The Case 13 document refers to corporate governance issues at VW. Outline what you think they are and how should have they been resolved.
Governance in a Globalising World- Case Study 13
The aim of the paper is to talk about the corporate governance that is required to be followed by all the companies in the current environment. The corporate governance is to facilitate effective, entrepreneurial and prudent management that can lead to the long-term success of the company. This is the system through which the companies are directed and controlled. The paper is based on the case study provided that is based on the dieselgate scandal of the Volkswagen Company. The scandal was the failure of the corporate governance by the country. The paper includes the theory and the corporate guidelines to support the evaluation of the case study. It includes the ways through which the investors can resolve their crisis. In addition, it includes the corporate governance issues at Volkswagen.
Volkswagen Company was listed as the industry group leader for the automobiles and other components related to the Automobiles. Along with this, the company was in DJSI score in the year 2015 that is included for the top marks for a code of conduct and compliances with the anti-corruption and the environment reporting. On 29th September 2015, the S&P Dow Jones Indices broadcasted that the enterprise was to be disinterested from the Dow Jones Sustainability Indices as a result of revelations that it has influenced emission exams to hide the level of toxic pollutants that rise form the diesel engines in the US (Rauwald, 2018).
The supervisory board is ultimately accountable for the strategy and the further activities of the company. This also includes the activities that took place at the time of the Scandal. This is the act that they are ultimately responsible for the scandal. The company didn't follow the corporate governance which was proved by the guidelines related to the California Air Resources Board (CARB) accepts the indications for the loopholes from the learning that has been issued by the International Council On Clean Transportation (ICCT) which reflects that nitrogen oxide values for the 2 Volkswagen diesel vehicles deviated in importance between the bench testing and the road operation. A memo for the ICCT report has been arranged for the Martin Winterkorn include the defects in the present products which might cost approx. Euro 20 million ($22 million) for the issues related to the diesel in the North America (Hotten, 2015). The committee of the Volkswagen related to the product safety (APS) formed a diesel task force after advance tests that are approved out by the CARB reflects that the work that has been done to bring the improvement in the affected engines was not sufficient enough to reduce the nitrogen oxide emissions to an acceptable level. The company announced that there were issues related to the CARB and the environmental protection agency (EPA) at the time of meeting as this is included in the corporate governance that is required to be followed by the company (McGee, 2017).
The managers of the company were unable to act in the form of the shareholder's interest. They contributed to bring the improvement in the personal wealth. The aim due to which the company was willing to bring the improvement was to enhance the sales and profitability of the company. The supervisory board of the company was not able to exercise the control on the operations of the company. This board of the company makes the decisions collectively after conducting the voting for the company. The decision that took place at the time of scandal includes the major role of the managers. The major damage that is done by the company is the damage to the reputation of the company. This reflects the violation of the Stakeholder Theories of the corporate governance which is based on the assumptions that the board of directors of the company has a stake in the corporation (Adams, Hermalin, and Weisbach, 2010). This means that whatever activities are taking place in VW in that the stakeholders are also responsible.
The environmental concerns represent a significant element of differentiation for the company’s image. VW is obliged to follow all the obligations that are related to the environment. The scandal leads to the rise in the cost of the business operations due to which the company introduced the saving plan to save the cost. Supervisory Board of VW Company was the one who faced the major damage. The company made use of the agency theory of the corporate governance in which they hired an employee who will manage the operations of the company (Tricker and Tricker, 2015). Herbert Dies was appointed as the new CEO because the company was willing to bring the improvement in the reputation of the company. The directors of the company found that he is the one who can deal with the scandal situations effectively. The previous CEO Martin Winterkorn resigned just after the scandal on Wednesday as he was having the responsibility of an emissions cheating scandal that gravely damaged the carmaker’s reputation (Ewing, 2015). Though, the major decisions were taken by the supervisory board that was not able to manage the operations of the company. This reflects the use of the agency theory of corporate governance.
The investors and the activities groups are increasing in numbers along with this they are imposing the pressure on the business in regard to their activities mainly in managing the environmental risks. The scandal created the impact on the environment of the country because these cars generated the pollutants and the toxic substances in the market due to which the responsibility comes on the investors to manage the environmental risks. The investors of the Volkswagen Company were not able to manage the environment risk effectively. The investors and the activities groups should have appointed the environmental lawyers, risk managers and the dispute resolution professional that are equipped to provide the assistance to the company that contributes in accomplishing the objectives in the effective manager (Diehl, 2018).
