VW’s unethical behaviour required intentional deception by a large number of people. That points to a deep failure of culture and values.
The VW emissions scandal unearthed recently has stunning implications. One of the world’s biggest companies has potentially affected people’s health, the environment, the reputation of the industry and even Germany itself. One of the world’s most trusted brands has been tainted.
VW, which has admitted it rigged emissions tests (see right), is not the first car maker to get it wrong, nor is this its first time. General Motors, Toyota and Ford have all had well-publicised problems in the past. There is, however, a fundamental difference: those other famous cases involved existing defects that were not addressed in a timely and effective manner.
The VW case is more about deceptive and illegal practices that misrepresented its cars to millions of consumers and regulators over a number of years. To undertake this level of deception, you would have to have a certain culture and values.
What VW is saying
Before he quit the company he’d led for almost nine years, former chief executive Dr Martin Winterkorn stated: “I personally am deeply sorry that we have broken the trust of our customers and the public.” In a clear disconnect between rhetoric and reality, he also said: “We do not and will not tolerate violations of any kind of our internal rules or of the law.”
Winterkorn laid the blame on “the terrible mistakes of a few people”, stating he was not aware of any wrongdoing on his part. He resigned on 23 September.
In the US, Volkswagen’s CEO Michael Horn said: “Our company was dishonest with the EPA [Environmental Protection Agency] and the California Air Resources Board and with all of you … we have totally screwed up.”
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I am not sure of VW’s true motivations, but it is clear there must have been a coordinated web of deception that could not have occurred without the participation of many in a number of layers throughout the organisation. The CEO and the board of directors were either complicit if they knew or incompetent if they didn’t.
We are not talking here about a rogue employee or a few bad apples. We are talking of a rotten barrel and possibly a sick orchard in an industry that seems to have a history of misconduct. The VW case, of course, takes misconduct to a new level.
Lessons to be learned
How and why did this happen? How can people of supposed integrity do such things when they are acting for a corporation? This is what we need to understand and address as professionals and regulators. Some key points to learn – or relearn – here:
- Organisational misconduct can and does happen – at unbelievable levels of complexity – up, down and across the hierarchy.
- Senior staff with professional and governance responsibilities, who might be expected to uphold standards of behaviour, can misbehave or help hide misbehaviour.
- Whistleblowers may go unheard. There are reports that VW was warned by insiders, yet the scheme was only unearthed by outsiders.
- Oversight and control mechanisms can fail within both companies and regulatory bodies. In VW’s case, this failure lasted six years!
Fundamentally, we have to go back to the purpose of corporations and what we, as a society, should reasonably expect from our business leaders. We need to focus more on the ethical climate and culture of an entity, its values and goals.
VW’s mantra was to become the number one car manufacturer in the world. Did the end justify any means?
How the scandal unfolded
- The International Council on Clean Transportation asked West Virginia University for help to prove that diesel is clean, confirming Volkswagen’s data and regulator tests. Researchers instead found emissions of up to 35 times the US standard for one pollutant, nitrogen oxide.
- VW said it could fix the problem with a software patch. However, the state of California told the US Environmental Protection Agency (EPA) and VW that the problem remained.
- US regulators said they would not certify VW’s 2016 models until a satisfactory explanation was provided for the emission result discrepancies.
- Finally, Volkswagen acknowledged it had designed and installed “a defeat device” – affecting 11 million cars worldwide – that could detect pollution tests and lower the normal rate of emissions during testing.
- After the case hit the media, the EPA said fines could be up to US$37,500 per affected vehicle. This would reportedly add up to US$18 billion in the US alone – more than VW’s 2014 worldwide operating profit.
- VW’s share price lost more than 30 per cent of its value in the days after the news broke.
Dr Eva Tsahuridu is CPA Australia’s policy adviser, professional standards and governance.
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