Discuss about the Contemporary Economic Ethics and Business Ethics.
The main aim of a business is to satisfy the customers and stay ahead of the competitors in the market. Every business owner always employs new techniques to perform better than their competitors and thereby gain more customers from the market than the competitors. Various business owners utilize different steps with respect to gaining advantage in the market and to stand out in the market at the same time. However, standing out in the crowd can at times turn negative if the business owner does not take proper measures to carry out the business operations.
According to Audi (2012) because of tough conditions in the external market, there is an urge to gain more profit from the business. Many a times, the business owners indulge in some unethical activities. The activities may help the organization to gain immediate profit but does not help the society as a whole (Rutherford et al. 2012). One such example is the emission scandal of Volkswagen that happened in the United States. Volkswagen used a faulty engine that would show that the emission level of the cars is much lesser than what it is emitting in real. The faulty engines were cheaper than the original ones and they were able to incur more profit from the market. However, Volkswagen was carrying out the unethical way of doing business for a huge period.
The report will look into the actions of Volkswagen and the steps taken by the organization to hide unethical activities. The report will talk about the ethical dilemma faced by the employees of organization and the organization as a whole. The report will further evaluate the ethical theories that will be able to explain the actions taken by the employees of the organization. The way Volkswagen had handled the situation will also be discussed in the report. Even though the event had taken place in the United States, the report will talk about the implications of the event if it had taken place in the Australian market.
Nature of dilemma
The nature of ethical dilemma suffered by the chief executive of Volkswagen, Martin Winterkorn was whether to submit to the unethical approach or to follow his duty and obligation (BBC News 2015). He added that he was shocked by the news of Volkswagen failing the emission test and he was carrying out his duty. The software in the car was installed to cheat the emission test that is being carried out to test the intensity of the smoke emitted by the car. When the software has been installed in the car, the car would be able to pass the emission test. As a result, even if any of the parts of the car was faulty and emitted smoke above the permissible levels as suggested by the government, the company passed the emission test without being caught. It would help the operation to be cost effective. The faulty parts would be cheaper than the original parts. Hence, the organization would be able to make more profit by using the faulty parts than fitting the original parts. The management of the organization would be in an ethical dilemma between fairness and unfairness as well (Bunge 2012).
Every organization aims at gaining more profit from the operations. However, by adhering to the unethical means, they would get better profit and be able to pay the employees well. On the other hand, every organization should adhere to fair means to carry out the operations of the organization (Acevedo 2012). In addition to this, adhering to unfair means might end up the company in legal procedures.
The sale of diesel cars was on a high in the market of the United States. In addition to this, Volkswagen was promoting the cars by stating the fact that the cars are low on emission. As a result, a huge number of cars were sold due to the promotions. It has been believed that a chain of mismanagement has been happening in the organization starting from the supply of the parts, manufacturing of the products, testing the cars and finally launching them in the market. When the cars were being tested under controlled laboratory situation, they were applying a stationary test rig and the car was operating well. However, when similar cars are being launched in road, they went out of test mode. As a result, they started emitting pollution than it should do as per the environmental standards. The faulty engines emitted more than 40 times nitrogen oxide pollutant than the government of the United States permitted.
The main reason behind the scandal was that the company was not being able to find a solution to the time-frame and budget set for the business of the company (Hotten 2015). Competitions are always high in the market of the United States and hence they had to launch the cars within the given time-frame to stay ahead of the competitors in the market of the United States. However, the Environmental Protection Agency of the United States tightened and it became tough for Volkswagen to maintain the standard set by the agency.
Breaching of regulation or law
By using the faulty engines to pass the emission test easily, Volkswagen has been able to gain more profit within the given period of business. In addition to this, they have been able to get the engines fitted within a cheaper budget. However, the actions of Volkswagen have breached the laws and regulations set by the Environmental Protection Agency (EPA) of the United States. For the vehicles that are being manufactured in the year 2004, the bar for the amount pollution that could be released by the cars in the road was raised by the agency. The bar was almost impossible for any engineer to meet and design the engines so that they emit less smoke than the higher limit.
During 1970s, Environmental Protection Agency has implemented even tighter standards for the lightweight vehicles like, cars, small trucks used for pickups and the vehicles for sport utility. However, the policy implemented by the agency is the tightest of all. The agency has slashed the level of emission by 94 percent (Goodman 2015). Initially the permissible limit of emission of nitrogen dioxide was 1.25 grams of the gas for every mile. The mark was slashed to 0.07 grams per mile.
