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Volkswagen Scandal 1
Volkswagen Scandal 1
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Volkswagen Scandal 2
Table of Contents
Introduction ..................................................................................................................................... 4
Recommendations ......................................................................................................................... 12
Reflection ...................................................................................................................................... 14
References ..................................................................................................................................... 16
Volkswagen Scandal 3
Executive Summary
The genesis of the VW scandal is the deliberate action of some employees to install
software in the diesel model of the cars that would cheat the cheat the regulators concerning the
levels of toxic emission (Ewing, 2015, p, 22). The Environmental Protection Agency, a United
States government institution, was responsible for discovering this fraudulent plot to increase car
sales and beat the competitors while cheating the laboratories concerning the levels of toxic
gases emissions. The then CEO, Martin Winterkorn embarked on a strategy to conquer the US
market by providing high quality automobiles that would offer efficiency in energy and
environmental protection at relatively lower prices (Smith, 2016). The staffs at VW have
suggested that the standards set by the CEO were ahead of their time and could not be readily
met which is believed to have contributed to the use of a cheat system to meet the targets
(Goodman, 2015). Analysis into the type of leadership and organizational culture reveals an
authoritarian system with the employees full of fear and respect for the managers. This
leadership style, it is believed, made it almost impossible for the staff to raise their concerns
regarding the ambitious approach the company was taking (Connaughton and Hassinger, 2007,
p. 465).
Nevertheless, the company diesel engineers installed cheat software that would initiate
engine management controls that revealed lower levels of toxic emissions when observed under
laboratory conditions. This enabled the vehicles to cheat the EPA tests, while in reality the
automobiles produced up to forty times the amount of accepted dangerous gases. Upon the
discovery of the scam, the VW suffered immensely not only financially, but also its reputation
(Halfond, 2016). The scandal led to a series of events that included the resignation of the CEO
and a change of leadership style from the more autocratic to a collaborative approach.
Volkswagen Scandal 4
Introduction
This report details the outcome of the ambitious plan of VW overtaking Toyota as the
worlds leading automobile distributor that was initiated during the announcement by the then
CEO Martin Winterkorn in 2011. The company made tremendous steps in realizing the objective
until in September 2015 when a scandal erupted that caught the world by surprise. In the report,
various topics are considered including the organizational culture of the company, leadership
character of the senior management as well as the crisis management of the scandal. The VW
Company was forced to recall millions of its TDI brand cars from Britain and the rest of the
world markets as a result of the US regulators, EPA, discovering the dishonesty of the company
concerning the quantities of toxic gas emissions from the diesel models (Blackwelder, et al.,
2016). The cause of the scandal, it is argued, stems from the ambitious strategy to rule the US
market as the provider of the energy efficient and environmentally safe cars at a cheaper price.
The organization needed to comply with the standards set by the US regulators of maintaining
the high mileage for gas consumption and not increase the price of the automotives (Ewing,
2015, p, 22). To manoeuvre this scenario, VW decided to use a cheat software that will indicate
low fuel mileage with even lower toxic gas emissions. The laboratory test results were found to
be faulty as the vehicles released 40 times the recommended levels of nitric oxide which was
harmful to both the environment and the public (Burki, 2015, p.839).
In September 2015, the EPA established with certainty that the vehicles in the US market
had a cheat device with the ability to recognize test scenarios in which case the software
initializes an engine management controls that would set the safe conditions for vehicle. It was
later discovered that the VW had distributed more of such vehicles with the device to almost all
its markets which led to a global outcry. As a result, a series of events were initiated that were
Volkswagen Scandal 5
aimed at restoring the reputation of the company as well as establishing the root cause of the
scandal. Within the same month of the revelation, the CEO quit amid claiming no wrong doing
in his part.
