Ethics refer to all the principles as well as values which govern the behaviour and other morals of an organisation in ways in which it operates. It is essential for an organisation to ethically structure its work frame which helps it in developing a structure receiving moral support from its stakeholders (Crane and Matten, 2016). The following report is based on Volkswagen, which is one of the most recognised organisation in manufacturing as well as distribution of luxury cars. It revolves around the company's emission scandal. The report covers ethical dimensions of the issues from the case as well as ethical theories could effectively help in viewing the case. Moreover, it also covers essentials of an ethical leader as well as managers.
Nature of ethical issue and role of business in society
It is essential for a company like Volkswagen to produce its product which are at par with the customer expectations, as well as effectively operate as per the rules and regulations set out by the industry. It is one of the most important practices which is essential for this company to ensure a consistent market position.
The “emission scandal” of 2015 has been quite disfavouring for the organisation. The sole reason for this is that the procedure of creation of cheating devices and using it in the vehicles was ethically wrong. This issue in the past has been subjected to criticism solely because the firm was not functioning in an ethical manner. The software which was used in 11 million diesel vehicles globally was against the regulations set by industry and were against customer expectations (Trevino and Nelson, 2016). This issue has been raised as an ethical dimension as numerous vehicles having these devices were subjected to production of harmful nitrogen oxide which was 40 times more than what is legally allowed. This scandal had quite adverse effects on the firm which were extremely bad for its reputation and future growth globally. For instance, the firm witnessed fines worth more than 26 billion euros. Moreover, Volkswagen, for the first time in 20 years experienced a loss of almost 1.6 billion euros (Everything You Need to Know About Volkswagen Diesel Emission Scandal, 2018).
All these aspects suffered by the company makes it crucial for each person within this organisation to realise the role which a business organisation plays in the society. An firm does not merely sustain to incur more profit and acquire a wider market share, however, it has a significant part to play in the growth of a society itself. Each organisation has certain responsibilities where society is concerned and it is thus referred to as Corporate Social Responsibility. An organisation must function in order to provide benefits to the people as community too is considered as an important stakeholder (Wang and Calvano, 2015). Each operation and offering of a firm must ensure that a positive impact is imposed on community. With cheat devices, Volkswagen caused various harmful emissions through its vehicles which were harmful to the environment as well as to individuals globally. This is because such high emissions outside legal limits causes various respiratory infections which are quite dangerous for human health.
Key Stakeholders and impact on them
There are numerous individuals and groups which are associated with a business and bore the impact of each action undertaken by the company. These stakeholders are an integral part of Volkswagen too and more or less are a reason for its success in the global market.
Stakeholders which are affected by the emission scandal of Volkswagen are mentioned below:
- Employees: Volkswagen has a global presence and thousands of employees which are an integral aspect as well as a pillar for support for this firm. However, with prior permission from the board, these individuals too were associated in working with firm in creation and applying cheat devices in their products. After the firm was subjected to criticisms and downfall after the scandal, employees too lost their faith in this auto giant (How Volkswagen Rallied Its Employees After Its Emissions Scandal (At Least For Now), 2018). However, being involved in such a scandal is bad for their personal as well as professional growth.
- Shareholders: Volkswagen has a huge number of shareholders who have invested their money with the company in hope of earning a good value of the amount invested. However, the scandal had its adverse effects on these shareholders too. The firm incurred major losses after the event came into light and so did the shareholders. They did not get favourable returns on their investments and thus, it resulted in these shareholders suing Volkswagen for its incompetence.
- Customers: Another stakeholder group which experienced impact of its emission scandal are customers. This is because they purchased vehicles which are not designed as per their legal requirements. Thus, it would cause them very inconvenience in riding such cars. Moreover, the company has also been subjected to a bitter and negative customer relationships. This was because Volkswagen didn't deliver what was expected of them, and thus, had a major impact on the customers with faulty vehicles.
Organisations must indulge themselves in ethical thinking to determine procedures and other elements contributing towards achieving an ethical framework. There are various examples within the countries where ethical decisions have caused a firm utmost success. Moreover, there are other examples too where the companies fail to achieve an ethical standard and received downfall.
One of the most prominent issues which forced these companies to be ethical were the ongoing environmental concerns. Thus, it was imperative that automotive organisations performed ethical thinking in relation to conserving environment in the best manner possible. One such prominent and widely recognised example of ethical thinking was for the company Hyundai, which developed Elentra LPI hybrid, which was the first hybrid vehicle globally to be effectively powered by internal combustion engine built to run on liquefied petroleum gas (A brief history of environmentally-friendly cars, 2019). This ethical decision had a major impact on its sales and preference of customers saw a clear inclination towards towards the company.
However, there are cases where ethical thinking was completely absent and which lead to drastically negative consequences. Quite recently, Honda received a backlash for people being hurt due to malfunctioning of its airbags. Ethical thinking here required the company to completely check their product lines to determine their performance in case of emergencies However, failure of so caused civil penalties imposed against the vehicles and withdrawal of trust from the company's customers (Wallace and Sheldon, 2015).
