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Ethical Scandals Of Volkswagen And 7 Eleven

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Question:

Discuss about the Ethical Scandals of Volkswagen and 7 Eleven.
 
 

Answer:

Introduction:

The ethical practices in organizations have been a raging topic of discussion among the corporate houses and among the masses since the scandals of the car manufacturer Volkswagen and Australia’s biggest convenience store chain 7 eleven came into the news for all the wrong reasons. The engineers at Volkswagen installed a software during the manufacturing process of their cars that made the vehicle pass the emission test even if the emission levels were above the predefined limits. This had been going on for seven years before the United States Environmental Protection Agency issued a legal notice to the organization. This implied millions of profit and eleven million vehicles that were below the specified vehicular emission limits. Another setback to the ethical practices at the corporate houses was when ABC’s Four Corners released a report that brought out in public how the largest convenience store chain in Australia 7 eleven had been ripping its workers off. They were exploiting the foreign nationals by making them work  and paying them half of what they were supposed to be paid as per the legal directives (Rhodes, 2015).

The Volkswagen emissions scandal was brought to the public by the scientist working at a clean air NGO in a United States University. The diesel cars manufactured by Volkswagen were marketed as the cars with low emission and this revelation,  not just caused Martin Winterkorn the CEO of the organization to resign, but also impacted the sales figures and tarnished the reputation of the organization due to bad publicity. The management of Volkswagen also faced legal action and has to defend themselves against the criminal charges. The organization admitted that 11 million of the manufactured diesel cars were equipped with the software that rigged the vehicle emission test performed to check the emission levels of harmful gases produced by a vehicle. The software was able to register the starting time of the emission test and reduced the vehicular emission exactly for the time the test lasted. This was done by modifying the components of the car that reduced the performance and consequently the emission levels. The on road testing of the vehicles revealed that the actual emission level of the vehicles was almost 40 times the permitted levels by the environmental authorities. This is touted to be a disaster of corporate governance and management (Ferguson & Toft, 2015).

 

The 7 eleven convenience store chain was exploiting and underpaying the workers, particularly foreign nationals and was compared to the ancient medieval slavery.  The franchisee stores of 7 eleven were paying the workers about half of the wage mandated by the Australian law. Just like Volkswagen, the revelation of 7 eleven’s unethical practices also resulted in the resignation of its CEO and the Chairperson. They also started paying incentives to the franchisee owners found to be adhering to the ethical standards. It is a lesson to all the leaders and the organizations involved in unethical practices. The results of these can be delayed, but not avoided. ABC’s Four Corners and Fairfax pointed out that the issue was not limited to a small number of franchisees as claimed by 7 eleven, but a common practice among the franchisees of the convenience store all over the place (Ross, 2015). A majority of the victims of these scams was the migrant population who were not the permanent citizens of Australia. They were easy prey and the organization was able to leverage their insecurity related to their visa permits and permissible work hours.

Instances like these are eye openers for the leaders of the organizations that a constant check on the ethical functioning is needed in order to save the organization from a disaster like this. The customers, partners, big financial institutions and all the other stakeholders alike have lost their trust on these organizations and they are struggling to regain it. Volkswagen has recalled the cars that are found to be unfit for the roads and 7 eleven’s top management has claimed to have no knowledge of this scandal happening in their franchisee stores. The chief executives and boards must take this as a lesson and ensure adherence to ethical working in their organization. Any suspicion of misconduct should be treated with sincerity and not neglected. The self assessment and introspection of organizations brings about a lot of value to the working and must be done regularly by all. This will prevent another ethical misconduct scandal from happening and will nip it in the bud itself.

