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  • Subject area(s): Engineering
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  • Published on: 7th September 2019
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  • Number of pages: 2

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Introduction

Volkswagen Group is a multinational German automotive manufacturing company, with its marketing campaign had motive to sell diesel cars in US due to cars low emissions. On 18th September, the US Environmental Protection Agency revealed that Volkswagen had violated the Clean Air Act stating cars sold in US included software devices fitted on diesel engines having capability to sense test scenarios, that under laboratory conditions the vehicles were put on safety mode where engines ran below normal power and performance to pass EPA’s emissions tests. Yet, the engines switched out of the mode on roads emitting nitrogen oxide pollutants up to 40 times above allowable rate in US. The EPA's findings cover 482,000 cars in the US only: Volkswagen admitting to about 11 million cars worldwide, including 8 million in Europe, are fitted with the device affecting at-least 10,000 vehicles such as Porsche, Audi and Volkswagen models.

Ethics & Problems of Volkswagen

What started in US other countries are affected; opening investigations in UK, Italy, France, South Korea, Canada and Germany with politicians, regulators and environmental groups questioning the legitimacy of Volkswagen's emissions testing. Early 2014, regulators raised concerns about VW emissions levels but was dismissed, although it questions whether executives and managers wilfully misled officials. The future buyers may question the reliability of carmakers claims for emissions tests. Rudick (2015) reports that Transport & Environment reports shows almost 90% of diesel vehicles exceeded emission limits on roads perhaps targets set by the government cannot be achieved resulting to fraudulent actions.

According to Hotten (2015), Michael Horn the Volkswagen American boss have screwed up, while the group’s chief executive, Martin Winkerton emphasises that customers and public trusts have been broken hence replacement by Matthias Mueller, the former boss of Porsche was seen after losing trust of key shareholders. The board announced that investment is set to reduce by $1bn with possibility of job losses: by moving away from diesel to electric cars, integrating cultural and managerial realignment within Volkswagen and creating strategy emphasising shift from sales to customer and employee satisfaction. To ensure diesels have a future in the industry, manufacturers have to cooperate enabling their cars are appropriately built and tested reflecting real driving conditions; there are buyers acknowledging their cars to be not as clean as thought and as over half the cars bought in the UK are diesels, it is a huge downfall for the economy. As a result, Tovey (2015) says Volkswagen to have secured a €20bn bridging loan with banks but Fig.1 Warmoll (2015) reflects the impacts are huge, leading to its first quarterly loss for 15 years of £1.2bn and also being overtaken by Toyota as the top selling global carmaker. Additionally, with Volkswagen recalling millions of cars worldwide, it is unlikely to recover financially from the losses even with the funds set aside as the company could face fines of up to £11.7bn, criminal charges for its executives, costs of legal actions from car owners and shareholders.

Roles & Responsibilities of Senior Management

Both cultural and managerial roles play as lacking in board oversight and monitoring commitments, reflecting on Volkswagen’s history: built on an alliance of family business and government interests leading to maximising shareholder value and operating business with commitments to sustainability. Sustainability should be integrated into a business where unethical business practices are addressed and rectified, reducing risks of major financial consequences. VW is a reminder that it is ideal to focus on rankings, reports, press releases and awards but the outcomes and impacts of sustainability created destroys shareholder value and thus there must never be gaps between performance and communication. It is unclear whether Winterkorn knew about the installation of devices: investors may find it unforgivable if he ordered their use but very problematic if he had no idea, even longstanding Chairman Ferdinand Piech publicly criticized Winterkorn's performance after a leadership battle but Winterkorn won over shareholder support and hence saw Piech resign in April; variably, the trust of shareholders have been broken as had fought for him and so with Winkerton resigning it may do good on the company and the shareholders themselves.

