Case Description

Discuss about the Behavior of Internal Stakeholders in Project.

The study of business ethics ensures the policies and practices related to the potentially controversial issues. The purpose of considering the ethics is to guide the business for gaining public acceptance by avoiding the issues like fiduciary responsibilities, corporate social responsibilities, discrimination, bribery, insider trading, and corporate governance. In other words, the ethical consideration plays role in ensuring the required trust between consumers and various other forms of market participants with business. The concept of ethics raised during the second half of 20^th century with companies becoming more aware of a rising customer based society. It generally goes well beyond being just a code of right and wrong, and attempts to reconcile the legal responsibilities of the business organization versus holding an advantageous position in competitive market. Weiss (2014) in his book identified several cases of ethical issues faced by the present international business organization and concluded the raise of ethical issues in 21^st century.

The report focuses on the ethical issue faced by the German automotive company Volkswagen in 2015. Volkswagen has again made the headlines for recalling nearly 500,000 diesel cars from United States in 2015. It is due to the company’s inappropriate ethical consideration in corporate decision-making. This corporate scandal of Volkswagen is a multiple level ethical violations and can be viewed from different angles. The relation of the case can be drawn to the environmental disaster, international business ethics, unfair business practices, as well as illegal corporate activity. This is shocking news reported against the once admired German automaker for corporate misbehavior. The company not only disregarded the federal limits of emission control, but also decided to hide them. Every single diesel car sent to the United States was fitted with software to falsify the pollution level during the test but disabled them while they were actually on the road.

The report is comprised three parts. The first part of the report provides an in-depth description of the case under study to form a clear idea about the ethical issue conducted by the company. A thorough case study has been conducted that identifies various stakeholders involved in the case. The second part of the report then thoroughly analyses the case using relevant academic reading. Detailed analysis of the ethical issues present in the case is done. It addresses the questions regarding the involvement of the stakeholders related to the issue. Further study reveals the impact of the case on multiple dimensions. The nature of the ethical issue in this case is also identified in this section. The final part of the report offers the readers with some recommendations based on the analysis made in the previous section. This part offer the learning outcome of the case analysed and recommends the necessary steps that could have been taken by the organization to avoid the situation.

Reasons for Rigging Emission Test

The vehicles equipped with diesel engines are known to be better beneficial over the gasoline vehicles regarding durability, cost efficiency, and fuel efficiency. However, these vehicles require some extra effort to follow the guideline and standards set by the Environmental protection Agency in order to gain control over harmful and mortal effects of nitrogen oxide. This made it harder for the automotive companies to meet the emission standard while keeping the fuel efficiency intact. While everyone struggling with keeping the fuel efficiency high in their diesel cars, Volkswagen introduced their new line of diesel cars with low emission and high fuel efficiency. It was a great deal of success for the company that earned them a huge amount of profit selling their diesel cars in the US market as well as around the globe.

However, the problem arouse when a non-profit group named as the International Council on Clean Transportation proposed for a on-road emission test for all the cars in the States on 2013. Their proposal was purely based on the health concern of the public. This was the first time when something like this was conducted and this test was different from the ones in the laboratory. The California Air Resource Board called for an investigation on the Volkswagen diesel models on road in the year 2014 and the responsibility was give to the West Virginia University (Gates et al. 2017). The result of the test exposed the VW diesel cars for an emission level that is 40 times higher than the US regulation standards (Mansouri 2016). Further research explains that the company had a software fitted in their diesel vehicles to control the emission in the laboratory test and produce fake result. Whereas as the safety automatically disabled itself during on road drive. The EPA announced that the device fitted in the VW cars could sense the testing scenarios by monitoring several factors like engine operation, speed, air pressure and even the position of the steering wheel.

