Business Ethic Assignment-ariq Wynalda-29118031-yp59c.docx

THEORIES OF ETHICS MM 5001 – Business Ethics, Law and Sustainability

YP59C Ariq Wynalda (29118031)

Lecturer : Andika Putra Pratama MSM,Ph.D

Team Member : Fajarina Ambarasari

29118048

R. Muh. Alif Bryan R. 29118021 Michael Steven Adrian 29118037

Master of Business Administration School of Business and Management Bandung Institute of Technology 2019 1

Ariq Wynalda 29118031/YP59C

Volkswagen’s Diesel Emissions Control Scandal On September 18, 2015, the U.S. EPA announced that Volkswagen had installed a defeat device software code in the diesel models sold in the States since 2008. The code was designed to detect an emissions test being conducted and alter emissions controls for better compliance. Off the test stand, the controls were relaxed and emissions jumped 35 to 40 times regulatory levels according to investigators at West Virginia University and the California Air Resources Board. The defeat device was installed on 482,000 vehicles in the U.S. resulting in a potential $18 billion ($37,500 per violation) in fines, penalties, and criminal and civil ligation (Spector & Harder, 2015). In all, analysts and researchers estimated the entire U.S. and European settlement charges and penalties would be a record $50 billion (McGee, 2017). The scandal also caused VW’s stock to lose 35% of its value in the week following the announcement with a continued underperformance for months afterward. The VW emission scandal probe went beyond the company when investigators expanded their examination to include Robert Bosch GmbH, one of the world’s biggest auto suppliers (Campbell & Stothard, 2016). In a june 2008 email from a Bosch employee concerned about being discovered suggested that Bosch rig engines to recognize testing. In another email exchange between the two companies, Bosch demanded that Volkswagen indemnity it of any anticipated liability arising from the Bosch-created defeat device. The main factors behind this whole scandal are: 1) Ambitious sales goals (to become the number one global brand in total units and revenues by 2018). 2) High labor and manufacturing costs (The engineers of VW experienced difficulty in developing a diesel-powered engine that could deliver on both its carbon emissions and MPG (miles per gallon) efficiency goals). 3) The Volkswagen Group’s system is bad (The VW group system was considered as an extremely complex for having several layers of family and state ownership on its Board. This affected the decision making of the board because of family and connection biases in the group) (Milne, 2015).

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Michael Horn (VW U.S. President) reported that he had recently learned that the cheating was the work of senior engineers Ulrich Hackenberg, Audi’s chief engineer; Wolfgang Hatz, developer of racing engines; and Hienz-Jakob Neussr, head of development for the Volkswagen brand (Spector & Harder, 2015).

Ethically Questionable Identification 

The installment of a defeat device software code to alter emission controls for better compliance.

Case Analysis Altering emission controls for better compliance is illegal because every country has their own regulations regarding this. Not only that, having a lot of vehicles operating in a high emission rate will endanger our health and also endanger the world through global warming. There is an important reason why every country strictly regulates this emission control and why people should not take it lightly or even worse manipulating the outcome of the emission test. There are 6 ethics that I found relatable to this case analysis: 1. Deontological Ethic. This ethic is based on the rightness or wrongness of the actions themselves, inherent in the actions themselves. In this case, they tried to defend their company’s reputation by lying to their customers and then they tried to justify their wrongdoings by shifting the blame to technical error, quoted from the case, “We had not the right interpretation of the American law, we didn’t lie. We didn’t understand the question first” (Smith & Parloff, 2016). 2. Consequentialism-Utilitarianism. This ethic is based on the consequences of one’s action and/or the utility of the actions. In this case, the act of installing the defeat device to alter the emission control is the proof of this ethic. “A defeat device to alter the emission control” as the utility, and “Passing the emission test by giving fake result” as the consequences. There was also another example of this ethic stated in the case, where, VW did cost cutting efforts by laying off some of the employees.

Ariq Wynalda 29118031/YP59C

3. Ethical Egoism. This ethic is based on reasonable self-interest. In this case, it’s stated that one of the main factor of this scandal was the ambitious revenue that they wanted to reach (to become the number one global brand in total units and revenues by 2018). It was set by Martin Winterkorn, CEO of Volkswagen Group (resigned after the scandal). 4. Stakeholder Theory. This ethic is based on consideration of multiple stakeholders, which are: o Descriptive Use (Stakeholders to identify and research). o Instrumental

Use

(Stakeholders

as

instruments

to

achieve

organizational goals). o Normative Use (Stakeholders having intrinsic value). o Managerial (Stakeholders to be taken to account when making decisions). In this case, I found 2 related aspect from the stakeholder theory. Those are: 

Instrumental Use. In the case, there are several parties involved like BoscH (the supplier of the defeat device), Winterkorn (former CEO of Volkswagen Group, the one who negotiated the rig divice) senior engineers Ulrich Hackenberg, Audi’s chief engineer; Wolfgang Hatz, developer of racing engines; and Hienz-Jakob Neussr, head of development for the Volkswagen brand.



Managerial. In the case, the bad Volkswagen Group politic in the higher-ups has bad influence toward the company (Board of Director). The VW group system was considered as an extremely complex for having several layers of family-related positions and state ownership on its Board. This affected the decision making of the board because of family and connection biases in the group.

Ariq Wynalda 29118031/YP59C

5. Divine Command Theory. This ethic based on what God commands human beings to do. In this case the root problem of the unethical action is lying and cheating about the defeat device that alters the emission control. Also if I agree with this, I would also considered as taking part in making the world having global warming, because high emission will hurt the world and cause global warming. I believe that in every religion you are prohibited of doing misdeed such as lying and cheating, and even worse the reason behind the lie and cheat is really threatening the health of the world, which is global warming. 6. Virtue Ethic. This ethic is based on individual moral characters. In this case, getting caught doing misdeed like lying and cheating using the defeat device will impact the customers by making them losing faith to the company. It will make the company looks like they are lacking virtue.

Solution and Recommendation From this case we can learn that the procedure of emission standard is strict and everyone should obey the regulations made by the country. There is a greater goal behind this emission regulation, which to keep the world at a healthy level. At the end of the day, to prevent scandals like this happened again in the future, the company should value their employees through value-based approach. As for Environmental Protection Agency, if possible they should have make new programs to support the automakers on making their product having less emission and pollutants.