ACCT5919 Individual Assignment

The main purpose of this assessment is to analyze the case study which is related to the automobile giants which was engaged in a scandal. The automobile company which is considered for this case is Volkswagen company which was engaged in a scandal which was related to gas emission. The aims of the report is to analyze the case study which is related to the scandal of Volkswagen company which is related to products of the business affecting the environment of US and also related to violation of the rules ands regulations which are in force in US relating to protection of the environment (Siano et al. 2017).

Another aim of the report is to identify the risk management issues which are associated with the company and also provide recommendations as to how the management of the company can make improvements in future in order to avoid such a scandal from ever taking place.

The company is considered to be an automobile giant which originates from Germany. The company is known for the car models which the company has introduced and the company was established in 1937. The company has its headquarters in Wolfsburg, Germany and is also considered to be one of the largest automobile company as per the estimates of 2016 (Blackwelder et al. 2016). As per recent times, the scandals and unethical practices in a business environment has increased and the same has resulted in regulations being introduced in order to bring about ethical practice in businesses.

As per the case or scandal which is associated with Volkswagen automobile company, the company was engaged in unethical practices which was against the regulations which was set under Environmental Protection Agency of USA (EPA). The company has to face severe consequence for not following the regulations which was in favor of environment (Krall and Peng 2015). The assessment will be considering the case and also identifying the risks which can be related to the company for such a scandal. The assessment will also be including recommendations which are related to unethical practices and how the management of the company can make improvements in the reporting structure of the business.

Case Study Facts of the Case

As per the case of Volkswagen Scandal, the company had violated the environmental law and did not follow the regulations which were set out by Environmental Protection Agency of USA (EPA). The rule which was established by Environmental Protection Agency of USA (EPA) stated that automobiles needed to have control over the emission of nitrogen oxides or NOx which had a severe impact on the environment and the atmosphere. The rules stated that the automobiles are responsible for maintaining environmental standards and conduct pollution tests in order to identify how much is the level of emissions which can affect the environment (BBC News. 2018). As per the case, Volkswagen company violated the law and founded loopholes in the law.

As per the case study which is related to Volkswagen company, the company had introduced a software which allowed the automobiles to regulate the emission system. The emission system of the automobiles which was introduced by Volkswagen company allowed the automobiles to use a software which turned on emission controls whenever pollution test was being conducted and turned it off when the automobiles was normally driving. The case was in violation of the rules and regulations which were set by EPA. The management of the company has systematically covered its tracks since 2008 in such an unethical activity. Some of the popular car brands such as four-cylinder Volkswagen and the Audi Diesel which is offered by Volkswagen company has such a system installed.

The management of the company knowingly had engaged in unethical activity and violations of laws which were set in USA and had been practicing this process since 2008 until the company was busted (Harper 2018). A report from the EPA showed that the company had already sold off around 482,000 cars which were incorporated with such an emission control device. The scandal was revealed in 2015 and the company was charged with legal suits from the EPA for the policies and unethical practices of the business. The major points which the suit filed by EPA raised in federal court was:

• The company defied the rules and regulations of the land relating to environmental protection by inventing a software which violated the law completely.
• Another point which was raised by EPA in federal court was that the company had sold off a number of cars containing the device and the same was affecting the air quality of United States.

The company was charged with a fin which amount to be $ 37,500 for each car which sold by the company containing the emission device. The company had to bear a lumpsum amount of fine which amounted to be $ 18 billion as the company had sold a lot of cars containing the same technology. The management of the company revealed that the business wanted to avoid the costly process of conducting a pollution test for the vehicles and therefore developed such a device which can address the cost issue (The Independent. 2018).

As per the investigation of EPA, the parties who were involved in the unethical violations of the law of US were the technicians and the top level management of the company. However, the CEO of the company denied the fact about knowing anything related to device installed in automobiles of the company. The company also had to face certain other legal cases in other countries in which it operated due to such a scandal. In other countries as well, investigations were conducted in order confirm whether the practice was continued in their countries as well.

In this respect the company attracted several legal suits relating to pollution due to emission of Nitrogen oxide. The company was severally affected due to the legal suits which followed and the reputation of the business took a great hit in US as well as in other countries in which the company operated.

After a through investigation, it was revealed that the management of the company had come up with a software or a hardware device which was called “Defeat Device” which had the capability of switching on the emission control system while the automobile was in test and also switch off the same when the automobile was not being tested or was in road. This resulted in the cars emitting nitrogen oxide which affected the air quality of the US especially California. The management of the company admitted to such a scam and had to pay a huge amount of fine for the same as per the regulations which was imposed by the federal court.

