Introduction
Definition of ethical issues
Back ground information on “Volkswagen emission scandal”
Issue of violation notice
Accusations against the company
Discussion
How the problems were addressed by the company leaders
Company denial of manipulation of tests
Company official’s admission of tests manipulation
Recall of vehicles
Announcement of new diesel strategy
Halt of company sales on the affected vehicles
Compensation of VW and Audi owners in the US
Implications of the company decisions
Loss of trust and confidence
Sales reduction
Inconvenience and mistrust
How I would have addressed the issue as an employee of the company
Report the matter
My recommendations as a management consultant to the company
Conclusion
Introduction
An ethical issue is a situation or a problem that requires an organization or a person to choose between evaluated alternatives which must either be right or wrong (Hjorth, 2012). According to Hjorth (2012) in today’s business world business are faced with various ethical issues. One of the recent ethical cases in the business world is what has come to be commonly referred as the “Volkswagen emission scandal”. The United States EPA (Environmental Protection Agency) on 18th September 2015 issued a violation notice to the Volkswagen Group (Hotten, 2015). According to Jenkins (2015), the German automaker was accused of intentionally programming its TDI diesel engines for purposes of activating certain emission control during laboratory testing only. During statutory testing, the programming allowed the company to meet the required US standards. However in real driving, the emission was noted to be 40 times more. The company had put the programming to approximately eleven million vehicles. In the USA, there were approximately 500,000 vehicles between the year 2009 and 2015 during the model years (Holder, 2015). Holder (2015) further explains that after the EPAs finding a study was conducted to determine the variances between the US and the European models. The study which involved fifteen cars from three different sources detected additional emissions on two out of the three vehicles tested during live road tests (Holder, 2015). After the findings in the USA Volkswagen became a target of investigations in other jurisdictions such as Canada, France, Germany, Italy, UK, and South Korea among others. The Volkswagen scandal brought attention on the amount of pollution caused by a wide range of vehicles manufactured by various automakers. The scandal also triggered investigations into other automakers company to determine the real emissions in real driving. This triggered a discussion on the possible cases of cheating in cases of laboratory testing (Holder, 2015).
Discussion
In addressing the issue, the company claimed that the discrepancies noted were just technical glitches (Bowler, 2015). However after the company was confronted with evidence of “defeat device” it admitted having manipulated the tests. In September 2015 during a conference call, the company officials acknowledged having manipulated the tests. The admission saw the Group CEO apologize for the broken public confidence and trust. He also claimed that the wrongdoing was a terrible mistake of a few of the company officers (Bowler, 2015). According to Holder (2015), the company also responded with recalling all the 11 million vehicles which were affected by the violation scandal. Where the repair did not necessitate a recall, the company offered to repair the vehicles for free. Though, in his testimony to the Congress the Group CEO admitted that the repair of all the affected cars could take years (Hotten, 2015).
According to Holder (2015), the modifications were also expected to affect the vehicle performance. The company also announced its plans to overhaul its diesel strategy. The new strategy was expected to be adopted immediately in North America and Europe. The new strategy to be adopted by the company required the use of selective catalytic reduction technology to assist in diesel emission reduction (Hotten, 2015). The company did also announce its plans to speed the design and the development of plug-in hybrids, electric cars and rather than fitting smaller cars with diesel engines. Regarding the new orders, the company offered to upgrade their engines for free. In some European countries such as Belgium, Spain, Italy, Netherlands, UK and Switzerland, the company halted the sales of the cars with the affected engine. The company on November 2015 undertook to compensate the VW and Audi owners in the US. The estimated cost of the compensation was $ 120 million (Holder, 2015). The Volkswagen scandal also led to the resignation of the Group CEO while other senior officers of the company among them the head of research and development and the head of brand development were suspended (Hotten, 2015).
The company decisions had serious implications both the customers as well as to the company. The initial response by the company denying the falsification of the tests and later admission of the same when faced with evidence eroded the customer trust and confidence in the company. This resulted in a reduction in the company sales during that year. The admission by the company on the falsification of the tests also resulted in some serious implications to the company which included financial loss due to compensation, increased litigations against the company by the customers and investigations into the companies in various jurisdictions. However, according to a survey conducted the scandal did not have quite a significant effect on the image of the company (Hotten, 2015). According to Hotten (2015), the respondents to the study believed that even the other automakers were doing the same.
