National Economics University

Advanced Educational Program

-------------------------------------

ETHICS ASSIGNMENT REPORT

ETHICAL CONDUCT OF THE VOLKSWAGEN DIESEL EMISSIONS
SCANDAL

Group 3:
1. Lê Trường Minh
2. Nguyễn Vân Anh
3. Nguyễn Quỳnh Anh
4. Nguyễn Thúy Ngân
Class: Advanced International Business Administration 64B
Instructor: Mrs. Nguyen Bich Ngoc, PhD

Hanoi, 2024
ABSTRACT
This report delves into the ethical dimensions of the Volkswagen diesel emissions
scandal, popularly termed "Dieselgate." It seeks to scrutinize the ethical conduct
underlying Volkswagen's actions, shedding light on the motives and ramifications of
the scandal while elucidating broader implications for corporate governance and
accountability.

The focal point of the scandal revolves around Volkswagen's deliberate subversion of
emissions regulations through the implementation of defeat devices, which allowed
vehicles to emit pollutants beyond permissible limits. This deceptive practice,
motivated by financial interests, underscores profound ethical dilemmas concerning
corporate integrity, environmental stewardship, and public health.

Through meticulous analysis, this report uncovers significant ethical insights,

including the erosion of consumer trust due to Volkswagen's breach of regulatory
standards, the systemic failure of oversight mechanisms to detect and prevent such
misconduct, and the imperative for heightened transparency and accountability within
corporate structures. It underscores the paramount importance of upholding ethical
principles and regulatory compliance to ensure the protection of public welfare and
the preservation of corporate credibility.

TABLE OF CONTENT
LIST OF ABBREVIATIONS
 Abbreviation Meaning

AG Aktiengesellschaft (German for

"stock corporation")

EPA Environmental Protection Agency

CARB California Air Resources Board

ICCT International Council on Clean

Transportation

CSR Corporate Social Responsibility

ECU Engine Control Unit

NOx Nitrogen Oxides

PM Particulate Matter

CAFEE Center for Alternative Fuels,

Engines, and Emissions
DOJ Department of Justice

VOCs - Volatile Organic Volatile Organic Compounds

Compounds
 I. Introduction
1. Background

1.1. Company Background:

The Volkswagen Company, known formally as Volkswagen AG, stands at a pinnacle

in the global automotive sector with its headquarters in Wolfsburg, Germany.
Established in 1937 by the German Labour Front under the regime of Adolf Hitler’s
National Socialist Party, the origin of Volkswagen is deeply rooted in the political
landscape of the time. The company's name, translating to 'people's car' in German,
reflects its original mission to produce an affordable vehicle for the average German
family, a marked shift from the then-prevailing trend of automotive luxury reserved
for the wealthy (Rieger, 2005).

The design of the iconic Volkswagen Beetle, attributed to Ferdinand Porsche, was
revolutionary, featuring an air-cooled rear engine and a distinctive round shape that
would come to be celebrated worldwide. Although designed pre-war, the Beetle's
mass production was stalled until post-World War II due to the factory’s wartime
commitment to military manufacturing (Slade, 2017).

Post-1945, the British Army assumed control of the heavily bombed factory, steering
it towards civilian car production to rejuvenate the German auto industry. Under
British supervision, the production of the Beetle resumed earnestly, symbolizing a
new era for the company and the country (Kiley, 2002). By the late 1940s,
Volkswagen was manufacturing 1,000 cars per month, contributing significantly to the
German 'economic miracle' or Wirtschaftswunder that bolstered the nation’s recovery
post-war (Schmitt, 2019).

The decades following saw Volkswagen's aggressive expansion into global markets,
including a successful launch in the United States where the Beetle became a cultural
icon synonymous with the 1960s counterculture (Nelson, 2010). The car's popularity
was underpinned by its affordability, reliability, and fuel efficiency - qualities that
endeared it to the American public and differentiated it from the larger, less
economical American cars of the time.

In its subsequent years, Volkswagen introduced several other popular models such as
the Golf in 1974, which soon eclipsed the Beetle as the flagship model, and later, the
Polo and Passat. These models helped Volkswagen cement its reputation as a major
player in the global automotive market (Volkswagen AG, 2018).

Technologically, Volkswagen has been at the forefront of innovation, being an early

adopter of front-wheel drive and water-cooled engines in the late 1970s. These
technological shifts marked a significant departure from the air-cooled, rear-engine
designs of its earlier models (Norbye, 1984).
Volkswagen AG's portfolio today includes diverse brands such as Audi, Bentley,
Bugatti, Lamborghini, Porsche, SEAT, and Škoda. It operates in about 150 countries
with over 100 production facilities spread across 27 countries, underscoring its
significant global footprint and economic influence (Volkswagen AG, 2020).

As Volkswagen strides into the future, it continues to prioritize sustainability and

innovation to achieve carbon neutrality by 2050. The company's enduring
commitment to producing high-quality, environmentally friendly vehicles positions it
well in the competitive and rapidly evolving automotive landscape (Volkswagen AG
Annual Report, 2019).

Volkswagen’s history, however, is not without blemish. In 2015, the company was
embroiled in a major scandal when it was revealed that it had installed software in its
diesel engines to cheat on emissions tests. This revelation had a profound impact,
affecting nearly 11 million cars worldwide and costing the company over $30 billion
in fines and settlements (Ewing, 2017).

1.2 Scandal:

1.2.1 The Scandal Explained

The Volkswagen emissions scandal, also known as "Dieselgate," unfolded as a pivotal

moment in the automotive industry, revealing a systematic deception perpetrated by
Volkswagen to subvert emissions regulations. This detailed analysis delves into the
intricacies of the scandal, examining key milestones, regulatory responses, and
corporate actions while incorporating specific quotes and statements made by relevant
stakeholders at various points in time.

The genesis of the Volkswagen emissions scandal can be traced back to the
development and implementation of defeat devices – sophisticated software
algorithms embedded within the engine control units (ECUs) of Volkswagen diesel
vehicles. These devices were meticulously engineered to recognize when a vehicle
was undergoing emissions testing in a controlled laboratory environment, prompting
adjustments to engine performance to comply with regulatory standards. However,
during real-world driving conditions, the defeat devices would surreptitiously
deactivate, allowing the vehicles to emit pollutants, particularly nitrogen oxides
(NOx), at levels far exceeding permissible limits.

The scandal came to light through a series of investigations initiated by independent

researchers and regulatory agencies. In May 2014, researchers at West Virginia
University, in collaboration with the International Council on Clean Transportation
(ICCT), conducted on-road emissions tests on Volkswagen diesel vehicles. The
findings of their study, published in a landmark report, revealed glaring disparities
between laboratory emissions data and actual emissions during normal driving
conditions, indicating potential emissions cheating (Langer et al., 2016).
Subsequent investigations by regulatory authorities, including the California Air
Resources Board (CARB) and the Environmental Protection Agency (EPA), validated
the initial findings and intensified scrutiny of Volkswagen's emissions compliance
practices. In September 2015, the EPA publicly accused Volkswagen of violating the
Clean Air Act by installing illegal defeat devices in approximately 482,000 diesel
vehicles sold in the United States (EPA, 2015). This damning accusation marked the
beginning of a protracted legal and regulatory battle that would ensnare Volkswagen
and shake the foundations of the global automotive industry.