Although Volkswagen and 7 eleven are not the only organizations that have been charged for unethical practices, the enormity of these cases is a setback to the entire corporate environment. The adherence to business ethics is not just the responsibility of the business houses but also of the society. It is about self regulation of the organization and the practices that the businessmen can put into place in order to ensure ethical functioning and righteousness (James, 2016). The ethical decision making in both these cases was in a sorry state and they had to bear the consequences for the same. Adherence to ethical business standards boosts the morale of the employees and the goodwill of the organization. It is good for the public relation building and makes the customers trust the organizations more. It ensures smooth functioning of the organization and certifies the safety of the employees and the management against any legal repercussions. Considering the overall pros and cons of the ethical practices and their adherence, in the long run, it is more rewarding for the organizations to work ethically instead of making quick money by engaging in unethical practices and ethical failures are not something the organizations can escape from. The repercussions have to be borne by the organization sooner or later (Somers, 2001).

 

Importance of ethics in leadership

Ethical leadership is not a fad or an ongoing trend. Choosing to practice ethical leadership in business is the first step in creating a ethical business environment. Ethical leadership creates the code of conduct that shapes the organization and its actions that includes the employee interaction, workplace activities, customer dealing and public relations. An ethical leader inspires and motivates the employees to work towards an ethically harmonious society. The responsibilities as an organizational leader are immense. Ethical leaders recognize their responsibilities and provide moral guidance to their subordinates (Freeman, 2006). There are various examples, including the ones mentioned in the above case study where the lack of ethical leadership has resulted in the loss of reputation and finances and have even collapsed the businesses. The affects of unethical leadership result in loss of money, goodwill and trust of the employees, customers and the public. The organizational leaders are looked up by their subordinates and they influence the working of the organization in more ways than one. The organizational employees tend to follow and imitate their leader and therefore, it becomes important for an organizational leader to act ethically (Mihelic & Lipicnik, 2010).

Leaders influence the organizational environment and shape it by their ways of working and decisions. The people working in an organization have a tendency to take behavioral cues from one another and follow the leaders consciously or subconsciously. It therefore becomes important for the leaders to be mindful of  their actions and choices. Ethical leadership kick starts the ethical conduct, and drives the organization towards an ethically correct way of working. Ethics define the business decision making of the organization and they provide a guideline on how to operate and how to treat the employees, customers and the public (Butts, 2012). Although the organizations are expected to adhere to certain ethics and principles, the leaders are the driving force of these and they are the medium through which the ethical conduct is communicated and popularized in the organization. People who lead ethically are revered in the society and considered role models. Ethical leaders are the people who can hold themselves and their employees accountable. They help with the manifestation of ethical culture into every function of the organization. The results of ethical leadership are profound and widespread. These days the workplaces are evolving and becoming more transparent and collaborative. The organizations are becoming increasingly employee centric (Nath, 2009). While we have so many examples of businesses going down the drain due to unfair and unethical practices, we can give just as many references to the organizations who have gained a lot and attained great heights by following the ethical path by having strong business ethics as the backbone of all their operations. The organizations like American Express, Target, Cisco etc have topped the list of most ethical organizations more times than one. These organizations and their employees not only boast of the achievement, but are also more trusting and have respect for the organization that they work with. Organizations have much to gain by popularizing and applying ethical conduct. Ethical code of conduct and its implementation not only makes the organization a better place to work in, it also leads to profit generation and contributes to positive publicity of the organization (Kokemuller, 2015).

The leaders must have a clear understanding of the ethical standing and the dos and don’ts of the ethical conduct and the same must be communicated throughout the organization. They may be communicated differently among different divisions, but the basic idea for them must stay the same. The organization must provide with trainings and workshops on the code of conduct to be followed and is necessary to have an understanding of what the organization aims for, the path that they have followed and they practices they wish to promote for this (Nijhof & Olaf Fisscher, 1997). Leadership development and positive business ethics building in an organization helps the business to evolve and the employees tend to trust the organization more as compared to the ones where this is found to be missing. The subordinates look up to their leaders in so many ways and ethical conduct is just one of them. Therefore the leaders must always be mindful of their words and actions. The subordinates watch them very closely and are highly likely to follow their lead when it comes to ethical behavior (Education, 2016).. The leaders must practice what they preach and be sure that their behavior is being observed closely. They must follow the principles and values that they want to instill in their followers and ensure that they abide by the ethical conduct at all times. The leaders must know how to infuse the organization with ethical conduct and fair practices. A positive and ethical culture not only creates a better organizational culture, but also rewards the employees and the organization. The organizations following ethical standards have found to be more profitable and the employee turnover in these organizations is very low. This is primarily because the employees are aware of the fair work practices and have trust in the organization. This further reduces the cost of hiring, training and replacing the employees (Sadler, 2011).