The issue of ethical standards of the organization come into sharp focus as a consequence
of the scam. It is evident that failure to uphold ethical practice was a major contributing factor to
the crisis. For example, the group CEP has been described as being an autocratic leader who
imposed high standards for the employees that they in most cases failed to meet. Besides, it has
been established that there as improper communication among the various levels of management.
Neate (2016, p.56) argues that a memo was sent to the CEO up to 12 months before the incident
was reported to the public. In November of 2014, another memo meant to discuss the financial
consequences of the emissions and in June of 2015, a meeting was held to discuss the issue.
Speaking to the press, a company spokesperson revealed that in the meeting, the senior
management did not think the device would be contrary to the regulations of EPA (Smith, 2016).
However, the company would later admit to cheating the authorities regarding the emission
Timelines of Events
The notice by EPA was issued on 18th September after an extensive research of
Volkswagen brands sold in the US. The report by EPA also revealed that the altered
testing and real-world testing. Some engines emitted up to forty times higher than the lab tests
recorded (Ewing, 2015, p, 22). The revelation of the scandal marked the beginning of a series of
events that have redefined VW for the past fifteen months. Two days after the report by EPA,
Volkswagen announces an external investigation to determine the nature and extent of the
Volkswagen Scandal 6
scandal. The aim is to determine the number of vehicles affected as well as their location
(Halfond, 2016).
Three days after the scandal erupted, VWs market value shrinks by about 11 billion
underlining the shock and potential losses that the company is likely to shoulder. The German
government also publicly bashed VWs management accusing it of jeopardising the countrys
reputation as a global leader in the automobile industry. On September 22nd, VW admitted that
eleven million of its cars were fitted with the defective device (Blackwelder, et al., 2016). The
companys CEO apologizes though he refuses to resign despite his US junior revealing that the
company was in deep trouble (Smith, 2016). However, a day later, the CEO opts to resign after
negotiating for a 23.82 million pension pay off. The UK government finally makes a statement
on the scandal following a public uproar from car owners in the country (Jens n.d.). The
countrys Department for Transport reveals that it will commence an independent inquiry into
car emissions especially from VW brands. The company appointed the head of one of its brand,
Porsche to lead the company out the crisis. The move did not stop further losses and negative
publicity as Switzerland banned the sale of VW diesel cars within a day of the announcement
while the German government formally launched criminal investigations against the former CEO
(Smith, 2016).
investigation into the scandal. The newly elected CEO also offers some bit of positive news to
affected car owners reassuring them that their vehicles will be repaired by end of the following
year. However, the series of events reveals more worrying news for investors as the company is
forced to recall about 8.5 million cars across Europe (Blackwelder, et al., 2016). In December
2015, VW acquires a 17.03 billion loan to help it address the massive losses. In 2016, VW faces
Volkswagen Scandal 7
numerous civil lawsuits from drivers across its major markets where resulting rulings demand
that it repairs the faulty engines or compensate the aggrieved car buyers. As of June 2016, VW
reveals that it will spend slightly over 15 billion to settle consumer claims as well contribute to
perspective with the company losing billions of pounds in sales as well as compensation
expenses. As evidenced by the image above, the companys stock fell from a high of $38 in
September 2015 to $30 in December 21, 2016 (Ewing, 2015, p, 22). The company has
effectively lost over 21% of its market share over the fifteen months (Terry-Armstrong, 2016, p.