Initially met with vehement denial, Volkswagen's response evolved as evidence of

emissions cheating became irrefutable. In a pivotal moment, Volkswagen admitted to
the presence of defeat devices in its diesel vehicles, acknowledging the gravity and
scale of the issue. The company disclosed that approximately 11 million vehicles
worldwide, spanning multiple brands under its umbrella, including Volkswagen, Audi,
and Porsche, were equipped with illegal software (Volkswagen Group, 2015). This
admission sent shockwaves through the automotive industry and triggered a cascading
series of events that would redefine Volkswagen's trajectory for years to come.

The fallout from the scandal was swift and severe, encompassing legal, financial, and
reputational consequences for Volkswagen. CEO Martin Winterkorn's resignation
marked the beginning of a leadership upheaval, as the company grappled with
mounting legal challenges, regulatory fines, and a precipitous decline in brand trust.
Volkswagen faced a litany of lawsuits from disgruntled consumers, shareholders, and
regulatory authorities, resulting in billions of dollars in financial liabilities (BBC
News, 2015).

1.2.2 Timeline of Key Events

2006-2009: Development and Implementation of Defeat Devices

In 2006, Volkswagen initiated the development of a new generation of diesel engines

to achieve low emissions without compromising performance. According to an
interview with former Volkswagen CEO Martin Winterkorn published in Der Spiegel
in 2015, the objective was to develop "a diesel engine that combined low emissions
with excellent fuel economy."

By 2009, engineers at Volkswagen had developed and implemented defeat devices –

software algorithms integrated within engine control units (ECUs) – to manipulate
emissions readings during regulatory testing. According to court documents, the
development of defeat devices aimed to meet emissions standards without sacrificing
vehicle performance. As former Volkswagen engineer James Liang admitted in court
testimony, "The objective was to develop an engine that was clean and efficient
without sacrificing performance."
2014: Initial Discovery of Discrepancies

In May 2014, West Virginia University researchers, in collaboration with the

International Council on Clean Transportation (ICCT), conducted on-road emissions
tests on Volkswagen diesel vehicles. Their research revealed significant disparities
between emissions data obtained in laboratory settings and actual emissions produced
during normal driving conditions. Dr. Arvind Thiruvengadam, one of the lead
researchers, stated in an interview with The New York Times, "We were surprised by
the vast difference between the emissions measured in the lab and those observed on
the road."

Following the publication of the research findings, the ICCT presented its evidence to
the California Air Resources Board (CARB), triggering a comprehensive investigation
into Volkswagen's emissions control systems. CARB's subsequent analysis
corroborated the initial evidence of emissions irregularities. Richard Corey, CARB's
executive officer, emphasized, "The evidence suggests a systemic failure within
Volkswagen to comply with emissions regulations."

2015: Unraveling of the Scandal

The Volkswagen emissions scandal came to a head in September 2015 when the
Environmental Protection Agency (EPA) publicly accused Volkswagen of violating
the Clean Air Act. Gina McCarthy, then EPA Administrator, declared, "Volkswagen's
actions represent a blatant violation of public trust and environmental integrity."

On September 18, 2015, Volkswagen admitted to the presence of defeat devices in its
diesel vehicles, acknowledging the global scale of the issue and the profound
implications for millions of vehicles across various brands under its umbrella.
Volkswagen CEO Matthias Müller expressed remorse, stating, "We deeply regret the
harm caused to our customers, employees, and stakeholders."

Amidst mounting pressure and scrutiny, Martin Winterkorn, then CEO of

Volkswagen, tendered his resignation on September 22, 2015. Winterkorn's
resignation reflected the leadership upheaval within Volkswagen and signaled a period
of internal reckoning as the company grappled with the fallout from the scandal.

2016: Escalation of Legal and Financial Fallout

In January 2016, Volkswagen submitted a formal recall plan to the EPA and CARB,
outlining proposed remedies for affected vehicles equipped with illegal defeat devices.
Hans-Gerd Bode, Volkswagen's head of global communications, asserted, "We are
committed to cooperating fully with regulatory authorities and implementing robust
measures to address the emissions issue."

On June 28, 2016, Volkswagen reached a landmark $14.7 billion settlement with U.S.
regulators and vehicle owners to resolve civil claims related to the emissions scandal.
Loretta Lynch, U.S. Attorney General at the time, emphasized the significance of the
settlement, stating, "This historic agreement holds Volkswagen accountable for its
egregious violations of environmental laws and provides meaningful relief to affected
consumers."

However, Volkswagen's legal troubles were far from over. On October 25, 2016, the
U.S. Department of Justice indicted six Volkswagen executives on criminal charges.
Sally Yates, then Deputy Attorney General, remarked, "The indictments send a clear
message that corporate misconduct will not be tolerated, and those responsible will be
held accountable."

2017-Present: Ongoing Repercussions and Remediation Efforts

The repercussions of the Volkswagen emissions scandal continued to reverberate well

into subsequent years as the company grappled with the enduring fallout from its
misconduct. On January 11, 2017, Volkswagen pleaded guilty to criminal charges in
the United States, agreeing to pay an additional $4.3 billion in fines. Manfred Döss,
Volkswagen's Chief Legal Officer, expressed contrition, stating, "We acknowledge
the gravity of our actions and are fully committed to making amends."

In June 2018, German authorities imposed a €1 billion fine on Volkswagen for

regulatory violations and breaches of duty related to the emissions scandal. Katarina
Barley, German Justice Minister at the time, underscored the importance of holding
corporations accountable, stating, "The fine sends a strong signal that corporate
misconduct will not be tolerated, and companies must adhere to the highest standards
of ethical conduct."

As of 2020, Volkswagen continues to grapple with legal challenges, regulatory

oversight, and reputational damage stemming from the emissions scandal. The
company has redoubled its efforts to rebuild trust and transition towards electric
mobility, prioritizing sustainability and ethical conduct in its business practices.

The Volkswagen emissions scandal epitomizes the perils of corporate misconduct and
underscores the critical importance of ethical conduct, regulatory compliance, and
transparency in corporate governance. Volkswagen's deliberate deception not only
violated emissions regulations but also eroded consumer trust and corporate
credibility. As Volkswagen navigates the aftermath of Dieselgate, it faces the
formidable task of rebuilding its reputation, restoring stakeholder confidence, and
embracing a sustainable future. The lessons gleaned from this seminal event serve as a
sobering reminder of the profound impact of corporate malfeasance on society, the
environment, and the global economy.
2. Study Objectives

The primary aim of this ethics assignment report is to conduct a meticulous

examination of the ethical conduct implicated in the Volkswagen diesel emissions
scandal, colloquially known as "Dieselgate." By employing distinct ethical
frameworks and conducting an impact evaluation, the report endeavors to dissect the
intricate facets of the scandal, unraveling its implications for corporate governance,
stakeholder trust, and regulatory adherence.

To fulfill the objectives of this study, a rigorous application of ethical frameworks is

imperative. The following frameworks will guide the analysis:

● Utilitarianism: Utilitarianism, a consequentialist ethical theory, will be

utilized to assess the actions of Volkswagen in light of their consequences.
Specifically, this framework will scrutinize the balance between Volkswagen's
pursuit of profit and the detrimental impacts on public health, environmental
integrity, and stakeholder confidence resulting from the scandal.
● Deontological Ethics: The principles of deontological ethics, emphasizing
moral duties and obligations, will serve as a lens through which Volkswagen's
conduct is examined. This framework will scrutinize the extent to which
Volkswagen adhered to ethical imperatives such as honesty, transparency, and
compliance with laws and regulations.
● Virtue Ethics: Virtue ethics, focusing on the character and moral virtues of
individuals and organizations, will provide insights into Volkswagen's
corporate culture and leadership integrity. This framework will assess whether
Volkswagen exemplified virtues such as honesty, accountability, and integrity
in its response to the emissions scandal.