Thus we can see that ethical leadership is very important to create and maintain an ethically sound work environment. The employees have a tendency to follow the leader and the leader also has the responsibility to show and not just say. It therefore becomes the responsibility of the leaders to show the right way and guide the subordinates and consequently the entire organization towards becoming an ethically sound and fair organization (Buren, 2010).

 

Changes required in organizational climate to make it more ethical

An ethical leader needs to put in a lot of time and efforts to make the organizational functioning ethical. With the overnight millionaire and quick money dreams, the people today are impatient and want to taste the success without any delay. The means for the success is often overlooked and thus it is fairly common to see the organizations get involved I scams and scandals related to lying, cheating, manipulation etc. These ways however can prove to be fatal for the long term health of the organization. Thus, it is important for the leaders and the employees to understand the importance of ethical conduct. Good ethics always lead to good business after all (Treviño & Weaver, 2006).

The strategies that the organizations can follow to make the working ethically correct have been provided by the experts. These include the adoption of the following practices. The primary step towards the adherence of ethical behavior is to have a clear rule book and understanding of what is right and what is wrong. This includes everything in the organization from attitudes, attire, dos and don’ts and behavior towards the leaders,, subordinates, customers and the public. The people have often touted how the organizational culture varies from one organization to the other. All the companies have both spoke and unspoken guidelines on how to behave as a part of their organization. Most of the expectations and norms are not specified in written, but are implicit and can only be understood once the employee becomes a part of the company. However, different organizations have different approaches towards the ethical code of conduct (Elango, et al., 2010). While most of them have clearly listed the dos and don’ts, some do not pay much heed to it. It must be noted that it is of prime importance for all the organizations to precisely and unambiguously communicate the code of conduct for the employees to have a clear understanding of the same. This is the first step towards making the organization ethically inclined. The next expectation from the leaders is to lead by example. The people in an organization tend to model the behavior of others and this is specifically true for the leaders. The subordinates look up to their leaders in so many ways and ethical conduct is just one of them. Therefore the leaders must always be mindful of their words and actions. The subordinates watch them very closely and are highly likely to follow their lead when it comes to ethical behavior. The leaders must practice what they preach and be sure that their behavior is being observed closely. They must follow the principles and values that they want to instill in their followers and ensure that they abide by the ethical conduct at all times. Another strategy that is practiced to ensure ethical behavior is that the leaders must reinforce the behavior that they want and not the one that they want the employees to avoid. This comes from the operant conditioning theory of learning according to which we must reinforce the behavior we want to be continued. Organizations must be mindful of the behavior they are promoting and highlighting. The unethical and problematic behavior must not be reinforced if you wish for it to be discontinued. Rewards, recognition and opportunities must be provided in the form of social and public reinforcement so that the ethical behavior that is desired gets highlighted.

 


The organizations must focus on growth and development of the employees. They must empower the employees to effectively build the ethical skills and problem solving techniques. They must guide the employees and instead of simply dictating the dos and don’ts, step by step guidance must be provided to the employees. They must work on building the decision making skills of the employees and not just giving them the instructions to follow. This can be done by organizing workshops, providing reference material and consultation whenever required. Both the peers and the leaders can prove to be mentor in this situation. The organization must also provide the people the tools required to behave ethically. This will create a culture of ethics in the organization. The tools being discussed here are supervision and consultation regarding the right and wrong, and behavior modeling. This also includes engaging the staff and giving them the ability to freely communicate at all levels (E Fox, 2013). Training for development of  problem solving skills is necessary for the people to be confident. Having an ombudsman or a point person to be contacted to report about any ethical misconduct being noticed gives the ethical conduct a boost. It can prove to be a focal point for getting ethical consultation and help related to any ethical dilemma being faced by the people. Corrective feedback is another tool that adds to the ethical inclination of the organization. Immediate corrective feedback helps the people in making things right before they get out of hand or blown out of proportion. This also gives a chance to the people to take corrective action immediately in case of a mistake or misjudgment. These principles can be applied to any organization to make its functioning ethical and the culture more transparent. The suggestions provided are aspirations in nature and can guide any organization that is willing to proceed towards ethical conduct. The organization must insist on the fact that each and every member must have a knowledge of the code of ethical conduct and the values that the organization believes in. No excuses must be accepted in this and no one must be exempted or given the leverage to not abide by the rules of ethical conduct. This must be regularly discussed and talked about as ethical working and inclination is an ongoing journey and not a onetime practice.

