Corporate Governance and Social Responsibility- Volkswagen Emissions Scandal - Case Study Example

Corporate Governance and Social Responsibility Student’s Name Institutional Affiliation Date Corporate Governance and Social Responsibility Corporations are legal entities that are expected to be moral agents that subscribe to existing ethical standards practiced in society. As moral agents, they are required to be ethical and moral in their operations since they do not operate in a vacuum but a society and when their actions and ethical tenets of society collide, it is them that must give way and act as expected by society (Lampert, 2016). In recent past, many corporations have acted in an unethical and irresponsible manner and some of their actions have led to widespread suffering and the loss of lives in different parts of the world. In this essay, the article focuses on the corporate governance and social responsibility of corporations as moral agents by discussing the Volkswagen emission scandal. Ethical Theories’ Perspective on Businesses and ethics Different ethical theories have been advanced by philosophers and sociologists to guide how individuals should act in moral and ethical ways. Ethics and morals are principles that govern how one behaves and what is right and wrong behaviour. In addition, as individuals, our moral actions affect those around us and thus ethical egoism as an ethical theory that posits that one can only act in their best self-ethical way is not true (Lecture 2, n.d). Utilitarianism seeks individuals to act in the best interest of many such that one’s actions can benefit or imperil the wider society. For the corporate world, the need to act as moral agents cannot be overemphasised, especially if the recent cases of unethical practices by business organisations, particularly multinationals are to be considered (Lecture 1, n.d). A business organisation, like the multinationals, are created because they have certain intents and goals. Further, they can only function through individuals at different levels, right from their executive teams consisting of the CEO, Chairman, CFO, Human Resources Director, CPO, middle level managers, and the rank and file personnel. It follows that these individuals make decisions on a daily basis concerning the operations of these entities in terms of policy direction, financial directions, research & development, marketing, and product development among other areas. The main intent of businesses is to make profits. However, does profit making blind them from upholding moral and ethical practices? Does it imply that they cannot be accountable to their actions and be held responsible for such violations like labour laws, unethical marketing, or selling faulty products to consumers? The existing ethical perspectives or theories posit that ethical actions, whether for self-interest or society interest, promote good conduct and behaviour in communities (Lecture 2, n.d). Businesses must understand that society has more interests than their activities and profit making. Society seeks justice, freedom, equality and moral standards and practices that can lead to peaceful and healthy co-existence. It follows that society members, corporations included, must be moral agents. A moral agent is a legal entity with the capacity to make ethical decisions and put them into practice (Delmas & Burbano, 2011). As posited by Craig Smith (2014), human beings are morally responsible and the actions of a company are decisions of individual members but a corporate is considered a morally responsible and accountable to its actions. Therefore, if businesses fail to uphold the expected ethical and moral principles, their image, brand, and revenues suffer and effectively affect the rest of society. Corporate Governance and Social Responsibility: The case of Volkswagen Emissions Scandal Corporate governance is a fundamental aspect of an organisation’s ability to appreciate and practice ethical values in its activities. Further, it encourages companies to voluntarily adjust their behaviour and practices so as to meet the societal norms. As legal entities, corporations, through their management, must act for the best interest of its stakeholders. Under utilitarianism, their social responsibility should be demonstrated through their products, services, and how they respond to issues in the micro and macro business environments (Lecture 2, n.d). Good labour practices, quality products and services offering, and legal compliance are some aspects that demonstrate both good corporate governance and CSR practices by an organisation. Further, the need to protect the environment, especially with the climate change effects, is a fundamental component of an organisation that is acting in an ethical manner for the good of everyone in society (Lecture 1, n.d). Businesses need to know that they require ethical relativism in their operations, particularly multinationals like Volkswagen such that what society perceives to the right thing to do must come before their profit making intentions. They need to know that a business cannot be a game and any business economic system that tolerates deception and corruption will become less effective compared to one with good practices. However, they should not rely on policy paradigms that have been tried but failed to deliver good co-existence between business and society. Rather, they need more ambitious innovations in governance with emphasis on global social and ecological democracy to be more responsive in the CSR and Corporate Governance activities (Lampert, 2016). For instance, they require different sets of ethical approaches, especially virtue ethics like ethics of care, teleology ethics like utilitarianism, and deontology ethics based on the duty of care and universal law of good will. However, businesses as moral agents have failed in upholding these very tenets of moral and ethical conduct; yet they have some of the best and well-crafted and articulated corporate governance and social responsibility policies in not only their respective industries but globally (Lecture 1, n.d). The case of Volkswagen emission scandal remains controversial up to date, two years after its happening. The multinational suffered irreparable damages to its corporate image and the perceived value of its auto models. The case demonstrates that the German multinational did not only violate legal, environmental, and economic requirements but also acted in breach of trust for its customers, shareholders, employees, communities, and