Introduction
Companies such as Enron, Worldonline, Worldcon, and others that have raised ethical questions and have further led to scandals have made many decisions. These scandals resulted in a lack of trust, lack of confidence in the integrity of the business (Carson, 2003). Companies are seeking ways to increase their profits and values in the present world. However, in the journey of maximizing profits, businesses should provide importance to ethics recent case or scandal of Volkswagen Dieselgate has proved the same. Volkswagen company grabbed a lot of attention during fall 2015 due to its cheating with carbon emission (Guardian, 2015; New York Times, 2015). A lot of attention has been given to the Volkswagen scandal by the media and the public because the actions of the company were considered wrong by the public. The main aim of the essay is to focus on the ethical dilemma being faced by Volkswagen company due to its scandal and further, the essay also answers the questions: How far is it morally permissible for Volkswagen to use their knowledge for cheating the environmental tests taking place worldwide?
Volkswagen cheated in the environmental test to prove its cars are less polluting than others. The US Environmental Protection agency eventually discovered the plot and identified that the Volkswagen cars were emitting up to 40% more gases than was permitted in the US. Since the time the scandal has come to limelight, Volkswagen has accepted that they had cheated the agency with about 11 million cars across the entire world (The Guardian, 2015).
A defeat device was used by Volkswagen to carry its scheme. This defeat device was a program and not some physical device in engine software which let the car perceive that if it is being driven under test conditions then the anti-pollution stops will be pulled out. That was impossible under normal and regular conditions when greater performance would be needed on part of the cars than a roller bench (The Guardian, 2015).
It was an NGO that discovered the scandal through its independent emission test on the road. Then the NGO contacted the EPA which further investigated the matter. This forced Martin Winterkorn, the CEO of the Volkswagen group to step down and forced the Company to recall its VW cars. Because of the media coverage, VW Cars lost one-third of its original market share (New York Times, 2016). There was a fall in the stock price of VW along with the fall in revenue to about $1.84 billion (New York Times, 2016). Volkswagen’s decision to cheating the environmental test has led to some serious consequences. The customers lost their trust in the VW brand due to the scandal (Financial Times, 2016). This loss of trust and confidence on part of the customers led to damage to brand image and also fall in sales and market position.
Several ethical views were applied and discussed for assessing the dilemma faced by Volkswagen. Some of these theories include – deontology, consequentialism and the shareholder theory or the doctrine of Friedman. Deontology theory focuses on the actions of the organization and assessing the extent to which it is ethical. In contrast, Consequentialism is dependent upon the consequences of an action and assess the extent to which an action is ethical. According to Friedman (2002) shareholder theory, it is the company’s responsibility to create value for shareholders. Based on these theories and views, the decision taken by Volkswagen is assessed to understand the extent to which it is ethical. With the help of the reputation matrix of ethical leadership, the CEO’s role and the Volkswagen actions have been discussed in the conclusion. Recommendations have been provided to the VW group such that they can win back the trust of its customers and such that it can improve its focus on CSR or corporate social responsibility.
Case dilemma
This case is focused upon the viewpoint of Martin Winterkorn (who was the CEO of the VW group) at the time the scandal occurred and became highlighted in front of the public. The ethical dilemma faced by the CEO led to scandal because the CEO was forced to consider the following choices: whether to use their technological knowledge for cheating the environmental test and earn profits by selling more cars or to follow the ethical route and give up additional earnings. It is quite obvious that the VW group took advantage of the situation with their deception while the customers felt that they were benefitting from the same since they did not have any idea about the cheat device. The customers thought that they were benefitting because they had to pay lower taxes as a result of lower emissions of carbon than those people whose carbon emission by vehicles was more.
Therefore, the question arises that knowing the fact that the CEO was using his technological knowledge to create a cheating device. In this case, was the CEO’s decision ethically justified? It is necessary to identify the parties involved before the analysis of the ethical dilemma. And the parties included were- the employees of VW including the CEO, the environmental testing agency or EPA and the customers and another major party involved are the people who bought the VW cars as the emissions of the car affected these people and their country. Although the actual reason behind Volkswagen’s decision in using the cheat device is not known. One of the major reasons might have been the decision of the company to earn profits by competing in the market and that was possible only by selling more cars and for this purpose, the company implemented its cheat device. Moreover, another probable reason behind using the cheat device was that the VW group knew that they would not have been able to sell their cars in countries where pollution test was a major factor.
Consequentialism
There are several theories related to consequentialism. However, the VW group’s focus, in this case, is on the J.S. mills theory. Utilitarianism is considered with the consequences of certain actions and the results are aimed at achieving overall greater good. Therefore the theory of Utilitarianism is basically about maximizing pleasure and people should always make the choice of that option which helps in increasing the pleasure for the majority of the people.
