Managerial Policy (2501) by: Sir Shahid Zaki

Hassan Raza-14501

Corporate Governance failure at Volkswagen

Corporate governance refers to rules, processes, and practices that are enforced to direct and control a
company or organization. It should take care of the interests of all stakeholders, namely shareholders,
employees, community, regulatory authority, suppliers, government and all with interests in the
organization.
Corporate failure of an organization refers to its inability to conform to its set standards of
expectations and plans, financial obligations, as well as ethical expectations and targets set.
On September 18, 2015, The Environmental Protection Agency (EPA) of US gave an announcement
accusing Volkswagen of illegally installing a software in its diesel engine cars whose role was to
manipulate the level of emissions during engine emission testing. In this case Volkswagen used the
software to turn on the full emissions control systems for the vehicle only during testing for
emissions. During other times, the vehicles were operating, with emissions control system turned off
hence no pollution control. The software was programmed such that it would turn on the emissions
control systems only when the car was running in a stationary position since that would be the
condition when the car was being tested for emissions by regulators.
It is clear that, Volkswagen scandal is the corporate governance failure, because it mainly provides
the evidence related to the fact that corporate structure of the company does not exercise appropriate
control system for the purpose of ensuring that management of the company ensures interest of the
shareholders. The system related check and balance is not appropriate and because this interest of the
management prevailed over the interest of the shareholders. The other issue related to the corporate
governance in the present case is stand on the part of shareholders of the company exercise
ultimately control over the management of the company through the voting power they held in the
general meeting of the company. In this company shareholders of the company are the one who have
been damaged with the most by this scandal.
The most significant changes which raise worries of the organization is its harm happened to the
environmental reputation to the organization and cause colossal misfortune to the organization's
productivity. Every one of these results decrease the Volkswagen believability, and this likewise
cause immense effect on the future business. Furthermore, there are number of onlookers who accept
that it is conceivable that Volkswagen is feeling the squeeze to sell one of its divisions or increment
its offer capital. Investors of the organization can these harms by getting minimal more dynamic and
by utilizing their democratic force in the organization.