Defeating the system: Ethics at Volkswagen

In one of the worst business ethics scandals in history, the world learned in 2015 that
Volkswagen intentionally circumvented government exhaust emission tests for years by
installing so called “defeat devices” on their clean diesel vehicles.126 This revelation was a
shock to many given the company’s long-standing success in the auto industry. Volkswagen,
one of the world’s most recognized brands, was founded in 1937. The company is
headquartered in Germany but employs more than half a million people around the world.
Researchers at West Virginia University (WVU) first discovered the violation when they
started studying clean diesel engines. When they tested the performance of Volkswagen
vehicles, they were surprised to find that on the road emissions exceeded government
allowances by almost 40 times. Further investigation by the U.S. Environmental Protection
Agency (EPA) found that the vehicles were actually equipped with software that could
essentially trick emission testing systems. The diesel engines could detect when they were
being tested for emissions and changed the vehicle’s performance to improve testing results.
Once on the road, the vehicle would switch out of the testmode, emitting excessive nitrogen
oxide pollutants, as the WVU researchers found.
The EPA’s finding covered about 500,000 cars sold in the United States only. But
Volkswagen later admitted that about 11 million cars worldwide were fitted with this
software. It will be a long time before Volkswagen realizes all of the damage of this ethical
blunder. There will be legal sanctions from governments, private lawsuits, and consumer
bans that will impact the company for a long time to come.
How could such a blatant ethical violation occur? It may take years to sort out who is to
blame. CEO Martin Winterkorn, who resigned in response to the scandal, initially claimed
not to know about the devices. While many high-ranking executives were suspended, no one
is sure who knew about or authorized the software. In fact, some believe that the driven,
performance-based culture may be more to blame than any individual.
• Are you surprised that an organization as large as Volkswagen was caught engaging in
such unethical behavior? Do you agree that the organization’s culture could have
encouraged this behavior?
• Are there structural variables that may have influenced the unethical behavior at
Volkswagen?
• Evaluate Volkswagen’s actions based on the factors in Exhibit 5-5. How would you
describe the issue intensity of Volkswagen’s actions?
• Moving forward, what do you think Volkswagen needs to do to avoid such an ethical
lapse in the future?
Sources: Coulter, 2018