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CORPORATE SOCIAL RESPONSIBILITY

1.0 introduction (CSR as a Process and Outcome)

“Human beings and the natural world are on a collision course. Human activities
inflict harsh and often irreversible damage on the environment and on critical
resources. If not checked, many of our current practices put at serious risk the
future that we wish for human society and the plant and animal kingdoms, and
may so alter the living world that it will be unable to sustain life in the manner that
we know. Fundamental changes are urgent if we are to avoid the collision of our
present course will bring about.”

- World Scientists’ Warning to Humanity, 1992.

The starting point is to admit that CSR (Corporate Social Responsibility) has failed
(Wayne Visser1, 2010). According to Visser the logic is simple and compelling. He says
a doctor judges his success by whether the patient is getting better or worse as a result
of his treatment. Therefore he argues that we should judge the success of CSR by
whether our communities and ecosystems are getting better or worse. In his study on
CSR, at the micro level – in terms of specific CSR projects and practices, reflects that
there are indicators of improvements, but at the macro level almost every indicator of
our social, environmental and ethical health is in decline. There is an alarming
disconnect between global CSR guiding instruments (refer table 1 below) and the
conservation of the environment. Refer appendix 1 for an irrefutable testimony of
disasters that supports the above argument.
1. United Nations Global Compact Principles
2. World Summit on Sustainable Development
3. OECD Guidelines on Multinational Enterprises
4. ISO 26000
5. ISO 9001
6. ISO 14001
7. OHSAS 18001
8. OECD Principles of Corporate Governance
9. Social Accountability 8000
10. Global Reporting Initiative
11. World Business Council for Sustainable Development
12. Environmental and Social Standards of International Finance Corporation
13. Equator Principles
14. Principles of Responsible Investment
15. United Nations Human Rights Instruments
16. Transparency International Business Principles
17. Voluntary Principles on Security and Human Rights

Source: Ezendu 2010, Challenges of CSR

Table 1 : Global Guiding Instruments for Environmental Preservation

In the business environment, all the resources that are utilized in the capitalistic
economic framework to meet the consumption needs of both people and organizations
in the planet are part of the ecosystem comprising the interdependence of biotic and
abiotic organisms (……………). The global conundrum that has arisen out of the above
framework is the indiscriminate acquisition and utilization of resources in the business
environment which if left unchecked, will lead to eventual disaster to human race as a
result of depletion of resources and damage to the environment (……………). Therefore
there is an imperative need for the human race to be socially responsible in all its
business activities to pursue conservative approach in the utilization of resources for a
sustainable ecosystem.
Hence Corporate Social Responsibility has evolved and has changed the role of doing
business in the society, from simple appeal of no social duties for business except to
shareholders (Friedman, 1962), to the understanding of being socially responsible. As
opposed to Friedman’s argument, various global scholars and institutions have already
explored the uncovered multiple dimensions of this concept both theoretically and
empirically (Visser2, 2010). In this millennial era, it has been established that corporate
responsibility for a corporation is crafted on the lens of multifaceted stakeholders. A
fundamental understanding of extending corporate from a shareholder’s perspective to
an approach based upon an all-encompassing stakeholder approach puts the business
corporation in a broader perspective of social and environmental responsibilities
besides the economic concern.
2.0 Contemporary definition of Corporate Social Responsibility
In the corporate parlance “Corporate Social Responsibility” had been traditionally
viewed as philanthropically extended assistance to the communities by corporations.
However a contrasting view of Coleman, (2008) is quoted as follows:

“Being a socially responsible company means demonstrating an enduring


commitment to improving people’s lives. It’s about delivering sustainable growth,
supported by a firm foundation of principles that preserve human dignity,
enhance the quality of life, and reduce environmental impact.”

- Leonard S. Coleman, Jr., Heinz Board member, Chair of the CSR Board
Committee

Inter alia, the European Commission views, Corporate Social Responsibility as a


concept whereby companies integrate social and environmental concerns in their
business operations that is seen as an integrated comprehensive set of policies,
practices and programs as part of the firm’s CSR mechanism.

Thus, there are many requirements on firms driving an active and genuine CSR
mechanism, and the success is likely to be related to the way that the mechanism is
structured, developed and implemented within the organization. Refer figure 1 for a
firm’s typical structure of a CSR mechanism from a system’s perspective in order to
define and discuss CSR based on ethical, moral, rational and economic arguments.
From a system’s perspective, it can be seen that the structure of CSR mechanism is
crafted from a holistic viewpoint which includes the foundational input components
which are needed to drive the CSR process in order to achieve the desired outcome of
the organization.