Moreover, this will also allow the company to follow the corporate governance guidelines that contribute in improving the operations of the company. The company should apply the preliminary diagnostics that can help to form the appropriate strategies and systems that contribute to manage the conflicts. The investors of the company should have checked the emission report and the originality of the report (Crête, 2016). The emission test report reflects the positive outcomes due to the software that was implemented by the company. The investors of the company mislead about the emissions which leads to the damage of the product of VW.
The case13 document reflects the corporate governance issues at the Volkswagen which leads to the scandal. The corporate governance issue that has been highlighted in the case study include technical causes for discrepancies in the nitrogen oxide emission to Volkswagen vehicles which affect the environment of the country in which the cars of the company create the effect. The company should have resolved the issues by proper use of the filter that can safeguard the environmental risks of the country. Along with this, the company also highlighted the violation of the Clean Air Act alleging the models year 2009-2015 VW and Audi diesel cars with the 2.0-litre engine that include the defeat devices.
The company violated the clean air act because of the installation of the defeat software which leads to the defect in the products offered by the company. The managers or the supervisory directors should have taken the steps to install the devices that can help in maintaining the environment (Thomas, 2015). The fact was that the manager of the company manipulated the emission test which was not under the corporate governance. This took place because they were not proper management or regulation of the activities that are taking place in the organization. The manager of the company should ensure that they are taking the right steps to bring the improvement in the company not to bring the manipulations in the working of the company. The Porsche and Piech families maintain 52% of the common shares and the family’s take supported a recommendation to exonerate Volkswagen’s management. Wolfgang Porsche, one of the supervisory board members came to the Potsch aid in supporting to beat back efforts to remove him.
The company should follow the corporate governance as this is the only way through which they can perform the business operations effectively. The European Commission has warned of the car emissions test for the cheating five years before this VW scandal which shows that the company is not focused and able to manage the corporate governance (Rhodes, 2016). Therefore, it is suggested to the company to follow the guidelines strictly as this is the only way through which they can make the brand reputation again in the market. This paper reflects that the VW scandal was on the reason due to which the company is struggling with the brand image or reputation in the market. The paper is based on the case study which includes the explanation of the scandal and how the company has violated the corporate governance. The failure of the corporate governance was done which is an illegal activity.
Adams, R.B., Hermalin, B.E. and Weisbach, M.S. (2010) The role of boards of directors in corporate governance: A conceptual framework and survey. Journal of economic literature, 48(1), pp.58-107.
Crête, R. (2016) The Volkswagen Scandal from the Viewpoint of Corporate Governance. European Journal of Risk Regulation, 7(1), pp.25-31.
Diehl, P. (2018) Environmental conflict: An anthology. New York: Routledge.
Ewing, J. (2015) Volkswagen C.E.O. Martin Winterkorn Resigns Amid Emissions Scandal [Online]. Available from: https://www.nytimes.com/2015/09/24/business/international/volkswagen-chief-martin-winterkorn-resigns-amid-emissions-scandal.html [Accessed on 2nd June 2018]
Hotten, R. (2015) Volkswagen: The scandal explained [Online]. Available from: https://www.bbc.com/news/business-34324772 [Accessed on 2nd June 2018]
McGee, P. (2017) VW faces backlash over corporate governance and pay [Online]. Available from: https://www.ft.com/content/a6ba3788-34cb-11e7-bce4-9023f8c0fd2e [Accessed on 2nd June 2018]
Rauwald, C. (2018) Herbert Diess becomes new Volkswagen CEO to build brand after dieselgate scandal [Online]. Available from: https://www.afr.com/business/transport/automobile/herbert-diess-becomes-new-volkswagen-ceo-to-build-brand-after-dieselgate-scandal-20180410-h0yls3 [Accessed on 2nd June 2018]
Rhodes, C. (2016) Democratic business ethics: Volkswagen’s emissions scandal and the disruption of corporate sovereignty. Organization Studies, 37(10), pp.1501-1518.
Ruddick, G. (2016) Volkswagen's handling of emissions scandal a shambles, say investors [Online]. Available from: https://www.theguardian.com/business/2016/jun/22/volkswagen-handling-emissions-scandal-shambles-investors-agm-german-carmaker [Accessed on 2nd June 2018]
Thomas, D. (2015) How to handle a corporate crisis [Online]. Available from: https://www.bbc.com/news/business-34504868 [Accessed on 2nd June 2018]
Tricker, R.B. and Tricker, R.I. (2015) Corporate governance: Principles, policies, and practices. USA: Oxford University Press