Seeing the above cases and studying case scenario of Volkswagen, various conclusions could be drawn which would revolve around the need of the company to develop an ethical thinking and systematic framework. Moreover, the firm must effectively use various recommendation to get itself back on track. These recommendations are mentioned below:
- Setting up policies:
Volkswagen must set up various policies regarding an ethical framework in its manufacturing processes. These policies must emphasise on each resource and procedure followed by the firm and must focus effectively on fulfilling the legal and ethical requirement which the government, as well as other stakeholders, has from the firm (Swanson and Frederick, 2016).
It is utmost necessary for the company to communicate internally as well as externally with their stakeholders regarding development of a culture of ethics. It is very important for the company to regain trust of its employees, customers as well as stakeholders. Thus, the set policies must appropriately be communicated to the workforce and their views must be considered by managers of this company in order to establish effective and sustaining culture which prefers and encourage ethics. In addition to this, roles and responsibilities must be set for each individuals and managers must undertake periodic monitoring to ensure that the ethical standards are being effectively met.
- Regular Audits:
Another major recommendation which Volkswagen could follow is the assurance for regular audits. It is an essential practice which would confirm the firm's consistency regarding ethics in their workplace. There is always a scope of error as well as improvement and thus, external audit could re-assure that all ethical dimensions are being rightfully met. In addition to this, external auditors would craft business reports on performance of the firm as well as their products which would make it very easy for this company to determine their shortcomings and various other limitations. Thus, Volkswagen could work on removing the inconsistencies and various roadblocks to assure an ethical pathway for consistent success (Davies, 2016).
Ethical Theories could be well defined as decision models which are effectively used to take fair and appropriate decisions, essential for complex business scenarios. These theories assist an organisation in developing a pathway for establishment of ethics in the organisation. Moreover, these theories would lay down guidance for managers to work on and appropriately manage to keep the company within ethical limits.
In case of Volkswagen, there are two theories which could help to view the case more briefly and could effectively be applied in this case study.
The first and foremost theory is Utilitarianism. This theory completely focus on outcomes and identifies right from wrongs. This theory is based on consequentialism. The concept on which utilitarianism works upon emphasises on greatest good to greatest number of individuals. Basically, this theory circles around perspectives regarding aspects that constitute an activity of being advantageous or disadvantageous. Given the case of Volkswagen, the company made cheat devices which was completely against the ethical outlook served by this theory. This is because, ultimately it caused harm to the company as well as its stakeholders (Rhodes, 2016). There was absolutely no beneficial element during the course of this entire scandal and thus, it was oppositional to views laid down by utilitarianism/ As for the stakeholders which were involved, various employees lost their positions and jobs, customers faced dilemmas related to defective cars and shareholders lost their money invested in the company. Thus, further decisions in the future taken by the organisation must focus on whether maximum number of people are being benefited by it or not. It is an ethical point of view as appropriate processes being performed by the firm would lead to major advantages to each of its stakeholders. However, the only drawback of this approach in context with the company is that managers would be forced to predict future, which is a very hectic task and somewhat impossible. Thus, hit and try will not be beneficial Volkswagen will be applying Utilitarianism. Even so, the organisation must apply this while developing their product and consider demand and interest of each stakeholder during the process. This would make positive consequence certain for its future and Volkswagen would be receiving favourable outcomes.
Another crucial ethical theory is Deontological Theory. This is a vary famous theory and is applied well in the modern business scenario. Concept on which this theory works states that each individual associated with the organisation must be treated with respect and dignity. Moreover, their rights must effectively be protected. Each organisation require individuals for various duties and objective obligations. Thus, while facing an ethical dilemma, duty of these individuals must be determined to appropriately take effective decisions. Furthermore, this theory operates in identification of people's rights and ways these could be justified. In Volkswagen's perspective, the company blatantly lied to each of its stakeholder while developing and applying cheat devices in their vehicle. Such action is against the morals on which this theory functions. The firm deprived these stakeholders of their right to be correctly informed and completely fabricated the facts of these cases and technology they used in their car. Such as negative actions have negative consequences, each stakeholder was affected by this scandal. Since Volkswagen possess an effective public image within in the market, this caused customers to buy their vehicles which were faulty enough. In addition, these deprivation of rights caused employees to help these company develop fault vehicles. Basically, all these people were wrongfully used by Volkswagen to sell their products in the market rather than informing them correctly and providing them their right of taking their personal decisions. However, a disadvantage of this approach is that there are chances of conflict in duties which must be the concern for this organisation to ensure smooth and ethical framework. However, the company could apply this theory in developing long-term and concrete public relations.
Both these theories help in determining essentials required to be followed by Volkswagen in order to keep up with the ethical expectations. While Utilitarianism answers that maximum benefits to maximum number of people be the consequence of company's action, Deontological Theory argues on the duties and rights of individuals. Both of these theories are complementing to each other. This is because by providing stakeholders their rights and taking corrective actions beforehand, would be beneficial for each of the firm's stakeholders as well as for its consistent profitability and public image as well. Thus, Volkswagen must effectively ensure that it follows both these theories and develop its procedures and practices in ways which satisfies their agenda and help the company in developing a culture which is ethical and serves its agendas and responsibilities towards people in an efficient manner.