The impact evaluation will comprehensively assess the repercussions of the

Volkswagen emissions scandal on various stakeholders, including:

● Consumers: By examining the financial, emotional, and ethical ramifications

of the scandal on consumers who purchased affected vehicles, the report will
elucidate the extent of harm inflicted and Volkswagen's efforts to ameliorate
consumer grievances and rebuild trust.
● Environmental and Public Health: Through an analysis of the environmental
and public health consequences stemming from excess nitrogen oxide
emissions, the report will underscore the ethical dimensions of Volkswagen's
negligence towards environmental protection and public welfare.
 ● Regulatory Authorities and Government Agencies: The effectiveness of
regulatory responses to the scandal and the implications for regulatory
oversight, enforcement mechanisms, and corporate accountability will be
scrutinized, shedding light on the ethical challenges faced by regulatory bodies.
● Shareholders and Investors: The financial ramifications of the scandal on
shareholders and investors, including losses in market value and erosion of
confidence, will be meticulously examined. The report will assess the ethical
considerations surrounding corporate governance, fiduciary duties, and
shareholder rights in the aftermath of the scandal.

In conclusion, this ethics assignment report endeavors to provide a rigorous and

comprehensive analysis of the Volkswagen diesel emissions scandal from an ethical
standpoint. By leveraging distinct ethical frameworks and conducting a thorough
impact evaluation, the report aims to unravel the ethical complexities inherent in
corporate misconduct, contributing to a deeper understanding of corporate ethics,
responsibility, and accountability.

3. Methodology:

This study employs a multifaceted approach to gather comprehensive information

regarding the Volkswagen diesel emissions scandal:

● Case Studies: Detailed case studies sourced from academic literature and
regulatory reports serve as primary resources. These case studies offer an in-
depth examination of the scandal's chronology, ethical dilemmas, and the
responses of various stakeholders.
● Academic Journals: Peer-reviewed scholarly articles published in academic
journals provide authoritative insights into different facets of the scandal.
These articles offer rigorous analyses of ethical considerations, regulatory
frameworks, and corporate behavior.
● News Articles: Analysis of news reports and investigative journalism pieces
from reputable sources offers real-time updates on the scandal's progression.
These articles illuminate public perceptions, regulatory actions, and legal
proceedings, enriching our understanding of the unfolding events.
● Regulatory Reports and Legal Documents: Official reports and legal
documents issued by regulatory bodies and courts furnish essential information
on the legal and regulatory dimensions of the scandal. By scrutinizing findings,
consent decrees, and court filings, we gain valuable insights into the legal
ramifications.
● Industry Analyses and Reports: Reports authored by industry organizations
and consulting firms provide valuable context on the scandal's ramifications for
the automotive sector and corporate governance practices. These analyses
elucidate the long-term implications for Volkswagen and its industry peers.
 ● Interviews and Expert Opinions: Conducting interviews with industry
experts, scholars, regulatory officials, and corporate representatives facilitates
the collection of qualitative insights. These interviews offer firsthand
perspectives on the ethical, legal, and regulatory challenges posed by the
scandal.

By integrating these diverse research methods, this study endeavors to present a

comprehensive analysis of the Volkswagen emissions scandal. Our objective is to
contribute substantively to the discourse surrounding corporate ethics, accountability,
and governance.

4. Purposes and Rationale

The Ethics Assignment Report on the Ethical Conduct of the Volkswagen Diesel
Emissions Scandal serves several critical purposes, each underpinned by a rationale
essential for understanding the ethical intricacies of the scandal:

Thorough Analysis: The primary objective of this report is to conduct a

comprehensive and rigorous analysis of the ethical dimensions surrounding the
Volkswagen Diesel Emissions Scandal. By scrutinizing Volkswagen's actions and the
roles of various stakeholders, the report aims to unveil the ethical breaches, moral
quandaries, and corporate accountabilities inherent in the scandal.

Application of Ethical Frameworks: This report seeks to apply established ethical

frameworks and principles to the Volkswagen case study. By employing ethical
theories such as deontology, utilitarianism, and virtue ethics, it aims to evaluate
Volkswagen's decisions and behaviors, providing a nuanced understanding of their
ethical implications.

Impact Assessment: Another crucial aim is to assess the impact of Volkswagen's

actions on diverse stakeholders, including consumers, shareholders, regulatory bodies,
and the environment. By analyzing the repercussions of the scandal on these
stakeholders, the report aims to underscore the ethical obligations that corporations
bear towards society and the ecosystem.

Extraction of Lessons and Recommendations: The report endeavors to distill

lessons from the Volkswagen Diesel Emissions Scandal and offer actionable
recommendations for ethical corporate conduct and governance in the automotive
sector. Through a synthesis of insights gleaned from the analysis, it aims to furnish
practical guidance for companies to avert similar ethical pitfalls in the future and
uphold ethical standards.

Educational Contribution: Furthermore, the report serves an educational purpose by

providing a comprehensive understanding of ethics in business and corporate
governance. Through the lens of the Volkswagen case study, it endeavors to illustrate
real-world ethical challenges encountered by corporations and underscore the
significance of ethical decision-making in organizational leadership.

In essence, the Ethics Assignment Report on the Ethical Conduct of the Volkswagen
Diesel Emissions Scandal seeks to enrich the academic discourse on business ethics,
enhance awareness of ethical issues in the automotive industry, and advocate for
ethical conduct and accountability in corporate practices.

II. Ethical Theoretical Frameworks

2.1 Utilitarianism

Definition:

Utilitarianism is an ethical theory that determines right from wrong by focusing on

outcomes. It is a form of consequentialism.

Utilitarianism holds that the most ethical choice is the one that will produce the
greatest good for the greatest number. It is the only moral framework that can be used
to justify military force or war. It is also the most common approach to moral
reasoning used in business because of how it accounts for costs and benefits.

"The greatest good for the greatest number" is a maxim of utilitarianism.

Application to VW: How might Utilitarian principles judge VW's actions?

 The advertisement of
a “clean diesel” product.

This study will analyze the Volkswagen emissions scandal as an ethical business study
in the context of the utilitarian philosophy of John Stuart Mill. Traditionally,
Volkswagen has been known to be an environmentally safe vehicle due to high levels
of performance standards in terms of carbon emissions. However, Volkswagen had
illegally programmed the turbocharged direct injection (TDI) controls in the car to
only work when the car was being tested by the Environmental Protection Agency
(EPA). In 2015, Volkswagen was charged with emitting high levels of carbon
emissions in its diesel automobiles, which illustrates a cost-cutting method that led to
higher air pollution rates. The Utilitarian ethical argument identifies the highly
individualistic role that Volkswagen executives brought forth by deceiving the
customers that they were buying an “environmentally friendly” product. This
deviation from the “happiness principle” defines why individual selfishness of
Volkswagen led to disappointment among customers when they were deceived.
Utilitarianism is the view that the right action is the one that maximizes the overall
happiness or well-being of the greatest number of people. From this perspective,
Volkswagen's actions were wrong, as they caused more harm than good to society.
The excess emissions of NOx contribute to air pollution, climate change, and
respiratory diseases, affecting millions of people around the world. Volkswagen
caused pain around the world. Many employees lost their jobs due to cheating on the
emission test. Moreover, the deception eroded the trust and confidence of customers,
investors, employees, and regulators, damaging the reputation and value of the
company and the industry. The cheating on the emission test took place in the United
States, Europe, Canada, and South Korea. 11 million cars were sold worldwide and
500,000 in the United States with the installed software program (Goodman, 1).
 Activitists pretends to be choking
at the prote.

