Key Facts of the Case (Assume the Marker knows nothing – Identify the key facts)

 18th of September, 2015, PHD research group reported to VW board about their findings
 US issued notice that VW cars have broken Clean Air Act
 Manufactured a chip (software) to cheat the emissions testing
 VW cars seen to produce 40 times the legal limit of Nitrogen Oxide emissions into the air
 Had to recall over 11 million cars worldwide (possibly higher as times goes by)
 Facing legal fines totaling 11.6 – 18 billion USD overall
 VW share price wides of 10 million GBP market capitalisation
 70,000 cars in California affected (state with worst air quality in the USA)
 Emissions testing framework outdated as it was developed in the 1970s
Management Problem (a clear Sentence Statement to establish the key problems in the case)
 VW cheated their emissions testing producing up to 40 times the allowed Nitrogen Oxide
 Lack of training within organization (including both current and new employees)
 Unethical culture (only 13% of the company underwent formal ethics training)
 Unrealistic expectations in being the number 1 car manufacturer in the US (currently Toyota)
 Illegal yet intentional technical fraud
 Nobody listened to the environmental groups that have been accusing this behaviour for years
 Violated the Clean Air Act – vital to be passed to allow the sale of cars within the US
Causes & Considerations: (Actual Cause / Root of Problem)
 Unrealistic expectations compared to other leading car brands
 Government testing with outdated (from 1970) and unrealistic ‘real-world’ testing
 Sales in environmentally friendly cars are higher than other variants, hence VW wanting to
replicate
 Lack of quality control (QA) within current model vehicles
 Focussed VW finances into short term fix instead of longer term efficient engine production
 Corrupt management focusing on a companywide cover-up (also investors involved)
 Lower level company employees pressured by higher management to meet unrealistic
demands
Alternatives: (Consider various key alternative solutions and options to address the problem)
 Rebrand entire company, including name (VW), logo, and model names of vehicles
 Admitting fault with sincere apology (instead of just keynote introduction as was used)
 Lobby legislators to reset emissions laws better align with current business advances
 Introduce more lenient emission legislation to align with gradual technological advances
 Management showing empathy by repair or replacing affected vehicles
 Any existing corrupt management is fired and replaced with new executive team
 Running regular advertising and PR stunts to make sure all consumers know of these changes
 CSR and ethical management leadership are incorporated into new business strategy
 More R&D to be incorporated into electric cars and environmentally friendly vehicles
 Replacing the faulty cars to gain consumer satisfaction and trust
 Plant a tree for each car involved in the emissions scandal
Supporting Theory: (Present any relevant theories, models or concepts from the literature to support)
 Trait leadership theory
 Transactional/transformational leadership theory
 Waterfall model
 Engagement model
 Traditional problem solving model
 Carroll CSR Pyramid (step up the pyramid in order to be a successful organisation)
Recommendation/s proposed and overall solution: (Key recommendations to solve the problem)
 Rebrand entire business strategy and techniques used company wide
 Introduce new management team, removing anyone linked with prior corruption
  Compulsory employee ethics training that encourages realism approach
 Accommodating more effective whistleblowing policies and techniques
 Donate to electric vehicle research and environmentally friendly cars
 Plant a tree for each car involved in the emissions scandal
Overall Pitch notes and Summary:
On the 18th of September, 2015, a PhD research group from West Virginia University reported to the
VW executive board their findings that the company’s vehicles were found to produce 40 times the
legal limit of Nitrogen Oxide into the air. This was later leaked to German newspaper Der Spiegel
and culminated in the US Government issuing a notice that VW vehicles had broken the nation’s
stringent Clean Air Act. Because of this, Volkswagen were faced with legal fines of between
USD$10.6 - 18 billion and had to recall over 11 million cars worldwide (possibly higher as time goes
by. The company’s share price plunged GBP£10 million market capitalisation in the fallout and in
California alone 70,000 cars were affected (worst state affected in US. It was later deemed that VW
had manufactured and installed a software chip inside the vehicles (called a defeat device) that
deliberately throttled and lowered emissions when the car sensed that it was running in a controlled
testing environment. This was performed so that VW could gain approval to more heavily penetrate
the US car industry with their vehicles in the tough environmentally regulated market and ultimately
overtake Toyota as the biggest car manufacture in the world.
The identified management problems contained in this scenario focus on the lack of training for both
current and new employees within the organisation. Unethical culture right up the hierarchy chain
also contributed majorly (with only 13% of the company’s employees having undergone formal ethics
training before the scandal). The company also ascertained unrealistic expectations in their attempts
to de-throne Toyota as the number 1 car manufacturer in the world and this lead to an aggressive
sales and marketing culture amongst employees. Environmental, NGO and other groups had been
proclaiming for years that VW emissions exceeded what was permitted, but company executives
rejected this by ‘turning a blind eye’ to their protests. Overall, VW committed an illegal and
intentional technical fraud by violating the US Clean Air Act in order to sell and distribute their
vehicles within the country.

