MGN423 Ethical Behavior And Strategic Issues Of Volkswagen That Caused Scandal Assessment 3 Answer

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Question :

Task Instructions - Assessment Item 3

Assessment Item 3, MGN423: Executive Audit

Relates to learning outcomes:Unit Learning Outcomes: 2, 3 and AOL goals: KS (1.1), HO (2.1), TS (4.1), SE (5.1)
Length:1500 words, +/- 10 percent word allowance
Weighting:30 per cent

Description of the task:

For this assessment, you will provide a critical and thoughtful reflection of a real-world contemporary strategic issue and evaluate decisions made by the executive to implement the strategy within the company. You should take an ethical stance and critically reflect on the ethical issues and decisions of executed strategy. You must base your assignment on the case that included on the Bb assessment page. 

What needs to be covered:

Please read the case (Volkswagen’s “Clean” diesel scandal) on the Bb assessment page and prepare a report to cover the following questions:

1) Take an ethical stance and discuss Volkswagen’s ethical behaviour (e.g. from a consequentialist or categorical perspective).

2) Which key strategic issues can you identify that caused the scandal?

3) To what extent does Volkswagen reflect the strengths and weaknesses of the stakeholder model of governance? 

4)  What should Volkswagen have done with regard to governance and management after the resignation of Martin Winterkorn? How would you fix the company's governance system?


Any report structure and headings can be used, as long as they comply within the QUT standard as defined in QUT Cite. 

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Answer :

volkswagen scandal

Ethical behavior of Volkswagen

Volkswagen company started manufacturing the diesel engine because it was most sustainable idea when the emission due to cars was increasing and every year a new demand of modification would be seen. The contemporary strategic management, where the traditional and the current views are embedded in the approach to develop a new discovery. The diesel engines could be regraded as the result of the strategic management because they can sustain the model for about 15 years. The company manufactured the diesel engine by investing hard work and great amount. However, it turned out to be a failure because it do not comply with the harmful emission policies. It is not possible to discard such a huge investment because it would not only affect the name of the company but also the employment of the employees (Georgievski and Qudah 2016). The workers, staff, managers and other employees who were dependent on the company to meet the ends are responsibility of the head of the company. The decision makers of the company when found out about the higher emissions from the manufactured diesel, they opted to falsify the test results (Siano et al, 2017). However, it cannot be considered ethical from any perspective because the low emissions were showed only during the test and not when the car is on the road. Therefore, it is clear that the engineers were aware of the wrong they were doing. The reason that can be associated for falsifying the results can be to save the jobs of the people who would become jobless if the diesel engine did not pass the test (Bachmann, Ehrlich and Ruzic, 2017). This is because huge financial budgets incurred in their manufacture and to make the repayments, the company would have to undergo layoff, selling assets in a liquid condition and so on. Therefore, the reason of allowing the cars in the market even though the harm they could cause was crystal clear cannot be justified and validated very efficiently. There was no scope of dilemma in choosing. The difference was black and white. Therefore, the responsibility of the employment of the employees is the only justification that the company cheated through such a vast scandal. 

Strategic issues that caused scandal

The strategic decisions that should be taken for the future of the organization should be bias free and should incorporate decisions that come out of collective discussion. The strategy issue arose in the organization because the CEO of the company was an outsider and thus he was resisted from taking decisions on the diesel engines. The strategic issues that led to the scandal are lack of ethics towards the environment and the customers. As high as 40% of nitric oxide can cause permanent damage to the environment and people (Blackwelder et al, 2016). The strategic loophole existed is the proper preparation of the idea to make the diesel engine. All the parameters were not strategically identified. Prior testing of the emission was not checked. Even after identifying the high emission level from the engine, it was not discussed and to hide their own fault in the design, the engineers chose the other way out. It can be regarded as the fault of the CEO that he did not promoted a flexible environment. The managers were not allowed to speak and thus it was another management issue that led to the development of the defeat device. The scandal could have been stopped if the leaders of the company developed the ethics in their stakeholders so that they would think twice before taking any step in letting the scandal happen (Blackwelder et al, 2016). The employees were pressurized constantly for the performance of the company rather than aligning the processes with legal compliances. The compliance with the legal regulations was made secondary and the performance was primary. This was a major reason for the scandal in the company. The need to surpass Toyota put greater pressure on the employees or engineers due to which the employees failed to disclose the fact and made the defeat device to falsify the results of emission when testing. Thus the need of performance resulted to the scandal. 

