In 2006, Mercedes-Benz introduced Blue-

TEC, an advanced system to trap and neutralize harmful emissions and particulates that allowed Mercedes to market “clean diesel” cars. VW and Audi made agreements to share the technology to enable all three companies to market clean diesels in an attempt to expand the market for diesel car. If VW and Audi had not joined Mercedes, they would probably have been at a significant competitive disadvantage.

VW, however, being a company of proud employees, started work on their own “clean diesel” system and introduced one in 2009. Unfortunately, VWs new system could operate in compliance with U.S.

emission standards only if their engines were adjusted to run at very poor performance and gas usage levels, which were not competitive with the BlueTEC systems already on the market. Motivated by pride and enabled by arrogance and complacency, 1 VW engineers decided to install a computer software switch that, when government emission tests were started, would alter the engine performance characteristics during the tests from a normal highperformance/

high-emission setting to a low-emission/low-performance setting.

This computer software defeat device allowed VW vehicles to pass the California emission tests, which were the toughest in the United States. In fact, the VW engines produced up to thirty-eight times the allowed pollution levels.2 Hypocritically, VW’s Super Bowl ad showed their engineers sprouting white wings like angels.

Essentially, VW engineers decided to cheat—to defeat the emission tests—with a technical “fix.” They gambled that no one would find out and/or that there would be little negative reaction. Apparently, top management were unaware of the plan to cheat. Interestingly, this was not the first time that a defeat device had been used. In 1973, VW was fined \($120,000\) in the United States for using an earlier defeat device, and in 1998, truck engine makers agreed to a \($1\) billion settlement for a similar instance. But VW tried it again, and when high test results came to light in 2014.

VWs software deception was discovered in 2014 by scientists at West Virginia University who disclosed their results at a public forum. VW’s reaction was that the testers did not conduct the tests properly.3 The U.S. Environmental Protection Agency repeated the tests and questioned VW personnel.

This triggered VW’s halt of sales of some diesels and the production of others, an internal investigation, and the resignation of the CEO, Martin Winterkorn, as well as a recall of 11 million cars.4 In September 2015, VW stock sank by 20% and then another 17%, and \($7.3\) billion was allocated to cover the recalls, refits, and other costs of the scandal.5 The amount of fines and the cost of settling civil lawsuits will not be known for some time, although the U.S. Justice Department has sued VW for up to \($48\) billion.6 It is evident that many VW employees and managers knew of this illegal deception of cheating on emissions standards from before 2009 to 2014, thus putting the company at great financial and reputation risk.

Concern has been expressed that the VW emissions cheating scandal has undermined the vaunted reputation of German engineering, calling into question the traditionally respected Mercedes, BMW, and other brands that employ so many in Germany and abroad. Also, VW’s cheating has deeply offended the environmental/sustainability movement, which is very strong in Europe, and the governments that backed the “clean diesel” program there. As David Bach has pointed out, “‘Clean diesel,’ it turns out, is as much a lie as ‘clean coal.’

Volkswagen’s abhorrent behaviour therefore threatens to delegitimise the countless and essential efforts by companies around the world to develop scalable environmental solutions.”7

Questions:-

1. Why would VW engineers think they could get away with a defeat device when the technique had been caught twice before?
2. If they thought they would be caught, why did they try the defeat device?
3. Why didn’t one of the several design engineers and test engineers and technicians involved blow the whistle to top management and/or the regulators?
4. VW has a governance system, where the Supervisory Board8 is different from North American boards of directors.
How is it different from North American governance models? The VW governance system does not appear to have a whistleblower encouragement and reporting system. Could the differences in governance have contributed to the decision to cheat, and to keeping it a secret? If so, how?
5. Describe how VW would have to change to institute a culture of integrity.
6. How would VW ensure that their policy on environmental protection be upheld?
7. Should VW engineers, managers, and the CEO be sent to jail? Why or why not?
8. Would you buy a VW? Why or why not?