The primary report identified the involvement of nine of the Volkswagen manager in the emission scandal who have been suspended. The chairman of the VW stated in his clarification note that it happened due to the unethical mindset of he suspended group which led to this undesired incident. Result of the further research on October 2015 and the statement from the CEO reported the involvement of a small group of engineers in embedding the device in the car of which the CEO was left uninformed (Goodman 2017). The external investigator of the issue presented a confession statement of fifty staffs mostly in Wolfsburg regarding their awareness of the emission scandal activities. Later report expressed that a number of engineers and technicians were aware of the emission rigging activities in the factory and they actively informed the supervisors. However, the supervisors deliberately ignored the alert. The deeper study on the case identified an individual with the ability to code the defeat device program. However, it required more than just an individual to actualize the thought of cheating the emission. The final report caused the suspension of nine managers from supervisory board, quality control and assurance, engine designers, plant managers, managers of sub companies and plant manager (Boston, Sloat and Varnholt 2017).

Consequences of Emission Scandal

The ongoing research of the Volkswagen emission scandal case identified several reasons forced the employees to consider this unethical conduct. Firstly, the chairman of Volkswagen Mr. Hans-Dieter Potsch revealed the first rig diesel emission was conducted on 2005 by some engineers at the time of imposition of toughest emission standards to automobile industry (Geuss 2017). The imposition forced them to consider the decision due to the short time and insufficient budget allocated for the task. However, they did manage to find a solution to this the issues, yet they deliberately preferred to continue rigging than implementing the method (Boston, Sloat and Varnholt 2017).

The second significant reason that encouraged this unethical conduct is the unique corporate culture present in the company. The culture of obligation led to the creation of an atmosphere of a critically centralized structure. This pressurized the employees to deliver the demands and expectations of the company even if they had to break the ethical rules. The process of achievement no longer mattered as the result was of prime interest (Goodman 2017).

The emission scandal of Volkswagen had several consequences that can be summed-up into three major fields that are political, economic and socio-environmental consequences.

Political Consequences – The department of US Justice, the EPA and the Federal Trade Commission imposed various criminal charges on Volkswagen automobile. The company was accused of cheating with on the emission test and was ordered to recall every single effected model in the United States in 2015. The EPA revised the emission test procedure and included on road emission test in the guideline. Furthermore, the investigation was extended to the other brands as well. The repercussion of this fell on to the other countries as well and they initiated similar test on the Volkswagen diesel models and came up with similar results to the one of United States (Jung and Park 2017).

Economical Consequence – Charles Breyer, the district court judge of United States approved a final $14.7 billion settlement on October 2016. A buyback program will follow this from the company offering the customers a total of $10 billion. The budget for each car was set from $12500 to $44000 depending on the model for the owners who bought their car before September 2015. The customers will only get the amount if they sell their cars to the company. The lessees on the other hand will receive a cash value in-between $2600 to $4900. The company is bound to pay the cash to the customers as a consideration of their criminal offence (Atiyeh 2017).

Analysis of Internal Stakeholders’ Behavior

Socio-environmental Consequences – A multiple level of social and environmental consequence occurred due to the violation of the ethical norms. The use of this hazardous pollutant diesel engine caused a significant environmental degradation over the past few years. Moreover, the health damages caused due to this could cost more than $100 million according to the report presented by Selin (2017). Wolfsburg on the other hand faced immediate consequence with an economic fallout including a temporary hiring cessation and decreased corporate tax revenue (Eddy 2017).

There are various opinions and statements being given by different authors in relation to the ethical issues being faced by the contemporary business organizations. However, majority of the opinions are being given by them are contradictory to one another. The following sections will discuss about the various articles being stated by the authors regarding the ethical issues being faced by the business organizations. In this case, the opinions being given by the authors will be critically analyzed with the ethical issues being faced by Volkswagen in the recent years.

According to DesJardins and McCall (2014), ethical issues in the business organizations are of various types involving different stakeholders. According to them, indulging in the unethical issues by the contemporary business organizations has mostly the negative implications on the entire stakeholders of the organizations. They have also stated that for various business organizations, indulging in unethical activities may have short term gain but it will obviously have negative impact on the business in the long term. In the case of the Volkswagen also, installation of the cheating software in their cars to market in the United States provided them undue advantages over their competitors. This is due to the fact that, with the help of the cheating software, the existing diesel vehicles of Volkswagen got passed through the stringent emission regulations in the United States. The profit margin also roused to the large extent for them. However, with the leakage of the information, the share of Volkswagen got crashed in the global stock market along with loss in the organizational goodwill and reputation among the customers (Krall and Peng 2015).

