Nowadays ethical dilemmas are some common phenomena in course of business. In this essay, organisation Volkswagen has been considered as a case study to understand the impact of violation of ethical aspects in business. The violation made by the company is an outrageous scam which was cheating in emission test which has resulted into loss of reputation of business. Utilitarianism is an ethical theory which asserts that which is a best action in business is always helpful for maximising utility. In discussion of ethics, deontology theory is an approach that has focus on rightness and wrongness of actions (Mulki, Jaramillo & Locander, 2009,pp.125-141). Volkswagen is an German automobile production company and is one of the leading automobile companies. In terms of revenue, this company is seventh largest business organisation. For the past two years the company has been in news for a disgraceful scam like cheating in emission test. This was absolutely not expected from the company of this stature an left its stakeholders in shock. For making ethical decisions, organisations need to build workable ethical environment with support of proper leadership for ensuring that business is ethically conducted in accordance with the expectations of stakeholders of the company (Mulki, Jaramillo & Locander, 2009,pp.125-141). At the beginning organisations need to have policies which are guidelines of maintaining ethics in business.
Volkswagen (VW) is a German Automaker which came into existence way back in the late 1930s. The Volkswagen Group is the flagship company that this particular brand works upon. Volkswagen is a worldwide brand operating in almost every country in the world. The headquarters is based out of Wolfsburg Germany, but it has number of plants in different parts of the world. VW is one of the leading car brands and its total production in the last financial year happens to be 6.073 million units. It is also one of the biggest companies in terms of employees as around 627,000 employees work for the company in different parts of the world (Lin, 2016 p, 12). The total revenue the organisation was able generate in the last financial year is around 106bllion euro. Over the years the VW as a brand has produced some of the finest and best selling cars to be sold all across the world and people have loved it due to its excellent looks, great durability, and excellent fuel consumption and well furnished body. Some of the top stylish cars that the organisation develops are VW, Jetta, Beetle, Polo, Vento, Passat and VW Golf (Wells, 2013 p, 78).
VW cars have been consistent in the market and have helped the organisation to generate significant amount of revenue in the market. It could be said that most of the consumers in the market have preferred to buy VW cars because of their fuel consumption and classy style. With time the competition in the market increased significantly with number of automakers capturing the market but VW kept its market share intact even in this highly competitive market. Similar to companies like General Motors and Toyota, Volkswagen had its fair share of scandal in the market. It could rather be considered as an ethical loophole of the organisation Volkswagen. In the year 2015 Volkswagen was caught cheating on emission test on its diesel modeled cars (Rhodes, 2016 p, 23). The company had around 70% market share in the diesel car market in US and also had had significant market share in the other markets but after cheating on emission diesel tests after promoting clean diesel for so long affected the business of the organisation to a large extent. The company was pleaded guilty for cheating on diesel emission tests and had to bring back huge units of cars from the showrooms for tests. This overall affected the business and more importantly the organisation lost faith of its consumers which affects the long term planning of the organisation in the market (Trope & Ressler, 2016 p, 45).
There are number of key theoretical concepts which are relevant to managerial ethics. Managers need to be ethical in nature but at times in business situations certain decisions made could affect and question the ethical position of the managers operating in the organisation. Ethics in business is all about the society and working towards the social development and business development but always following ethical ways. There are different ethical theories which are there for managers to avail in the market. The Consequentialism theory of ethics is a suitable theory of ethics which goes effectively with this particular issue of Volkswagen. One of the key consequentialist theories that are used by the managers is Utilitarianism (MacKinnon & Fiala, 2014 p, 54). This is an ethical theory that focuses on understanding an action on the basis of good or bad create by it. It is important to mention that applying utilitarianism in this case is suitable because this theory mainly considers an action right or wrong on the amount of happiness of sorrow it creates for the people. The more happiness it creates the better and moral act it is. In this case it could be said that indirectly cheating on the emission test is wrong for the people since it directly affects the happiness of people (Pojman, Pojman & McShane, 2015 p, 76).
