In 2015 The United States Environmental Protection Agency ✓ Solved

In 2015 The United States Environmental Protection Agency

In 2015, the United States Environmental Protection Agency found that Volkswagen (VW) violated the Clean Air Act. The automobile company violated the United States law through the “[selling] of approximately 590,000 model year 2009 to 2016 diesel motor vehicles equipped with “defeat devices" in the form of computer software designed to cheat on federal emissions tests.

These devices disguised the fact that certain VW vehicles emitted 40 times more pollution than the US federal emission standards allowed. This violation shed light on VW’s desire to expand its market to the United States while concurrently struggling to handle the stark differences between the European and the United States emission standards.

It was recounted from observers that “European Emission standards issued by the United Nations Economic Commission for Europe (UNECE) had been lagging behind the USA, where the compliance level of emissions-control technology was more stringent.” Emission standard disparities between Germany and the United States are not the only issue VW struggled with. The automobile company also battled with both nations' contrasts in corporate governance structures. The United States governance board structure follows the guise of an independent director — a system that supports shareholders’ interests to guide business decisions.

In contrast, Germany has a dual-board structure where “labor and capital co-determine a corporation’s activities, so accordingly labor is given certain influence in management through participation in the process of selecting management.” The German dual-head model is exemplary in its approach to impacting a company’s ability to make ethical decisions. This model provides a separation of powers that allows all stakeholders a say in the choices the company makes.

The US model, which does not involve all stakeholders, most importantly the employees, shows that US companies are more at risk for hiding information and making unethical decisions; “A dual-board approach to corporate governance adds needed checks and balances to help ensure the integrity of the process and monitor whether the corporation pursues its strategic objectives in an ethical manner.” In line with the German structure, VW has both a management board and a supervisory board; the supervisory board is half elected by employees. This allows employees to have a stake in key decisions in the company.

However, based on the deception through the “diesel-gate” scandal, it shows that their ethics were not in line with creating transparency and keeping the interest of all stakeholders in mind.

Volkswagen's ethical stance taken in justifying their deception is best characterized as being egoistic and utilitarian. Egoism is the "doctrine according to which the correct moral action is the one that meets self-interest." VW's behavior exemplifies that their actions were driven to protect only the self-interest of the automaker's bottom line and to put themselves in a position of personal advantage to meet unrealistically set goals.

As stated by the Sales Contract Law, VW had an implied moral responsibility to deliver merchantable goods to their consumers, which they did not do. This egoistic behavior allows VW to breach the inherent duties and responsibilities they owe their customers and investors.

Volkswagen's self-regulated governance code impaired the Audit Committee Chairman's independence, which would provide him the ability to fairly perform his duties. Volkswagen's utilitarianism ethical stance provided them with another means of rationalizing their deception strategy. Utilitarianism states that "an action is morally right if it results in the greatest number of happiness for the greatest number of people affected by the action." Martin Winterkorn, CEO of VW, was known for having an "aggressive, demanding leadership style that would not accept failure."

VW felt the obligation to promote corporate and social well-being and happiness. They felt the responsibility to become "the most successful, fascinating and sustainable automobile manufacturer, [] while simultaneously aiming to achieve economic, social, and environmental sustainability." Apart from living up to their high expectations, VW's success sustained many people's livelihood. They employed 600,000 individuals worldwide.

Through a "utilitarian lens," it is justifiable that the right moral action is one that maximizes the good, in this case, even if it meant lying to many others. Soon after admitting that they had used cheating devices on millions of their vehicles, the automobile company realized that not only would they break the law by committing an environmental crime; they also broke the trust of their consumers and investors. This was evident when their stock plummeted 40% by the end of the following month after the scandal was made public.

Their inherent responsibility is to follow normative theories of ethics, which are meant to establish "rules and principles that [help us] determine right and wrong for a given situation." By following these standards, VW would have avoided tarnishing the Volkswagen label they had so arduously built.

Through an "internal investigation, it was concluded that three factors led to the creation of the defeat device—a mindset that tolerated rule-breaking, weaknesses in reporting and monitoring processes, and the delinquency of individual employees." In order to prevent a similar crisis in the future, they need to adopt internal control measures that ensure independence is not impaired in any part of their operations.

One of the most major changes for VW going forward will be third-party verification of emissions output. This process will ensure that an independent party evaluates future emission tests. This process should not only be applied to emission tests, but it should also be a protocol that is implemented to verify independence and excellence in any part of operations that has to measure up to a defined standard.

Douglas Adams said it best, "to give real service you must add something which cannot be bought or measured with money, and that is sincerity and integrity." Volkswagen is an automobile company founded in 1937 known for the beetle and headquartered in Wolfsburg.

It is the flagship brand of the Volkswagen group, the largest automaker by worldwide sales. Every company has its own ups and downs; Volkswagen has structural flaws in corporate governance. The board is responsible for the management and monitoring of important corporate decisions. Volkswagen adopts a two-tier corporate structure, consisting of two independent boards working together to govern the firm.