CSR refers to a business practice that involves participating in initiatives that benefit society and at
the same time taking it as an opportunity to earn profits (Nicole Fallon. 2014).
Source: Own construct

Figure 1: System Perspective of CSR


3.0 The CSR challenges for business in society

In order for a firm to fulfill its CSR obligations, the former has to see the entire process
from a holistic lens conserving the ecosystem which comprises of all biotic community
interacting with abiotic environment for survival and sustainability. (………………….)

System’s Perspective

Inevitably, firms are subjected to various challenges both from within and external in
driving CSR initiative. A firm’s CSR initiative can be defined as a process and outcome
from a system’s perspective. With reference to figure 1, in the context of system’s
perspective, it is discernible that CSR initiative emerges as an operational process
driven by foundational components namely; ethical, moral, rational and economic to
produce an outcome that is desired. Thus, these input components underscore
criticalness in enabling decision making with respect to the outcome of CSR process.
Therefore all the four foundational components represented as inputs play crucial
decision making roles in influencing the final outcome of the processes involved in the
CSR mechanism. However, it is not that simple for the firm to make decision just based
on the input components to drive the CSR mechanism which comprises of business
management processes, social wellbeing processes and environmental concern
processes as illustrated in figure 1. There are further challenges from external variables
in the form of CSR drivers namely; affluence, globalization, sustainability,
communication and brand which also impact the decision making processes in driving
the CSR mechanism.

In the discussion that follows, with reference to figure 1, we will argue, why and how
these foundational components are critical and play an instrumental role in driving the
CSR initiative? Then followed by investigation and discussion on opportunities and
threats offered by the above mentioned five CSR drivers whose challenges create a
competitive environment for all the four foundational components of which, the firm has
to decide one of them as a relevant choice to effectively drive the CSR mechanism in
the face of these challenges.
3.1 The Arguments: Criticalness of Foundational Components in CSR Initiative

It is argued that incorporating CSR initiative into business operations necessitates the
input of certain instruments or foundational components to effectively drive the firm’s
success. Four such instruments are examined below for their criticalness.

Argument No. 1: An ethical argument for CSR

Simply put ethics is an act of doing things right, just, fair and no harm. It basically
connotes the resultant behaviour of an individual or an institution’s action which assures
a socially responsible outcome. Ethics in business is considered to be a critical element,
hence applying ethics unreservedly driving the CSR mechanism in an organization shall
bode well. Phillips (2018) notes that striving to earn a reputation as an ethical business
is noble, but it requires commitment therefore the organization’s corporate culture shall
be embedded in ethical base.
Furthermore, Arthur W. Page (2016) argues that, CSR is an argument based on two
forms of ethical reasoning which includes utilitarian and Kantian principles. He further
explained that, utilitarian or consequentialist reasoning justifies action in terms of the
outcome generated i.e., the greatest good for the greatest number of people. Whilst
Kantian or categorical reasoning justifies action in terms of the principles by which that
action is carried out. Page further noted that for practical ethical purposes, utilitarianism
and Kantian perspectives have been accepted as social norms by the firm, the industry
and the society as necessary for the right functioning of business.

In consolidating the argument, Henn, (2015) cites that business ethics is about the
structural health of an organization and the ability of that firm to perform consistently
well by reducing the negative impacts of emerging impediments that arise from a
dysfunctional environment. What’s more, he noted that there is also growing empirical
evidence that suggests organizations built on strong ethical foundations outperform
organizations where ethics is not a principal business driver. Hence it is encouraging
that all decision making processes in the organization shall be ethically bound to
support and sustain the CSR initiative.
Argument No. 2: A moral argument for CSR

Morals are judgments, standards and rules of good conduct in the society (…………).
They guide people toward permissible behavior with regard to basic universal values. It
is the foundational component upon which ethical behaviour is propounded. Page,
(2000), argues that moral reasoning reflects the relationship between a company and
the society within which it operates. He assumes businesses should recognize that
those for-profit entities do not exist in a vacuum and that their ability to operate and
achieve ongoing success comes as much from societal resources. Hence all decision
making processes in the organization are morally bound to realize the successful
implementation of the CSR initiative.