Risk Management Issues

The role of risk management in a business is nowadays very crucial for the very survival of the business in market. Risk management can be referred to as an activity which is carried out by the management for the purpose of identifying the risks with which the business is associated with and also enact ways in order to minimize or avoid such risks in the first place (Pritchard and PMP 2014). In most of the businesses risks are present which may be of different types depending on the nature of the business and the activities in which the business is engaged.

In the case of Volkswagen, the risks which affected the business was related to the risks of unethical practices in a business environment and also the risks which affected the environmental standards of the country. The company also faced a lot of legal suits due to not following the regulations of the country relating to environmental standards. This can also be considered as a legal and regulatory risks. As per the case study of Volkswagen, the scandal affected the business severely as the reputation of the company took a severe blow as the company had to face legal suits and also pay a fine of lumpsum amount which was imposed on the company.

The stakeholders of the company were affected by the scandal and also by the negative publicity which the company received during the period (Haimes 2015). The stakeholders of a business comprise of employee, lenders, suppliers, customers and shareholders and every other individual who are affected by the activities of the company (Crête 2016). Another impact of the scandal was that the value of the shares of the business drastically fell and potential investors were discouraged from making investments in the shares of the company.

The financial position of the business was also affected due to such a scam as the sales of the business declined drastically and moreover, the company had to bear a lumpsum amount of fine which was of $ 18 billion. In addition to this, due to the revelation of the scandal the business of the company was also disrupted in other countries in which the company operated. The company was in violation of ethical norms of a business and disregarded the rules and regulations of the country and thereby had to face severe consequence.

The scandal which affected the business of Volkswagen could have been prevented with a better risk management and identification strategy. The risks of the business need to be effectively recognized in order to formulate strategies which can help in management of such risks. The risks which are present in the business needs to identified by following the risk management cycle which has various steps incorporate in the same in order to understand the risks and the impacts of the same.

The first step is to identify the nature of the business and also analyze the usual risks which are present in the industry in which the company operates and the risks may be associated with legal factors, environmental factors or even factors which are associated with liquidity.  Then the management of the company needs to identify the risks which are normally associated with the business. In the case of Volkswagen, the major risks which are associated with an automobile company is associated with environmental factors. The next steps which the company need to analyze as per the risk management cycle is to quantify the impacts of the risks which is associated with the business (Jung, Chilton and Valero 2017).

The final step is to formulate strategies which can counter the risk and also minimize the same as per the requirements of the business. In the case of Volkswagen as well the management of the company needs to come up with a plan for the purpose of ensuring that the business gets back the confidence of the public and also ensure that the structure of the business is improved.

In the case of Volkswagen, the major risks which the business faces due to the scandal are associated with environmental risks, liquidity risks and risks of fall in profitability of the business. Environmental risks are related to the risks which the business faces as the emissions from the automobiles contains Nitrogen oxides which affects the air quality of the country as is clear in the case.

Therefore, such negative impacts on the environment will generally attract regulations and penalties. Then there is the risk relating to liquidity as the business will definitely witness a fall in the sales of the automobiles due to negative reputation of the company and also needs to incur penalty for the scam and therefore the cash position of the business is likely to be affected. The fall in sales of the business affects the profitability of the company and thereby the overall business of the company.

The risks management issues which are present in the business of Volkswagen company can be identified from the case and the same are discussed below in details:

• The management of Volkswagen did not have a proper internal control system and therefore was unable to assess the risks which are associated with the business. The internal control of the business binds the actions of the company and also supervises control over the activities of the individuals. The business lacked such a system and therefore was unable to prevent the scandal from happening in the first place.
• The business needed to have a proper ethical structure and should have engaged in sustainable practices instead of inventing unfair means for reducing the costs which are associated with the business. The management needed to follow an efficient ethical plan to meet the emission issues and also conduct pollution tests for the same.
• The management of the company should have an internal check system in order to check into the working of different process in order to ensure that there is no violation of ethical standards and also check whether the business is in consistency with the regulatory framework and rules and regulations which were introduced by the government of the country.

