Background of the Incident

The reports of Hotten (2015) have mentioned that Volkswagen cheated the regulations of Environmental Protection Agency (EPA) that has strict regulations for vehicle manufacturers regarding vehicular emissions. The objective of keeping such regulations is to ensure that the manufactured vehicles cannot cause major damage to the environment. The decision of the management that led to the scandal, involved implanting a software in the diesel variants of the Volkswagen cars that was programmed to give falsified data, when they were tested for emission. The company tried to increase its sales volume, especially in the US through aggressive marketing campaigns that boasted the low emission engines. After the exposure of the scandal, it can be clearly stated that the illegal falsification of the emission data was part of an unethical marketing push. The outcome of the scandal not only resulted in massive recall of vehicles, but also possible penalisation for the company by the EPA. This as a result has severely affected the corporate brand image as well as its financial status.


The case of Volkswagen emission scandal can be assessed in terms of the organisational theories that explain the decision making of the management and its implications. Agle et al (2008) have explained the Stakeholder Theory that can be used to assess the questionable management practices of Volkswagen. The stakeholder theory suggests that a stakeholder of a company is any individual, group, entity or institution that is directly or indirectly impacted by or can impact the organisation. Such stakeholders include the customers, employees, shareholders or investors, board of directors or authorities, government, environment and the society (Laplume, Sonpar and Litz, 2008). These entities are in one way or the other impacts the operations of the company and are affected by its operations. The stakeholder theory also includes it is the responsibility of a company to take care of the interest of all of its stakeholders (Coldwell, 2010). In light of the incident at Volkswagen, it can be stated that the company failed to take care of the interest of all of its stakeholders, especially the government, the society and the environment.

The decision to forge the emission data during tests was to create a false impression of the car’s efficiency, which would attract the customers and at the same time would also improve the brand value of the company. Thus, it can be stated that the company focused only on making money by increasing the sales in order to attract more shareholders or investors. Based on the stakeholder theory, it can be underpinned that Volkswagen only considered the interest of the investors, in order to make short term revenues (Zhou, 2016). Such myopic vision may provide short terms results, but as it is evident from the outcome, it can lead to long term catastrophe. Attracting the investors by showing high sales volume would have driven them to invest more into the company thereby further strengthening the financial status of the company.

The questionable decision of the company involves cheating the stakeholders, especially the customers, who are purchasing the cars under the impression that they produce low emissions and the government, who has specified rules and regulations regarding vehicular emissions. Such actions taken by the company immediately questions its reliability among the stakeholders (Jensen, 2010). The decision of the management to cheat on the emission tests has negatively impacted the environment and the society. As mentioned by Hotten (2015), Volkswagen cars that had software installed on them gave low emission output, when they were tested under laboratory conditions. It was achieved by programming the software in such a manner that it was able to detect when the car was under test and bottlenecked the performance of the vehicles so that it produces less emission. However, under typical driving conditions, the vehicles emitted forty times more nitrogen oxide pollutants than what was permissible for the EPA. This clearly highlights the fact that the management decision significantly impacted the environment by causing high air pollution.

Moreover, the impact on the society and the customers also cannot be overlooked as they are also among the key stakeholders of the company. Following the emission scandals, customers have become sceptical about believing the emission claims of the car companies, which in turn can potentially impact the industry as a whole (Hotten, 2015). As far as the society is concerned, the high emissions made by the Volkswagen cars can also cause detrimental impacts on the population of the society.  Thus, it can be stated from the stakeholder theory that the company failed to maintain a balance while taking care of the interest of the stakeholders. It prioritised the shareholder and investors too much over other external stakeholders such as the government, society and the environment.

The outcome of such questionable management practice has cost the company around $2.79 billion, which was reported as a quarterly loss in October 2015. The cost of the recall is not the only financial impact that the company has faced. Falsifying emission data is a severe felony under the US law and EPA can fine Volkswagen $37,500 for each of its cars that have breached the emission standards that can accumulate to up to $18 billion of penalty (Hotten, 2015). Thus, it can be stated that the illegal decision of the management to falsify the data has led to severe financial loss. The reports of Kresge and Weiss (2015)suggests that the share prices of the company had fallen drastically after it had admitted to the emission scandal, which further deteriorated the financial status.

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