Interestingly, business ethics, rightfully deals with the creation and application of moral
standards in the business environment. Thus, morality of an individual or an entity is
reflected in the willingness to do the right thing in terms of responsibility, even if it is
hard or harmful and this is what ethics is all about. Therefore industry stalwarts
advocate that ethics are moral values in action. There again it is obvious that moral
element is a bedrock for ethical precepts beckoned by the business environment. In
short ethics does not exist without a moral compass.

Argument No. 3: A rational argument for CSR


In the context of rational argument, focus is on the benefits to organization’s
performance of avoiding external constraints. Adopting a path of least resistance with
regard to issues of concern makes common and business sense. The point of argument
here is instrumental rationality (……………) which means the consistency of the
intention and the belief of the individual who is involved in the decision making
processes in the firm which owes the society for all its essential resources. These two
elements need to conflate reflecting the values of moral ingredient in the decision
making processes
As argued that a firm’s success depends on the society that provides all the necessary
resources and other elements therefore the firm is morally committed to fulfill its social
responsibility obligations to all the stakeholders in the society. Thus rational argument
invariably emphasizes the importance of moral ingredient and wisdom in all forms of
decision making in order to ensure that individuals and organizations judiciously
respond to deserving circumstances in support of CSR initiative.

Argument No. 4: An economic argument for CSR

Lastly, economic argument for CSR is an argument of economic self-interest for


business with regards to its bottom line and the interest of stakeholders. In the business
context it is observed that, the ethical, moral and rational arguments for CSR lead to an
economic argument. That is to say, the economic vigour of the firm will be rendered
paralyzed in the absence of these elements as part of corporate culture. Besides,
economic, all the other three elements are value driven in the sense that the outcomes
derived from integrating these elements into the business operations, in reality
augments the economic performance of the firm. The economic argument, for practical
purposes if dealt in isolation may not prove to be an effective component to facilitate
decision making as it may not be able to recognize the whole spectrum of challenges
that may be presented in the dynamic business environment. Thus in seriously
considering economic argument for driving the CSR initiative, the firm has to look
beyond its border, deep into the pulse of the stakeholders in the society as a whole.

In summary, CSR adds value because it allows firms to reflect the needs and concerns
of their various stakeholder groups. By doing so, the firm is more likely to create
greater value and, as a result, retain the loyalty and trust of those stakeholders. Hence
CSR is seen as a way of matching corporate operations with stakeholder values and
expectations that are constantly evolving. In an evolving environment, the challenges to
the firm in driving its CSR initiative are complex and an arduous task. It has to deal with
a compendium of variables with the right instruments as discussed above to effectively
drive the CSR initiative.
. VW case – economically sound ethically failed. Economic vigour was instrumental in
unethical behaviour .. Money to pay fine and then move on. What will be the ultimate
impact? However
Thus in supporting CSR, this perspective argues that social contribution can be
profitable and can increase competitive advantage of the organization. In summary,

Most businesses are financially driven, and it is possible to be both ethical and
successful. But there is a fine line between making choices for financial gain and
making choices that will not adversely affect others. The ethical business knows
the difference.

That said CSR is shaped by individual and societal standards of morality, ethics,
and values that define contemporary views of human rights and social justice.
Thus, to what extent does a business have an obligation to re-pay the debt it
owes society for its continued business success?

In summary, the economic argument contains all the factors


explaining why CSR is of strategic importance for businesses today.

Moral of the Story


From a business view, corporate managers should prioritize shareholder
demands, as they possess power, legitimacy, and urgency (Mitchell et al.,
1997). Nevertheless, Starbucks’ stand for same-sex marriage, in spite of
the bottom-line concerns, challenges the traditional understanding of
ethical or proper corporate behavior. Closely related to CSR, corporate
ethics include all five elements: honesty, respect, fairness, compassion,
and responsibility. Diversity and inclusion has increasingly become a social
issue in the domain of CSR that requires an ethical treatment. Because of
Starbucks’ strong advocacy for social issues, the company has often
pushed the boundaries of the role of business in society. By tackling
controversial social issues like gun control, gay marriage and, most
recently, race, Starbucks has gone beyond traditional CSR, the company
actively advocates for social change.

This case presents a unique challenge for corporate managers and public
relations professionals, as shareholders play a dual role as the owners of a
public company and activists. Unlike, conventional activists, they have a
direct access to top management to voice their grievances. This case study
resides at the intersection of management, public relations and social
activism, and provides important insights into the boundaries of corporate
social responsibility.