9). However, all is not lost for the one of the biggest car manufacturers in the world as it still
remains a reputable brand among many car buyers. Addressing the emissionsgate requires the
companys management to embrace a models and strategies that will first stop further losses and
the consequently concentrate on growth. VWs management ought to place significant focus on
understanding the factors that led to the occurrence of the scandal as this holds the key to
Our analyses reveal that the scandal was caused by a combination of factors ranging from
the poor leadership to unhealthy organizational culture. The companys leadership team failed to
inspire other employees to embrace practices that were moral and abiding to the various laws
that applied to the markets that the VW brands were sold (Ewing, 2015, p, 22). The
organizational culture at VW is also a problem as it propagated a social evil yet not a single
executive or employee opposed the same. Given the magnitude of the implications upon
discovery of the unethical act, the lack of opposition to the adoption of programming that alters
Volkswagen Scandal 8
VWs diesel engines is a clear indication of a failed organizational culture. Data and information
used in writing the report is sourced from credible online sites. Given the global attention that the
scandal raised, reputable news media outlets as well as major business outlets have written
extensively on the same. The report recommends that measures, strategies, and models that VW
should adopt to navigate its operations out of the scandal and minimize further losses. The
recommendations would also go a long way in laying a solid foundation for a reformed VW that
Leadership Character
Embracing leadership that is strong in character and ethically conscious is one of the
main changes that VWs board need to implement so as to reassure the public of their change. A
critical evaluation of events leading to the scandal reveals a gap in quality and effective
leadership. The actions after the scandal was made public cast an even bigger aspersion on the
character of leaders at VW. Character in leadership is defined as the unique mental and moral
that distinguishes a leader Ciulla, J.B., 2000, p. 11). Scholars have often defined and examined a
leaders character based on their values, traits, and virtues. The Peterson & Seligmans six
virtues model examines a leaders character by analysing their virtuous mean with their
deficiencies and excesses across six virtues (Low and Davenport, 2009, p. 98). According to the
model, leaders with strong and enviable character exhibit a balance; devoid any excesses or
deficiencies in virtues. Character in leadership is, however, extremely individualistic and heavily
There are many theories that attempt to categorize the different approaches to leadership.
The expectations among many of the leaders of global organizations include having the quality
to make use of the full range theory where the staff and employees of an institution are motivated
Volkswagen Scandal 9
and their morale boosted to approach every matter as a project that requires their input
(Ogbonna, and Harris, 2000, p. 771). However, this cannot be said to have been the case with the
VW CEO Winterkorn. This is because Mr. Winterkorn had been instrumental in leading the
company through turbulent times before the scandal and therefore, it came as a big surprise to
many that such a scam could unravel under his watch. Nonetheless, some critics if the CEO have
suggested that the disaster was partly down to winterkorns insistence on unachievable goals.
Besides, it is argued that he had created a culture where he could not accept failure from his
subordinates (Ewing, 2015, p, 22). This leadership style is an autocratic form where power and
all important decisions are concentrated in one office. While this system can be beneficial in
some situations like where it is difficult for many people to arrive at a decision that is needed
quickly, it is detrimental to the organizations as was in this case (Knights, and OLeary, 2006, p.
127). There is some theory that the CEO might have not been aware of the presence of the cheat
device because the engineers feared what his reaction might have been (Smith, 2016).
Change management
VW urgently needs the services of a management team that can navigate its operations
out of the difficult position that the company is currently drowned in. The scandal in VW was
largely due to a lack of creativity in the organization. The companys inability to design and
assemble diesel engines that guaranteed smooth driving while conforming to emissions
requirements in the countries they operated led to the scandal (Cavico, and Mujtaba, 2016, p.
310). The company opted for an easy way out to sustain their sales. By relying on a cheat system
to beat emissions, VW effectively proved that creativity and innovation was not up to standard.
An environment that does not support creativity is characterized by strict rules and regulations
governing every aspect of the workplace. Employees are transformed to robot like individuals
Volkswagen Scandal 10
whose role is to follow given instructions with no questions asked. However, the current business
environment is creating new and unique challenges that require employees attention (Goel,
2015). A creative workplace culture supports and appreciates employees if and when their ideas
fail. An unsupportive culture, on the other hand, leads to fear of failure owing to the rebuke from
management. Employees in such workplaces are ill prepared to address any new and unique
business challenge that must be addressed instantly (Ulmer, Seeger, and Sellnow, 2007, p. 133).
