CHAPTER 4 - ETHICS, CORPORATE SOCIAL RESPONSIBILITY, SUSTAINABILITY, AND GOVERNANCE 445) The goal is to atrive at the best decision or most appropriate course of action. It might be "useful fo enlist the aid of local colleagues familiar with the situation to provide insights and help generate options. Assess the consequences of each action from the perspective of all parties who. will be affected by it. Any decision should be tested by asking whether you would feel comfort able explaining it to your mother, a colleague you respect, o a valued mentor. IF you had to defend the decision on television, would you be comfortable doing so? ‘¢ Implement the course of action. Put the chosen plan into aetion. This implies making new rules, processes, or procedures and putting these into effect. Implementation is critical because it determines the success or failure of the chosen action, Managers need to be par ticularly diligent at this stage to ensure thatthe action is carried out according to plan. © Evaluate results, After the decision is implemented, management will need to evaluate it to see how effective it was. How did it turn out? If you had it to do again, would you do anything differently? Results evaluation may require collecting, analyzing, and using in- formation to answer questions about the chosen course of action. The goal is to ensure that the action achieves its intended effect and discover whether the fitm should modify the ap- proach or pursue a different one. To illustrate briefly, let's revisit the example of you as a manager visiting a company factory in Colombia, where you discover child labor. Without the children’s income, their families might ¢g0 hungry, or the children could turn to illicit activity such as street crime. Having identified the problem, you examine facts by consulting colleagues at both the plant and the headquarters. You seek information about the status of the employed children as well as local law and customs on child labor. You then create alternative possible solutions, ensuring that they are legal and consis- ‘ent with company policy. Keeping the five ethical standards in mind, you evaluate each proposed action. Finally, you choose and implement the best course of action and evaluate its effectiveness. Managers must make ethical behavior, CSR, and sustainability part of company activities and ‘operations. MINE pursuits generate environmental farm and bring firms into contact with various activities—from R&D to manufacturing to marketing—that can pose various ethical dilemmas. Business executives should balance their obligation to shareholders with explicit contributions to the broader public good. Most executives agree that generating high returns for investors should be accompanied by a focus on providing good jobs, supporting social causes in local communities, ‘and going beyond legal requirements to minimize pollution and other negative effects of business Scandal at Volkswagen ‘and the California Air Once the magnitude of the scandal was reve that diese! vehicles produced and VW'stock crashed, ane blions of dollars had to bbeen equipped resulting co s vehicles were recalled, and company ex ‘abled them to “cheat” on air pollution emis- ecutives became subject to possible crminal charges ies found the software was able to detect The Volkswag cin 1937 tered in Wolfsburg, Germany, WW makes and sels more th factors, When such testing was det oftware immedi- milion cars, trucks, and vans annually VW operates in more than atoly switched vehicles to fe" and the engine woule 50 countries, with recent annual revenues in excess of $250 bil below normal power and performance levels, in this way, tested lion. The automotive industry dominates Germany's economy, The ave false readings of emitted air pollutants. Once back combined revenues of VW, Daimier and BMW amount fo about 15 d, the software switched the vehicle out of test mede, percent of Germany's gross domestic prock in this way, VW was able to systematically evade environmental nomic strength is rooted in the belief that German production is. protection laws in the Unite ‘lable and trustworthy, with superior engineering evasive software gave VW 2 competi its rivals in the large US. car market, Engineering experts intially : Giscovered the emissions test inconsistencies, The exerts were Background on the Scandal surprised to find that the diesel vehic mitting pollutants Investigators attempted to find out why VW several mes above the limt prescnibed by U.S. law. Subs sions tests, Some suggested investigation that some 11 milion di ompetitve U.S, marke equipped wi rm well on emissions tests may have help ing deceptively 1@ US, Environmental Protection Age | Resources Boarc ed, the value of sold by Volkswac software that sions tests, Aut dur emissions tests by monitoring speed, e 12 operation, and ath fn the . Tha nation’s eco 1 State ght have knowingly e firm was sit Sought to cheat on ak hn the software, apparently forthe ps ts 0 al cars had been seeking to increase its presence in th iy to pa itive re ision tes trol costs as sales of WW sport utity vehicles Increased. Others146, PART 2 + THE ENVIRONMENT OF INTERNATIONAL BUSINESS ?oted het cheating had become prevalent inthe auto industry and that otmer top automakers such as Ford, Toyota, and General Motors had been implicated, Automakers fece a tension between profitmmaking goals and so Cal responsi: Rather than emphasizing the “tiple botom ine” of people, planet, and prof, VW may have put too much emphasis