According to Hjorth (2012) a company has a duty to act ethically in its operations and dealings. Failure by the company to act in an ethical manner can be construed as a breach of public trust. The company consumers trust that the company shall not pursue self-interest objectives at the greater good of the society. Therefore, as an officer of the company aware of the issue the action, I would have taken first is to inform the senior management of the company. As the company CEO accused few officers of the company, there could have been a possibility that the senior management was not aware of the happenings in the company. If after notifying the senior management no action was taken, I would resign from my position in the company and public interest I would have notified the public and the relevant authority. My decision to resign and inform the relevant authority for appropriate action is in recognition that there is the need to safeguard the public interest amidst selfish interest of the company. In organizations where there are particular ethical issues that employees do not agree with, the employee has a duty to bring it to the attention of the senior company officers or to whistle blow if the senior officers of the company are implicated. The duty to whistle blow is brought about by the greater good of protecting the society at large. Thus, selfish interests of the company should not be allowed at the expense of the greater good of the society.
Kuhn & Ashcraft (2003) argues that organization scandals often generate public scrutiny, invoke disclosures on systematic organization change, problematize organizations legitimacy as an agent of communication, and result in public scrutiny of organizations communication processes. As a management consultant to the company I would recommend the following actions to be taken by the company with the aim of addressing the issue; first, the company should acknowledge the wrongdoing. Acknowledging the wrongdoing is important in trying to recreate the image of the company. The scandal to some extent eroded public confidence and trust on the company. Continuing to deny the wrongdoing can only further increase the damage.
Second, the company should apologize to all affected customers and public at large. Apologizing is an indication that the company has learned its mistake, and it will not be making the same mistake in future. This is essential if the company wants to gain the lost trust and confidence.
Third, conduct an investigation into the scandal. The company should carry out an internal investigation to ascertain the cause of the fault and the process or the procedures that were not followed and those who are culpable. The investigation objective would be to produce a report that can be used by the management in future decision making.
Fourth, all the officers of the company involved should be fired. Failure to fire those involved can be interpreted as a public gimmick by the public. This can only further damage the image of the company.
Five, compensate those affected. The company should assume the responsibility for its wrongdoing. Compensating the affected would show the seriousness of the company in ensuring such issues do not arise in future. To some extent, it can also appease some of the disgruntled customers.
Six, develop a strategic plan to ensure such events do not occur in future. If the company would continue doing the same things as before, there is a greater possibility of the event reoccurring in future. A company should, therefore, understand the issues that resulted in the failures and developed a strategic plan to guide the company in future operations. The strategic plan should also explore other areas that can be exploited by the company as alternatives. The management should also make such a strategy public to make it known to the public what actions the company is taking to ensure such failure do not occur in future. Letting the public know the actions the company intends to make can assist in ensuring customer loyalty in the company products (Kuhn & Ashcraft, 2003).
Conclusion
The VW group initial handling of the scandal was inappropriate as it could have resulted to the whole company condemnation by the public thus significantly affecting the organization's image. However, the management seems to have realized this early enough and decided to come clean and face the repercussions of their mistake. The decisions taken by the company to address the scandal seem to have worked quite well for the company. As according to the study conducted the company image was not significantly affected. The company adoption of a new strategy plan is a welcome idea as it would ensure such events do not occur in future. The company should also review its policies to ensure proper reporting of internal issues by the employee if some employee violated the company policies. Companies should also develop ethical policies to guide their operations. There is also the need for the companies to recognize the need to act ethically as it has significant benefits to the company. Some of the benefits that can be derived by the company include increased customer loyalty and increased sales. Employees too have a duty to whistle blow in the event where the company is engaged in unethical practices for the greater good of the society.
References
Bowler, T. (2015). Volkswagen: From the Third Reich to emissions scandal. BBC News.
Hjorth, D. (2012). Handbook on organizational entrepreneurship. Cheltenham, UK: Edward Elgar.
Holder, J. (2015). VW emissions scandal: fixes announced for EA189 diesel engines. autocar.co.uk.
Hotten, R. (2015). Volkswagen: The scandal explained.BBC News.
Jenkins, N. (2015). Volkswagen Will Issue Software Fixes for Cars in Emissions Scandal. TIMES.
Kuhn, T., & Ashcraft, K. L. (2003). Corporate scandal and the theory of the firm. Management Communication Quarterly, 17(1), 20-57.
