Q1. Analyse the case study and list the key facts of the case. Evaluate the role ‘moral intensity’ might have played in the decision making that led to the scandal. (250 words max).

Q2. Explain Rest’s four stage model of ethical decision making and determine/justify, using evidence from the Case Study, at what stage of the model VW deviated from its decision making to attempt to cover up the issue(s). ( 250 words max).

Here is the information:

Simon Oldham

This case examines the (un)ethical decision-making of the Volkswagen Group leading up to the 2015 emissions scandal, as well as the attempted cover-up. The case focuses on the details of the scandal, its context and eventual discovery, as well as subsequent investigation and actions taken by Volkswagen. It draws upon a range of themes from Chapter 4, particularly influences on ethical decision-making, moral development, and organizational culture.

Founded in Wolfsburg, Germany, in 1937 as a military vehicle manufacturer, The Volkswagen Group, or ‘VW’, grew over the course of the 20th century into a mass manufacturer of cars, motorbikes, and commercial vehicles. Its fame grew with the introduction of classic models such as the Beetle, Golf, and Polo, and it thrived due to the acquisition of and investment in a growing number of other well-known brands, most notably Audi, Seat, and Skoda.

By the beginning of the 21st century, the VW group had not only become a global automotive giant but one of the biggest companies in the world. In 2014 it employed 590,000 employees, generated sales of €202.5 billion, and delivered more than 10 million vehicles to its customers. Alongside its core mass market brands, it boasted a stable of luxury, iconic brands, from Porsche and Bentley to Bugatti and Lamborghini. It was feted for its social and environmental credentials, emphasizing that it believed in championing responsible business, with a long-term focus on the benefit of its customers, employees, the environment, and society.

Yet by the end of 2015, it had become clear that VW had pro-actively engaged in cheating US legislation concerning vehicle emissions through the manipulation of software in 11 million cars worldwide. Beyond the environmental damage caused, in due course the scandal would come to cost the company at least $25 billion, a drop in the company’s share of the European car market, an almost 50% drop in share price, the resignation of Martin Winterkorn, Chief Executive of the US division, and the arrest of Rupert Stadler, Audi CEO.

The origins of ‘Emissionsgate’

A swathe of environmental legislation was formulated and implemented at the turn of the 21st century, for example the Environmental Protection Act was passed in Denmark in 1992, while the Environment Act was passed in the UK in 1995, and the Canadian Environmental Protection Act was introduced in 1999. This new legislation included, in many cases, heightened scrutiny and control of the environmental impact of automobiles. This was perhaps most apparent in the US, where the introduction of the 1990 Clean Air Act Amendments precipitated a tightening of light-duty vehicle emissions standards designed to reduce environmentally damaging emissions, such as carbon and nitrogen. When introduced in the noughties, this legislative shift led to pressure on automotive manufacturers for a new generation of vehicles which adhered to new emissions standards. However,

commercial pressures necessitated that such alterations would not compromise on performance and efficiency, which would heighten the running costs and potentially impact sales.

VW, at a presentation to US regulators in September 2008, promoted their response to the legislation: a generation of re-designed diesel automobiles, which met the country’s pollution laws, thus minimizing the smog, soot, and harmful emissions long attributed to diesel engines, while not compromising on performance. Regulators satisfied, this new generation of diesel cars were put on sale to the general public by VW, who were hoping to finally crack the US car market.

However, unbeknownst to US regulators, this new generation of vehicles did not meet the newly imposed emissions legislation as it had proved too difficult to design vehicles which would allow the required balance between emissions and performance. Instead, VW engineers had designed ‘defeat devices’, which ensured that, when fitted to VW’s cars, the vehicles passed the regulatory, lab-based emissions tests. These defeat devices could detect when such a test was being performed through the measurement of factors such as steering patterns, atmospheric pressures, and engine use, and would accordingly alter emissions controls to switch on fume cleaning technology. However, when used on public roads, some models would pump out nitrogen at up to 40 times the legal limit.

Uncovering the problem

In early 2014, transport campaigners Peter Mock and John German set out to prove to Europe that clean diesel cars could exist; the US had appeared to achieve a fantastic result: diesel cars that could pass its strict emissions tests without compromising performance. A 1,300-mile test journey was undertaken from San Diego to Seattle using a number of car models to prove their point. Despite all the models having passed lab-based emissions tests, the VWs tested gave some unusual results, appearing to emit dangerous levels of toxins, some at 35 times the legal limit. As a result of this, the US Environmental Protection Agency (EPA) launched an investigation in May 2014. Volkswagen, after repeating the tests themselves, asserted that the results were caused by a minor software error, which was easily fixable through the issue of a product recall. This denial continued for over a year after the EPA had first launched its investigation until August 2015 when VW finally came clean to senior officials, the EPA, and the California Air Resources Board, admitting that the automotive manufacturer had deliberately misled US regulators through the alteration of vehicle software to cheat emissions tests. VW’s confession was allegedly only precipitated by both bodies threatening not to certify the company’s 2016 diesel models. Over the following month, the company revealed further details regarding exactly how the software worked to the US regulators and the regulator devised its response to news before, finally, in late September, news of VW’s wrongdoings broke to the public.

