Articles on Business Ethics

Source: http://business-ethics.com/2015/09/29/1044-volkswagens-next-challenge-keep-scandal-
from-happening-again/

Volkswagen’s Next Challenge: Keep Scandal from Happening Again

Posted by de-admin • September 29, 2015

by Gael O’Brien

There is a seductive cycle promising an unhappy ending that keeps replaying until boards of
directors and leadership teams write a new script.

Volkswagen's new CEO, Matthias Müller, says he's focused on maximum transparency and stringent
compliance going forward.

The cycle for companies inviting a crisis starts with whether they believe the purpose of business is
only about money and maximizing profit and then, how they use power. An applicable resource for
pre-crisis pilgrims is 15th century Niccolo Machiavelli. Consider, for example, this quote from his
work, The Prince:

“Anyone who would act up to a perfect standard of goodness in everything must be ruined among
so many who are not good. It is essential therefore for a prince to have learnt how to be other than
good and to use, or not to use, his goodness.”

Of course, the issue isn’t about living up to a perfect standard; but, making it a straw man paves the
way for “how to be other than good” in pursuit of winning. The problem is that playing Russian
roulette -- especially with the question of whether unethical behavior will be discovered -- can be
deadly.

In September 2015, the Volkswagen Group (VW) became the latest global player to drive itself into
a scandal. At least one person in authority signed off on VW not using ethical standards while
pursuing maximum sales growth. The automaker installed “defeat devices” beginning in 2009 on
diesel vehicles for the U.S. market that deliberately misled customers, dealers and regulators about
real world emission results. The emissions had, in fact, 40 times the amount of nitrogen oxides
(which damage lungs, plant life and create smog) allowed under the U.S. Environmental Protection
Agency’s (EPA) Clean Air Act. (VW had been fined by the EPA more than 30 years ago for using
defeat devices then as well).

The irony is that when “goodness” becomes irrelevant and financial success trumps commitments to
customers (and dealers and employees), the outcome is self-sabotage. It upends brand loyalty.
Relentless pressure to outperform to increase sales leads to lying (if reality falls short, which it often
does). Especially true if the culture makes it difficult to own problems that would disrupt marketing
and the image of how the company wants to be seen. When this happens, the relationship with the
customer fades from view: that loss of trust makes it impossible to sustain market value.

The hard part for boards and leaders with an aggressive business goal is being realistic about what is
needed to make it happen and what the back up plans might be for overcoming obstacles. VW had
big plans for growth in the North American market, announcing in 2007 it intended to triple sales.
Diesel cars played a large role in the growth strategy. Finally, at the end of July 2015, VW reached
the goal of surpassing Toyota’s global sales to become the world’s largest automaker (based on its
volume of sales the first half of 2015). Success had been fueled by the promotion of “clean diesel”
vehicles.

The challenge of “clean diesel” and the backstory of the crisis is chronicled in a September 26 New
York Times article addressing VW’s “unbridled ambition.” Not surprisingly, personnel changes are
underway. Matthias Müller was appointed CEO of Volkswagen AG on September 25; his comments
in the press announcement focused on winning back trust and the company having maximum
transparency and stringent compliance going forward. Comments by the board’s Executive
Committee indicated the company would take steps “to ensure a credible new beginning.”

The question for any company when a crisis like this occurs is how willing are leaders to do self-
examination and invite feedback throughout the organization (and from relevant outsiders) about
what is needed to create a new business climate to support the changes promised. An article in The
Economist looks at the hurdles VW faces, pointing out Mr. Müller is a VW insider and part of VW’s
insular and parochial culture – a culture that is the least diverse of global automakers. Parochialism
will be an issue for the board to overcome, according to the Economist, as it “may have contributed
to an atmosphere in which decisions to cheat on emissions tests went unchallenged.”

As Machiavelli said, “It is essential therefore for a prince to have learnt how to be other than good
and to use, or not to use, his goodness.”

Now that the company has clearly admitted to having been “other than good,” board members and
senior management need to step authentically inside the recent promises made in press statements,
to understand and correct what in the culture made it possible for illegal and unethical choices to be
made when obstacles surfaced. What prevented anyone from speaking up or if anyone did, from
being heard? And what are leaders willing to do to change that?

Only then can a new script be written.

Photo: Volkswagen via Wikimedia

Gael O’Brien, a Business Ethics Magazine columnist, is a consultant, executive

coach, and presenter focused on building leadership, trust, and reputation. She publishes
the The Week in Ethics and is The Ethics Coach columnist for Entrepreneur Magazine.