on financial profits. Some suggested that VW was belting on the trade ‘off between potential punishment for cheating versus prospects for big profits in the U.S. marke. For large-scale sales of defective and dangerous vehicles, General Motors and Toyata each were fined only ‘about $1 billon, a smal sum compared to these frm’ annual Seles. \W management might have calculated that the potential loss of a Scandal would be less than potential market gains ftom seling vo hieles equipped with “clefeat eviogs" in the large U.S. market Impact of the Scandal WY experienced various losses from the sande. Iniially the firm's stock price tumbled by more than 30 percent, from about $160 ‘o $110 per share: Many months passes belore VW's stock price: Feturmed to earlier levels. In action, VW had to pay 2 $4.3 billion tlement to the U.S. government. VW made plans to spend up to 5 bilion to address claims from owners, dealers, regulators, and slates and to buy back about 500,000 pouting vehicles. Costs of the scandal were unexpectedly high, and compiying with the set ments proved complex and time-consuming, The governments of Canada, France. Germany, ltaly, South Korea, and the United King: dom opened imestigations to check it WW was cheatng on emis sions tests in their countries to, The frm had! to reduce its workiorce by thousands of employees to cover the costs of the scandal, an ulcome that faced the ives of countless people. WY had positioned iis vehicles as “attractive, safe, and en vironmentally sound,” but such marketing campaigns seemed misleading ance the emissions scandal broke, On social media, nsumers claimed the scandal affected the ward VW and expressed concerns about the heath consequenc: of many pollution-emiting vehicles on the road. Despite the negative publicity, nowever many consumers were ‘unaware of the scandal, anc market surveys in Germany, the Unit: ed States, and elsewnere suggested that most consumers contin led to tust the brand. Profits have remained strong, and the firm recently became the global leader in automotive valume sal Other Consequences In the days folowing revelation of the scandal, CEO Martin Winter korn stepped down anc WW suspended five high-ranking execu ives. Some top engingers were arrested, In the mere, the fm announced plans te launch a line of al-elecvic verdes, ciming to Boston itself as @ leader in green transportation. Before the scan dal, W's corporate culture hea been described as “aqctessive The frm set ambitious goals and pushed managers to achieve 28, Mtr the scandsl, newly appointed CEO Matthias Mueller ui Us—foloning the serious set. stated that changes would “re back as 2 result of the diesel issue—to learn from mistak rectify shortcomings and establish a corporate c value-driven and rooted in integnty: WV plans to streamline operations (0 reduce costs incurred by the scandal. Management will downsize the firm's compononts| business and reduc its workiorce by 30,000 people. However, WW ‘expects to create 9,000 new jobs by producing more electric cars The scandal has intensified regulatory scrutiny of the auto in dustry, especialy ervironmental stancarcs. Automakers worldwide ntinue to confront the tension between strict environmental con- trols, intense global competion, and the relentless drive for prof ability AACSB and CKR Intangible Soft Skills to improve employability and success in the workplace: Ethical Understanding and Reasoning, Analytical Thinking, Diverse and Multicultural Work Environments, Reflective Thinking. Case Questions 44, What does the case suggest about the value of ethical behavior? Do you think VW" was penalized enough for is wrongdoing? Why or why nol? What does VW gain through its efforts to invocuce a culture that is rooted in integrity and sible behavior? nities lack sufficient laws or enforcement to tural environment. What are the nations do to better protect Most adequately protect consequences of this? What car the environment? 48. Who should de held responsible for the VW emission scandal: VW senior management, engineers, or government regulators? Justty your answer hat steps can VW take to prevent similar i occurring in the future? 45, 47, widens from Sources: BBC News, “VW Plans Huge tnvesoment 0 Become Electric Car Leader June 16.2016. wwwibbccom: Nick Carey VW Pleads Guity in Diesel Emissions Case as Part of $43 Bilton Settenent Wastingion Post. March 10. 2017, www nushingmpestcom: Jack Bung ‘Engineering « Deception: Whar Led to Volkswagen Diesel Scandal” The Nor Yak Times, Mah 10, 2017, wwvinstinexcam: Michael Le Page, “How Did Woliswagen Cheat in Tete and Can tr Affected Cars.” New Srientan Stptember 0, 2015, wwwnewseiemisterm; Los Angeles Tones, “Volinnagen ‘ta Shed 30,000 Jos to Cur Conte ter Eiissions Cheating Scan.” November 18,2016, wonclaimes.com: Nazanin Mansouri. "A Case Sudy of Vollzwagen Unetical Prarie Diese! Emission Ts” Iteration Juma of Sense and Engineering Applications 3. No.4 (2016), pp. 211-206: Kerthay Mehrotn and ‘David Welch, "Wh Mich ofthe Car Inary ts Under Sertiny for Cheating Bloomberg, Jamuary 10. 2018. swebloombers.com: Kevin O'Mara, “VW ‘Scandal creness an eounnabilty” Forbes, September 2.2015 p 97: Na {ashe Terr Arson “The WW Scamdal-—-The High Cos of Corporat Dec Busidate 24. No.1 (2010), pp. 9-13; Beemamis. “A Lang Rove wy Recover: Wk" November 12, 2016, p. 58: Tres Team “Vilwagen Is the New Global What f Means Forbes, February 1.2017, woneforbescom Sales Let This case wa writen by Bohua Fu under the supervision of Professor Gary aight,