Introduction to Volkswagen and its Scandal

Ethics are the codes associated with moral that govern the attitude and behaviour of an individual or group of people regarding right and wrong. Moreover, managerial ethics are set of standards which state the conduct of the managers operating within an organisation. The sole aim of an organisation is to generate profit and giving the customers what they promise through advertisement (Shapiro & Stefkovich, 2016). Managerial ethics are the guidelines to help the managers to take decisions when they face any conflict of values. The thesis statement of the essay is to showcase autocratic leadership and lack of managerial controls in Volkswagen led to face the dilemma in ethics. In past two years, Volkswagen has been facing the managerial ethical issues in operating the business in the global sphere. Managerial ethics set the standard for ethical behaviour in an organisation. In theoretical perspective, there are various approaches to ethics that could be followed in business, teleological, egoism, Utilitarianism, Deontological, justice and relativism. In this essay, Utilitarianism and Deontological theoretical perspective have been chosen to align the concepts with Volkswagen ethical dilemma and scandal. In the following section of the essay, these theoretical concepts have been evaluated to show how they influence managerial practices of Volkswagen. Lastly, a reflection of leaders in Volkswagen has been presented that may ensure organisational decisions are made ethically.

Volkswagen is a German automaker and it was founded in the year 1937. Volkswagen has it headquarter in Wolfsburg and it is one of the largest automakers in the world. Recently, it increases its production to 6.073 million units per year (En.volkswagen.com, 2018). It serves worldwide and it is considered in German as ‘people’s car’. Volkswagen has more than 626,715 (approximately) employees across the globe. Of late, its revenue is decreased to 105 billion and profit percentage was lowered in 2016 due to recent scandal of Volkswagen. In motorsport, Volkswagen got the awards in World Rally championship, Formula racing, Volkswagen motorsport worldwide and Dakar rally. 

Volkswagen faced the issue of environmental issue of diesel emission violation. Volkswagen emission scandal started at the end of 2015 when United States Environmental Protection Agency (EPA) submitted a notice to Volkswagen associated with a violation of Clean Air Act. EPA found that Volkswagen had intentionally used software programme named Turbocharged Direct Injection (TDI) in diesel engine system to activate emission control during laboratory emission testing. This type of programming shows the emission of NO_x gas lower than what it actually injects. This emission met the standard of regulatory guideline of USA, however, in reality; it emits 40 times more NO_x in the real world (Bbc.com, 2018). Volkswagen had been used this system programming in more than 11 million cars worldwide and more than 500,000 cars only in the USA during 2009-2015. International Council of Clean Transportation showed the figure of discrepancies of emission of harmful gases in the year between US models of cars and European models of cars. There are approx 15 models fall into this category in which Volkswagen used this programming. Therefore, Volkswagen cars became the bullseye of regulating authority in multiple countries to investigate about emission. This led to falling in the stock price of Volkswagen and CEO of Volkswagen resigned from the post. R&D heads of Audi and Porsche have been suspended from the posts. Volkswagen already spent more than US$ 19 billion to rectify the emission issues. Volkswagen promised to refit the affected vehicles as part of recall the vehicles.

Overview of Volkswagen’s Scandal

This scandal brought out the awareness of high pollution that is being emitted from cars in the world market. This scandal also brings out the idea of cheating using software-controlled machinery in the cars to hide the real figure and it is required public scrutiny. San Francisco Federal court agreed to a civil settlement of $15.3 billion for dodging the Clean Air laws (Bbc.com, 2018). Therefore, Volkswagen’s emission fiasco provides a valuable lesson to organisations regarding corporate and managerial ethics. Volkswagen did deception and it was an egregious breach of ethics in professional fields. When Volkswagen was caught, Volkswagen officials did not accept the matter at first and then they reluctantly accepted to compensate the car owners. Ethics for an organisation to be clear about what they are promising to the customers following the rules and regulation. In this breach of ethics, Volkswagen officials must have known this as this scandal is so devastating to dupe governments and customers. This fact is unethical that Volkswagen’s deceives the customers and stakeholders and they do wrong to the majority of stakeholders such as shareholders, government authorities, customers and environment.

Deontological ethics mainly focuses on rightness and wrongness and the consequences of the actions as a whole. Deontological ethics focus on habits of the actor it is called virtue ethics. A situation is bad or good depends on actions that are brought. Right is conformity of moral norm and it can take priority over good (Chakrabarty & Bass, 2015). Deontological theory sometimes keeps consistent with moral absolutism. In this regard, consequentialism concept argues that final state of matter justifies the drastic action. Deontological ethics provide prominence on the relationship between morality and duty of human actions. In addition, deontological ethics consider an action morally proficient as some of the characteristics of the action itself are good not the product of the action is fair. Deontology refers that at least some of the actions must be fair and morally obligatory that provide good consequences for human welfare (Hoover & Pepper, 2015). The virtue-based ethical theory was proposed by Greek philosophers Aristotle and Plato. They opined that judgement is not exercised through a set of rules, however, it is a result of possessing a result of that disposition that enables choices. Virtue-based ethics provide emphasis on certain qualities which may propose appropriate behaviour to take the right action. Virtue-ethics do not evaluate potential decisions and it majorly put stress on an internal characteristic of persons with who the individuals enter a relationship of trust. On the other side, the Right-based ethical theory was proposed by Thomas Hobbes and John Locke. Immanuel Kant proposed the modern version of this theory in the eighteenth century. As stated by Kohen (2015), individuals have entitlements that must be respected by all, like rights of privacy, freedom of speech and due process. Kantian concept establishes that individual’s duty is the moral agent and it is based on principle, called Categorical imperative. This categorical imperative talks about one person should act only in a way in which one would be happy. 