The dangerous smoke emitted from the tailpipes are polluting the environment and hence posing a threat to the health of the people and other living beings in the environment.
The stakeholders who will be affected by the emissions scandal of Volkswagen are the shareholders of the company. The price of the shares of Volkswagen fell in a drastic manner after the news of emission scandal spread in the market (Bansal, Kingand Seijts 2015). Thus, the buyer of the shares who had immense hope on the profit made by the company lost hope and were not sure about the profit that Volkswagen will be able to make in the near future.
The buyers or the consumers are the most important factors of a company (Giacalone and Promislo 2013). Hence, if the trusts of the customer are broken they will not able to trust the company in future. The consumers are a part of the shareholders of the company; the consumers will be affected, as they will understand that they paying the price for something that they are not being given any more (Floyd et al. 2013). Volkswagen might think the consumers are the willing buyers, but these customers are buying the car completely without being aware about the faulty parts with the car (Awstriae 2011).
The people who are investing in the manufacture of the car will also suffer the loss of the emission scandal. They are investing the money with the expectation that they will earn good return for the investments. If they are unable to get proper return after the scandal they would no longer be interested in tying up with the ventures of the organization (Koslowski 2013).
Finally, the employees can also be included as stakeholders (Gecrisk.com 2015). Hence, the future of the employees depends on the steps taken by an organization. If the organization does not carry out the business properly in the market, chances are high that the future of the employees will be a stake.
Some of the other stakeholders whose relation with the company will be corroded are:
- The dealers
- The environment
- The executives and the management
- The board
- The regulators
- The lawyers and the consultants
- Other car manufacturers
- The social media and the media
Unethical actions by the main actors
The main person who has been accused in the case of Volkswagen emission scandal is Martin Winterkorn, the CEO of the company (Isidore, 2016). He resigned from the post just after the scandal caught the public eye. Even though, the CEO pleaded not guilty of the scandal, yet his actions could be termed unethical. It is impossible for an organization to carry out any work without the help of the CEO, is the head of any organization. The CEO was in an ethical dilemma to decide between self-interest and working for the people of the organization. Despite having knowledge about the manufacture of the faulty parts, the CEO choose to, it mainly because of the budget and the given period within which they had to complete the work (Gray, 2013). In addition to this, many other officials have been involved in the emission scandal by Volkswagen.
Use of ethical theories
The actions of Volkswagen are can be explained by the fowling theories of ethics:
Normative theories of ethics
The normative theory believes that the purpose of ethics is to provide the guidelines to resolve the conflict that an individual goes through to choose between the societal and individual interest (Shafer-Landau, 2012). The actions taken by Volkswagen can be explained by the normative theory of ethics. The senior management of the company mainly thought of the individual interest when he came to a conflict with the societal interest. They used to the faulty parts to launch the vehicle in the least possible time and did not think about the environmental factors. As they were able to make more profit by installing the faulty engines hence, they used the faulty engines.
Consequentialist theory of Egoism
The actions by Volkswagen can be further explained by the Consequentialist theory of Egoism. According to egoism, an action can be called right if yields positive consequences on a long-term basis (Timmons 2012). It might look not much profitable in the present but the actions will yield better results in the future. However, the success of the theory can be explained only if it is seen from the individual perspective.
Non-consequentialist theory of Kant
The non-consequentialist theory of Kant will be used to explain the unethical activity of the Volkswagen. According to Kant, an action can be unethical only when the result is unethical. When an individual undertakes an unethical action but the outcome is positive then the action can be called ethical as it is directed towards some good outcome (Shayo and Harel, 2012). However, Volkswagen adhered to unethical actions and the actions neither yielded any positive result. Thus, the actions of Volkswagen can be termed as unethical in nature. Hence, it can be seen that the actions Volkswagen is mainly for the benefit for the organization than the benefit for the consumers or the society. The actions by Volkswagen cannot be justified, as the actions no way portray any good work for the people and society either in the short-term or in the long-term basis (Weiss 2014).