People were unsatisfied with the results of their cars. Clients paid an amount for the
car to have a high quality of eco-friendly and not the opposite.

The VW corporation was found to be guilty of falsifying programming for the

emissions system, but the executives who were responsible for this corporate action
are protected by corporate law for damages to the environment and to the health of
human beings. In a highly unregulated system of corporate law, it is very difficult to
punish or remove the executives who were responsible for this unethical act. Many
corporate legal cases end up being settled out of court with financial compensation for
damages. However, the leaders of Volkswagen benefited significantly from using
defeat devices in the car's emissions system. This enabled them to increase the
company's sales and profits substantially. By reducing manufacturing costs and
avoiding the need to invest in technology to improve fuel efficiency or reduce
emissions, Volkswagen saved a considerable amount of money and boosted profits
from car sales. Additionally, they enhanced their market competitiveness by
maintaining stable car prices, attracting more customers, and expanding their market
share. Furthermore, the use of defeat devices helped Volkswagen avoid penalties and
legal costs associated with violating emission standards. This saved them billions of
dollars and shielded the company from negative impacts on reputation and value. The
benefits that Volkswagen gained from cheating, such as higher sales, profits, and
market share, were outweighed by the costs and risks of being exposed and penalized.

2.2 Deontological Ethics

Definition: Deontology is an ethical theory that uses rules to distinguish right from
wrong. Deontology is often associated with the philosopher Immanuel Kant. Kant
believed that ethical actions follow universal moral laws, such as “Don’t lie. Don’t
steal. Don’t cheat.”

Deontology is simple to apply. It just requires that people follow the rules and do their
duty. This approach tends to fit well with our natural intuition about what is or isn’t
ethical.
Unlike Utilitarianism, Kant‘s categorical imperative places the moral authority for an
action on duty towards others and humanity (Weiss, 2009). Kantianism further holds
that people should be treated as ends and never purely as means to the ends of others
(Weiss, 2009, p. 107). Kant believes that in an ethical dilemma, everyone involved
should be treated with respect, fairness, and honesty (Sandel, 2010).

Kantian Analysis: How do Kant’s theories provide insight into VW’s decisions?

Kantian ethics assert that the intentions behind actions hold paramount importance
and should encompass a sense of obligation (Beauchamp & Bowie, 2004). Kantianism
prioritizes the intrinsic moral quality of actions, a choice Volkswagen was faced with
(Caria & Hermans, 2016, p. 3). Volkswagen opted for actions that were both unethical
and unlawful. Deceptive advertising and assertions disregarded potential customers by
manipulating their choices (Beauchamp & Bowie, 2004). Similarly, employees were
treated merely as instruments to achieve certain ends (Beauchamp & Bowie, 2004, p.
22). Engineers were deprived of the autonomy to act as rational, independent agents;
their concerns were disregarded, leaving them with no liberty to exercise their
judgment (Beauchamp & Bowie, 2004). Consequently, Volkswagen violated Kantian
principles of duty and respect by treating customers and employees as mere profit-
generating commodities (Weiss, 2009).

Kant's moral and duty-based principles offer a rational framework for corporate
conduct independent of personal interests (Schumann, 2001). Kant prohibits motives
solely driven by profit and advocates for decisions made for morally justifiable
reasons (Beauchamp & Bowie, 2004). Volkswagen starkly contradicted this notion,
being motivated by self-interest rather than altruism (Beauchamp & Bowie, 2004).
Volkswagen's impetus did not stem from moral principles; its primary objective was
the expansion of corporate power (Rhodes, 2016, p. 1501). According to Kant, this
constitutes a prudent, but not a morally upright, action (Beauchamp & Bowie, 2004).
Thus, Volkswagen fell short of its moral duty by disregarding basic business ethics
(Orts & Smith, 2017).

Kant proposes that adhering to the categorical imperative is essential for ethical
behavior, which prioritizes the rights and interests of all stakeholders. Volkswagen's
actions, characterized by deception and fraud, violated Kantian principles as they
failed to protect employees and other stakeholders. While some argue that
Volkswagen has shifted towards Kantianism post-scandal by apologizing and
adopting stricter rules, critics doubt the sincerity of these efforts. Additionally,
Kantianism has been criticized for its lack of consideration of human emotions and
virtues.

Utilitarianism provides a more flexible approach to assessing Volkswagen's ethical

decisions. However, Volkswagen's actions, driven solely by profit and without
considering the well-being of stakeholders, contradict Utilitarian principles. Both Act
and Rule Utilitarianism deem Volkswagen's actions unacceptable, as they did not
maximize overall good or adhere to regulatory standards.
In conclusion, the evaluation of Volkswagen's case using Kantian ethics and
Utilitarianism suggests gross ethical misconduct. While Kantianism emphasizes
minimum moral conduct, Utilitarianism stresses maximizing overall good. However,
both theories have limitations and lack consistency in addressing ethical dilemmas.
Future studies should explore the effectiveness of these theories in guiding ethical
corporate judgments. Ultimately, ethical standards in business should be strengthened
with strict consequences to combat corporate fraud effectively.

2.3 Virtue Ethics

Definition: Virtue ethics is a philosophy developed by Aristotle and other ancient
Greeks. It is the quest to understand and live a life of moral character.

This character-based approach to morality assumes that we acquire virtue through

practice. By practicing being honest, brave, just, generous, and so on, a person
develops an honorable and moral character. According to Aristotle, by honing
virtuous habits, people will likely make the right choice when faced with ethical
challenges.

To illustrate the difference between three key moral philosophies, ethicists Mark
White and Robert Arp refer to the film The Dark Knight where Batman has the
opportunity to kill the Joker. Utilitarians, White and Arp suggest, would endorse
killing the Joker. By taking this one life, Batman could save multitudes.
Deontologists, on the other hand, would reject killing the Joker simply because it’s
wrong to kill. But a virtue ethicist “would highlight the character of the person who
kills the Joker. Does Batman want to be the kind of person who takes his enemies’
lives?” No, he doesn’t.

Therefore, virtue ethics helps us understand what it means to be a virtuous human

being. And, it gives us a guide for living life without giving us specific rules for
resolving ethical dilemmas.

Cultural Reflection: What does the scandal reflect about the virtues or lack
thereof within VW’s corporate culture?
In Volkswagen's corporate culture, there are several indications of ethical and
transparency shortcomings. The Volkswagen chairman, Hans Dieter Pötsch, admitted
that many problems within the company led to the ethics failure. He explained that
there was a culture at Volkswagen that allowed breaking the rules. Engineers put
defeat devices in the engines when they found out they couldn't meet the US
emissions standards legally. Some managers were suspended because they might have
been involved. Pötsch clarified that while senior executives weren't directly involved
in cheating, they still had responsibility. The scandal happened because of individual
mistakes, flaws in company processes, and a culture that allowed rule-breaking. The
work on the defeat devices started in 2005 when Volkswagen wanted to sell more
diesel engines in the US. It's not just one mistake but a series of errors.