The theory of utilitarianism in the case of the Volkswagen scandal affects several parties. These parties include- the employees of the VW group, the CEO of the company, the EPA for the environmental agency, the customers, and the people of the countries where the cars have been sold. According to the theory of utilitarianism when the scandal was discovered, the actions of the VW group were not permissible since they did not result in a greater good. None of the parties were happy when the unethical activity was discovered. It is the praiseworthiness that distinguishes permissibility from goodness ad the same is to be considered in the case of the VW group. Volkswagen deserved the blames they received for their actions. This is so because they knew that they were doing something wrong, as they had developed software to cheat the system. Though this action led to good results for the company, it was not aimed at achieving a greater good for all the people. According to the utilitarianism theory, it was a moral obligation to punish the VW groups. This punishment would act as a warning for the VW such that the organization does not repeat the same violation and this applies to all car manufacturers. Because Volkswagen did not aim at the greater good, it truly deserved the punishment it received.
Deontology
One of the major normative theories is deontology, and this section will discuss the application of deontology theory on Volkswagen. The theory focuses on the choice of people and organizations as well as on the morality of the actions. The choices may be forbidden, permitted or even required (Alexander, 2007). One of the most important parts of deontology is Kantianism. Kant (1785) as given in Sandel (2010) focuses on the fact that a person acts right ethically when they obey the imperatives categorically. However, in the case of Volkswagen, they feel that they should work according to their principles. As per the categorical imperative, Volkswagen should be offering vehicles that are safe, attractive and environmentally sound. And this will also ensure that they can compete in a market where there is tough competition and world standards can be set. Therefore, according to the categorical imperative into account, it can be questioned if Volkswagen acted ethically. In the case of the 4 vehicles of Volkswagen, the vehicle’s safeness and attractiveness were not affected by the cheat devices, but their deception had a huge effect on the environment. The device was used to mislead the agencies that we’re conducting the test. As a result, the same more cars were sold in different countries since the lawmakers thought that the emission from these cars was very low. Furthermore, the customers had to pay more taxes as the diesel cars of Volkswagen had exceeded the permissible level for the emission of gases.
To check the permissibility of the moral actions, a procedure comprising of 4 stages was introduced by Rawls (1989). This procedure comprising of four stages can be understood from the Volkswagen case as it helps in: (1) identification of cheating devices as implemented by maxim Volkswagen but keeping quiet about the same: ( 2) universalizing the Volkswagen actions and including questions such as whether everyone would cheat for the environmental tests and if it is possible to sell cars:(3) Maxim was established because such cars were sold by the company with wrong specifications and the carbon emission was way more than they claimed. This is the new rule of the companies where they would lie about their product specification and product emission. Then the question arises if the maxim becomes law and if that could be a good world. The maxim is carried out in the visual world and not in the real world as people do not live in a visual world.
Therefore even from the deontological perspective, cheating in environmental tests is completely wrong and it is also not right morally, as the activity was against the moral duty of the company. When any individual or organization engages in something morally wrong, they have to suffer the consequence.
Shareholder theory
To understand the social responsibility of Volkswagen, it is necessary to understand the shareholder theory. Friedman (2002) explained the social responsibility of businesses with the help of his shareholder theory. Therefore, the social responsibility of businesses is determined through shareholder theory. According to the shareholder, the economic drive of a company is initially given by the shareholders and in fact, it is the shareholder’s group to which business is responsible socially. Therefore to ensure maximum returns to shareholders in form dividends, the company needs to earn higher profits. It is also necessary to create value for customers that is through stock value. On the other hand, the shareholders decided about which social initiative they wish to take part by themselves instead of requiring the appointed executive or board to decide the same for them.
Volkswagen has been selling its cars with cheating devices between 2002 to 2009. The value of the stock increased for about 5 years. Two big German companies were compared to Volkswagen, BMW, and Daimler, and there was a free fall in the stock value of Volkswagen ever since the scandal took place in the year 2015. Volkswagen has seen a decline in the value of its stock by about 36.37%. Thus, it can be said that the company was providing value to its shareholders at the time it was selling its diesel cars with those cheat devices (approx. 2008- 2015). However, in the long term, the value that was created for the shareholders disappeared because the public came to know about the devices resulting in the class action suits, forcing Volkswagen to stop selling its diesel cars.
According to Friedman (2002),
“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
In the case of Volkswagen, it deceived both the government and the customers. The company failed to fulfil its social responsibility, and therefore, their actions are questionable.
Conclusion
From the above discussion, the Volkswagen case has been analysed through ethical theories and views. The research question as stated in the beginning was how far Volkswagen took advantage of their technical knowledge to gain profits through cheating in the environmental test? By examining the Volkswagen through the lenses of the three theories, it can be concluded that the company’s activities were morally impermissible. According to the Utilitarianism and Deontology theories Volkswagen Company should be punished for their unethical products. On the other hand, according to the shareholder theory, the acts of Volkswagen were morally impermissible because the company had committed fraud or deception. By referring to all those three theories, one would arrive at the same conclusion.
To regain its customer’s trust and also that of shareholders various recommendations have been given to the Volkswagen Company. Many also believe that there is a need for an ethical and strong leader who will help manage Volkswagen and who will help in establishing its vision in the market (Trevino & Brown 2004).
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