International Corporate Governance

INTERNATIONAL CORPORATE GOVERNANCE

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Contents

Introduction ................................................................................................................................................... 3

Discussion ..................................................................................................................................................... 4

Conclusion .................................................................................................................................................... 8

Bibliography ................................................................................................................................................. 9

INTERNATIONAL CORPORATE GOVERNANCE

Introduction

Volkswagen group is a German automotive firm that manufactures vehicles

internationally. The company has its headquarters in Wolfsburg, Germany. An overview of the

Volkswagen company shows that has grown and developed over the years to become a global

leader in the vehicle manufacturing industry. Over time, the company has managed to expand its

investments enormously on a global scale. It was discovered by the Environmental Protection

Agency (EPA) of the United States in 2015 that Volkswagen created and installed software in

their vehicles that give false data during tests of emissions (Goel, 2015).

The aim was to provide deceitful data on the levels of emissions that the vehicles

produce, which turned out to be very high in comparison to the set standards of emissions in the

United States (Hakim & Bradsher, 2015). Such brought about the development of a major scandal

for the company and other stakeholders in the global business environment (Barrett, et al., 2015).

The Environmental Protection Agency (EPA) issued a notice to Volkswagen on September 18,

2015, regarding violation of Clean Air Act of the United States. It emerged that the German

carmaker company had installed some software in their vehicles, which made them detect

emissions testing and offer incorrect information.

The software made the vehicles to emissions controls to fully turn on only during

moments of testing (Mauro & Camila, 2016). During normal driving hours, the controls are

turned off, and the cars would pollute the environment with nitrogen oxide up to 40 times of the

allowed emissions under the Clean Air Act (Holland, Mansur, Muller, & Yates, 2016). Analysis

of the scandal proved that Volkswagen employees of its Diesel Division did not do much to

ensure implementation of a good Chain of Custody (CoC) program with the intent of ensuring

accountability to the stakeholders (Bruijl, 2017). It is well understood that the maintenance of

protocols of ethics remains a crucial factor for any given organization. Such often involve

measures of transparency and accountability even as the firm ensures to keep in line with the

expectations of its stakeholders. It made it necessary for the establishment of new regulations for

purposes of preventing similar future scandals.

A keen analysis of the scandal shows that there are a good number of ethical and legal

perspectives that may be explored in an effort of preventing similar future scandals. Even so, the

paper finds that steps that are more suitable need to be taken to prevent the possibilities of future

scandals. The steps may be established by drawing from analysis of the many other perspectives

of the Volkswagen incident ranging from technological to spiritual concerns as well as other

aspects of corporate governance among others.

Discussion

The brand name of Volkswagen was significantly damaged because of the incident of

corporate misconduct (Crête, 2016). It also seems that the management of the company

disregarded concerns of risk management in a significant manner (Grüner, 2017). It is clear that

the regulatory agencies in the United States did their job accordingly in discovering the unlawful

action of the company. Still, one is left to wonder why the matter came to the attention of the

stakeholders after the over 11 million vehicles had been in the market for years (Ewing, 2015).

The analysis shows that the company violated its ethical responsibility to not only its

stakeholders but also members of the public. It is also quite clear that the members of top

management of the firm were aware of the developments of installation of the software in the

vehicles but chose to be quiet about it for years (Bovens, 2016). There are also a good number of

questions regarding how the matter past the attention of the company’s lawyers. Their behavior

was outright immoral, to say the least; placing members of the public in danger and breaking the

EPA laws. The resultant effect was that the vehicles evaded the tests of standards of reducing

smog and carbon into the atmosphere (Oldenkamp, van Zelm, & Huijbregts, 2016).

So far, the company’s employees in engineering, as well as the legal office, have not

demonstrated a sense of meaningful commitment to ensure there are no such scandals in future.

Despite the fact that the company’s management came out to indicate that it will ensure the

vehicles are engineered by set regulations and standards a good number of stakeholders remain

unconvinced. A look at the organizational structure of Volkswagen shows that it is insular

despite its huge global presence. This fact goes a long way to show that there is a need for more

steps for improvement in this regard. In actuality, the founding family maintains a huge presence

in the internal environment of the organization (Zhou, 2016).

The board members are also mostly German or Austrian, so are the employees.

Undeniably, the boards of directors go a long way to determine the tone and culture of their

organizations. As such, the company lacks a deal of diversity, which is important for a leading

company on the global market. The overall image of the company’s management poses as one

that is not fit to comprehend the challenges in the global business environment of today.

Undeniably, the stakeholders were left wondering why different members of the board would not

be at variance regarding the decisions of installing the deceitful software in the vehicles

(Schiermeier, 2015). In its defense, the company’s management claimed that the scandal was but

the work of some engineers in its employ. However, keen analysis of the situation shows that the

problem had a rather widespread background in the company. Such implies that there is

something that is certainly wrong within the company regarding concerns of integrity,

accountability, and transparency.

There is a paramount need for appropriate and sufficient communication between the

management of the organization, and its board in order to prevent future scandals. What is more

is that the two parties need to work together in harmony for the realization of proper

organizational goals and objectives. Further analysis of the situation at the company continues to

show that no meaningful steps have been achieved so far. It is important to note that some three

members of the top management of Volkswagen maintained that they were left in the dark about

the installation of the software for up to two weeks after the company’s top executives admitted

the wrongdoing to EPA officials (Russell, Gates, Keller &Watkins, 2015). A board member

named Olaf Lies further indicated that he learnt about the details of the scandal in an online

article. Such reveals that the internal environment of the company is not characterized by clear

and appropriate communication.