VW did not think largely about people and rather acted very egoistically thinking about its own profitability and for own good. It is extremely important to mention that in this case the organisation did not act morally as cheating on emission test means indirectly causing harm to the environment which is never good for people. This act if considered from a business point of view was momentarily effective successful but talking from the long term view the organisation was to come under scrutiny one day which should have been the thought of the managers (Broad, 2014 p, 77). The managers of this organisation did not think like this and rather was focused on the short terms success of the organisation which caused them to go against this ethical theory and act unethically and do this immoral act. Looking from the moral perspective the managers of VW did not think about the social or environmental development which could be stated as wrong as per the theory of utilitarianism. It could be said that their operation of the business or to say their behavior towards the community was not good and it did not create happiness as consumers have become highly ethical and in this scenario not supporting the environmental campaigns is completely against the theory of utilitarianism (Hoffman, Frederick & Schwartz, 2014 p, 111).
The theory of Deontology is also followed by many managers to make sure they make effective and suitable ethical decisions in the business. Making ethical decisions is not only important for the social development but it is also important for the organisational development as with better and effective ethical decisions managers will be able to handle business effectively and communicate with the consumers effectively. The word Deontology has come from the Greek dialect of “deno” meaning duty and “logos” meaning science. It focuses on moral duties and rules which drive the basic decision making of the leaders and managers in an organisation (Carroll & Buchholtz, 2014 p, 87). An unethical leader is equal to an impervious citizen as the way an unethical manager can harm the organisation in the same way an impermeable man could affect the environment and harm it to a large extent. This theory talks about duty and rules and hence it is extremely important for the managers to make sure they realise what their true duties are and what they need to apply. According to this theory the managers of the different organisations have to understand their moral duties and rules which would help them to make effective ideas and plans. Especially in the automotive industry ethics play a huge role which has to be considered important by the managers (Weiss, 2014, p, 46).
In this case when the organisation decided to develop software that will understand the unique parameters set by the Environmental Protection Agency during emission test. These so called defeat device development have been done with the support of the managers of the organisation and hence there is a strong question mark on the role of these managers. As per the theory of deontology it could be said that the managers may have not understood their moral duties. The basic focuses of the managers are always to add to the value of the organisation but it doesn’t completely nullify the duties that the managers or leaders owe to the environment or the common people. Not allowing the cars to be tested properly is a form of cheating which is directly affecting the environment and hence it is also posing questions on the existence of the mankind (Freeman et al., 2012 p, 67). It could be said that may be the managers operated considering morality is a matter of duty where may be they thought that doing the duty for the employer is the basic duty as a manager and did not consider doing something based on the understanding of the consequences which is clearly visible in this case as per the theory of deontology.
Managerial ethics is an extremely important subject for each manager to go through before they start their working career. It is extremely important for the managers to make ethical decisions not only to make sure the organisation is operated in the ethical manner but it is also important to make sure the support of the stakeholders are ample for the organisation. Ethical behavior of the managers is effective and important for the stakeholders to make suitable decisions. VW as an organisation has the responsibilities of all of its stakeholders and hence ethical decision making is extremely important. The ethical behavior of the managers is one of the major reasons of effective stakeholder participation and for providing an excellent positive climate to the stakeholders that also fuels positive and ethical decision making. Ethical thinking in terms of the production decisions, waste management, and also certain other key aspects with the implementation of which the stakeholders could either be facilitated or be affected (Lin, 2016 p, 68).
All the stakeholders have legitimate stake in the organisational operation and hence it is extremely important to note that the managers have to keep it mind the involvement of the different stakeholders like Suppliers, employees, consumers and even the government. In this case VW should have understood that one decision could affect the entire ecosystem and the unethical behavior of the managers affected the entire chain of stakeholders. With the revelation of the scandal there were significant decline of interest among the consumers to buy VW cars, the shareholders reduced their investment on the business, the suppliers increased their demands from the organisation and the upper management was largely criticised due to this. This clearly indicates that unethical behavior the managers not only affects the business possibilities of a company but it also affects the entire chain of stakeholders which ultimately deteriorates the performance of the business organisation (Minoja, 2012 p, 22). It is also important to mention that showing effective managerial ethics in terms of decision making becomes extremely important for the organisation to provide an effective positive climate for the stakeholders to think.
