Companies in the past such as Worldcon, Enron and others have been making decisions that have caused scandals raising ethical questions to their governance. The impacts of scandals are more negative than positive; the company loses its confidence, the integrity of businesses is compromised, and clients lose trust over the performance of the company. Companies are, therefore, always looking for ways to maximize their profits and value. In 2015, Volkswagen was involved in a scandal which resulted in its fall. The company was cheating in emission tests; VW production made the cars on the road appear less polluting than their actual state, when in fact the emission was 40 times more toxic than permitted by the US Environmental Protection Agency (Blackwelder et al. 2016). This action affected approximately 11m cars across the world. The VW scandal proves that business ethics are important and companies should address them when maximizing profits. The scandal got so much attention from the media and the public; all seemed to classify the action as wrong (Clemente and Gabbioneta, 2017, Pg. 250). The analysis of VW scandal will discuss the social concern problems that company scandals bring; then offer some recommendations that organizations might use to transform and become more ethical in the future.

One can apply the utilitarianism theory to the VW scandal. The theory states that a person takes on an action to accomplish results which seem better. Utilitarianism makes the parties involved chose options that maximize pleasure for the possible people. According to this theory, VW actions were not permissible because they did not maximize the greater good in the end (Schiermeier, 2015). After the discovery of cheating, almost every person was left unhappy, and VW was blameworthy for their unethical practices. Employees should have acted ethical according to the company’s categorical imperative. VW had been engaging in unethical behaviors for years deceiving its consumers and governmental agencies thus failing on their social responsibility.

Possible causes of the Scandal

Pressure, opportunity, and rationalization are the major causes of a scandal. When all the three factors are present in an organization, employees are likely to engage in unethical behavior. Volkswagen had the opportunity to cheat. The engineers coincided with the company directives and decided to buy the diesel-engine-management software that would turn on emission-controlling devices and detect when a vehicle was being tested. It was easier for the company to hide the cheating software code because modern cars operate with around 100 million software code lines causing its complexity (Jung, Chiltonand Valero, 2017, Pg. 1120). The whole scandal was discovered when a group of West Virginia University scientists decided to test diesel cars on the road. The International Council on Clean Transportation hired the scientists to perform standard emission tests on these cars. The students were curious as to why in the U.S, the diesel technologies were cleaner than in Europe.

Rationalization: The engineers involved were aware that in the 1970s, VW engineers had almost got away with installing defeat devices on vehicles. The devices that allowed the company to cheat on the emission standards newly enacted by the EPD. The company paid a fine of $120,000 which was a minimal punishment considering the consequences of their actions (Siano, Vollero, Conte and Amabile, 2017). The engineers, therefore, thought that even if they cheated, the punishment they would receive would be minimal or light. They thought they might have rationalized and the company would benefit from the idea. The management approved the decision.

It might be difficult concluding as to why VW used the software to cheat the emission tests. The best assumption is to turn a significant profit and compete in the market. The company needed to sell more cars, and it would have achieved that easily by misleading environmental tests. Employees engage in unethical decisions mostly in sales when they want to hit a target and feeling the pressure from the management. Markedly, VW wanted to create low polluting values and felt the need to cheat on the tests because otherwise, they would not sell the cars in certain countries. Pressure from the top management to take the leading position globally caused the employees to act unethically. Volkswagen was determined to lead against Japanese rival Toyota and become the dominating automobile market in the world. Its management leadership style was autocratic, and their single-minded objective was to succeed at no cost; plus, Volkswagen’s engineering reputation was at stake. Employees, therefore, did not consider ethics relevant at the moment and focused on making the company succeed. The VW engineers, for example, had to work under a short deadline and from scratch to meet a tough goal set from the demanding management who insisted on success regardless of time, work or ethics (Zhang, Veijalainen, and Kotkov, 2016).  The engineers solved the demanding challenge by installing cheating software in cars that were to be exported to the U.S.

Ethical Transformation

Unethical behavior can have serious consequences if the company fails to address the issue. For example, the business may ultimately suffer because of lack of sales and consumer trust broken. Before the scandal VW’s primary objective was to become the largest automaker in the world by 2018, the scandal significantly affected the company as it lost approximately a third of its market cap. The company tried to compensate for the violations of the gas emissions by issuing a public apology to the public and those in management, the CEO and firm directors resigned (Barth, Eckert, Gatzertand Scholz, 2018). The future of VW looks grim as it is facing lawsuits and criminal charges. The organization has to establish credibility it lost during the scandal to the stakeholders and consumers. There are a few measures that a company can engage in when its reputation is damaged.

Change of Management

First, VW’s management was the issue; it is not impossible changing the corporate culture. The organization should employ new leaders with new leadership styles and ideas which will bring internal oversight and live by the company’s values. After the fallout, senior managers were either put on leave or suspended; the best solution is to change the whole management because the public had/has lost trust in it (Borahand Tellis, 2016, Pg. 150). Martin Wintercon, the man who tried covering up the VW scandal by claiming the company was facing a technical problem still receives a pension and pay for two years (Barth, Eckert, Gatzertand Scholz, 2018). The company need changes in the corporate culture and stop dragging along the former management who concealed problems rather than talk about them openly. New leadership will bring a new lease of life to the organization and bring forth change in business strategy, environment, and competitive position. The new management should be greener and portray better social responsibility practices.