Organizations that embrace creativity often seek new approaches to their problems. An
their work leading to new ideas (Vyas Tippabhotla, 2016). However, this cannot be said to have
been the case with VW where the management style did not allow for due process to be followed
in coming up with solutions to industry challenges. Instead, the employees were pushed to
deliver at all costs.Some of the most creative ideas in business did not originate from a persistent
urge to solve a specific challenge (Elson, Ferrere, and Goossen, 2015, p. 39). In most cases,
employees in a conducive environment with the right mind set stumble on new perspectives that
Establishing a workplace environment that supports creativity is more beneficial than creating
Besides, the current scandal provides a perfect opportunity for the company to embrace
change. It is common for organizations to be tensed and resist change. However, it is at such
situations of uncertainty that leaders stand out and give the workforce a new direction. The VW
scam, in my opinion provides the required conditions for the new team of senior managers to
implement some changes and offer hope to the employees (Baumgartner, 2009, p. 109). Some of
Volkswagen Scandal 11
the things that need to change include the form of leadership and the organizational culture. The
new leadership should be able to instil confidence on the employees while listening to their
Organizational Culture
Organizational culture refers to how entities conduct their functions as well as how they
express themselves. Organizational culture creates the unique sense of identity for every business
entity (Schein, 2010). The culture is evident in an organizations values, assumptions and end-
products. Creating an organizational culture entails a series of steps that commence with an audit
to identify the new set of expectations for an individual organization. Analyzing the
organizational culture at VW strongly indicates the possibility of the employees working under
immense pressure and thereby willing to compromise even their ethics to ensure they kept their
jobs and met the targets. It can be deduced that the HR practice within the organization required
the employees to accomplish an assigned task within a certain period of time, failure of which
resulted in replacement in the project (Elson, Ferrere, and Goossen, 2015, p.39). This evidently
put the employees under so much pressure to keep their jobs at any costs. It has been suggested
by some critics that because of this pressure, the engineers decided to keep the information
regarding the cheat device to themselves for fear of unexpected reactions from the senior
Besides, the human resource practice of rewarding employees, which forms part of the
organizational structure, may have played a role in the decision of engineers keeping the
knowledge about the effects of the cheat device to themselves. The company uses a similar
approach to awarding bonuses to all employees regardless of their seniority levels; performance
and productivity were the main forms of measurements utilized. In addition to being an
Volkswagen Scandal 12
autocratic system where divergent opinions were not given much attention, all employees strived
to achieve productivity and be recognized as the best performer either to obtain bonuses or
promotions (Elson, Ferrere, and Goossen, 2015, p.39). Indeed in such a case, it is hard not to
suspect that the culture may have played some role in propagating the scandal.
The company had to deal with the effects of the authoritarian type leadership in addition
to the damaged reputation resulting from the lost trust from the customers and the public. The
more autocratic form of leadership at VW tended to apply a power and control type of
between the central power and the leadership. The senior management was the central power and
the rest of the organization was mandated to give respect and loyalty (Goodman, 2015). The
failure to have proper communication channels between the powerful top management and the
rest of the institution enhanced this disjointed relationship even further (Low, and Davenport,
2009, p. 103).
Recommendations
Having analyzed the leadership style used during the scandal, it is important that the
organization looks at how to best change the approach and embrace a more collaborative system.
The board needs to get involved more and describe the leadership qualities desired from the
senior managers in addition to changing the organizational culture (Potts, and Matuszewski,
2004, p. 178). The modern approach to leadership requires that the leaders that consider their
actions and question if they are honest, fair and can be socially accepted. The character depicted
by the then CEO Winterkorn is not desirable. The leader of such a global organization should
exhibit the six virtues of effective leadership as proposed by Peterson and Seligman. These
include humanity, wisdom, transcendence, judgment, temperance and courage. Moreover, the
Volkswagen Scandal 13
company would benefit from an ethical and wise judgment leadership. Transcendence is a vital
quality of leadership, but its excesses breeds dictatorship and a pompous personality which as
can be seen from the case of VW, is a dangerous trait in a highly dynamic industry.