Deontological Ethics and the Volkswagen Scandal

Volkswagen’s scandal has many faces, ethical, unethical, legal and illegal. Ethical decisions are those that best maintain the fundamental rights of the people affected by them. Volkswagen has been trying to fixing the vehicles on the diesel. Customers have right to be fully aware of the standards and quality of the products. Consequences are an important factor to consider and motivation is also needed. Kant talked about moral worth and motivation. The moral law is objective standard and it does not depend on consequences. Volkswagen’s scandal does not support the moral law and actual motivation of the management is profitability and ditching the regulation of the environment. The objective of Volkswagen does not have good consequences and the management did know this. Management should have followed the duty in the end to generate the best consequences. According to Broad (2014), the hypothetical imperative is the conditional statement. If Volkswagen really had good motivation to do good for society and environment, they must not have done so. Volkswagen’s action is not morally correct as they know that false promising would not work for long. Volkswagen made a universal lie to make a promise that they could not keep.

Utilitarian theory is rule-based ethical theory first formulated in the eighteenth century. This concept first came into existence by Jeremy Bentham and later it was refined by John Stuart Mill. As stated by Summerell, Salleh & Leslie (2013), Utilitarianism concept looks beyond individual-interest in a matter to consider impartially the interests of all individuals affected by the action. This concept mainly emphasises majorly the consequences of the actions of the related stakeholders. In addition, Utilitarian finds the trade-off exists in the decision-making process. The utilitarian concept is related to making the decision to increase net benefits and reduces the harms for the stakeholders. In the decision-making process, it is similar to cost-benefit. The ultimate rule of Utilitarian is to follow ‘greatest good for the greatest number’ (Arrow, 2017). Utilitarianism theory places the locus of rightness and wrongness on the consequences of the actions or the outcome of the actions. The individuals choose the actions by themselves. It may go beyond the scope of own interest and take the interest of others.

Bentham’s principle is to identify the primary role of pleasure and pain in human life and to approve of action based on the pleasure and pain come through the outcomes of activities. The individuals must assert that pain and pleasure care capable of quantification (McCloskey, 2015). Bentham introduces the ideas of intensity, certainty and duration and nearness. On the other side, Stuart Mill talks about the hedonistic idea to emphasise more on the quantity of pleasure and quality of happiness. As opined by Sinclair & Walker (2016), quality of happiness cannot be quantified and it finds the capability to achieve the happiness. In case of Volkswagen, Act-utilitarianism principle can be applied. In this concept, each of the alternative acts in a situation is the choice. During this situation, the right action is to take the one which brings the best result. Volkswagen focuses more on customers’ demand and profitability of the organisation. Volkswagen tries to focus on meeting the regulation guideline at any cost and they forget about the greater good. They had two choices, either to meet the guideline or spend more on making a quality engine that reduces less harmful gas. Act-utilitarianism permits some wrong acts as it provides two courses of action from which individuals must take which yields the maximum happiness. On the contrary, it is also justifying the immoral acts by using act-utilitarianism. Moreover, Rule-utilitarian concept speaks about the principle of utility that determines the validity of moral principles. Promise-keeping is another principle and individuals must keep the promises if they build. Right and wrong of an action are defined through the breaking of the rules. Volkswagen, in this scenario, promises the customers to provide the best car with all types of features. VW also promises to the Government agencies to fulfil the guidelines, however, they did not keep the promise by implementing false programming system. Here, ‘unjust rule’ of Volkswagen has been applied that bring hazardous consequences. In addition, Utilitarianism proposes that the greatest happiness provide the greatest number and it allows the strictest form to allow the personal happiness and profitability (Nantel & Weeks, 2016). The breach of human rights would lead to tension and mistrust among the population or the customers of VW. VW scandal affects the Volkswagen’s goodwill as it is a long-standing brand and it has subsidiary brands. VW also affects ignorant customers who thought that Volkswagen provides fuel and environment-friendly cars. The credibility of software engineering professionals is now degraded. The major responsibility goes to senior executives, supervisory group members and software engineers who developed devices. 