3.2 The CSR Drivers

In examining all the five CSR drivers below, they were found to be posing challenges to
the firm’s CSR initiative. As a result, various opportunities and threats seem to emerge
affecting the decision making processes in the firm’s operations. Thus at the end of the
ensuing discussion, from the four foundational components mentioned earlier, the
relevant component will be identified as an appropriate vehicle to drive the CSR
mechanism in face of perceived challenges, after critically analyzing the prevailing facts
offered by the five CSR drivers.

Driver No.1: Affluence

CSR becomes more relevant as economies grow and stabilize. Therefore, the greatest
attention to CSR is found in developed countries. Stable work and security provide the
impetus for choice and socially responsible activism. No such luxury exists when basic
needs are in question. In developed countries, political landscapes are highly imposing,
trade and business initiatives may have to go through stringent mechanisms before
being sanctioned. Stringent compliance regulations may be imposed in securing
businesses. From legal perspective, remedies for non-compliance to laws, entail litigate
recourses involving high legal costs. Consumer sourcing and purchasing behavioural
pattern is highly mutative. Digital experiences that replicate visiting the stores are
generally preferred in affluent society.

Driver No.2: Globalization

Beck (2000) by contrast defines globalization as the intensification process of cross-


border social exchanges as it reduces the cost of associating far-flung places through
communication and transfer of capital, goods, and people in a fast way. He further
noted, this process leads to the growth of mutual dependence between economic and
social actors, a rise in both opportunities and risks, and increased competition among
global players which may result in a transition period of disruption in consumer
behaviour.

Beck, U. (2000). What Is Globalization? Cambridge: Polity Press.


Hence there are great opportunities for global market penetration that will enable
massive expansion of consumer base and potential opportunity for greater profit margin.
That said, there will be a collision of cultures and social behavioral patterns. Firms may
be fronting different perceptions in trade legislations and business policies resulting in
unfamiliar legal requirements. Compliance to legal provisions may seem difficult and
take long time to adjust.

Driver No.3: Sustainability

New developments in legislation on environmental concerns became ubiquitous.


“Green” buying trend has been imposed on consumers. Emergence of anti-plastic
shopping bag norm and regulatory policies. Firms were forced to rethink of norm
dynamics and policy implementation (Clapp & Swanson, 2009). Changing of buying
behaviour will be a concern and may cause great inconvenience to consumers.

Driver No.4: Communication

The communication of corporate behaviour of the firm in terms of social responsibility is


very important for a diverse range of stakeholders. They predominantly look for
evidence of the impact of firms’ corporate responsibility programmes. They want to see
detailed indicators, benchmarks, targets and trends as well as case studies to
determine the genuine and active commitment of these firms in CSR initiatives.

Information explosion augmented by various social media tools has resulted in the
transaction of high traffic volume in communication. With innovative communication
technology known as Internet of Things (IoT) communications has become very
pervasive and proliferate both in the social and business environment. Big data picture
is the order of the day in global corporations. Hence privacy in communication is a real
concern let alone cyber hacking of intellectual property. Realization of business
transactions has become highly technical and digitized to the extent of minimal physical
interaction. Violations to cyber law provisions may be meted out with imposing
penalties.

Driver No.5: Brand

Firms believe that if they involve themselves in CSR it will give them a brand identity
and bring fame to their organizations. However in the contemporary world, it is easily
said than done. With globalization, inevitably firms have to put up with multitude of
diversities when reaching out to global customers. They have to accommodate with the
host countries socio-cultural practices, the values and beliefs system and other
institutional practices in engaging with these societies. Going global means, greater
competition and multitude of challenges. Branding initiatives are not going to be any
easier. Innovative and relevant modes of branding will have to be the order of the day to
reach these global markets. Besides, legal provisions on marketing and branding
maybe stringent and imposing if entering into an affluent market. With the existence of
IoT the marketing and brandings initiatives have to be revisited to satisfy the host
market requirements. On the whole firm has to strategize and equip itself continuously
with competitive edge for all its branding initiatives to remain on the global stage.

In the following discussion, a CSR violation case will be examined to illustrate the
veracity of the above argument of CSR as the raison d’etre in business organization.
4.0 Observation and Findings
The writer surmises that, business is all about trust and non-ephemeral
experience of stakeholders which translate into unwavering loyalty. From a CSR
perspective the firm has to consistently exihibit strategic commitment behaviour
on the wellbeing of all its stakeholders throughout its lifecycle. This, only may be
possible if the organization is irrevocably entrenched with a corporate culture
founded upon ethical precepts. Inarguably, ethical principles based upon
utilitarianism and Kantian philosophies portends that the greatest good for the
greatest number of people resulting from rational behaviour that is morally
bound. Therefore the firm should have an implicit commandment of inbuilt ethics
in all its decision making processes in the business operations.