practices is a significant lesson that the management of the automobile manufacturer should
learn from the scandal. An ethical leadership demands that the company upholds social
responsibility, honesty, trust and nurturance in its operations. It is, therefore, a responsibility of
the board to ensure that the successor of Winterkorn is cognisant of both the internal and external
environment of the business. The leadership must acknowledge that financial performance is not
the only significant factor that measures the success of a company, but also the satisfaction the
customers get from its products and community responsiveness are equally important (Cavico,
The case also points out an organizational culture that aided the scandal to run for several
months without being noticed by the senior managers. This aspect clearly needs to change. A
culture of a company is defined as the beliefs, principles and practices that guide the actions of
all members associated with the institution (Goel, 2015). While it is not easy to change the
culture, it is often met with opposition and tension, it is necessary that VW drops the power
oriented culture to a more task inclined philosophy. In this form of operation, all actions of the
company are considered a project in which every member is party to in the eventual success of
the organization (Low, and Davenport, 2009, p.103). Indeed, the company is already in a tension
mode from the recent scandal which in my opinion presents the perfect opportunity to initiate the
process of culture change. I would recommend an increased scrutiny of the operations of the
senior management and regular consultations among the various cadres of management. Finally,
Volkswagen Scandal 14
the importance of communication cannot be overemphasized. The scandal would have been
avoided had there been proper correspondence in all levels of company administration (Cavico,
and Mujtaba, 2016, p.309). The new leadership should encourage and develop mechanism
where all employees have the opportunity to air their grievances and inputs without victimization
Reflection
This course has been of significant benefit to the development of my leadership qualities.
I have specifically learnt the role of an individuals character to the style of leadership such an
people to get along and develop an understanding among staff in an institution. A leaders
character determines if the followers will be comfortable staying around him or not (Patching,
K., 2007). Effective leadership character encompasses such qualities like creativity, compassion,
Besides character, the course has taught me the importance of upholding ethics in
business operations. Being ethical involves considering ones actions to determine if they are
honest, socially mindful and will not affect the consumers and people associated with the
company negatively (Selznick, 2011). Indeed, lessons from history will indicate that the values
attached to leaders are solely determined by the actions of the leaders. Exemplary leadership has
been attributed to those leaders that uphold ethical considerations and positive values while poor
leadership is characterized with negative virtues and actions (Potts, and Matuszewski, 2004,
p.179).
The course has enabled me realize how the concept of leadership and followership has
changed over the years. Various theorists have come up with qualities that can be attributed to
Volkswagen Scandal 15
leaders. Indeed, the shift has occurred from the once believed concept of leaders being born and
having innate qualities that not any other ordinary person can possess (Maak and Pless, 2006). It
is no longer appropriate in the modern world to solely look at the innate traits alone in defining
effective leadership. I am more informed that the most efficient theory is the full range theory
which is a component of the transformational leadership (Crossan, et al., 2013, p. 286). This type
leadership embraces the enhancement of motivation and morale by linking the sense of identity
of the staff to a project in addition to the collective identity of the institution. Such factors as
motivation cover the essential components of the full range qualities of a good leader. Besides,
positive qualities of leadership marry with the most valued qualities of leaders, employees and
normal citizens (Connaughton, and Hassinger, 2007). Therefore, everybody is indeed a leader at
his own right, an idea that in my opinion should be embraced if the world is to achieve progress.
Indeed an individual has a role to lead himself first before being a leader of many. A view that I
have formed from this course is that leadership does not necessarily mean one gets it right in
every moment, rather is able to communicate effectively and having a strong personality that
allows the followers to listen and heed to your wisdom and direction.
My idea of leadership and a successful leader has changed and now I can critically
evaluate leaders and leadership challenges which is beneficial to me as a potential leader but also
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