Running head: VOLKSWAGEN CORPORATE GOVERNANCE FAILURE 1

Volkswagen Corporate Governance Failure

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Background of the Volkswagen Company

Corporate history is mainly littered with various examples of major companies that

adopted the wrong corporate governance strategy and they ended up paying the ultimate price.

A good example of a company that experiences corporate governance failure is the Volkswagen

Group Company. The company is also known as “Volkswagen AG or major German automobile

manufacturer.” It was founded particularly by the German government back in 1937 to produce a

low-priced “people’s car.” The headquarters of the company is in Wolfsburg (Germany). The

company was operated originally by the “German labour Front “(Deutsche Arbeitsfront) which

was a Nazi organization. Flexible manufacturing and innovation systems made an appearance in

the company back in the 1970s and as a result, it led to the birth of a new Volkswagen generation

such as Passat, Golf, Scirocco as well as Polo models. However, due to advance in

globalization, Volkswagen Company has emerged as one of the best volume cars manufactures

in that, it offers cutting-edge solution such as e-mobility as well as digitalization for future

issues.

Description of the event

Back in 2015, a paper that dubbed “diesel dupe” was released by “Environmental Protection

Agency” and it exposed many Volkswagen models which were sold in United State. These

models were said to have a “defeat device” that was installed and which could detect when those

models were tested (Corporate governance,2020). However, following the release of the report,

Volkswagen Company “Germany car giant” admitted to having cheated on its “emissions test” in

the United State.

Impact of the problem on the Volkswagen Company

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Ineffective corporate governance at the executive as well as at management level may result in

companies making bad decisions. Furthermore, this kind of ineffective governance may even

lower the company overall value and in the end, make it pay the ultimate price of the wrong

strategy. In the case of Volkswagen Company, the company was charged a heavy price of $18

billion fine to pay for the damage. Consequently, the company share dropped mainly by 30

percent which ended up wiping over $26 billion in the value of shareholders.

Contributing factors to the corporate governance failure of Volkswagen

Rationalization

The engineers knew about the defeat device since the 1970s that enabled the company to cheat

based on the newly enacted emission standards. However, by then, the consequences were

minimal . Thus, they assumed that even if they cheat the consequences were still minimal and

they would have rationalized. Therefore, they thought it as the best company interest.

Opportunity

The opportunity of cheating was present and it was mainly coinciding with directives that

engineers received to come up with innovations (Volkswagen’s Emissions Scandal,2020). Therefore,

the come up with the defeat device that could detect when the Volkswagen was being tested and

it was thus used for internal testing.

Pressure

The pressure from the top management was very intense (Corporate Governance & Control

Failures,2020). Due to contrasted management autocratic leadership, engineers were forced to

succeed at any cost.

Lessons to be learned
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As a result, the company’s board was faced with a torrent of criticism. Additionally, the

company’s leadership was published to be out of date and the organization was said to miss well-

functioning corporate governance. However, companies should a well-articulated value

statement that defines the core beliefs that should guide all the organization's behavior.

Consequently, the top management should ensure that those values are followed every day.

Nevertheless, the values statements, as well as the stated core beliefs in the company, are

worthless only if the top management is not pragmatic.

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References

Corporate Governance & Control Failures - Volkswagen Emissions Scandal. (2020). Retrieved 6

April 2020, from https://sites.google.com/site/vwemissionsscandal/corporate-governance-

control-failures

Corporate governance: a farce at Volkswagen? | Emerald Insight. (2020). Retrieved 6 April

2020, from https://www.emerald.com/insight/content/doi/10.1108/TCJ-09-2016-

0078/full/html

Volkswagen’s Emissions Scandal: Lessons for Corporate Governance? (Part 1). (2020).

Retrieved 6 April 2020, from https://www.law.ox.ac.uk/business-law-

blog/blog/2016/05/volkswagen%E2%80%99s-emissions-scandal-lessons-corporate-

governance-part-1