One notable aspect is the use of deceptive tactics and fraudulent behavior to boost
sales figures. Instead of adhering to ethical principles and maintaining integrity in
their products and marketing strategies, Volkswagen chose to deceive customers and
the wider community by falsifying emissions reports and misleading regulatory
agencies. This behavior not only violates ethical standards but also reflects a lack of
transparency and honesty within the company.

Moreover, there are signs that Volkswagen prioritizes personal gain over ethical
responsibility. Their decisions and actions are often driven by a desire to increase
sales and profits, even at the expense of disregarding ethical responsibilities and
trustworthiness with customers and the broader community. This prioritization not
only undermines customer trust but also has serious repercussions for the company's
market reputation.

Furthermore, within Volkswagen's organizational culture, there is a deficiency in

creating a positive work environment where ethics and transparency are valued.
Employees may not have been encouraged or supported to voice concerns about
unethical behavior or to promote a clean and transparent work environment. This
deficiency not only affects the personal development and capabilities of employees
but also creates an unhealthy and untrustworthy work atmosphere.
Lastly, the occurrence of this scandal also demonstrates a failure in management and
oversight from Volkswagen's senior management. It seems that they were unable to
detect or prevent unethical behavior within the company, leading to a loss of trust
from the community and stakeholders.

In summary, these shortcomings reflect a lack of ethics and transparency within

Volkswagen's organizational culture, especially in decision-making and business
practices. This raises questions about the company's commitment to ethics and
transparency in the future and underscores the need for changes in organizational
culture and oversight systems.

This scandal sheds light on the ethical shortcomings and lack of transparency
ingrained within VW's corporate culture. Rather than upholding ethical values and
maintaining integrity in their products and marketing practices, VW opted for
deceitful tactics and fraudulent behavior to bolster sales figures. This indicates that
VW's corporate priorities were centered around achieving personal gains at the
expense of fulfilling ethical obligations and establishing trustworthiness with
customers and the broader community. The scandal underscores a systemic failure
within VW's organizational culture to prioritize ethical conduct and prioritize long-
term integrity over short-term gains.

2.4 Corporate Social Responsibility (CSR)

Definition: Corporate Social Responsibility (CSR) is a management principle that
companies adopt to integrate social and environmental issues into their daily
operations. CSR promotes companies to act ethically and transparently while creating
value for both the community and the business. This may involve implementing
environmental protection measures, supporting the local community, improving
working conditions, and promoting diversity and fairness. The goal of CSR is not only
to optimize financial benefits for the company but also to do good for society and the
environment. By implementing CSR, companies can build good relationships with
stakeholders, enhance brand credibility, and promote sustainable development.

By practicing corporate social responsibility, also called corporate citizenship,

companies are aware of how they impact aspects of society, including economic,
social, and environmental. Engaging in CSR means a company operates in ways that
enhance society and the environment instead of contributing negatively to them.

CSR Failure Points: In what ways did VW fail its CSR obligations?

The Volkswagen scandal epitomizes a colossal failure in Corporate Social

Responsibility (CSR). The company intentionally devised a scheme to bypass
emissions regulations, aiming to gain an unfair advantage over its competitors and
solidify its position as the leading global car manufacturer. This unethical conduct,
which resulted in the resignation of top executives, underscores a significant lapse
within Volkswagen's CSR department, suggesting that they were likely aware of the
deception. This situation highlights a fundamental flaw in the concept of CSR: while
companies are expected to regulate themselves, their primary objective often revolves
around maximizing profits, regardless of ethical considerations.

The Volkswagen case prompts a critical reevaluation of the role of CSR departments
within companies. Instead of merely serving as a facade to maintain a clean corporate
image, these departments must actively ensure ethical conduct and accountability
throughout the organization. Moreover, the scandal raises questions about the broader
corporate culture and the extent to which profit-driven motives overshadow ethical
responsibilities. It challenges the prevailing notion that CSR is a discretionary add-on
rather than an integral part of corporate strategy.

Furthermore, Volkswagen's disregard for environmental and ethical standards

highlights systemic issues within the automotive industry and corporate governance as
a whole. It underscores the urgent need for greater transparency, accountability, and
regulatory oversight to prevent similar ethical breaches in the future. The failure of
CSR in the Volkswagen case serves as a wake-up call for companies worldwide to
prioritize ethical behavior, sustainability, and social responsibility over short-term
financial gains. Only through a fundamental shift in mindset and corporate culture can
companies truly fulfill their ethical obligations and regain the trust of consumers and
stakeholders.

III. Detailed Case Analysis

3.1 Mechanisms of Deceit

3.1.1 Detailed Analysis of Volkswagen’s Defeat Device

The defeat device implemented by Volkswagen in their diesel vehicles was a complex
software algorithm integrated into the engine control unit (ECU), the central
component of the engine management system. This sophisticated system was designed
to manipulate emissions outputs by detecting when the vehicle was undergoing
official emissions testing (EPA, 2015).

Functioning of the ECU: The ECU functions as the brain of the vehicle’s engine
management system, monitoring a range of sensors throughout the vehicle to optimize
performance and emissions. This includes adjustments to fuel injection timing, air-fuel
ratios, and exhaust gas recirculation (EGR) to control pollutants such as nitrogen
oxides (NOx) and particulate matter (PM).
Mechanism of Deceit: The defeat device was programmed to activate a specific ‘test
mode’ when it detected testing conditions, which were determined by analyzing
various parameters such as vehicle speed, engine temperature, and steering wheel
position (CARB, 2016). In this mode, the vehicle’s emission control systems were
fully engaged, resulting in significantly reduced NOx emissions that complied with
EPA standards. This was achieved by finely tuning engine parameters such as timing
and fuel injection patterns.

Real-World Emissions: Outside of these testing conditions, the defeat device would
deactivate the test mode. This allowed the vehicle to operate without the stringent
emissions controls, prioritizing performance and fuel efficiency over environmental
standards. Consequently, the actual emissions during normal driving conditions were
substantially higher than those recorded during tests (EPA, 2015). This discrepancy
enabled Volkswagen to falsely market their diesel vehicles as low-emission while
offering enhanced performance and fuel economy.

Environmental Impact: The real-world impact of this manipulation was a significant

increase in NOx emissions, which are harmful pollutants linked to respiratory issues
and environmental degradation. The use of this defeat device allowed Volkswagen to
circumvent environmental laws and deceive customers and regulators about the true
environmental performance of their vehicles (CARB, 2016).

This calculated deception not only violated regulatory frameworks but also betrayed
consumer trust, leading to widespread legal and financial repercussions for
Volkswagen.

3.1.2 Discovery of Volkswagen's Emissions Cheating

The unethical practices of Volkswagen were exposed through a series of

investigations initiated by independent researchers, environmental groups, and

regulatory agencies.

The initial clue to the cheating came from an independent study conducted in 2014 by

researchers at the Center for Alternative Fuels, Engines, and Emissions (CAFEE) at

West Virginia University. They performed on-road emissions tests on several

Volkswagen vehicles and discovered discrepancies in NOx emission levels. The

vehicles emitted significantly higher levels of NOx pollutants during real-world

driving conditions than what was shown during the controlled laboratory tests

(CAFEE, 2014).

Encouraged by these findings, the U.S. Environmental Protection Agency (EPA) and

the California Air Resources Board (CARB) undertook detailed investigations. They

conducted their own emissions tests under various driving scenarios and found that the

emission levels during normal driving conditions vastly exceeded those during testing

conditions, confirming the presence of a defeat device (EPA, 2015).