The only people who will be benefitted by the emission scandal of the Volkswagen are the people who would prefer platinum to other valuable metals (Ghosal, 2015). Surprisingly, the price of platinum fell drastically just after the emission scandal of Volkswagen was revealed. The platinum price fell drastically in India. The price of platinum was around Rs. 25,000 per 10 gram when it was Rs. 26,580 per 10 gram. Another country, which experienced a fall in the price of the platinum, is China. Platinum is used as autocatalytic converter in the diesel cars. The revelation of the emission scandal that resulted in recall of 11 million cars from the road affected the price of platinum.
Evaluation of the actions of the organization
The organization behaved ethically after the unethical activities of the company came into light. Instead of taking part in any blame game, they took actions so that no such models are manufactured in the future (Hoffman, Frederick and Schwartz 2014). In addition to this, the funds of the organization were used to compensate for the stakeholders affected in the emission scandal. The company had to do a settlement of $15 billion to compensate the loss of the car owners in the United States, solve the issues of the cars and see that the level of emission was lowered and fines were paid to the environmentalist for the launching the higher emission models in the society.
The organization could have indulged in the blame game by blaming the suppliers or the management who manage the place where the manufacturing of the cars take place but they did not do so (Hartman, DesJardins and MacDonald 2014). In addition to this, they did not pay any further money to cover up the emission scandal. Thus, it can be said that even though they took the help of the unethical actions, yet they handled the situation post the revelation was ethical in nature.
Resolving the dilemma
The initial dilemma that was posed on Volkswagen was not resolved effectively. The dilemma that the company was facing was concerned with employing fair and unfair means in their business. However, they chose self-interest and benefit and fitted the faulty engines in the cars. As a result, the company faced serious problems in the future. They could have used the original engines and that would have kept them away from such scandals (Rutherford et al., 2012). They chose individual benefit over societal benefit and used the faulty engines to gain more profit.
However, the ethical issues were resolved effectively in the future once the emission scandal came to light. It was commendable on the part of the company to take the blame and compensate for the faulty cars. They repaired some cars, refunded some money and promised to give another model in exchange of the one that they were using. They even settled the terms with the environmentalist. It took some days to bounce back to the original position but the customers would have been able to trust the company in the future because of the steps taken by the company to satisfy the stakeholders (Giacalone and Promislo 2013).
Implications of dilemma on ethical standard of Australia
If any of the company in Australia indulges in any of the unethical activities then the consumers of Australia have the right to get a refund of the money that they paid for the products. The Australian government implemented the law on 11 January in the year, 2011 (Australian Competition and Consumer Commission, 2012). The consumer will get a replacement of the products that are defected. However, no repair or refund is guaranteed if the consumer changes his or her mind. Thus, the action undertaken by Volkswagen after the revelation of the problems is perfect for the Australian government as well.
The competition law as implemented by the government of Australia asks the business owners to operate in the market in a fair manner and not take the help of unethical means to trade or operate in the market (Austrade.gov.au 2016). Hence, if Volkswagen had carried out the emission scandal in Australia then could have been punished for the violating the competition laws. The actions taken by Volkswagen cannot be justified by them based on the consumer laws as implemented by then government of Australia (Audi 2012). Hence, as per the government of Australia as well, Volkswagen needs to be punished for the act resulting in the emission scandal.
After going through the actions taken by Volkswagen and the consequences it can be concluded that the actions of Volkswagen cannot be justified as far as the business ethics are concerned. The ethical theory by Kant says that an unethical behavior can be justified if the result of the behavior is ethical. However, the result of the unethical actions taken by Volkswagen cannot be justified in any light. The ethical dilemma a faced by the organization is to choose between duty and obligation, and fairness and unfairness. The faulty engines helped the organization to gain huge amount of profit but in turn polluted the environment to a high level. The organization mainly thought of the individual benefit while using the faulty engines that was able to pass emission test. The actions of Volkswagen was explained by the normative theory, the consequentialist theory if egoism and the non- consequentialist theory of Kant. However, the positive part of Volkswagen is that it took the help of ethical actions to resolve the unethical issues. After the revelation of the matter, it compensated the loss of many stakeholders and recalled many models from the road. In addition to this, it did not blame any of the suppliers or manufacturers but silently took the blame. Even though, the emission scandal took place in the United States, yet if the action is being evaluated based on the market of Australia, the company could faced trial for violating the competition law and the actions taken by Volkswagen could be justified by the consumer rights law. On one hand, the company adhered to the consumer rights laws and gave the compensation, while on the other they violated the fair trading law and could be punished if they were operating in Australia.
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