Virtue Ethics and the Volkswagen Scandal

Volkswagen AG’s Board of Management manages Volkswagen AG and Volkswagen Group in accordance with Volkswagen AG Articles of Association. Strategic management of Volkswagen is conducted at Group levels. These types of committees are composed of relevant central departments and corresponding function of business areas. The basic functions taken by Volkswagen are liquidity, product, foreign currency, digital information and investment and management issues. Board of Management in Volkswagen ensures that managers in each level can take the right decisions for business operations. The important matter of the organisation is submitted to Group Board to the extent of the law. The obligations and rights of the statutory bodies of the organisation remain unaffected. Volkswagen has several companies across the world and these are separately managed by respective management. Supervisory Board committee takes the decisions for the organisation and they take mainly decisions of shareholder relationship. As pointed out by Valentine, Fleischman & Godkin, (2015), Volkswagen has practised a different management style that puts stress on rigid goals and impossible set of objectives. This managerial style punishes mainly lower and middle-level employees for not taking up the pace of working. The managerial approach of Volkswagen is top-down control. Frederick Taylor had started this practice in more than a century ago. The executive committee of the company formulate strategic objectives for the organisation and lower level of employees do not have any input for the managerial practices (Noval & Stahl, 2017). These objectives are often presented as rules and guidelines for the management. The management does not treat the mandate as negotiable. The management does not care for ordinary members of Volkswagen and the employees are placed with high expectation.

With the advancement of time, this top-down culture of the organisation is seen as discredited for the staff empowerment and organisational cooperation. In Europe, the diesel engine is popular and Volkswagen can easily meet emission standard. In the USA, Volkswagen faced the issue of emission and this issue was an existential dilemma for Volkswagen engineers. The management put the whole responsibility on engineers and top executives conveyed that engineers need to solve the issue of getting the cars back (Siano et al., 2017). These types of actions were a manifestation of the top-down culture of Volkswagen. In this environment, the workplace is not communicative, open and it is not the place of collaborative innovation.

These types of managerial practices clear the idea of right and wrong. Deontological theory utilises rules to differentiate right from the wrong. Ethical actions follow the moral laws (Noval & Stahl, 2017). Volkswagen managerial practices do not follow the moral laws and managers did not do their duties and rules of Code of Conducts. In Volkswagen, managerial bodies were sturdy and in order to run a global organisation, being unethical does not work. Consequentialism judges the actions through their results, even in this category, managers’ actions demand the wrong result. On the other side, deontology does not weigh costs and benefits of any action. Deontology does not let people violate the rules. Software engineers may know the process of making a programme in cars; however, they must not apply this as it is against their professional codes of conducts. If management knew about the working of defeat cars, they must have stopped the programme. Letting the programme to work, millions of customers suffered because of this.

Utilitarianism and the Volkswagen Scandal

Utilitarianism evaluates rightness and wrongness of actions and it depends on the consequences. The actions are considered as right if the actions bring greater good for the society. This theory supports the action for bringing good and wellbeing to the society and people. Volkswagen’s beaching of trust did not bring any good for the society. Volkswagen did the breach of regulation that can be harmful to both environment and people and utilitarianism ask the people to go as long as their actions bring wellness. Volkswagen management and engineers follow the practice of good only for the organisation’s profitability. The management bodies and executives withdrew themselves from the responsibility. An action is taken as good if it brings happiness and pleasure; Volkswagen management got the pleasure from the breaching of the trust for a short time (Krall & Peng, 2017). In long run, their actions did not bring any good for people in society. Utilitarians take the position of moral choice to be evaluated by calculating the benefits of each alternative available. 

Martin Winterkorn as the CEO of Volkswagen was expected to be fully aware of what was happening beneath and his managerial leadership is questionable. Software Engineers of Volkswagen are expected to use their skills for making better the cars; however, they used fraud technologies that made harm to the environment. VW as a whole is expected to deliver the promises it makes to the customers and they ditched the customers to fulfil their expectation. Managers of Volkswagen did not perform their works according to their job roles and in order to avoid of a repeat occurrence of this kind of incident, VW can make a microenvironment and they must introduce Code of Ethics for Software Engineers. Volkswagen needs to increase the involvement of independent 3^rd party involvement for environment-related certification.  

Business ethics integrate core factors of ethical leadership into business activities. Business ethics focuses mainly on the moral standards of right and wrong. Managers must follow how these are applied within the organisation in production, utilisation of goods and services and distribution. In today’s business, managers must behave morally in order to know the wrong and right and what is potentially right for organisations and for the stakeholders (Shapiro & Stefkovich, 2016). Morality trait of managerial bodies in Volkswagen must involve the behaviour of right things, being open, concern for the employees and customers and personal integrity. In a difficult situation, it is needed to take the right decision for the managers and they must be able to reason themselves well what the right things to do. In order to make the right decisions ethically, persons should be aware of multiple sources and individuals should thoughtfully develop their values and standards. Volkswagen management must attempt to make an ethical decision-making framework within the organisation in order to identify the ethical elements. Most of the managerial decisions can be legal and managers should not take any decisions that disagree organisational code of ethics and break the laws. Sometimes moral conflict occurs for managers; either they follow social responsibility or make a business profit. In these situations, managers of organisations have to be able to think through ethical implication and consequences of decisions mindfully and thoroughly. Finally, the managers must follow the rights and duties that they have to perform in all types of situation. Rights are viewed of the positive things and people are allowed to do such things. Managers of Volkswagen must observe all sides as well in order to follow the obligation and duties along with the rights of customers, employees and other stakeholders. 

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