 

References

Buren, J., 2010. Ethical Leadership, s.l.: Noonmark Nonprofit Services, Available at: https://www.uvm.edu/sites/default/files/ethical_leadership_factsheet.pdf

Butts, J., 2012. Ethics in leadership and organizations, Available at: https://www.jblearning.com/samples/0763749761/EthicalLeaderhip.pdf

Fox, E., 2013. Ethical Leadership:Fostering an Ethical Environment & Culture, Available at: https://www.ethics.va.gov/ELprimer.pdf

Education, S. U. S. o., 2016. Theories of ethics, Available at: https://soe.syr.edu/academic/counseling_and_human_services/modules/Common_Ethical_Issues/theories_of_ethics.aspx

Elango, B., Paul, K., Kundu, S. & Paudel, S., 2010. Organizational Ethics, Individual Ethics, and Ethical Intentions in International Decision-Making. Journal of Business Ethics, pp. 1-19.

Ferguson, A. & Toft, K., 2015. 7-Eleven: The Price of Convenience, Available at: https://www.abc.net.au/4corners/stories/2015/08/30/4301164.htm

Freeman, R., 2006. Developing Ethical Leadership: Business Roundtable Institute for Corporate Ethics, Available at: https://www.corporate-ethics.org/pdf/ethical_leadership.pdf

James, N., 2016. Statement on 7-Eleven, Available at: https://www.fairwork.gov.au/about-us/news-and-media-releases/2016-media-releases/april-2016/20160409-7-eleven-presser

Kokemuller, N., 2015. Common Types of Ethical Issues Within Organizations. [Online]
Available at: https://smallbusiness.chron.com/common-types-ethical-issues-within-organizations-15238.html

Mihelic, K. & Lipicnik, B., 2010. Ethical Leadership. International Journal of Management & Information Systems, 14(5), pp. 1-12.

Nath, S., 2009. Managerial Ethics. [Online]
Available at: https://www.slideshare.net/siddharth4mba/managerial-ethics-presentation-967676

Nijhof, A. & Olaf Fisscher, 1997. Dealing with Ethical Dilemmas in Organizational Change Processes. International Journal of Value-Based Management, May, 10(02), pp. 173-192.

Rhodes, C., 2015. 7-Eleven, Volkswagen cases show why we should push back on ‘corporate ethics’, Available at: https://theconversation.com/7-eleven-volkswagen-cases-show-why-we-should-push-back-on-corporate-ethics-48739

Ross, D., 2015. “Heroic” leadership: Volkswagen, 7-eleven and failing sustainability, Available at: https://www.phoenixstrategic.com.au/heroic-leadership-volkswagen-7-eleven-and-failing-sustainability/

Sadler, G., 2011. Five Ethical Theories: Bare Bones for Business Educators, Available at: https://www.academia.edu/1702607/Five_Ethical_Theories_Bare_Bones_for_Business_Educators

Somers, M., 2001. Ethical Codes of Conduct and Organizational Context: A Study of the Relationship Between Codes of Conduct, Employee Behavior and Organizational Values. Journal of Business Ethics, March, 30(1), p. 185–195.

Treviño, L. & Weaver, G., 2006. Behavioral Ethics in Organizations: A Review. Journal of Management, December, 32(6), pp. 951-990.

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