The causes and considerations within the case include unrealistic environmental expectations
coming from other leading car brands, their marketing departments, and the wider global
environmental regulations. The current US government testing that is undertaken for new vehicles is
the same outdated test that has been used since the 1970s and amounts to ‘unrealistic’ testing in
conditions that are unable to be replicated in the ‘real word’. VW was very heavily focused on
marking and selling their cars as being an environmentally friendly and responsible option as sales
in vehicles of this sort far exceeded other models with less globally conscious features. There was
also a lack of sufficient quality control (QA) within current model vehicles. VW executives were too
focused on a short term fix (installing the software defeat device chip) instead of looking at the
bigger picture of being financially involved with better research and development of improved
engines in order to legitimately meet the emissions expectations. The corrupt management focussed
on a company wide coverup and lower level employees were pressured by their management to
meet these unrealistic demands.

Identified alternatives in order to find solutions and address this problem were analysed. The most
drastic of these involves a full and entire rebrand of the company. This includes the VW name, the
corporate logo and even model names of vehicles in order to start fresh with a clean slate and
remove any trace of negative public perception from the company entirely. Admitting fault is also
important as it is the only way to move forward. This involves a sincere apology instead of the minor
one given by the CEO just before a new product launch keynote in New York City. Lobbying
legislators is also important to be able to reset emissions laws to better align with current business
advances and introduce a more gradual raising of emissions targets legislation to sustainable levels,
in line with achievable technological advancements that slowly increase each financial year.
Management of VW must also show empathy by either repairing or replacing all affected vehicles for
customers and any corrupt existing management must be removed and reinstated with a fresh
management and executive board in order to move forward. This will occur alongside regular and
consistent new PR campaigns that make sure all customers are aware of all these new changes.
Rewriting business standards and procedures to better align with respected CSR and ethical
leadership principles is also important for a new business strategy direction. In line with these
changes, more research and development (R&D) must also be incorporated into building electric
and environmentally friendly vehicles and engines in order to drastically reduce effects of damage
already done by all the increased emissions levels within the environment. Finally, the company can
also opt to go the extra length and plant a tree for each car involved in the emissions scandal to
sustain a new forest somewhere in the world and balance out the negative environmental effects
that the company has caused.

Several management and problem solving theories are relevant to this VW emissions scandal case.
These include, trait leadership theory. This looks at the effects that top down executive management
has on the actions of their subordinates and proves that without an effective, honest and capable
“captain” that steers the ship, that all other people following the guidance of the executive team will
ultimately underperform and encounter widespread issues. Additionally, the transactional and
transformational leadership theories are applied and build upon the points of, again, the overarching
requirement of effective leadership. In terms of VW’s reaction to the scandal revelations, it was
important that they apply the waterfall and engagement model of problem solving in order to
navigate the ensuing fallout, widespread chaos and damaged reputation caused. The final theory is
Carroll’s CSR Pyramid that discusses a pyramid where you must pass through each individual level
on your way up to its peak. This includes, honesty, integrity and accountability (all traits that were not
shown by VW which ultimately cause the scandal).

Overall, rebranding the entire business, its strategies and company wide processes is the strongest
proposed solution to navigate this issue from a management perspective. Introducing a new
management team and removing anyone linked with the prior corruption is very important.
Compulsory employee ethics training must be introduced company wide and more effective
corporate whistleblowing procedures should be enacted. VW should also invest in environmentally
sustainable vehicle development and plant trees to overwhelmingly sway public opinion and
perception back towards them.

These steps will ultimately make sure that VW is able to recover from the mass management issues
that caused the global emissions scandal, while hopefully allowing the company to rebuild and
regain its former success and reputation.