However some other author has stated the implications of the ethical issue for the business organizations from the point of view of the organizational stakeholders. According to the statement given by Weiss (2014), all the stakeholders will be adversely affected from the indulgence in unethical activities. Thus, according to him, it is important for the business organizations to determine the welfare of all the associated stakeholders before indulging in any unethical or unfair business activities. Moreover, stakeholders of the organizations refers to both internal and external stakeholders of the organizations and thus, it is being recommended by the author that indulgence in the unethical business activities will have negative impact for the whole organization. By comparing this opinion with that of the case of Volkswagen, it can be concluded that, in indulging in the unethical activities by them, the upper level management also do not considered the interest of their stakeholders such as customers, employees and the shareholders (Kong 2016).

Role of Leaders and Managers

According to Crane and Matten (2016), in the age of globalization, it is important for the business organizations to initiate sustainable development for their positive future. This is due to the fact that, according to the authors, initiation of sustainable development will help the organizations to have steady growth for the future rather than looking for short term growth. In addition, the authors also stated that, effective determination of the stakeholders of the organization will help the organization in having sustainable growth. However, on the other hand, in the above discussed case, Volkswagen had not effectively determined the interest of all their stakeholders prior to the initiation of their unethical policies (Verbeke and Tung 2013). This resulted to the loss in the valuation of the shareholders along with the loss in the organizational reputation and goodwill. In addition, involvement of the unethical activities also attracted lawsuits from various regulatory bodies.

There are several other authors who have given more concentration on the effective management of the stakeholders rather on the following of the ethical principles of the business. According to these authors, effective management of shareholders is also one of the key elements of ethical business practices. As told by Beringer, Jonas and Kock (2013), effective management of the internal stakeholders helps the business organizations in effectively determining the requirement of the internal stakeholders, which eventually helps in the enhancement of the productivity of the organizations. This is due to the fact, if the senior management of the organization indulges in the unethical and unfair business activities, then it will also have negative impact on the performance of the employees. This is due to the reason that, employees will feel de-motivated in having to follow the unethical business principles. Thus, according to the authors, organizations in order to enhance their ethical principles in their operational activities have to first effective management their internal employees, to refrain them from indulging in any type of unethical business activities.

In the case of Volkswagen, the sudden decision being taken by the senior management in marketing their diesel cars in the market of United States created a lot of pressure on the engineers of Volkswagen. This is due to the reason that, the engineers have been given a much lesser time to develop an engine, which will adhere with the stringent regulations of the United States. Thus, this is one of the key examples of ineffective management of internal stakeholders (Eskerod and Huemann 2013). Due to this reason, the engineers in Volkswagen were being forced to opt for some unethical business activities in order to bypass the pressure. This made them installing the cheating software in their cars. Thus, the opinion being given by Beringer, Jonas and Kock (2013) are adhering with the situation be4ing faced by Volkswagen. Thus, it is important for the business organizations to effectively manage their employees in order to create an effective working environment along with motivating them in following the ethical principles.

Implication for Project Management

In the case of Volkswagen’s ethical scandal, it can be said that majority of their stakeholders are being adversely affected due to the occurrence of the unethical activities. Moreover, the scandal being involved with Volkswagen is having far reached than compared to the other contemporary business scandals. This is due to the reason that, the ethical issue with Volkswagen had been covered various stakeholders such as customers, employees, senior management and extended population in United States. Due to the initiation of the ethical business practice by them, various members from the senior management are being sacked due to being associated with the scandal. Moreover, employees’ attrition rate is being increased along with loss in the investment of the shareholders. On the other hand, the population of United States has also suffered from the scandal due to the reason that they have to inhale the polluted air, which caused due to the higher rate of emission from the diesel vehicles of Volkswagen.