Re-branding

Volkswagen is a global brand and a major car company in the world, but with the scandal, it has taken the company time to recover fully. Its healing process involves rehabilitative change together with an explanation and contrition. A turnaround of the company to return to its initial position will require considerable time and expense. Since the scandal, the entire VW sector has become subject to public judgment and scrutiny; the scandal may take long to be forgotten. Thus re-branding the company would be a good idea. VW can start again under a new name, new management and work towards improving brand image to become more efficient and trustworthy than the current Volkswagen Group. Re-branding has the potential of saving the company, and also it becomes easier for VW to speed up efficiency programs and push sales. Although re-branding has positive outcomes in reducing the negative publicity that the scandal caused, it is risky and expensive. If the company under a scandalous situation chose to rebrand, it should focus on changing all its aspects, including the exterior changes (Mansouri, 2016). The new company created should try best to work along with organizations such as the Federal Trade Commission or the EPD to embed on the corporate social responsibility practices for the whole organization.

Notably, the re-branded company should focus on reducing carbon emissions, reducing waste and saving water and energy consumption. It should also have articulated ethics and values statements that guide all behaviors in the organization. However, the stated core beliefs and value statements are worthless if the leaders are not living the set values.

Join Independent Verification Agencies

VW can join independent verification agencies that will aid with an internal examination of vehicle emission. For example, partnering up with the FTC agency whose role is to maintain consumer protection and address deception practices or the LMOP that focuses on reducing methane emissions from landfills. Such partnerships will rebuild consumers trust and help VW in gaining rewards and recognition from other NGOs that control corporate social responsibilities (Kralland Peng, 2015, Pg. 13). This action also helps the organization in having stronger credibility since it has support from prestigious international organizations.

Posting a Bond

Volkswagen would regain consumers trust if they posted a bond that ensures that nothing like this is going to happen to the public (Zhou, 2016). A bond shows credibility. Volkswagen can perhaps state that any frauds that happen within the company, the European commission’s automotive industry will be paid the bond, which motivates their regulators to be thorough and stricter with their audits. The organization can also use the bond towards doing the research and development of green vehicles, that is, those with minimal carbon emissions or decarbonization of safer and conventional engines. It would be hard gaining back the trust of the consumers; thus, VW should set the bond to a high amount as a way of showing they regret cheating emissions standards. It can perhaps sell one of its well-known brands to finance the high bond. For example, the company can sell MAN SE. which manufactures trucks as it generates a high revenue. VW can then use the revenue to post the bond. Afterward, the organization should invest in new technology to create environmentally friendly cars, which are better and have more efficient engines (Beske, Koplinand Seuring, 2008). Posting a bond is an expensive option, but it is likely to work in restoring the faith of consumers in the VW brand.

More companies are emerging in creating hybrid and electric vehicles; VW should sell the truck manufacturing company and use the money to develop a cleaner hybrid vehicle which competes in the market. They can then lower their prices on their new electric vehicles’ creation. If Volkswagen is capitalizing on the electric and hybrid vehicles, there is the hope of regaining consumers trust and take the leading position in the automotive industry. Government across the world is raising fuel and oil prices to push consumers into buying higher mileage vehicles and reducing pollution.

Conclusion

This essay explains the scandalous case on Volkswagen by using the ethical theory such as utilitarians to analyze the situation. The method says that the company should receive punishment for its actions. The shareholder theory, on the other hand, shows that the company could argue fraud because they omitted deception in their immoral acts. The essay also mentions recommendations that VW could use to regain trust from shareholders and consumers.

All the recommendations are likely to work, but according to the executive ethical leadership, it is essential that VW and other companies in such a situation employ an ethical leader; a strong moral person who will lead by example. Also, re-branding has the potential of saving the company, and also it becomes easier for VW to speed up efficiency programs and push sales

The best recommendation for VW is to post a bond as it will help in regaining the trust of the consumers in the brand and with time the sales will gradually increase. Currently, consumers are debating on purchasing from the company because they have faith that the company is mediating the scandal and it is unlikely to make the same mistake. VW or any company with a scandalous and unethical behavior past should dedicate its operations in having better social responsibilities practices. Through this action, the organization will regain its status and position in the global automotive industry. The reputation of a company is a significant factor when it comes to consumer decisions.

List of References

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Zhang, B., Veijalainen, J. and Kotkov, D., 2016. Volkswagen Emission Crisis: Managing Stakeholder Relations on the Web. In WEBIST 2016: Proceedings of the 12th International conference on web information systems and technologies. Volume 1, ISBN 978-989-758-186-1. SCITEPRESS.

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