Initially, when news of the unethical decision-making relating to emissions fixing of 600,000 VW diesel cars in the United States broke, public dismay was evident. However, Michael Horn, head of US operations, assured a congressional committee that the wrongdoing was the result of ‘a couple of software engineers’ and Dr Winterkorn, VW CEO, publicly stated that he was aware of no wrongdoing on his part. However, the case spiralled, with VW being forced to admit that cars in Europe were also affected later in 2015, increasing the total number affected to 11 million diesel cars across a number of the firm’s brands: VW, Audi, Seat, and Skoda, as well as 800,000 petrol cars being affected. Eventually, after investigation by US regulators, it became apparent that the fault did not lie with a small number of rogue software engineers but was in fact a far larger conspiracy involving senior figures within the company and extensive attempts to cover up the wrongdoing.

The roll call of unethical decision-makers

As part of a plea bargain with the US Government, an agreed statement of facts between the US Department of Justice and VW in 2017, and investigations by German authorities, it became clear that the conspiracy had most likely started as early as 2006, when company executives met in Wolfsburg to discuss the intentional inclusion of software that would defeat emissions testing in its vehicles. Accordingly, on top of managers sanctioning the use of these defeat devices in millions of cars that were delivered to customers over a six-year period, from 2009 to 2015, engineers at the company were encouraged to hide their usage, despite objections. The scandal appears to have become even murkier when a cover-up operation began in response to US investigators commencing their 2014 investigation. Specifically, VW set up a taskforce to handle official enquiries, designed to give the appearance of co-operation while in fact obfuscating the existence of the defeat device from regulatory bodies. The cover-up, between 2014 and 2015, involved VW executives and engineers feeding regulators false and misleading data, the company issuing a bogus recall of cars which allowed them to inform the regulators that the issue had been rectified as a result of software updates, and thousands of incriminating documents being destroyed just a month before the scandal was made public.

After the scandal broke, German police searched the houses and offices of dozens of VW executives and, in mid-2018, another senior figure within the company, Audi CEO Rupert Stadler, was arrested in Germany due to fears that he might prevent, obstruct, or hinder the investigation. Meanwhile, in the US, authorities indicted six former VW executives, and Oliver Schmidt, VW’s former US environmental and engineering manager, was prosecuted in 2017 for being a key conspirator, accused by the US government of misleading investigators and deliberately destroying documents, and sentenced to seven years in prison on top of a $400,000 fine.

The conspiracy took a more serious turn in 2018, when an indictment by US authorities against Michael Winterkorn, former VW CEO, was released, claiming that he not only had full awareness of what engineers were doing but also authorized a continued cover-up. The indictment asserted that engineers at the company had become aware of a study by the International Council on Clean Transport in 2014, which had concluded that VW diesels were producing higher emissions on the road than they were in laboratory tests, and that senior managers were informed, including a memo written concerning the tests which was sent to Dr Winterkorn. Additionally, in July 2015 it is alleged that Dr Winterkorn was given a presentation about the situation, which supposedly included details of the cover-up and the consequences of the regulators finding out, a month before any admissions were made to authorities.

Moreover, in 2017, Robert Bosch, auto components maker, although not conceding any wrongdoing, agreed to pay $327.5 million in compensation for its role in supplying the cheating software, suggesting awareness of the conspiracy was not just confined to individuals within VW.

VW turns over a new leaf

Despite the eruption of the emissions scandal in late 2015, the ensuing public outrage at the dishonesty and disingenuous actions of VW, the enormous financial cost to the company, and the detrimental environmental consequences of its actions, after an initial dip, VW’s latest financial results suggest that the company has managed to shrug off any wrongdoing. In fact, if an individual had invested in VW a day before the emissions scandal broke in 2015, as of the beginning of 2018 the stock would be up 10%, having outperformed both BMW and Daimler. Sales at VW exceed those prior to the scandal breaking in 2015, costs have declined, employee numbers have gone up, and plans to release a large range of all electric cars by 2025 have impressed investors and the public alike.

Arguably this is the result of a maelstrom of apologies from the company, massive levels of compensation and fines, damages from the scandal currently totalling $25 billion, and a total restructuring of the group whistle-blowing system. However, extensive investigations by US and European authorities were required to expose the depth of the scandal and its cover-up and, as of 2018, the aftermath appears not to have run its course, despite it being three years since the scandal initially broke. In addition to this, evidence suggests that the environmental and human costs of the fraud dwarf the financial costs incurred by VW, with experts calculating that it directly resulted in 526 ktonnes of nitrogen oxides being emitted above the legal limit. This equates to an economic valuation of life lost totalling $39 billion dollars, not accounting for the incalculable human value of these lost years. Meanwhile, since 2015, questions have been raised about endemic cultural issues of unethical practices and behaviours within the wider automotive industry. Nissan, Daimler, General Motors, Suzuki, and Mitsubishi have all been found to be knowingly engaging in fraudulent practices regarding emissions fixing and fuel economy figures since the VW scandal broke.

Accordingly, the depth of VW’s deception, along with its considerable attempts at a cover-up, in tandem with the news that they are not the only automobile manufacturer with the same problem, has led many to question whether these practices have truly been stamped out within the industry or whether future scandals are perhaps an inevitability.

Answer rating: 100% (QA)

PART I The key facts of the case are as follows In 2006 company executives met in Wolfsburg to discuss the intentional inclusion of software that would defeat emissions testing in its vehicles Accordi... View the full answer