VW was also a global leader in corporate social responsibility ranked 11th best company in the world with projects backed by charities it supported sought for improving society. Corporations have responsibilities to shareholders to place profitability given current legal structure of corporations in terms of anonymity of directors, liability of individuals suggesting that CSR is designed to distract those who points to the less socially responsible actions of corporations and whatever positive contributions are made can never make up for the negative contributions. Volkswagen was erased from the DJSI and automotive leader-board suggesting that the concept of CSR based on self-assessment, assurance, ratings and awards does not prove loyalty and trustworthiness for companies. Lynn (2015) expresses that CSR has become a racket because it allows companies to parade virtues, and hold high statuses, while internal standards are allowed to slip in their works. It specifies that Volkswagen have tarnished the CSR movement and bad ethics are regarded as good business thus it becomes harder for anyone to believe companies sustainability reports.

Roles of Accountants & Accounts

There are diverse range of sources available increasing pressures for accounting services; the role of auditors is to provide assurance to organisations responsible for collecting vital data. An understatement of emissions information that stakeholders rely on, is similar to overstating profits or misreporting interest rates. ICAEW (2015) works offer guidance to auditors, providing assurance on interest rate levels establishing similar structures to help the environmental agencies, and the manufacturers themselves, on transparency and reliability on vehicle performance data. Additionally, the EPA (2015) audits carmakers’ records for both emissions and fuel economy.

Volkswagens approach was that even the EPA and other regulatory bodies appears to have little awareness of what the company was doing for a decade and likely that Volkswagen’s internal team completely failed to pick up on this scheme. Additionally, eRevalue (2015) suggests that analysis of sustainability reports should have aroused inconsistencies references to emissions and air quality; Fig.2 shows the reporting of sharp declines in sustainability compared to its competitors. Warmoll (2015) suggests that the deception goes back to 2005/6 and an ex-VW employee revealed that in 2008 the engine was certified with its code being recognisable. It was a voluntarily disclosure, if analysed properly, this scandal could have been revealed, therefore, is not failure of responsible business: it points to those who plan, assess and report on companies’ non-financial performance. Particularly, it requires to ask how external agencies can verify corporate claims so that information can be given careful inspection. Evidence of investors leaving the shares and brand damage done, shows that responsible business is critical to success; given the significant financial exposure created by the emissions scandal, Volkswagen may need government support or assistance in order to survive.

Accountability for the Scandal

Falls in share prices of competitors reveals that investors does not believe to be an isolated incident, workers in the auto industry knew of this cheating for years, this unethical practice contradicts the automaker’s own code of conduct as words published should reflect that they are responsible business. Fig.3 Sustainability Report (2014) supports that around 74,000 employees were trained in the company’s code of conduct last year, 40% were face-to-face; highlighting new recruits knew that illegal works were not permitted. Therefore, code of conduct exists, but the biggest corporate scandal was not caught. It may be the failure for not measuring and monitoring what really mattered as assessment of company performance requires honesty and transparency from the business being true across industries, whether it is disclosing sustainability or financial performance based on what companies voluntarily share. However, the accounting function requires accountability; the failure of ownership of their decisions and actions on not picking up irregularities in emissions tests spreads across more manufactures but rather than possessing a threat to audit and assurance profession, Cree (2015) suggests it offers an opportunity to concentrate on those who deliberately falsify information.

Conclusion

To conclude, Volkswagens story highlights leaders to have lost control of their mission, essential role and becoming focused on efficiency methods rather than identifying in modifying efficiency and effectiveness of their company. Hence, communication is key, as prevents wrongdoers carry out mischievous acts. The leaders works considers whether it is right based on behaviour of the management board, culture and reactions that influence whether right approaches have been taken to solve issues considering fairness, accountability, sustainability, considering law, and trustworthiness of leaders and management but this scandal is an example of intentional deception as the right thing was not done. Some may perceive the top management to be unwitting victims of engineers but the engineers did exactly what they were hired to do and top board knew of this: internal agencies knew of this but the external agencies showed a lack of competence in their professions. Overall, this scandal has hurt more than Volkswagen’s reputation: all German, automobile manufacturing companies have taken pride in their German engineering, premium automobile quality as was synonymous to ‘Made in Germany’. By hurting the reputation of the country, this scandal will affect the economy of Germany, as every seventh job in Germany is linked to the automobile industry in many ways. What remains most concerning though, is whether Volkswagen will be able to build its reputation back after this controversy.

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