It is even more interesting to note that the company’s C.E.O at the time, Martin

Winterkorn, claimed that he did not know the installations leading to the scandal (Russell, Gates,

Keller &Watkins, 2015). At the time, also, the board was completing processes of extension of

the contract for Mr. Winterkorn albeit he was removed from office five days after details of the

scandal became public. It is appalling to note that the chief executive was unaware of a

fundamental threat to the company and its stakeholders. Even with the replacement of the CEO,

the company is yet to demonstrate that it has made the effort of improving communication within

its internal environment in a manner that will ensure no future scandals (Griggs-Hall, 2015). This

is despite the fact that the company suspended and replaced five high-ranking members of the

management.

Another issue of concern is why the company had to remove members of its top

management from office if they did not know anything about the scandal. Such implies that the

firm had insufficient measures for conduction of an internal investigation or that the responsible

people were lying to the stakeholders. A keen analysis of the company shows that it is a top-

down organization of command-and-control with centralized leadership, wherein even some

relatively minor business decisions are made at the top management or board level (Griggs-Hall,

2015). Such is a reality that has not changed in the company since the time of the scandal,

implying even more that no suitable steps have been taken to prevent similar future scandals.

Seemingly, it is difficult for the personnel in the organization to escape responsibility in the

event of future scandals of the type even if there is no direct culpability on their part because of

the organizational structure and culture.

In the external environment of the firm, an analysis of the situation reveals that

Volkswagen has not established any meaningful communication with car dealers; explaining its

steps of preventing future scandals. The only meaningful action by the company about the

dealers in the market was making recalls of a number of the diesel engines with the software. For

some significant amount of time after the scandal was made public, many dealers found

themselves stuck with vehicles that they were not allowed to sell in the market. It is clear that

such showed a level of disregard of obligation on the part of the company with the understanding

that inventory is a major expense in the car dealership business.

The customers on the other hand also were of the opinion that Volkswagen was not

responsible for them a good number of drivers that were affected by the scandal in parts of

Europe were of the strong opinion that Volkswagen ought to compensate them (Miravete, Moral,

& Thurk, 2015). Despite the mounting pressure on the company from the customers over time,

Volkswagen failed to establish meaningful communication with the affected customers

(Thompson, & Kottasova, 2015). It also goes a long way in showing that no suitable steps have

been taken to ensure no future scandals of the type occur. It is important to remember that the

customers opted to buy the Volkswagen vehicles in the first place because of matters of

efficiency as well as low environmental impact (Bovens, 2016). Additionally, keen analysis of

the scandal also shows that the action by Volkswagen had a capacity of around 1 million tons of

polluted air annually from the 11 million cars (Anenberg, et al., 2017). Without any doubt, the

company needed to address the public regarding regional health concerns it brought about with

care and sureness.

Conclusion

The steps of ensuring such scandals do not occur in future begin by the establishment of

accountability and transparency via appropriate and open communication channels and as a

function of organizational culture and structure. The organization also better engage in measures

of management by objectives wherein all members of the organization are involved in decision-

making and delegation of tasks and duties is practiced at a greater scale. The top management of

the firm in Wolfsburg, Germany should also encourage open discussions of matters or problems

in both the internal and external environments of the company. Volkswagen has not engaged in

suitable steps of ensuring any repeat of a similar scandal in future, especially with regards to its

style of management.

Bibliography

Anenberg, Susan C., Joshua Miller, Ray Minjares, Li Du, Daven K. Henze, Forrest Lacey,

Christopher S. Malley et al. "Impacts and mitigation of excess diesel-related NO x

emissions in 11 major vehicle markets." Nature 545, no. 7655 (2017): 467.

Barrett, Steven RH, Raymond L. Speth, Sebastian D. Eastham, Irene C. Dedoussi, Akshay

Ashok, Robert Malina, and David W. Keith. "Impact of the Volkswagen emissions

control defeat device on US public health." Environmental Research Letters 10, no. 11

(2015): 114005.

Bovens, Luc. "The ethics of Dieselgate." Midwest studies in philosophy 40, no. 1 (2016): 262-

283.

Bruijl, Gerard H. Th. "The Value of Stakeholder Theory: The Volkswagen Emission Debacle."

(2017).

Crête, Raymonde. "The Volkswagen Scandal from the Viewpoint of Corporate

Governance." European Journal of Risk Regulation 7, no. 1 (2016): 25-31.

Ewing, Jack. "Volkswagen says 11 million cars worldwide are affected in diesel deception." The

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Fracarolli Nunes, Mauro, and Camila Lee Park. "Caught red-handed: the cost of the Volkswagen

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Goel, Anusha. "Volkswagen: the protagonist in diesel emission scandal." (2015).

Grüner, Ann-Kathrin. "Influence of sudden incidents on the brand reputation of a firm and its

reaction." PhD diss., 2017.

Griggs-Hall, Rachel. "What You Need to Know About the Volkswagen Scandal." Life 7 (2015).

Hakim, Danny, and Keith Bradsher. "After Volkswagen revelation, auto emissions tests come

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vehicles." Environmental science & technology 50, no. 3 (2016): 1111-1117.

Mays, Kelsey. "VW Diesel Crisis: Timeline of Events." In Cars.com, vol. 23. 2015.

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Oldenkamp, Rik, Rosalie van Zelm, and Mark AJ Huijbregts. "Valuing the human health damage

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Russell, Karl, Guilbert Gates, Josh Keller, and Derek Watkins. "How Volkswagen got away with

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Schiermeier, Quirin. "The science behind the Volkswagen emissions scandal." Nature

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Thompson, Mark, and Ivana Kottasova. "Volkswagen Scandal Widens." CNNMoney (2015).

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