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The logo of German car maker Volkswagen can be seen as dark clouds hang in the sky over a Volkswagen trader in Hanover, central Germany, on September 22, 2015. Share prices on the Frankfurt stock exchange fell more than 3.0 percent in midday trading on September 22, 2015, pushed down by index heavyweight Volkswagen, as it ploughed ever deeper into a pollution cheating scandal. AFP PHOTO / DPA / JULIAN STRATENSCHULTE +++ GERMANY OUT (Photo credit should read JULIAN STRATENSCHULTE/AFP/Getty Images)

Volkswagen’s Ethical Renovations

By Verena Manolis 9/18/2020

Volkswagen is the largest and one of the most well-know carmakers in the world. But back in 2017, the car company pled guilty for “conspiring to defraud the U.S. government and violate the Clean Air Act.” When testing its diesel-powered cars, the company rigged them so that pollution controls were activated and the car appeared clean. But during regular driving, the controls were lessened in order to protect the engine. Due to this illegal software, “Volkswagen diesel passenger cars spewed more harmful nitrogen oxides than a long-haul truck.”

As of September 14th, 2020, Volkswagen “completed the corporate equivalent of probation” in that they satisfied the conditions of their plea bargain made in 2017. As part of this agreement, Volkswagen was mandated to cooperate with a court-appointed monitor, in this case former U.S. prosecutor Larry Thompson, to make sure the company reformed its corporate culture. At first, relations were extremely tense between Mr. Thompson and the company executives in Germany. They did not welcome the intense oversight from American lawyers and fought pressures to fire managers under criminal investigation and release documents relevant to current lawsuits. These issues were eventually smoothed out and an underlying cause of the ethical scandal was uncovered.

Up until recently, the the corporate culture was extremely unforgiving and emphasized the need to win at any cost. When company employees were unable to develop a diesel engine acceptable for U.S. emissions standards, they developed a deceptive, illegal software rather than admit failure. Herbert Diess, the chief executive of Volkswagen, agreed, citing “a combination of too much pressure and lack of a speak-up culture” as the cause of the emissions fraud. As a part of the company’s reform, it created a “whistle-blower system” so that employees can report any unethical conduct without fear of punishment. According to court documents, some engineers knew about the software but were afraid to come forward until after the fraud was discovered by the public. Volkswagen also attempted to reform its hierarchical structure by delegating more authority to lower-level managers. Overall, Mr. Diess classified the reforms as “a very good investment” which “will make us a stronger company.”

As competitive pressures in the auto industry intensify, Mr. Diess has pledged to find balance in getting the desired results without forcing employees to cross ethical boundaries. Although Mr. Thompson has recently stated that “‘the structures and processes are in place’ to prevent future scandals of the same magnitude,” Volkswagen’s legal battles are far from over. Former chief executives are facing trial in Germany and the company is still facing suits in Germany, Britain, the United States, and other countries as well.

Even though Volkswagen as a company has employed multiple new strategies to create a more integrity-based ethics and compliance program, I believe their true test will be in the years to follow. As Mr. Thompson said, it cannot be guaranteed that no other scandals will arise at Volkswagen, and the way these future problems are handled will be extremely telling as to what improvements have actually been made. In order to build an ethical climate within a company, its overall culture must be changed. Once ethics have become part of the everyday routine, the effects of the reforms can truly be realized.

Source: Ewing, Jack. “Volkswagen Has Kept Promises to Reform, U.S. Overseer Says.” The New York Times, 14 Sept 2020. https://www.nytimes.com/2020/09/14/business/volkswagen-emissions-regulations-reform.html

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