future, the
company should value their employees through value-based approach. As for
Environmental Protection Agency, if possible they should have make new programs
to support the automakers on making their product having less emission and
pollutants.