Among all the four elements discussed above, each one has its respective impact on
the firm’s decision making process. Ethics seems to have an aggregated impact
providing a consolidated input of all relevant values needed in making a decision

The VW emission scandal (refer appendix 2 for case facts) is a very clear cut
example of misplacing the trust of all its stakeholders with deliberate intent to
cheat and harm. Volkswagen leadership had absolute disregards to judicious
decision making in respecting stakeholder values and interests. The firm was
devoid of exercising good values, integrity, loyalty, respect and concern in their
operating procedures. From a CSR perspective it is an ineffaceable disaster that
has haunting consequences upon the firm itself, all the stakeholders and the
environment. Ultimately, VW paid a very heavy price for its crime for not being
ethical in its decision making processes. Therefore the writer would prefer to
advocate that among the four foundational components, ethical precepts should
be the choice component as its characteristics manifest that it will remain as a
significant compass to guide all the decision making processes irrespective of
the challenges posed by the five CSR drivers from the external environment.
In the face of global competitive challenges, It is possible for firms to enter into a
strategic drift situation and initiate race to bottom activities at the expense of
CSR fundamentals.

The purpose of CSR is to promote the survival and sustainability to


conserve the ecosystem .Ethical argument supports this premise. Ethical
argument for CSR encourages actions that bring good to society and the
environment. Now what are the expectations of the CSR arguments for a
firm? The expectation is the wellbeing of all stakeholders including the firm,
society and the environment. Therefore, the firm should prevail in socially
responsible decision making to meet the above expectation. In essence
social responsibility is the manifestation of five core elements of ethics
namely; honesty, respect, fairness, compassion and responsibility (Page,
2000).

Though stakeholder biased, economic argument does not emphasize


conservation but the focus is on acquisition and utilization of resources –
no concern for depletion of resources, With globalization, market
expansion, greed for more profit and affluence does not include the
precepts of conservation and sustainability.

Though the economic argument looks into the short-term and long term
wellbeing of the stakeholders, the point of contention is the firm needs to
correctly identify the choice in terms of actual values and interest of its
stakeholders before deciding on its economic argument for CSR
obligations. This is what happened to Starbucks in 2015.

With regards to the Starbucks case, for practical purposes, among others,
ethical precepts based on utilitarianism and Kantian principles need to be
seriously considered when deciding on the input of foundational
components to drive the firm’s CSR initiative. This will enable the firm to
feel the pulse of stakeholders before deciding on relevant component to
drive the CSR initiative. Otherwise, the firm will lose its long term
competitiveness when the stakeholders lose trust and discard their loyalty.

With ethical argument for CSR, the future generation is guaranteed with a
sustainable ecosystem as opposed to an economic argument which
unilaterally emphasizes on the utilization of resources for the stakeholders
without taking into consideration the depletion of resources for the future
generations. The environmental disasters causing massive damage
resulting in the depletion of resources reflected at appendix 1 is
substantiates this claim.

The capitalist economic framework needs to be revisited. This framework


does seem to support the noble intentions of CSR philosophy. Human
being may not live in harmony with nature as long as capitalism prevails as
it supports greed and social imbalance. Thus it will be an unending war for
the advocates of CSR to educate the global citizens to bring about the
consciousness of the importance of conservation of the ecosystem for a
sustainable existence.

A strategic drift and race to the bottom are potential possibilities of a firm
when its trajectory is challenged by internal and external dynamics. In this
case, challenges can be expected from most potential factors such as
corporate culture and CSR drivers which may continuously affect the
operational decision making processes in the firm. Challenges create a
fluid environment, and it is easy to drift without realizing away from
intended goal. However if the organization is entrenched with ethical
fundamentals in all its decision making processes. It will remain on track
irrespective of a fluid environment. (Cite an example)

What is the point for VW to make enormous profit in its business in the
global market and then pay a hefty fine in penalty for unethical practices
after getting caught by the long hands of the law? In VW case CSR was
only a talk piece and a facade. Globally, it suffered a disastrous
consequence after the discovery of 2015 emission scandal in US. It is
believed that, VW is suffering from “too big to fail” syndrome.
Conclusion