The board supervises Volkswagen's shareholders and employee representatives, which includes other brands under the same company such as Porsche and Piech families. These account for almost 90% of the voting rights of the shares. Yarmina Serghini-Douvin vice president and senior credit at Moody’s explained Volkswagen's emission scandal has brought to light serious corporate governance issues within the company.

These deficiencies include ineffective internal controls to uncover improper activity and poor risk management by VW’s management and supervisory boards. This has affected VW's earnings and cash flows. VW has to focus on their board team, loyalty, and trust of their customers. Daniel Hudson Burnham once said, "make no little plans; they have no Magic to stir men’s blood." In the corporate world, however, big plans require a big effort.

For example, Coca-Cola Company and Bank of America have such confidence in their corporate governance policies that they post them on their websites. When it comes to guarding the trust of VW’s customers, a strong team of board of directors is essential.

Corporate governance exists to help companies carry them out by providing a framework of rules and procedures that extends to everyone from board directors and senior management to shareholders and customers. Good corporate governance should not only aim for long-term profits but also strengthen trust with shareholders, customers, employees, and financial markets.

The company should accept internationally accepted standards of corporate governance. As a rule, the government contains a code that recommends and suggests good and responsible corporate management, which VW needs to adhere to as it conducts business on a global scale.

Conducting business on the global scale has a massive impact on society, so firms need to have a comprehensive CSR program to mitigate the adverse effects they have from operations. Volkswagen needs to take this into account, considering the industry's potential externalities and the scale on which they operate.

VW’s 2019 nonfinancial report lays out several concepts under CSR, including responsibility, sustainability, the environment, and people. VW places particular concern with responsibility since they are still living in the shadow of the diesel scandal; thus, they have made significant changes to the decision-making process at every level of the organization.

Shifting towards electric vehicles will require new resources included in the supply chain. VW has joined the Responsible Sourcing Blockchain Network to assess the cobalt supply chain performance and network. This partnership includes Ford, BMW, and LG, amongst others, and offers transparency and insight into the supply chain.

The automotive industry will always have a significant impact on the environment. All automakers are striving to improve, and VW is a leader in this arena, boasting the largest decarbonization initiative, aiming to be carbon neutral by 2050, called the “goTOzero” pledge. According to the data presented in their nonfinancial report, battery powered EVs have the lowest carbon footprint of any vehicle for 200,000 km driven.

A rapid push into battery vehicles will help VW achieve these goals. Another avenue VW could explore to enhance their responsibility to the environment would be to contribute to independent compliance organizations within the automotive industry.

These organizations will prove invaluable to ensure the entire industry conforms to the new standards. VW has taken strides to create a workplace that is acceptable to all and strives for maximum inclusivity. VW has even set up five production sites for the Skoda brand for people with disabilities. However, the results seem less than favorable. VW has implemented two programs to keep decision making at every level honest and transparent: the Integrity Program and the Role Model 2.0 program.

The Integrity program ensures that integrity is an obligatory criterion for all Board Management decisions, while the Role Model 2.0 program involves middle management operations, encouraging an open culture type of discussion without fear of sanctions.

A repercussion of the diesel scandal created a lack of trust between the board and stakeholders. In conjunction with the Integrity program, VW has increased the panel of major stakeholders from 150 to over 300 and implemented the "Best Governance Model."

The Best Governance program consists of surveys and interviews to gauge trust between the board and major shareholders. An additional remedy to trust and legal issues at VW is their strong advocacy of the whistleblower program. VW is interested in catching any major ethical or legal breaches and dealing with them quickly.

In conclusion, an additional tarnish on VW's reputation is its stance on human rights. A byproduct of the diesel cheat had a massive impact on financial costs due to health hazards. With an estimated 946,691 annual tons of NOx emissions at an estimated cost of $7,300 per ton, the monetary damages realized by governments, insurance companies, and individuals are immense. If VW wants to advocate human rights, the least they can do is ramp up their timeline on their zero-emissions pledge.

However, comprehensive as their CSR strategy may be, some areas need re-evaluation. Comparing VW to another multinational, multi-brand manufacturer, General Motors, VW’s approach in some aspects of CSR could use a more aggressive method. According to CSRhub.com, GM and VW are similar in CSR scores, but GM has taken a stricter stance on their 0-emission platform, with their goal set at 2040.

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References

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• Schuetz, Marcus. 2016. Dieselgate – Heavy Fumes Exhausting the Volkswagen Group. Harvard Business Publications.
• Volkswagen Violations. United States Environmental Protection Agency (EPA).
• Zhao, Jun. 2010. Comparative Study of U.S. and German Corporate Governance: Suggestions on the relationship between independent directors and the supervisory board listed companies in China. Michigan State Journal of International Law.
• Krok, Andrew. 2015, December 10. How Volkswagen plans to prevent another Dieselgate.
• Adams, Douglas. (ND). Forbes. Quotes.
• Hove, Tad. 2021. Business Ethics PowerPoint CBU: Business Ethics-Ethical Theory.
• Iovenko, A. Various studies and reports highlighting VW's impact on human rights and the environment.
• CSRHub. GM vs. VW CSR Score Comparison.
• Bara, J. General Motors Response to Racial Injustice Initiatives.