Recommendations

In order to combat the situation which the business of Volkswagen is currently facing, the management is advised to follow the following suggestions:

1. The management needs to improve the internal control system of the business in order to bring about more efficiency in the risk management system of the business so that all the risks could be identified and managed accordingly. As per the program of the business, the management has introduced a policy by which the company will be offering $ 1000 cash back on specific models and also free servicing for the same including repairs for the defeat device (Mansouri 2016). This program aimed to improve the reputation of the business and also show that the business has an efficient internal control system which will nit let any other scandal to take place.
2. The management of the company needs to be changed as is done in the case of Volkswagen company. The CEO of the company resigned over the scandal issue and was replaced with another individual who was the CEO of Porsche. The business should also change all of top-level managed who were involved in the scam in an effort to win back the confidence of the customers.
3. The management of the company needs to extensively invest in the corporate social responsibilities of the business and engage in activities which are helpful for the community or helps in protecting the environment. The management needs to demonstrate to the public that they are taking full responsibilities for the scandal and therefore are putting in every effort for reversing the situation and winning back the confidence of the public (Aven 2016). This will also help the management to improve the reputation of the business in the eyes of the public and also show the community that the business is taking the environmental responsibilities of the business seriously.
4. The company can buyback the cars which were fitted with the defeat device as much as is possible for the business. The product recall will be costly for the business but it is the only way through which the management can improve the reputation and integrity of the business. The product recall option will also demonstrate to the public that the management is taking responsibility for the scandal. This will also show that the business is moving towards an ethical right approach from the point of view of the business.
5. The management of the company needs to engage in research and development activities and come up with automobile models which are efficient in fuel consumption and cost effective in nature. The management needs to bring about development in products which are offered by the business in order to attract the customers with the new range of products which are offered by the business. This will improve the profitability and cash position of the business and ensure the continuity of the business.
6. The management needs to bring about strict supervision for all employees and ensure that no employee is engaged in any fraudulent activity. The management needs to set an ethical framework which all employees are needed to follow at all cost. In order to ensure that the policies of the business are effectively being followed by the employees, the management needs to conduct an audit for checking the internal framework.

Conclusion

The role of an important ethical practice in a business is shown in the above discussion and also the role of the same in management of a company. The discussion shows that the case of Volkswagen company which did not follow the environmental regulations and rules which were established and invented a device in order to defy the rules and regulations which were set for which the business faced severe consequence. The company had to bear a lumpsum amount of fine which amounted to be $ 18 billion as the company had sold a lot of cars containing the same technology. The company also faced negative reputations and also faced legal suits not only in US but also in other countries in which the company operated. The CEO of the company had to resign for due to the scandal as it was reveal that the officials of the business were also involved in the scam.

The above discussion also revealed that the business of Volkswagen Company did not have proper risk management system in order to identify and assess the risks which the business was facing. The above discussion also suggests certain recommendations which if the business accepts then it can improve the business structure and avoid such an incident to happen in future.

Reference

Aven, T., 2016. Risk assessment and risk management: Review of recent advances on their foundation. European Journal of Operational Research, 253(1), pp.1-13.

BBC News. 2018. Volkswagen: The scandal explained. 

Blackwelder, B., Coleman, K., Colunga-Santoyo, S., Harrison, J.S. and Wozniak, D., 2016. The Volkswagen Scandal.

Crête, R., 2016. The Volkswagen scandal from the viewpoint of corporate governance. European Journal of Risk Regulation, 7(1), pp.25-31.

Haimes, Y.Y., 2015. Risk modeling, assessment, and management. John Wiley & Sons.

Harper, P. 2018. What was the Volkswagen emissions scandal and what was the car giant fined?. 

Jung, K., Chilton, K. and Valero, J.N., 2017. Uncovering stakeholders in public–private relations on social media: a case study of the 2015 Volkswagen scandal. Quality & Quantity, 51(3), pp.1113-1131.

Krall, J.R. and Peng, R.D., 2015. The Volkswagen scandal: Deception, driving and deaths. Significance, 12(6), pp.12-15.

Mansouri, N., 2016. A case study of Volkswagen unethical practice in diesel emission test. International Journal of Science and Engineering Applications, 5(4), pp.211-216.

Pritchard, C.L. and PMP, P.R., 2014. Risk management: concepts and guidance. Auerbach Publications.

Siano, A., Vollero, A., Conte, F. and Amabile, S., 2017. “More than words”: Expanding the taxonomy of greenwashing after the Volkswagen scandal. Journal of Business Research, 71, pp.27-37.

The Independent. 2018. Volkswagen emissions scandal.