In the current business scenario, one of the key aspects that should be maintained by the contemporary business organizations is the issue of business ethics and sustainability. This is due to the reason that, current business state of affairs is more competitive than it was a decade ago. Moreover, goodwill and reputation of the business organizations are also being determined by the sustainable and ethical business approach being initiated by the business organizations (Ford and Richardson 2013). However, in the recent times, there are various ethical issues being emerged in the global business scenario, which had negative not only on the particular organization but also on the associated stakeholders. One of the major instances in the recent time is the issue with Volkswagen motor group. The scandal being involved by them is popularly known as “Diesel gate” (Bovens 2016). The scandal was come to light in late 2015, when the United States Environmental Protection Agency sued Volkswagen for the violation of the emission standards. It was later reported that, Volkswagen was installing defeat software in their diesel cars to pass the stringent population and emission test and standard being set in the United States (Fracarolli et al. 2016).
Revealing of the scandal caused huge upset in the auto market due to the reason that, Volkswagen is the market leader and holds more than 70 percent of the total market share of the diesel passenger cars in the United States (Lang 2015). Moreover, unethical business practices are not expected from a leading automaker such as Volkswagen. It caused termination of the top executives of the company along with imprisonment for few of them. On the other hand, the share value of the brand went down along with affecting the goodwill in the market.
This report will discuss about the issues being faced by Volkswagen from two different theoretical approaches namely stakeholder theory and utilitarianism theory. Critical analysis will be done using these two approaches in order to determine the outcome of the issue from different perspective. The differences in the outcome of the two approaches will also be discussed.
Stakeholder approach is important to consider in determining the issue being faced by Volkswagen. This is due to the reason that, as earlier discussed, apart from the key internal stakeholders of the organization, other stakeholders including the customers, government, regulatory bodies and the citizens of the country are also being involved (Ayuso et al. 2014). Thus, stakeholder theory will be used in order to determine the extent to which, Volkswagen have considered the interest of their stakeholders and to what extent the stakeholders of the company are being affected. According to the stakeholder theory, both the internal and external stakeholders should be considered by the business organizations (Mason and Simmons 2014).
Stakeholder approach by Volkswagen
In the case of Volkswagen, they maintain effective shareholders approach in their business operation. Accordingly, they offer different products as per the preference and requirement of the customers. Thus, Volkswagen is having different product portfolio in different countries. However, in the case of the diesel gate scandal, stakeholder theory is not being maintained by them (Walls, Berrone and Phan 2012). This is due to the reason that, according to the stakeholder theory, both the external and internal stakeholders should be considered. However, in this case both the internal and external stakeholders are not being discussed. However, to determine the rate of consideration of the stakeholders by Volkswagen, the first step will be to identify the key internal and external stakeholders of Volkswagen and those are directly and indirectly associated with the diesel gate scandal (Harrison and Wicks 2013).
Key stakeholders of Volkswagen
Managerial levels including the upper, lower and middle level managers are one of the key stakeholders in this case. This is due to the reason that, they are responsible for the decisions being taken in the organization (Beringer, Jonas and Kock 2013). Thus, in this case also, they are responsible for the emergence of the ethical issues of Volkswagen along with not initiating measures to prevent the scandal. Moreover, they are one of the key internal stakeholders of the organization. The consequences of the emerged scandal will also have direct impact on them.
Employees are another key internal stakeholder for the business organizations. This is due to the reason that, employees are the one who will make the products available to the customers and will carry forward the mission and vision of the organization (Beringer, Jonas and Georg Gemunden 2012). In this case, employees are also directly affected due to the diesel gate scandal due to the reason that, the scandal caused loss in the value proposition and business of Volkswagen, which lead to the termination of number of employees. Thus, they can also be treated as the direct stakeholders of Volkswagen in this case.
Government and other regulatory bodies are also being considered as the key stakeholders in this case. This is due to the fact that, regulatory bodies of United States was first initiated the stringent regulations for passing and permitting the sales of the diesel vehicles in the country (Smillie et al. 2013). On the other hand, they are the one who have taken the measures against Volkswagen. Thus, they are also one of the key and direct stakeholders in this case.
The customers of Volkswagen who have bought the defected vehicles are also one of the key external stakeholders (Osterwalder et al. 2014). This is due to the reason that, the customers bought the diesel vehicles of Volkswagen are the one who have suffered the most. They have also been cheated due to the reason that, diesel cars of Volkswagen are being advertised as cleaner and an effective alternative to the electric and hybrid vehicles. Moreover, the emission of pollutants from the vehicles also has negative impact on them. Thus, they should be considered as one of the key stakeholders in this case.