Reflection of strengths and weaknesses of stakeholder model of governance by Volkswagen 

According to the stakeholder model of governance, the stakeholders should be involved in the governance process by the corporate managers. This theory was developed to ensure that the scope of conflicts between the stakeholders can be minimized. The decision making process is very complex due to the conflicts in the interest of individual stakeholders. Therefore, with the use of this theory, the organizations settle upon a collective decision and involves even involves the third party if any (Schiermeier, 2015). In the case of Volkswagen it is seen that the company reflects upon the strengths and weaknesses of this theory. The advantage of the stakeholder theory existed in the fact that the directors would share all the information regarding the operations and should answer the questions of the stakeholders in satisfactory way. However, the Volkswagen didn’t comply with this doctrine (Crête, 2016). The company made a huge fault in the diesel engine to get approval for introducing it into the market. This step, taken by the company reflects that it diluted the strength for personal benefit and kept it hidden from all the parties involved. However, the internal stakeholders such as engineers who developed the defeat device were aware. Moreover, the theory’s major focus is on introducing the ethical and economical concepts in use but it does not seem that the company took economical approach in designing the engine. It was also seen that the CEO of VW oppressed his managers who were frightened even to speak and suggest in decisions. Stakeholder theory integrate all the stakeholders but the company seen to oppose the theory’s strength. Therefore, to some extent the strength of the theory was maintained. The weakness of the theory is that the interest of all the stakeholders cannot be entertained and managed. Therefore, the directors or managers will stick with the decision that is more important and which encompasses a greater profit. This weakness of the theory was seen as the company stuck with the choice of interest of selling the faulty engine cars in the market without disclosing it to any stakeholder internally or externally. 

 Steps should have been taken after resignation of Martin Winterkorn and fixing of company’s governance system 

Martin Winterkorn was the CEO of Volkswagen when it was identified that the company has installed a device in the car cheat with the emissions. The CEO accepted the responsibility of all the regulations that were breached even though he was unaware of the defeat device. He expanded the business based on the expansion strategy and even topped Toyota, which was number one in automobile factory. The statement of the CEO was very ethical at that moment as he took the responsibility as the CEO. After the resignation of Martin, the company should have started to employ new engineers who would try to decode the regulation code for the defeat device. The production of the cars should have been stopped to know if the device was placed in the new production also. The cars that were sold should be identified as soon as possible and the buyers of the car should be provided with compensation. The engine production should be completely blocked (Mačaitytė and Virbašiūtė, 2018). However, the company took steps personally also to find about the matter but the corporate governance should have been modified. The involvement of the managers in decision-making process during the time of Winterkorn was very limited. Therefore, a contingent model of leadership should be placed so that everyone can speak their mind. The company could not fulfil the ethical and social responsibilities and this can be related with the lack of power to the stakeholders such as managers. The diesel engine was a threat to the environment because it did not comply with the clean air act and other EPA acts (Cavico and Mujtaba, 2016). Therefore, changes in the leadership is required. However, the expansion strategy of the company turned out to be a great success and it made great success by achieving the targets long before the set period. 

The company’s governance should order strict audit for all the research and technology and other important resource allocating processes. The governance of the company should also make sure that all the employees are being involved in the process of decision-making. If the engineers in the beginning disclosed about the fault in the engine, better decisions could be taken by involving all the employees. There should be strictness in the policies that the engineers would provide all the important information of the process and the applications.