In September 2015, faced with overwhelming evidence, Volkswagen publicly

admitted to the use of defeat devices in their diesel engines designed to manipulate

emissions tests. The company revealed that it had installed the software in over 11

million vehicles worldwide, making it one of the biggest scandals in automotive

history (Volkswagen, 2015).

Following the admission, Volkswagen faced a slew of legal and financial

consequences. Governments and regulatory bodies around the world initiated legal

actions against the company. Volkswagen was subjected to numerous lawsuits for

fraud and violation of environmental laws, culminating in billions of dollars in fines

and settlements. Additionally, the scandal severely damaged Volkswagen’s reputation,

impacting its business and market value severely (EPA, 2015).

The discovery of the emissions cheating by Volkswagen highlighted significant flaws

in regulatory and compliance monitoring systems and raised questions about ethics in

corporate conduct. This incident has led to increased scrutiny of automotive emissions

practices worldwide.
3.2 Responsibility and Accountability

The responsibility for the Volkswagen emissions scandal implicated a range of

individuals across different levels within the company. At the executive level, Martin
Winterkorn, who served as the CEO of Volkswagen Group at the time of the scandal,
resigned just days after the emissions cheating came to light in September 2015.
Despite denying any personal involvement, there were considerable doubts regarding
his oversight of the company's operations. Following his departure, Matthias Müller
took over as CEO and was tasked with managing the scandal's fallout and restoring
the company’s credibility.

Further down the chain of command, the direct responsibility for the development and
implementation of the defeat device software fell on the shoulders of the engineering
and development teams. These individuals were integral in crafting the mechanisms
that would ultimately deceive emissions testing regimes. There was also potential
awareness or complicity among the legal and compliance personnel, who were
responsible for ensuring that Volkswagen’s operations adhered to legal standards.

The Board of Directors was questioned regarding their knowledge of and response to
the emissions cheating, with concerns about whether they had appropriately managed
risk and compliance within the company. Moreover, other departments, including
marketing and public relations, might have inadvertently played a role in the scandal
by promoting vehicles based on misleading environmental credentials.

Volkswagen faced substantial legal and financial consequences once the scandal
broke. In the United States alone, the company was fined over $20 billion in a
combination of civil settlements, criminal penalties, and environmental remediation
costs, as dictated by agencies such as the Environmental Protection Agency (EPA)
and the Department of Justice (DOJ). In the European Union, penalties were also
imposed, though they were generally lower than in the U.S. Furthermore, Volkswagen
was subjected to numerous class-action lawsuits from customers worldwide. These
lawsuits, which alleged fraud and breach of contract, led to significant settlement
costs, including vehicle buybacks and repairs. Shareholders too initiated lawsuits
against the company, claiming that they had been misled by Volkswagen’s failure to
disclose its emission strategies, which resulted in financial losses reflected by a sharp
decline in stock prices.

In response to these challenges, Volkswagen undertook significant efforts to comply

with regulations and mend its public image through recalls, software updates, and
advancements in emissions reduction technology. These actions, essential for aligning
Volkswagen’s vehicles with legal standards, also aimed at rebuilding trust and
addressing the damages to consumer confidence and market reputation. The scandal
underscored the critical importance of ethical corporate governance and the far-
reaching consequences of corporate malfeasance.
3.3 Regulatory Overview

3.3.1 Regulatory Failures

The regulatory oversights that enabled companies like Volkswagen to perpetrate

emissions cheating are multifaceted. Initially, standard emissions tests conducted in
controlled laboratory settings lack accuracy in reflecting real-world driving
conditions. This discrepancy provides manufacturers with an opportunity to exploit,
exemplified by Volkswagen's use of defeat devices to manipulate emissions during
regulatory tests while emitting higher levels of pollutants during actual driving.

Furthermore, the limited resources and manpower available to regulatory agencies

hinder their capacity to conduct thorough emissions testing on all vehicles,
complicating the detection of sophisticated cheating methods. Additionally,
manufacturers' withholding of critical information about their emissions control
systems impedes regulators' ability to identify discrepancies and enforce compliance

effectively. Additionally, regulatory bodies may face influence from industry

stakeholders and lobbyists, potentially compromising the enforcement of emissions
standards and exacerbating regulatory loopholes.

To address these shortcomings and prevent similar scandals in the future, several
essential improvements are necessary. These include revising emissions testing
protocols to better replicate real-world driving conditions, mandating manufacturers to
disclose comprehensive details about their emissions control systems for enhanced
scrutiny, imposing stricter penalties for non-compliance, fostering international
cooperation to standardize testing procedures, enacting legal reforms to protect
whistleblowers and hold executives accountable, investing in advanced emissions
testing technologies, and fostering a corporate culture that prioritizes ethical conduct
and environmental stewardship.

By implementing these strategic initiatives, regulatory bodies can establish a more

robust framework for monitoring and enforcing emissions standards, ensuring
transparency, and promoting environmental responsibility within the automotive
industry.

3.3.2 Suggestions for Improvement:

To prevent future scandals akin to the Volkswagen emissions debacle, several

actionable recommendations emerge. Firstly, it's imperative to fortify emissions
testing protocols by revising them to mirror real-world driving conditions more
accurately. This entails incorporating comprehensive parameters that better capture
actual emissions performance.
Secondly, enhancing transparency demands manufacturers to furnish detailed
information about their emissions control systems and onboard software to regulatory
bodies. This transparency facilitates rigorous scrutiny and verification processes,
ensuring compliance.

Furthermore, bolstering enforcement measures is vital. This entails imposing escalated

fines and penalties for regulatory non-compliance, acting as a deterrent against
cheating practices. Additionally, conducting more rigorous audits and regular
monitoring of manufacturers' compliance status, including on-road emissions testing
and defeat device inspections, is crucial.

Moreover, fostering international collaboration is paramount. By promoting

cooperation and harmonization of emissions standards and testing procedures across
borders, regulatory discrepancies exploited by manufacturers can be mitigated.
Facilitating information exchange among regulatory agencies globally enhances
enforcement capabilities and regulatory effectiveness universally.

Additionally, legislative reforms are necessary to bolster transparency and

accountability. Encouraging and safeguarding whistleblowers who expose emissions
cheating or other regulatory infractions within the automotive industry is crucial.
Holding senior executives and board members accountable for compliance failures,
including imposing personal liability and penalties, serves as a deterrent against
unethical conduct.

Furthermore, investing in technological innovations is essential. Developing advanced

emissions testing technologies like remote sensing and onboard monitoring systems
enhances detection capabilities and regulatory oversight. Promoting the adoption of
cleaner vehicle technologies such as electric and hydrogen fuel cell vehicles reduces
reliance on traditional fossil fuel-powered vehicles, mitigating emissions-related risks.

Lastly, fostering a corporate culture that prioritizes ethical conduct, regulatory

compliance, and environmental stewardship over short-term financial gains is
imperative. Public awareness campaigns are essential to educate consumers,
stakeholders, and the general public about emissions-related issues, regulatory
requirements, and the significance of supporting environmentally responsible
practices in the automotive sector.

IV. Impacts of the Scandal

4.1. Environmental Impacts

The Volkswagen emission scandal, also referred to as Dieselgate, brought to light the
significant environmental impact of excessive nitrogen oxide (NOx) emissions from
diesel vehicles. According to EPA (2023), Volkswagen had equipped its diesel
vehicles with software known as "defeat devices," designed to detect when the cars
were undergoing emissions testing and adjust their performance to meet regulatory
standards; however, under regular driving conditions, these defeat devices were
active, allowing the vehicles to emit NOx pollutants at levels significantly higher than
permitted by regulations.