Managerial ethics are inseparable from organisational ethics while the first denotes a low sphere, the later has more broad scope in delineation of ethics. Organisational cultures largely mould orientation of its business and in similar fashion ethics gets decided to be followed. Further organisational cultures are shaped by proper leadership chosen by an organisation. The case study of Volkswagen unfortunately denotes that the ethical perspectives is a total miss for the management of the business which suffered a huge disrepute for not bestowing even a minimal focus on ethical consideration (Shapiro & Stefkovich, 2016, p. 45). This apart, for inculcating the positive behaviours in the realm of the functional sphere of the company, a sense of positive thought and moral thinking can be instilled by some means. The members of the management can nurture the culture of ethics through positive thought pattern by keeping themselves engaged in doing better for company and by taking accountability for one’s conduct or performance. This does not await a mention that guiding individuals’ set of behaviours becomes a primary help with more effectual consideration with regard to own responsibility for maintaining the organisational ethics. Surely knowledge is to be spread out across the hierarchy of the business which can assume the need of doing business ethically by the company (Shockley-Zalabak, 2011, p.22). It is very true that ethics in business is driven by leaders in lieu of policies and guidelines.
Collaborative approach across the organisational hierarchy assumes the needs of proper vision for employees for making right choice for their company and this is affirmed by boundary drawn by organisational leaders between risks and standards of ethical business. Organisational functions need to be led by examples of ethical decisions and efforts for holding out more realistic and ethical business sense without putting business reputation in jeopardy. For the company Volkswagen the violation of the ethical practices reflects the absence of ethical framework in the thought process of the business. Also the employees were not taken into the ethical ambit as they seemed not having an ethical vision (Mulki, Jaramillo & Locander, 2009,pp.125-141). This is the bedrock of the problem further aggravated by lack of organisational focus, inadequate collaborative approach practiced by Volkswagen. The violation of ethical standards laid in business principles is tied to the ineffective leadership styles practiced by the company. This is though an assumption but is largely perceptible from the scam conducted by the company as stated in the above mentioned discussion in this essay.
Leadership styles are different with their features and importance differs in perspectives of business. Some styles of leadership are mentioned below:
Autocratic leadership - In this leadership, decisions are taken by superior solely with no respect in thought or decisions of subordinates. This causes low motivation and low self esteem among staffs who do not hold good position in their company
Democratic leadership - This always takes into consideration importance of subordinates and their ability to contribute to decision making. Though the final decisions are taken by leaders but decision making right is delegated to the subordinates and this improves their motivation (Jaramillo, Grisaffe, Chonko & Roberts, 2009,pp.351-365).
Transformational leadership - In this style, leaders set vision and mission of the business to the employees and motivate them to perform better. This leadership is suitable for the leaders whiling attempting to begin change in the organisation. Leaders achieve higher performance by assigning more challenging tasks for the subordinates in their team.
Transactional leadership - In this style, leaders set benchmark performances fulfilment of which creates possibility of rewards and appreciation for the employees and if performance is not as per set standard, then employees become exposed to punishment or verbal or written warning This creates an environment of fear and motivation among employees dips that affects their overall performance ( Zhu, Riggio, Avolio, & Sosik, 2011, pp-150-163).
Laissez-faire leadership - In this style of leadership, leaders provide their subordinates with authority to work under minimum interference. This sometimes does not work properly as employees are not always efficient in decision making and performing their duties as per expectation by management. This leadership style is less popular than transformational and charismatic leadership (Weiss, 2014, p.22).
Charismatic leadership - this is a vital leadership approach. Leaders are having some qualities which they use to inspire their team members. Their qualities further help them to use for their team’s performance. Staffs get motivated to perform better as leaders set precedence by their innate traits. More importantly, this leadership styles not only develops motivation among team members, their ability gets modified to high performance benefitting the overall performance of their company. Staffs feel highly motivated as sense of self esteem also exist improving their confidence and motivation level.
