Corporate Irresponsibility at its worse: The VW Scandal
As you know by now, US regulators found Volkswagen put in software that turned on emissions controls to read out less emissions when their cars were being tested. Some 11 million vehicles worldwide are affected by the scandal. I have previously blogged about the scandal and just when I thought the VW “defeat device” story could not get any uglier, along comes VW and admits diesel cars were affected as well. Last week, Europe's biggest carmaker also admitted to cheating on carbon dioxide emissions certifications.
VW has put aside €6.7bn (£4.7bn) to meet the cost of recalling the diesel vehicles worldwide that were fitted with so called "defeat devices" that circumvented tests for emissions of nitrogen oxides. But that’s not the ugly part. The ugly part is how VW is dealing with would-be whistle-blowers. It smacks of a corporate culture that emits its own pollution.
VW has set a November 30 deadline for staff with knowledge about its diesel emissions test cheating to come forward. Workers who get in touch with internal investigators by then will be exempt from dismissal, according to a letter from VW brand chief Herbert Diess. Diess said the offer was being made in the interests of "full and swift clarification". To me it’s being done to save the VW brand from any further embarrassment but that train has left the station.
VW said it would not sack workers for what they might reveal, but they might be transferred to other duties. "Employees covered by collective bargaining agreements who get in touch promptly, but no later than November 30, 2015... and... may rest assured that the company will waive consequences under labor law such as the termination of employment, and will not make any claim for damages," the letter said.
VW needs to stop the bleeding not only with respect to the widening scandal itself but to reverse the trend of declining sales of its cars. Hence the amnesty for whistleblowers. Any concerted effort to deceive regulators would have needed input from engineers and technicians. They may have valuable knowledge to share, which could speed up the process dramatically. The offer does not apply to managers. So if it turns out that deception was authorized at a high level, those responsible can still expect to be punished
VW is also hoping to limit the monetary damages by paying over $500 to VW car owners hit by its emissions cheating scandal. "Affected customers eligible for the goodwill package are not required to sign a release...in order to receive the package," said VW spokeswoman Jeannine Ginivan. As if the customers would sign such an agreement in the first place.
But for many owners, the gesture is too little, too late.
"I personally feel insulted by their peace offering," said Nevada resident Dave Thompson, who owns a 2010 diesel Jetta sportswagon. He said buyers paid a $5,000 premium to get the diesel engine and the better fuel economy with the promise that it was also good for the environment.
"That trust is gone," he said.
Other angry VW owners who wrote to CNNMoney used terms like "slap in the face" and "scandalous" to describe the apologetic payout, which will come in the form of a gift card that can be used anywhere. Diesel owners will also get another card worth $500 that can be spent only on purchases or services at VW or Audi dealerships, as well as free 24-hour roadside assistance for the next three years.
So, what does VW say in its defense? "We are providing this goodwill package as a first step towards regaining our customers' trust," said Michael Horn, the head of VW's U.S. operations. Good luck with that.
VW said in September it had set aside $7.3 billionto deal with fixing the problem, which caused the company to report a third quarter loss. At this early stage, putting a precise price tag on the ultimate cost of pollution penalties, criminal fines, private settlements, and the like is virtually impossible. I’ve heard an $18 billion liability figure reflects the maximum per-car clean-air penalty the Environmental Protection Agency could, in theory, assess. That’s a huge amount. However, it’s not enough, in my view, because this is a case where intent to deceive is easy to establish making it a slam dunk for fraud. In fact, early reprots indicate that the German government may have known that VW was rigging its emissions tests.
The VW story is one of corporate misconduct at the highest levels. In a country where corporate social responsibility is supposed to be a mantra for corporate behavior, VW has proven once again the old adage that do what I say, not what I do is alive and well and living in Wolfsburg, Germany.
Blog posted by Dr. Steven Mintz, aka Ethics Sage, on November 19, 2015. Professor Mintz is on the faculty of the Orfalea College of Business at Cal Poly San Luis Obispo. He also blogs at: www.ethicssage.com.