The emission control systems in Volkswagen's diesel vehicles were programmed to

selectively reduce emissions during laboratory testing, providing inaccurate and
misleading results regarding the vehicles' compliance with emissions standards
(European Union, 2016). This practice led to significant environmental damage and
legal repercussions for Volkswagen. The scandal tarnished the company's reputation
and underscored the importance of rigorous emissions testing and regulatory oversight
in the automotive industry.

NOx emissions play a crucial role in the formation of harmful pollutants such as
smog, acid rain, and ground-level ozone (EPA, 1998). Smog, a combination of NOx,
volatile organic compounds (VOCs), and sunlight, poses severe health risks,
particularly to respiratory and cardiovascular systems, as stated by the Environmental
Protection Department (2023). Furthermore, NOx interacts with other atmospheric
pollutants, leading to the creation of nitric acid, which contributes to soil and water
acidification (Zhou, J., Zheng, Y., Hou, L. et al., 2023). This acidification can have
detrimental effects on ecosystems and aquatic life.

Ground-level ozone, formed through the reaction of NOx with volatile organic
compounds (VOCs) in the presence of sunlight, is a major component of smog and
can exacerbate respiratory conditions such as asthma and bronchitis (EPA, n.d.). The
emission of NOx pollutants from Volkswagen's vehicles thus had wide-ranging
environmental consequences, impacting both human health and ecosystems. The
detrimental effects of NOx emissions on human health and the environment
underscore the importance of stringent emissions regulations and effective
enforcement mechanisms to ensure compliance by automotive manufacturers. The
Volkswagen emission scandal served as a wake-up call, prompting regulators and
policymakers to reevaluate testing procedures and strengthen oversight to prevent
similar incidents in the future.

4.2. Socio-Economic Impacts

Market Impacts:

Following the revelation of the emission cheating scandal in September 2015,

Volkswagen's stock price experienced a sharp decline. Volkswagen's stock price
plummeted by approximately 20% in the days immediately following the scandal,
wiping 16 billion euros ($18 billion) off the company's value due to allegations of
misleading U.S. regulators. (Kottasova, 2015). The decline in stock price was driven
by investor concerns about the potential financial consequences of the scandal,
including the prospect of hefty fines, legal liabilities, and damage to Volkswagen's
brand reputation. The volatility in Volkswagen's stock price persisted for months as
the full extent of the scandal unfolded and regulatory investigations intensified.

The Volkswagen emission scandal had a significant impact on the company's sales
and market share, particularly in regions heavily reliant on diesel vehicles. After
admitting to manipulating pollution tests on millions of its vehicles, Volkswagen
experienced a significant drop in global car sales in October, with a decline of 5.3%;
in comparison to the same month in the previous year, Volkswagen sold nearly 30,000
fewer cars under its brand globally in October (Kottasova, 20215). Volkswagen's
market share declined across key markets, including Europe and Asia, where the
company had previously enjoyed a strong foothold.

The financial consequences of the Volkswagen emission scandal were staggering

Volkswagen has reached two settlements, one with the United States and the State of
California, and one with the U.S. Federal Trade Commission (FTC), to resolve
allegations of cheating emissions tests and deceiving customers. Under the settlement,
Volkswagen will provide consumers with a buyback and lease termination option for
almost 500,000 model year 2009-2015 2.0 diesel vehicles sold or leased in the U.S.,
and spend up to $10.03 billion to compensate consumers. The companies will also
spend $4.7 billion to reduce the pollution from these cars and invest in green vehicle
technology. The total amount of the settlement is up to $14.7 billion (Office of Public
Affairs, 2016).

Individuals who were aware of or accountable for the installation of the defeat device
have been subjected to monetary penalties and imprisonment. Oliver Schmidt, who
was previously in charge of VW's U.S. environmental and engineering office, was
sentenced to seven years in prison and a fine of $400,000 (Auburn University, n.d.).
Winterkorn was aware of the misconduct beforehand, despite claiming that he was not
aware of it until the scandal broke in September 2015. However, an investigation
found that this was untrue. In April 2019, Winterkorn, along with four others, was
charged with conspiracy, unfair competition, embezzlement, tax evasion, and giving
false witness. As part of a settlement with other former executives totaling €288
million, Martin Winterkorn agreed to pay the company €11.2 million (approximately
$13.7 million) for "breaches of due diligence" that resulted in the company's emission
cheating scandal (Alderman, 2021).

Moreover, Volkswagen incurred significant financial penalties across multiple

nations. The Ontario Court of Justice issued an unprecedented $196.5 million fine to
Volkswagen following its guilty plea to 60 charges under federal environmental
legislation (Environment and Climate Change of Canada, 2020). Volkswagen AG
confessed to illegally importing non-compliant vehicles into Canada, furnishing
misleading information. Munich prosecutors announced that Audi has been fined €800
million ($926 million). This penalty includes a €5 million fine for administrative
infractions, the maximum permissible under German legislation (Kottasová, 2018). In
addition, Volkswagen and the U.S. Justice Department reached a $4.3 billion
settlement, sentencing the automaker to three years of probation and appointing a
federal monitor to ensure compliance with regulations (Snavely, 2017).
Public Perception:

The Volkswagen emission scandal had far-reaching and multifaceted effects on the
corporation's reputation, arguably representing its most severe consequence.
Numerous Volkswagen owners have expressed that they chose to purchase their
vehicles due to their perceived efficiency and minimal environmental footprint
(Ruddick, 2015). It is concerning that Volkswagen has not been forthcoming with
their customers regarding the specifics and timeline for compensation. Consumer
rights were infringed due to the lack of accurate information, depriving consumers of
the ability to make informed purchasing decisions.

Due to a survey, 86% of Volkswagen drivers expressed concerns regarding the

environmental impact of their vehicles, with 83% expressing apprehensions regarding
its resale value, and 73% expressing fears regarding its performance (Ruddick, 2015).
Additionally, over half of Volkswagen customers indicated that they were discouraged
from purchasing a Volkswagen diesel car in the future. Not only that, Volkswagen's
reputation for sustainability suffered a blow, resulting in the withdrawal of two awards
the company had received for "Green Car of the Year."

Customers, expressing frustration and disappointment, directed their anger towards

Volkswagen for deceiving them. They expressed their frustrations on social media
platforms, with analysts examining over 100,000 tweets to gauge the depth of their
discontent (Hall, 2023) Evidence of the intention to boycott VW products manifested
through various channels, such as social media posts, online petitions, and public
declarations. Customers unequivocally expressed their refusal to support a company
that had violated their trust. The severe damage to the brand's reputation resulted in
diminished trust, declining stock prices, and sales, raising concerns about the long-
term impact on the brand's image and customer loyalty.

4.3. Ethical Impacts

Ethical Breach Assessment:

While individuals impacted by the scandal have the option to file individual
complaints, the majority of consumer lawsuits against car manufacturers have been
pursued collectively. Within hours of the scandal breaking on September 18, 2015, the
first class-action lawsuits in the USA targeting VW over the installation of the defeat
device were filed, primarily in federal courts (European Union, 2016). The initial
private class-action suit, representing owners and lessors of affected VW vehicles,
was lodged by a consumer-rights law firm based in Seattle in the District Court for the
Northern District of California. This legal action accused VW of fraudulent
concealment, false advertising, and violations of consumer rights laws. It alleged that
vehicle owners would experience a loss of vehicle value and diminished performance,
such as reduced horsepower and fuel efficiency, due to modifications made to comply
with US standards.