Population of the United States can also be considered as the indirect stakeholders. This is due to the reason that, the emission from the defected vehicles of Volkswagen also caused negative implications for the common people in the country. Thus they are also being associated to the originated scandal of Volkswagen.
Shareholders are one of the key and main stakeholders for the public companies such as Volkswagen. Though they are not directly associated with the organization or with the originated issue, but their valuation of the investment will face implication from the consequences of the issue. According to the reports, the share and market value of Volkswagen reduce to a large extent after the identification of the scandal. Hence, with the reduction in the valuation of the net value and worth of the organization, Shareholders will also have less amount of return from the business (Chassagnon and Hollandts 2014). Moreover, if the business performance of the organization gets affected from the emergence of the issue, the valuation of the investment of the shareholders will also be affected. Thus, shareholders should also be considered as the key stakeholders in this issue.
Analysis of the stakeholder approach of Volkswagen
Meeting heterogeneous requirement of stakeholders
There are various theories and statement being given by different authors regarding the utility and effectiveness of the stakeholder theory from the perspective of the business organizations. One of the key theories being given by Bridoux and Stoelhorst (2014), regarding the stakeholder theory. This article is being chosen due to the reason that, in this article, authors have discussed about the importance of having heterogeneous approach in meeting the requirement of all their stakeholders. According to them, all the stakeholders are having different kind of requirement and expectation from the organizations and it is the responsibility of the organization to fulfill the need of the stakeholders. However, if this article can be used to analyze the issue of the Volkswagen then it can be concluded that Volkswagen has not met the criterion of the theory of stakeholder.
This is due to the reason that, Volkswagen has initiated the selling of the vehicles having defeat software without considering the requirement of the customers. The customers are having the need of cleaner and environment friendly yet affordable vehicles, which was replaced by Volkswagen by offering defective vehicles. Thus, the need of the customers is not being met. On the other hand, Expectation of other external stakeholders such as regulatory bodies is also not being met (Veselinova Dimitrova 2017). This is due to the fact that, they have given the notification of having certain standards in the diesel vehicles, which are not being followed. Thus, according to Bridoux and Stoelhorst (2014), stakeholder theory is not being followed by Volkswagen.
Criticism of the theory
The above theory being used to critically analyze the issue of Volkswagen is having different drawbacks and criticisms. One of the key drawbacks is not considering all the perspective when fulfilling the requirement of the stakeholders. In the above discussed section, it is being discussed that, Volkswagen have not fulfilled the requirement of the customers by offering defective vehicles. However, in the practical way, the requirement of the customers is being fulfilled and due to that reason, Volkswagen able to sell their diesel vehicles in large numbers. The defective software being used in the diesel vehicles are known to the internal employees only and not to the customers. Thus, initially the requirement of the customers is being met. However, this aspect is not being considered by the theory stated by Bridoux and Stoelhorst (2014).
Corporate social performance with stakeholder theory
In the current business state of affairs, stakeholder theory is being used to determine the corporate social performance of the organization. This is due to the reason that, according to Brower and Mahajan (2013), covering and meeting the requirement and expectation of all the stakeholders helps the business organization to enhance their social performance. According to the authors, the internal stakeholders are one of the key stakeholders that should be considered by the organization in enhancing their social performance. The authors also stated that, the organizational value will get transferred to the end customers only through the employees.
However, in the case of Volkswagen, the interest of internal stakeholders are not been meet due to the fact that, the long term implication on the internal stakeholders from the initiation of unethical business practices. Moreover, according to reports, good number of employees are being terminated due to being associated with the scandal and to reduce the operational cost after the share value of the organization get reduced. Thus, it can be concluded that the interest of the internal stakeholders including the employees are not being considered.
Criticism of the theory
As discussed earlier, stakeholder theory faced various criticisms in determining the effectiveness of the fulfillment of the value of the stakeholders by the business organizations. According to Miles (2012), the whole stakeholder theory is more confusing rather than concluding. According to the author, stakeholder theory provides a general overview to the fulfillment of the stakeholder interest rather than having any specific guidance. For instance, in the above discussion it is being seen that, the employees are negatively impacted from the origination of the scandal in Volkswagen. However, it is not being considered by the Stakeholder theory that, the same employees have gained in the short term basis by having the opportunities to enhance the sales chart. Thus, one of the key drawbacks of this theory is that, this theory does not consider all the aspects or perspectives in determining the interest of the stakeholders.
Approach of Utilitarianism ethics
Utilitarianism theory states that, if the particular action is having positive consequences along with benefits to the major people, then the action can be considered as ethical. Apart from using the stakeholder theory, utilitarianism theory will also be used for the critical analysis of the issue of Volkswagen due to the reason that, the issue being faced by them is one of the prime examples of unethical business practices (Willis 2014). Thus, it is important to determine the extent the ethics are being maintained by them.
