Managerial Ethics and Social Responsibility

Introduction

The lack of ethics occurs in companies managed by capitalists who think only of their own profit, having as a priority to enrich themselves no matter what. They do not mind using scams and lies to fabricate results to achieve their goals. In 2015, the automobile company Volkswagen was accused by the American government of defrauding pollutant test results in approximately 480,000 vehicles sold in the country.

Background of the Volkswagen Scandal

In September, the company admitted that 11 million diesel-powered vehicles in models of various brands belonging to the group were adulterated. This fraud undermined the image of the German automaker, since the company positioned itself as environmentally conscious. In a letter of July 2014 to Greenpeace, Volkswagen committed to reducing CO2 emissions by 2020. However, the scandal revealed the company's duplicity. The company’s shares suffered a sharp fall, and Martin Winterkorn resigned as chief executive of Volkswagen.

Legal Repercussions

The United States charged the former CEO of Volkswagen with conspiracy and wire fraud for covering the company’s attempt to cheat on U.S. diesel emission tests. In a meeting on July 27, 2015, Martin Winterkorn and other senior leaders were informed about these irregularities discovered in the U.S. During this meeting, the former CEO approved the use of the cheating software for U.S regulators. This clearly demonstrates his awareness of unethical behavior, prioritizing profit over ethics.

Technical Details of the Fraud

The fraud involved a mechanism installed on cars equipped with a diesel engine type EA 189. The United States Environmental Protection Agency (EPA) concluded that the software recognized when the vehicle was under technical inspection, changed the engine to economy mode, and injected chemicals to reduce toxic gas emissions. This manipulation resulted in emission survey results that conformed to norms. However, under normal driving conditions, emissions were up to 40 times higher than U.S. law permits.

Environmental and Health Impact

The burning of diesel releases several pollutants into the atmosphere, such as carbon monoxide, nitrogen oxide, and sulfur, among others, responsible for the deaths of thousands of people annually. This is why countries have regulatory agents to control emissions of these gases. Volkswagen committed a very serious crime by making 11 million cars seem less toxic than they really are. Besides fooling its customers, the brand was contributing even more to the global warming process. According to an analysis published in the British newspaper The Guardian, the impact of 11 million adulterated vehicles worldwide could mean the emission of 237,000 to 948,000 tons of polluting gases per year, which is an extremely high amount.

Ethical Violations

Regarding the emission of pollutants in the atmosphere, diesel is seven times worse than gasoline, and exposure to this kind of pollutant can lead to increased risks of lung cancer, asthma, bronchitis, cardiovascular diseases, and strokes. Volkswagen’s behavior was clearly unethical, as the brand was harming people and the environment to generate more profit. The company violated many ethical principles, including the Principle of Government Requirements (ethical principle that claims you are not allowed to take any action that violates the law), the Principle of Personal Virtue (ethical principle that claims that anything that is not honest, open, and truthful should never be done), and the Principle of Utilitarian Benefits (an ethical principle that says actions that do not result in a greater good for society should never be taken). The German brand also committed fraud, demonstrating an explicit lack of legal responsibility. It also goes against the U.S. Sentencing Commission Guidelines for Organizations, which was created in 1991 to prevent and discourage organizations' unethical behavior.

Consequences and Responses

Companies that break these guidelines can be prosecuted and punished. In the case of Volkswagen, the company pledged to adopt an accommodative strategy, a responsiveness strategy in which the company takes responsibility for the problem and does what society expects to solve it. Volkswagen announced that it would spend 6.5 billion euros to pay fines and repair its vehicles. A poorly managed company, with a lack of business ethics, sets false objectives to deceive employees and those who negotiate with it, causing a cancer that gradually destroys the company and does not bring benefits to anyone. Unethical decisions taken because of capitalist greed are detrimental to people of good faith who really work and depend on the company to survive, who devote a long time of their lives to the company, sometimes invest their savings, and in the end, they end up with nothing.

Preventive Measures

Unlike what happened to Volkswagen and many other businesses involved in scandals concerning a lack of ethics and social responsibility, a well-managed company would make sure to follow the U.S. Commission Guidelines for Organizations, thereby avoiding punishment and fines. Volkswagen leaders should not have chosen profit over ethical behavior and social responsibility; because of this mistake, the brand lost a lot of money and had its reputation damaged. A good option for helping businesses stay ethical would be to make overt integrity tests, which aim to evaluate applicants’ honesty. By doing this, it becomes easier to separate the people who are more likely to have unethical behavior from those who are not. Personality-based integrity tests are also very important for companies that are truly concerned about having ethical behavior and ethical employees.

Creating an Ethical Culture

Having a code of ethics is very important because this type of code sets specific ethical standards on various relevant topics like conflicts of interest, bribes, and falsifying records. Besides an ethics code, companies’ managers should be involved in ethics training to generate an ethical atmosphere in the company. When employees become aware of the importance of being ethical, the whole company evolves. For example, if Volkswagen employees were involved in a company that emphasizes the importance of ethics, it is possible that the automaker would not have had to go through this scandal, as ethical workers would not have accepted being a part of it and would have taken steps to stop it. Every company should adopt a model of ethical decision-making, where the person identifies the problem, identifies the constituents, diagnoses the situation, analyzes options, makes a choice, and finally acts. This is a very helpful model that can be used in various situations involving ethics.

Conclusion

It is also very important for companies to adopt legal responsibility (following societies’ laws and regulations while trying to meet economic responsibilities), be ethically responsible (social responsibility to not violate principles of right and wrong), and adopt proactive strategies, in which the company anticipates the problem before it occurs and does more than expected by society to assume responsibility and come up with a solution to the problem. For improving its damaged image, Volkswagen should adopt discretionary responsibilities, which means going beyond its social responsibility. It involves taking philanthropic actions to contribute to social, educational, and cultural purposes. By doing so, over time, people would look at the company differently. It is possible to conclude that nowadays, with the evolution of information systems and better capacitation of people to manage companies, the room for anti-ethical companies is decreasing more and more. Companies that do not adapt will experience a loss of market and will not be able to survive.

References

• The Guardian. (2015). Volkswagen emissions scandal: Impact on the environment. Retrieved from https://www.theguardian.com/environment/2015/sep/22/volkswagen-emissions-scandal-environment-impact
• U.S. Environmental Protection Agency. (2015). EPA, California notify Volkswagen of Clean Air Act violations. Retrieved from https://www.epa.gov/newsreleases/epa-california-notify-volkswagen-clean-air-act-violations
• Greenpeace. (2014). Volkswagen's commitment to CO2 reduction. Retrieved from https://www.greenpeace.org/international/story/24171/volkswagens-commitment-to-co2-reduction/
• U.S. Sentencing Commission. (1991). Federal Sentencing Guidelines for Organizations. Retrieved from https://www.ussc.gov/guidelines/organizational-guidelines