Thus from the above discussion, it can be said that there are various areas of improvement are being identified for Volkswagen as well as for other business organizations to prevent them from indulging in unethical activities in future. The followings sections will discuss about the various recommended steps to be taken by the business organizations in order to prevent these issues.

• Stakeholder management should be effectively initiated by the business organizations to prevent the further emergence of these issues. This is due to the reason that, in the case of Volkswagen it is been seen that, ineffective management of the employees by the senior management along with pressurizing them is one of the key reasons to motivate them in indulging them in unethical activities. Thus, to refrain the employees from being involved in any unethical activities, it is required for the business organizations to initiate an effective stakeholder management. It will help the organizations in effectively managing the employees along with determining their requirement to initiate an effective working environment.
• Leadership and senior management have also a key role to be played to prevent the emergence of unethical business principles in the organization. As it is been seen in the case of Volkswagen, the ineffective styles of leadership of the senior management along with the autocratic leadership style of then CEO of Volkswagen caused the engineers to involve in unethical business practices. Thus, to prevent the repetition of these issues in future for other business organizations, it is required that leadership roles should be played effectively in order to motivate the employees and enhancing their level of satisfaction in the workplace.
• The unethical activities being involved by Volkswagen will not be the last instances of corporate scandal rather; these types of incidents will get emerged in the future also. This is due to the reason that, in the current business scenario, the competition among the business organizations in every sector is much intense and thus, the organizations are being forced to get indulged in some sort of unethical business practices to gain the competitive advantages in the market. However, visionary power or skill of the senior management will be important in determining the implications of the involvement of the unethical behavior. This is due to the fact that, the above discussion of the various literatures stated that majority of the stakeholders associated with the organizations will have negative impact due to the involvement of unethical activities. Thus, it is important for the senior management to have the visionary power in order to determine the future impact of the activities.

Conclusion

Thus, from the above discussion of the ethical issues being faced by Volkswagen, it can be concluded that, due to the involvement of unethical issues by them, all the associated stakeholders had been adversely affected. In addition, the expertise, goodwill and brand value that are being garnered by Volkswagen in all these years are being diluted in one go. The report discussed about the ethical issues that are being faced by Volkswagen in the recent years regarding the rate of emission from their diesel vehicles. In addition, literature review is being done with gathering information from various literatures. Review of the literatures helped to conclude that, effective management of stakeholders is one of the key areas that are being skipped by the senior management in Volkswagen. It is been discussed in this report that, effective management of the stakeholders will help the organizations in effectively determining the requirement of the employees along with closely monitoring the activities of them.

This will in turn help the organizations in identifying the potential threats of involving in the unethical business activities and preventing it in the primary stage. It is also been discussed in this report that, there is a huge role of leadership in regulating and controlling the emergence of unethical activities in the organization. This is due to the reason that, it is the responsibility of the senior level management to motivate the employees in their workplace along with enhancing their job satisfaction level. This will in turn help the organizations in preventing the employees in initiating any unethical business activities in order to bypass the pressure in the organization.

Conclusion

The above discussed review of the literatures also concluded that for the contemporary business scenario, it is important for them to have sustainable development rather than going for short term profitability. It is being discussed in this report that, preventing of unethical behavior of the stakeholders is the key element to initiate sustainable development. Through the initiation of the sustainable development, business organizations can grow and survive in the current competitive business scenario. Moreover, this report also concludes that, the incident with the Volkswagen will not be last incident in the corporate sector, rather than it may arise in future also due to the fact that, business organizations will take the help of unethical business practices to gain competitive advantages in the market.

Therefore, it can be concluded that, there are various potential areas that can contribute in generation of unethical business activities for the organization. Hence, it is required for the business organizations to effectively determine these areas in order to prevent the further emergence of these issues in future. Moreover, it can also be said that the recommended steps being discussed in this report will help Volkswagen as well as other business organizations in preventing the origination of unethical business practices. Thus, the more effective will be the implementation process of the recommended steps, the more will be the effectiveness of the upper level management in preventing these issues.

Reference

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