Utilitarianism approach by Volkswagen
When considered from the perspective of the Utilitarianism approach, Volkswagen has fulfilled the theory to some extent. This is due to the reason that, according to the theory of the Utilitarianism, if the certain action can have benefits for the major section of the people, then the action can be considered as ethical regardless of the steps of action (Vaughn 2015). Thus, if the issue being faced by Volkswagen can be considered then, the action taken by them to offer defective vehicles had favorable implications in their revenue and sales generation though in short time.
Analysis of the Utilitarianism approach of Volkswagen
As discussed earlier, Utilitarianism theory is having multiple angles or aspects to be considered and thus the case of Volkswagen should also be considered from different perspectives. According to Conway and Gawronski (2013), Utilitarianism plays an important role in moral decision making process. This article is being chosen due to the reason that, this article related the Utilitarianism approach with the decision making process in the organization. According to them, decision making process should have morality in order to offer benefits to the key stakeholders. Thus, from this perspective, the approach of the Volkswagen seems right due to the fact that, using of defective software in their vehicles helped them to increase their market share in the United States along with enhancing their generation of revenue. Thus, with the increase in the revenue of the organization, the return and benefits of the employees have got increased. Thus, according to the authors, Utilitarianism approach is being maintained by the organization in initiating the defective software.
Criticism of the theory
According to Barrow (2015), theory of Utilitarianism ethics is impractical and cannot get associated with the current business scenario. This is due to the reason that, in the above section, it is being discussed that, the approach of Volkswagen is ethical due to the reason that, their action helped their employees to have more benefits and their shareholders to have more return on investment. However, the interest of the external stakeholders such as customers is not being considered. Due to the action of installing defective software in the vehicles, the customers are affected. Thus, according to the authors, it is one of the key drawbacks of this theory.
Another key drawback of this theory is that, it does not consider the long term impact of the stakeholders for the certain action. For instance, in this case, it is been concluded that, Volkswagen has initiated ethical decision in installing the defective software in their vehicles due to having benefits for their internal stakeholders. However, it was not considered that, the positive impact of the internal stakeholders is only for the short term period and in the long run they had faced negative implications. Thus, Utilitarianism theory of ethics is having various loopholes, which makes difficult to determine and evaluate the ethics in the decision making process of the organization. Thus, from the above discussion of the Utilitarianism approach of Volkswagen, it can be concluded that, Volkswagen have taken ethical decision from the perspective of the internal stakeholders and unethical decision from the perspective of the external stakeholders.
From the above analysis of two approaches including Utilitarianism approach and stakeholder theory, two outcomes are being identified. From the perspective of the stakeholder theory, it is being seen that, Volkswagen have not considered the interest of all the associated stakeholders including both the internal and external stakeholders. On the other hand, from the perspective of the Utilitarianism approach, it seen that, Volkswagen has followed ethical approach in their decision making process from the point of view of their internal stakeholders and unethical decision making from the point of view of external stakeholders (Hartman, DesJardins and MacDonald 2014). Thus, from the above analysis, different outcomes have been recorded. However, from the above discussion of the two approaches, it can be concluded that, Stakeholder theory is more effective and applicable to determine the ethical issues from the scandal being faced by Volkswagen (Gustafson 2013).
Stakeholder theory is being chosen as more effective compared to the Utilitarianism approach due to the fact that, it covers more areas compared to the latter. Moreover, all the associated stakeholders in the organization are being considered in this theory. On the other hand, in the case of the Utilitarianism approach, different outcomes are being generated. It is being seen that, with the analysis of Utilitarianism approach, Volkswagen is having more ethical and unethical actions in their decision making process. However, though, stakeholder theory is being chosen over the Utilitarianism theory, but it is also having various limitations, such as providing only the general overview. Thus, it is important to cover the specific areas of discussion of the certain organization in implementing the stakeholder theory.
Thus, from the above discussion, it can be concluded that, the ethical issues being faced by Volkswagen is due to not considering all the aspects of the stakeholders of the organization. It is also being evaluated in this report, that, Volkswagen has only considered the short term objective of their business operation rather than considering the long term impact. Thus, they have gained from installing defective device in their vehicles for short time and in the long term they have been affected from the negative consequences. This report involved the initiation of the stakeholder and Utilitarianism approach due to the reason that, it is important to determine the ethics and interest of the stakeholders that to be maintained by the Volkswagen. Initiation of the stakeholder theory helped to determine and identify the key stakeholders of Volkswagen, who are having direct or indirect impact from the ethical issues being faced by them. On the other hand, initiation of the Utilitarianism theory helped to determine the extent to which the ethics are being maintained in the decision making process of Volkswagen.
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