BUSI 8107
Managing Ethics and Responsibility
Company Analysis
Volkswagen Emissions Scandal
Submitted by
Selva Kumar Subbarayan
Masters in Engineering Management
201578275
About the company
Volkswagen (VW) until recently has been regarded as a hardworking, efficient, effective, as well
as honest and trustworthy company that made excellent products for the consumer. During the
1980s, electrical problems surfaced in the Rabbit (Golf) and this dented the company’s image
in the market, and VW’s sales started declining in the US and Canada. Also, several Japanese
and American car companies were offering better cars at lower prices. In the late 1980s, VW’s
then Chairman, Carl Hahn, decided that it was better for the company to reduce its dependence
on established car markets like the US and Western Europe, and explore new markets. VW
continued its acquisition spree and in the 21
century, acquired various companies with impressive
shares. In 2013, VW sold a record 9.72 million vehicles and further increased it by 5.04% to 10.21
million in 2014. In 2014, company’s sale increased by about 2.8% from €197.00 billion in
2013 to €202.46 billion.
Corporate Governance:
As of December 31, 2014, VW’s three largest shareholders – the Porsche and Piëch families
(50.7%), State of Lower Saxony (20%), and Qatar’s sovereign wealth fund (17%) – held voting
rights of 87.7% in the company. The rest of the voting share was held by 12.3% external investors
(Ref. 1). The company’s equity is majorly owned by the Piëch and Porsche families, with a German
regional government and the Qatar Investment Authority’s sovereign wealth fund holding large
minority stakes. Public investors mostly own non-voting preferred shares. The board of directors
is majority non-independent, and the company has seated several family members, including two
nieces of the former Chairman, without providing substantial disclosure about their credentials.
Like most of the German companies, VW also includes labor representatives on the board
Issue Identification
The essence of the scandal was that U.S. regulators accused the company of programing 11 million
vehicles worldwide to falsely show on official tests that the vehicles were emitting lower levels of
harmful emissions particularly nitrous oxide, (a pollutant connected to lung ailments) than they
actually were when being driven on the roads. Regulators in the U.S. accused the company of
cheating on environmental standards by programming engine management software in some diesel
cars to detect when the vehicles were being tested by regulators and then to turn on emission
controls only when being tested on treadmills by government authorities (Environmental
Protection Agency, News Releases from Headquarters, 2016).
Problem Statement
The main cause of VW’s alleged wrongdoing lies in the company’s ambitious production targets
for the U.S. market and the time and budget constraints imposed on employees to reach those
targets. VW has always been known as a company where engineers are in charge, and the company
initially blamed lower-level engineers for the scandal, yet it’s not credible that top managers were
unaware of the fact.
Stakeholder identification and Impact:
• Customers – dealing with recall aggravations, costs, and the embarrassment and anger of
owning such brand.
• Employees (existing and potential) – dealing with investigations and embarrassment.
• Dealers – hassled with recalls and likely to lose substantial future sales.
• Shareholders – already suffering devastating, probably unrecoverable equity losses,
preparing for multiple types of law suits in multiple jurisdictions.
• Environment – the diesel toxic emissions are 40 times greater than permitted under US
law
• Executives and Management – will be under the microscope of public opinion for a long
time.
• The Board – under pressure to ramp up more proactive corporate governance
• Regulators – likely to incline up the investigations and be engaged in long term
investigations, prosecutions and/or settlements
• Lawyers and Consultants – the only ones benefitting from this reputational cataclysm.
• Competitors – Emission norms and regulations posted by EPA will be even more stricter
in the future.
• Media– will be discussing every possible angle of this scandal with information that may
be accurate or inaccurate.