Volkswagen is also confronting collective-action lawsuits in various other countries,

including Canada, Australia, the United Kingdom, France, and Italy. For example, a
proposed class action lawsuit has been initiated in the Federal Court of Canada against
Volkswagen (Mussio Goodman, n.d.). The claim asserts that these vehicles fail to
meet Canadian emission standards, thus contradicting the representations that they
possess cleaner-burning engines while delivering greater power and performance
compared to their gasoline counterparts.

The US Department of Justice filed a civil complaint against Volkswagen on behalf of

the EPA in a federal court accusing the company of purportedly violating
environmental laws. Having been charged, Volkswagen has agreed to plead guilty to
participating in a conspiracy (Office of Public Affairs, 2017). This conspiracy aimed
to defraud the United States and Volkswagen's U.S. customers while violating the
Clean Air Act. Volkswagen deceived the EPA and U.S. customers about whether
certain VW, Audi, and Porsche diesel vehicles complied with U.S. emissions
standards. It achieved this deception by using cheating software to circumvent the
U.S. testing process and concealing material facts about its cheating from U.S.
regulators.

Moreover, The Federal Trade Commission has alleged that the carmaker misled
consumers through its advertising campaign promoting its purportedly "clean diesel"
VWs and Audis, the FTC further alleged that Volkswagen facilitated others in
deceiving consumers and that installing the emissions defeat devices constituted an
unfair practice (Federal Trade Commission, 2016). The company was required to
compensate American consumers who purchased or leased an affected vehicle
between late 2008 and late 2015. Additionally, the FTC seeks an injunction to prohibit
Volkswagen from engaging in similar conduct in the future.

Long-term consequences:

The Volkswagen scandal inflicted severe damage on the company's reputation,

tarnishing its image as a reliable and environmentally responsible automaker. The
deliberate deception through the installation of defeat devices shattered consumer trust
and eroded stakeholder confidence in Volkswagen's integrity. Rebuilding trust with
consumers, investors, and regulatory authorities has become a formidable challenge
for the company. The stain of the scandal may linger for years, impacting consumer
perceptions and purchase decisions. Volkswagen faces the arduous task of
implementing transparent and ethical business practices to regain credibility and
restore its tarnished reputation.
The scandal triggered heightened regulatory scrutiny and enforcement actions
worldwide, prompting regulators to reevaluate emissions testing procedures and
strengthen compliance monitoring. Volkswagen's misconduct exposed gaps in
regulatory oversight and highlighted the need for more rigorous enforcement of
emissions standards. Regulators have implemented stricter testing protocols and
imposed heavier penalties on automakers found in violation of environmental
regulations. The Volkswagen scandal serves as a cautionary tale for the automotive
industry, emphasizing the importance of regulatory compliance and ethical conduct in
corporate operations.

The Volkswagen scandal accelerated the shift toward sustainable mobility and
heightened awareness of the environmental and social impacts of automotive
emissions. Consumers and policymakers alike are increasingly prioritizing clean
energy solutions and demanding greater corporate accountability from automakers. In
response, Volkswagen has pledged to invest €44bn in electric vehicle (EV)
development and production, signaling a strategic pivot toward cleaner transportation
technologies (Financial Times, 2018). The scandal has set a precedent for corporate
accountability and transparency, underscoring the importance of ethical leadership and
responsible business practices in the automotive industry and beyond.

V. Recommendations and Conclusion

5.1. Recommendations

In light of the Volkswagen diesel emissions scandal, there are critical

recommendations for both Volkswagen and regulatory bodies to address the ethical
breaches and prevent similar incidents in the future.

For Volkswagen:

To regain trust and improve ethics, Volkswagen must prioritize several key strategies.
Firstly, the company should embrace transparency and accountability by openly
acknowledging past mistakes and holding responsible parties within the organization
accountable for their actions. Ethical leadership is paramount, necessitating the
appointment of leaders committed to integrity and ethical decision-making at all levels
of the organization.

Moreover, Volkswagen should invest in comprehensive ethics training programs for

employees to instill a strong ethical culture and empower them to make ethical
decisions in their roles. Engaging with stakeholders, including customers,
shareholders, and regulatory authorities, is crucial to rebuilding trust and
demonstrating a commitment to ethical conduct.
Additionally, Volkswagen must prioritize sustainability and environmental
responsibility by investing in clean energy technologies, reducing emissions across its
product portfolio, and implementing environmentally friendly manufacturing
processes.

For Regulators:

Regulatory bodies play a crucial role in preventing future emissions scandals and
tightening controls. Enhanced oversight and enforcement measures, including regular
audits and stringent testing protocols, are necessary to ensure compliance with
emissions regulations. Transparency and disclosure requirements should be mandated
to increase accountability and facilitate independent scrutiny of emissions
performance.

Furthermore, robust whistleblower protection mechanisms are essential to encourage

individuals within automotive companies to report unethical conduct without fear of
retaliation. International collaboration among regulatory agencies can harmonize
emissions standards and enhance regulatory effectiveness across borders.

Lastly, public awareness campaigns are vital to educate consumers about emissions
standards and the importance of ethical conduct in the automotive industry, creating
market pressure for companies to prioritize ethical and environmentally sustainable
practices.

In conclusion, implementing these recommendations will require concerted efforts

from Volkswagen, regulatory bodies, and other stakeholders. By prioritizing
transparency, accountability, ethical leadership, and environmental responsibility,
Volkswagen can regain trust and credibility, while regulators can strengthen controls
and oversight to prevent future emissions scandals and protect public welfare.

5.2 Conclusion

Summary of Findings:

In this ethics assignment report, we've meticulously examined the Volkswagen diesel
emissions scandal, known as "Dieselgate," shedding light on its ethical dimensions
within the automotive industry. Our analysis has delved into Volkswagen's actions,
regulatory responses, and the broader implications for corporate governance and
accountability.

At the heart of the scandal lies Volkswagen's deliberate use of defeat devices—
sophisticated software designed to manipulate emissions readings during testing. This
strategic move allowed Volkswagen to evade emissions regulations, deceiving
regulators and consumers alike.
Subsequent investigations by regulatory bodies like the California Air Resources
Board (CARB) and the Environmental Protection Agency (EPA) confirmed the
presence of illegal defeat devices in Volkswagen diesel vehicles, leading to severe
consequences for the company. Initially denying the allegations, Volkswagen
eventually admitted its wrongdoing, triggering significant legal, financial, and
reputational damage.

The fallout from the scandal was swift and severe, resulting in leadership changes,
hefty fines, and a loss of consumer trust. The Volkswagen case underscores the
importance of transparency, accountability, and ethical decision-making in corporate
governance.

Final Thoughts:

The Volkswagen diesel emissions scandal serves as a stark reminder of the enduring
impact of unethical behavior in the corporate world. Beyond immediate penalties, it
has eroded consumer trust, tarnished corporate reputation, and highlighted
deficiencies in regulatory oversight.

Ethics should be paramount in corporate decision-making, guiding actions based on

integrity, transparency, and social responsibility. Business leaders must prioritize
ethical principles and comply with regulations, understanding the far-reaching
consequences of ethical lapses on stakeholders and society.

Reflecting on the Volkswagen scandal, it emphasizes the vital link between ethical
conduct and business success. By learning from past mistakes, embracing ethical
leadership, and fostering transparency and accountability, companies can navigate
ethical challenges, rebuild trust, and usher in a more ethical and sustainable future for
all stakeholders.

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