The nature of violation of ethics norms by Volkswagen firmly highlights the ineffective leadership style adopted by the management of the firm. The chosen leadership style in the company was autocratic leadership that had its negative impact on the company and its performance (Metcalf & Benn, 2013, pp.369-384). May be the approach of the company was not autocratic but the kind of violation of ethics made by the company offers hint regarding no consideration on decisions of employees or subordinates. Lack of framework related to ethics and lack of vision and ethical orientation among the management and the employees denote that organisational culture was also not very congenial.
Ethical environment of working is always desirable by employees and management as they both have some sorts of benefits out of this. Employees are given a fair chance to grow within an ethical business atmosphere and at the same time management gets supports of stakeholders and business never lose its ethical direction. On giving a thought for developing ethics and ethical environment, organisation like Volkswagen can think of some strategies for ensuring that ethics are embedded in the organisational practices and also efforts are in place for developing ethical environment for improving business performance and its reputation to the stakeholders (Simola, Barling & Turner, 2012, pp-229-237). At the very beginning, there must be a set of ethics which need to be followed by the business. In this respect preparation of policies regarding ethics and ethical environment can be a guideline for the company. Ethical decision making becomes convenient for the company if the following strategies or practices are taken into the ambit of ethics maintaining efforts.
Selection of proper leadership- Transformational leadership is ideally suited to the needs of the company. This creates motivation among subordinates leading to development of approach highly favourable to development of ethical environment. Transformational leadership is likely to improve the performance of the staffs which remains as a helpful factor for the business (Mihelic, Lipicnik & Tekavcic, 2010, p. 32). This leadership style is imperative in initiating change in the organisation. Development of ethical environment is a change in the organisational outlook which in support of effective leadership like transformational leadership style becomes largely conducive to preparation of ethical environment. This crates highest degree of satisfaction among stakeholders further widening the scope of business and improvement in sales volume. Another important aspect is that the business can achieve reputation depending on the ethical conduct of business in the competitive business environment and trust among stakeholders and the organisation can be maintained (Larson & Walker, 2010, p.338-349).
Performance as per policies regarding ethics- Policies are the guidelines that set performance criteria without violating ethics norms. Policies serve as basis of means to reach to organisational mission without ignoring the ethical aspects of business.
Management approach and cooperation- High level of cooperation of management becomes a necessity. This shows the staffs the way to perform in the business while being ethically correct (Hind, Wilson & Lenssen, 2009, pp.7-20).
Culture that promotes mutual working atmosphere- Knowledge sharing gets improved in the environment of mutual cooperation within organisational scope of work. Mutual working fosters sense of responsibility and individuals learn to accept responsibilities which further prepare them to consider ethical aspects with high importance.
Ethical framework to be followed- This is not set of ethical norms but is different as a total ethical pattern, the business needs to follow. This make employees learn about what are the practices that can be considered ethical and which one is non ethical (Brownell, 2010, p.44). The capacity and the scope of business are outlined in the ethical framework which also states that if the business oversteps the ethical bound, that is called violation which is not expected at any cost from the perspective of the business and also from the viewpoint of the stakeholders.
Volkswagen had zero consideration on ethical aspects in doing business and this prompted the company to indulge into such a scam like cheating in emission test. Management ethics and positive behavioural aspects were not developed in the business due to poor organisational culture. An ethical framework and contribution of leaders towards maintenance of business standards and codes of ethics are peremptory in all sense of business performance and reputation in the industry of its operation (Larson & Walker, 2010, p.338-349). Without proper leadership, business can hardly expect to survive due to low level of motivation among staffs. This is reflected in the violation of ethical norms, that no fruitful leadership style is chosen by the company in course of its business that ended up being engaged in a scam that caused loss of reputation and loss of trust among the stakeholders of the company. Organisational approach in ethical conduct of doing business is also absent.
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