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Ethical Leadership and Organisation
One of the major concern for an individual working in an organisation is to create an effective ethical environment around themselves. It is an essential practice necessary for consistently taking a company forward. As a manager, such practice would be my utmost concern which is essential for delivering high standard of performance within my term. Before that, it is essential for me to acknowledge ethical leadership. It is directly associated with ethical beliefs and appropriate moral values which is necessary to protect the rights of other individuals and develop the culture of complete honesty, trust, transparency and fairness.
There are various qualities in a ethical leader which is essential for every manager to consider while working within an organisation. The first and foremost quality of an ethical leader is justice. It is very important for an ethical leader to be fair and equal to each individual present in the firm. In addition to this, they must be treat each and every employee equally to ensure collective growth within the company. Another quality is honesty. There are multiple scopes of errors within the company, which requires an ethical leader to be competent enough to be honest with his subordinates and stakeholders in terms of rightfully informing them about the consequences. Honesty is essential in case an ethical leader wants to develop a successful and effective relationship within and outside the company. Moreover, an ethical leader must be motivating, which requires them to build a room for other individual's innovative ideas and creative thinking. All these qualities are very essential for an ethical leader to have as an it opens pathways for prosperity and ethical building of the company (Barry, 2016). I happen to possess all these skills however, there are still various aspects which are needed to be furnished. For instance, I am still a little bit bias when it comes to take ethical decisions during conflicts. In addition, I am yet to develop appropriate team building skills which is crucial for motivating subordinates. To be an ethical manager, it is important for me to lead my subordinates in a way which helps them showcase their talent and performance in the best and most ethical manner possible. To achieve this, it is essential to focus on developing ethical leadership.
Another major aspect for being an ethical manager is to develop an ethical organisation. According to current business scenario, it is very much crucial to create an environment and culture in the company which prevails equality, justice and transparency. However, there are elements which could restrict this formation of an ethical organisation. For instance, there might be scenarios which create toxic triangle, composing of toxic leaders, susceptible followers and conductive environment. All these aspects would lead a structure which would be far from being ethical. It is essential for me as a manger to review and eradicate presence of any of these factors which would help build an ethical organisation (Pearson, 2017). Moreover, it is also important for me to encourage an environment full of innovation, knowledge and ethics. Here, communication would play an effective part to determine aspects necessary for effective motivation and encouragement of employees. Moreover, developing an ethical organisation would help me in excelling my role within the organisation and develop healthy and effective relationships with my stakeholders. To be an effective manager and to build an ethical organisation, it is crucial for me to take in account all their interests and modify the operations in ways which provide maximum benefits to these interests. Moreover, to enhance its effectiveness, it is imperative that harmony is restored within the company to appropriately follow an suitable framework for an ethical manager.
Thus, it is concluded that ethics are essential for an organisation to ensure its consistency within the workplace. In addition to this, it is also important to analyse and evaluate past case studies which helps in determining the cause as well as effective measures to be taken for ensuring appropriate conduction of business. Ethical theories are also necessary to be evaluated and applied to the previous cases which would help in identifying ways through which an organisation could comply with the required standards. Lastly, It is essential that a reflective analysis be made by existing, potential as well as aspiring managers in relation to develop qualities leading to ethical leadership which would ultimately help them in performing their managerial role effectively. Lastly, an ethical organisation is the key to succeed in the current business scenario.
Books and Journals
Barry, N., 2016. Business ethics. Springer.
Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.
Davies, P.W., 2016. Current issues in business ethics. Routledge.
Pearson, R., 2017. Business ethics as communication ethics: Public relations practice and the idea of dialogue. In Public relations theory (pp. 111-131). Routledge.
Rhodes, C., 2016. Democratic business ethics: Volkswagen’s emissions scandal and the disruption of corporate sovereignty. Organization Studies. 37(10). pp.1501-1518.
Swanson, D.L. and Frederick, W.C., 2016. Denial and leadership in business ethics education. Business ethics: New challenges for business schools and corporate leaders. pp.222-240.
Trevino, L.K. and Nelson, K.A., 2016. Managing business ethics: Straight talk about how to do it right. John Wiley & Sons.
Wallace, M. and Sheldon, N., 2015. Business research ethics: Participant observer perspectives. Journal of Business Ethics. 128(2). pp.267-277.
Wang, L.C. and Calvano, L., 2015. Is business ethics education effective? An analysis of gender, personal ethical perspectives, and moral judgment. Journal of Business Ethics. 126(4). pp.591-602.
A brief history of environmentally-friendly cars. 2019. [Online] Available Through: <https://www.hyundai.news/eu/technology/a-brief-history-of-environmentally-friendly-cars/>
Everything You Need to Know About Volkswagen Diesel Emission Scandal. 2018. [Online] Available through: <https://www.news18.com/news/auto/everything-you-need-to-know-about-volkswagen-diesel-emission-scandal-1784005.html>
How Volkswagen Rallied Its Employees After Its Emissions Scandal (At Least For Now). 2018. [Online] Available Through: <https://www.forbes.com/sites/karstenstrauss/2017/07/26/how-volkswagen-rallied-its-