potential investors among other stakeholders in society (Dans, 2015). The scandal is a classical case of how corporations can shape ethical and political issues concerning the environment and circumvent market requirements to gain the undue competitive advantage in one of the most competitive and lucrative industries, the auto industry. Volkswagen through its research and development had promised to produce the most fuel efficient diesel vehicles in the world that are environmentally friendly and emit the least amount of carbon constituents. Through the innovative product, the company sales soared in key markets like the United States, Europe, Canada, and Australia among other countries. However, through investigation and testing inquiries by the International Council on Clean Transportation (ICCT) it was discovered that the multinational had installed a defeat device that had the capacity to cheat on emissions tests (Zhou, 2016). In actual driving, the cars could emit as much as forty times the allowed levels of nitrogen oxide pollution in the environment. It follows that the company deliberately designed the software to circumvent emission controls so that it could get an unfair advantage over the competition and make it the world’s number one car manufacturer Du & (Merrill-Sands, 2016). Therefore, at the disguise of being environmentally-friendly cars, Volkswagen autos were poisoning the planet and emitting more carbon into the atmosphere than any other firm in the industry. The inquiry exposed more than what many could have expected and implicated most of the command chain in the organisation, especially in the engineering and research departments. The development of the software that could cheat emissions in all the company’s markets was done by individuals who acted on behalf of the organisation, for instance, the head of R&D and even the CEO (Dans, 2015). These individuals made these decisions for the benefit of the company, an implication that ethical decisions can be corrupted by group thinking. Further, the responsible individuals chose to act in the way they acted because of ethical egoism at the expense of other ethical frameworks that could result in the common good of everyone. As stated, ethical egoism is not practical and when their unethical conduct was discovered, its impact was widespread and felt by all stakeholders. Investigations by U.S. agencies revealed that it was possible to identify all individuals that were responsible at all levels of the company (Bansal, King, & Seijts, 2015). The emission scandal was a demonstration of a disturbing and unethical situation of systematic corporate irresponsibility that harmed all stakeholders, right from customers, authorities, and the well-being and health of citizens where the firm has operations (Du & Merrill-Sands, 2016). Further, due to the corporate social responsibility scandal at the firm, Volkswagen market value plummeted by over twenty percent and its sales in the strategic U.S market declined by over twenty-five percent within a month of the revelations. Economists estimate that the firm could have lost in excess of $ 8 billion in revenue due to the scandal and the long-term invisible costs may present more challenges going into the future for the company. These may include damage to brand trust and reputation, employee motivation and loyalty, investor confidence and consumer satisfaction. As demonstrated, the automaker lost the invaluable consumer confidence after the scandal and it will have to take the time to build it from its customers. More pressing is the external effect to the environment, particularly when companies are striving to initiate green energy solutions to combat impacts of carbon emissions (Du & Merrill-Sands, 2016). These deceptions undermine and tarnish the reputation of other firms in the industry and lower the public’s confidence and trust in the corporate world as they not only become more cynical about green washing but shy away from such brands (Bansal et al., 2015). Conclusion It suffices to note that corporations should move from being egoist enterprises and change to become social and moral agents in society. The failure to do that is profound for them as demonstrated by the Volkswagen’s emission scandal and they cannot stand in the way of society. They need to know that their corporate governance and social responsibility activities are critical to their performance in the present business environment and those individuals with decision-making responsibilities must understand that any ethical or moral lapse by their enterprises has serious repercussions; both in short and long term References Du, S. and Merrill-Sands, D. (2016). “The VW Scandal Continues: Implications for Corporate Social Responsibility”. Accessed on June 21, 2017, from http://www.triplepundit.com/2016/01/vw-scandal-continues-implications-corporate-social-responsibility/ Dans, E. (2015). “Volkswagen And The Failure Of Corporate Social Responsibility”. Forbes. Accessed on June 21, 2017, from https://www.forbes.com/sites/enriquedans/2015/09/27/volkswagen-and-the-failure-of-corporate-social-responsibility/#7716e87a4405 Zhou, A. (2016). “Analysis of the Volkswagen Scandal: Possible Solutions for Recovery”. School of Global Policy and Strategy, UC at San Diego. Accessed on June 21, 2017, from https://gps.ucsd.edu/_files/faculty/gourevitch/gourevitch_cs_zhou.pdf Bansal, T., King, M., and Seijts, G. (2015). “The Volkswagen emission scandal: A case study in Corporate misbehaviour”. Accessed on June 21, 2017, from https://www.theglobeandmail.com/report-on-business/rob-commentary/the-vw-emissions-scandala-case-study-in-what-not-to-do/article26550100/ Smith, C.N. (2014). “The Moral Responsibility of Firms: For or Against?” Accessed on June 21, 2017, from Lampert, M. (2016). “Corporate social responsibility and the supposed moral agency of corporations”. Ephemera Journal, vol.16, no.1, pp.79-105. http://www.ephemerajournal.org/sites/default/files/pdfs/contribution/16-1lampert.pdf Lecture 1 (n.d). Moral Issues in Business: Chapter 1: Seeing the moral dimension of business, PPT Lecture 2 (n.d). Moral Issues in Business: Chapter 2: Normative theories of ethics, PPT Delmas, M.A., and Burbano, V.C. (2011). The Drivers of Green washing. California Management Review vol.54, pp. 64-87 Dudovskiy, J. 2012. Criticism associated with Corporate Social Responsibility. Research Methodology. http://research-methodology.net/criticism-associated-with-corporate-social-responsibility-csr/ Read More