To continuously serve the ecosystem…there must be conservation of resources


within the ecosystem. Thus CSR is a blessing in disguise for corporations,
communities and governments. Astute adoption and use of CSR would be the
meaningful way to sustain the ecosystem for continuous prosperity and survival
in the manner that we know of human society and the plant and animal kingdoms.
Therefore, the ultimate truth is we need to conserve the global ecosystem in
order to continuously serve ourselves. Hence CSR has to be a predominantly an
inherent activity within the capitalist business environment in order to ethically,
economically and environmentally support and sustain the journey of all
elements within the ecosystem.
References

StephenK. Henn, Business Ethics: A Case Study Approach

First published:19 September 2015 : Wiley Publications


Appendix 1

Chronology of Major Environmental Disaster Testimony Pertaining to CSR

1. March 11, 2011: Fukushima Daichi – Nuclear reactors meltdown and explosion.
Impacted public health, environment and Japan’s economy.

2. April 20, 2000: Deepwater Horizon Oil drilling Platform, Gulf of Mexico –
Explosion and oil spill impacted fragile coastal environments and loss of lives.

3. Dec. 22, 2008: Coal Ash Disaster, Tennessee, United States – Spilling out coal fly
ash sludge from dam impacting long-term health of people and environmental
damage.

4. March 24, 1989: Exxon Valdez oil spill, Alaska, United States – Caused huge
environmental damage and loss of marine lives.

5. April 26, 1986: Chernobyl nuclear disaster, Ukraine – Explosion of nuclear


reactor. The worst nuclear disaster in history that caused environmental damage
and loss of lives.

6. Dec. 3, 1984: Bhopal disaster, India – Huge Fertilizer plant leaks methyl
icocyanide killing thousands of people and long-term birth and health issues.

7. May 1, 1956: Minimata “disease,” Japan – Mercury dumping by Chisso


Corporation affecting the health of people and loss of lives.

8. Oct. 29, 1924: Leaded gasoline, New Jersey, United States – Production of
tetraethyl lead gasoline additive that caused strange violent insanity and death at
refineries owned by Exxon and Du Pont Corporations.

Source: By courtesy of http://environmentalhistory.org/about/events/


Appendix 2

CSR Violation Case Example: Volkswagen (VW) Emission Scandal – 2015


Rudiger Bachmann ¨ University of Notre Dame, CEPR, CESifo and ifo
Gabriel Ehrlich University of Michigan
Dimitrije Ruzic University of Michigan December 12, 2017
On September 18, 2015, the U.S. Environmental Protection Agency (EPA) served a
Notice of Violation to the VW Group alleging that approximately 500,000 VW and Audi
diesel-engine cars sold between 2009 and 2015 in the United States contained a defeat
device that allowed these cars to comply with emissions regulations in the test box,
while having higher on-road emissions.

Damages

Estimates show statistically and economically significant declines in the U.S. sales and
stock returns of, as well as public sentiment towards, BMW, Mercedes-Benz, and Smart
as a result of the Volkswagen scandal. In particular, the scandal reduced the sales of
these non-Volkswagen German manufacturers by approximately 76,000 vehicles over
the following year, leading to a loss of approximately $3.7 billion of revenue.
Volkswagen’s malfeasance materially harmed the group reputation of “German car
engineering” in the United States.

The scandal occurred within an important setting: The car manufacturing industry is
large and important in Germany. In 2014, the year prior to the scandal, cars amounted
to 18 percent of Germany’s total exports according to the German Federal Statistical
Office (Destatis (2015)), and were thus Germany’s largest export category. Also as of
2014, Germany captured by far the largest share of world car exports in UN trade
statistics (United Nations (2017)), with 22.7 percent in dollar and 18.5 percent in unit
terms, followed by Japan with, respectively, 12.5 percent and 10.7 percent. German
vehicles are a large share of the U.S. market: in 2014 German car manufacturers
comprised 8.1 percent of all U.S. light vehicle sales, making Germany the second-
largest source for foreign-branded vehicles. The scandal’s reputational consequences
were amplified by the damage the excess emissions caused to the public. Oldenkamp
et al. (2016) estimate that the excess emissions caused by VW diesel cars cost 45,000
disability adjusted life years, with a value of life lost of approximately $39 billion.4 We
add to this a calculation of the economic damage for the other German car
manufacturers. Finally, (7) the scandal also sparked a widespread public discussion
regarding the mechanism at the center of our paper: country-related reputational
spillovers. Our paper provides numbers to this debate.