It is the end of the year 2015. You are personal assistant to Matthias Mller, the newly

Fantastic news! We've Found the answer you've been seeking!

Question:

It is the end of the year 2015. You are personal assistant to Matthias Müller, the newly appointed CEO of Volkswagen AG. In September 2015, Volkswagen's alleged fraud came to light through an Environmental Protection Agency (EPA) investigation in which the car company's use of software to manipulate nitrogen oxide gas emissions tests was discovered (EPA, 2015). The EPA is a U.S. government agency that develops and enforces environmental regulation. The exposed software allowed the affected vehicles to emit reduced amounts of toxic nitrogen oxide when undergoing emissions testing, while the vehicles actually emitted more than 40 times the U.S. legal standard for the gases when not being tested. Nitrogen oxide is a primary element of smog matter which paves the ground for various diseases, such as heart and respiratory disease, premature death and bronchitis.

Confidential company documents show that a group of Volkswagen engineers developed the method to rig diesel emission tests in 2005 when the United States started imposing tough emission standards on the automobile industry. The engineers' solution was based on the so-called "dyno" mode. When the vehicle was in this mode, the emission control system worked with full effectiveness. The car was able to recognize when it was in a laboratory test and could change the engine behavior to obtain optimum test results.

Your boss informs you that Volkswagen wants to build a new strategy to deal with the current scandal. To do so, Volkswagen must make structural changes, however, part of the executive board does not fully agree. The CEO asks you to constitute an internal team of experts to analyze the current situation and develop a strategy on how to address the crisis that will convince the management board to take appropriate action. In preparing your strategic plan, consider the two perspectives of crisis management (external and internal to the company), thus ensuring that the company deals with its financial and legal issues while developing a better internal culture and re-establishing trust with consumers.

When preparing your recommendations, consider (among others) the following factors.

The crisis is showing rapid economic effects. Sales figures are falling in the United States, where your company had invested heavily in the "clean diesel" campaign in an effort to considerably grow its low market share. These efforts were spurred by Volkswagen's ambitious goal to become the global leader in the automotive industry. For now, in Europe, the impact on sales is less severe. However, certain countries, including Switzerland, consider banning the distribution of vehicles that contain the illegal device. Volkswagen is one of the largest employers in Germany, and the company has excellent connections to the German government. At this point, there hasn't been any government enforcement action against Volkswagen in Germany.

Historically, diesel engines are very popular in many European countries. However, pressure from NGOs on carmakers and the German government to lower nitrogen oxide emissions is rising (https://www.bund.net/themen/mobilitaet/autos/abgaswerte/). There also have been requests to the European Commission to investigate breaches of EU rules on car emission tests and alleged failures by EU member states and the EU Commission to enforce EU standards. Rumor has it that Volkswagen engineers and supplier Bosch had warned Volkswagen against the illegal use of their technology as early as in 2007 (https://www.bbc.com/news/business-34373637 ).

The conduct of the previous CEO Martin Winterkorn, who still claims ignorance and has shown indifference to the accusations, has been publicly criticized. The lack of transparency, and Volkswagen's procedures and policies, have called into question the organization's commitment to ethics, and have reflected negatively on the company's executives and employees involved in the scandal. The Volkswagen management board has yet to make an official public comment on the affair.

Besides the financial and reputational risks mentioned above, consider the legal risks Volkswagen faces. What are the legal implications of Volkswagen's actions, and the stakeholders who will be affected and might be able to bring suit, as well as the costs of such litigation? At this time, the extent of damages Volkswagen may be liable for is unclear. Volkswagen could try to negotiate and settle some potential lawsuits with private plaintiffs; however, it is unlikely the EPA and other regulatory groups would be willing given the extent of the scandal. It is also possible that there could be criminal implications.

• Do you think Volkswagen may have underestimated the legal repercussions of their cheating? Are there steps you can take to mitigate these legal repercussions? What impact will your approach have on your company and the different stakeholders involved?

• Are there specific individuals that are more legally and/or ethically responsible than others? Why? How do these considerations play into future processes you would recommend Volkswagen implement? • Do you believe U.S. and German consumers may react differently to this scandal? Why? Does your strategy need to differentiate between different markets?

• How should the management board respond to requests for comments?

• Is there anything Volkswagen could do to turn its failure into a success?

Based on the above information and your own research, what would your recommendation to the Volkswagen executive board. Consider making use of the Ethical Business Leader's decisions tree and/or Bagley's framework for the legally (and ethically) astute manager.