Managerial Social Responsibility - Volkswagen Diesel Scandal In 2015, Volkswagen was accused of installing secret software in its engine management computers to cheat strict fuel economy and emissions tests. In order to determine the ethical decision Volkswagen should have made, one can use ethical decision-making models, such as: Utilitarianism; Kantian Ethics; Ethical Rights; and Distributive Justice. Though these four models use different approaches, one or more of them can result in a justified recommendation for the correct ethical decision that Volkswagen should have made.

Facts Underpinning the Ethical Dilemma

In 2015, Volkswagen was accused of installing secret software in its engine management computers to cheat strict fuel economy and emissions tests. In 2014-2015, U.S. emissions experts tested some Volkswagen vehicles and found deliberate fraud through the use of "defeat device" software that turns emissions equipment on for emissions tests and off for actual driving (Plungis & Hull, 2015). The deception was accidentally discovered. Discrepancies between the nitrous oxide emissions of some Volkswagen models compelled the International Council on Clean Transportation (ICCT) to use the University of West Virginia's Center for Alternative Fuels, Engines and Emissions (CAFEE) to test cars in 2014 and develop a functional control model (Wendler, 2015). The CAFEE team used actual road testing and its data differed significantly from the emissions tests completed by the California Air Resources Board (CARB). For two examples: the Volkswagen Jetta easily passed CARB emissions tests but CAFEE tests showed that the Jetta emitted 15-35 times the permissible emissions; and the Volkswagen Passat easily passed CARB emissions tests but CAFEE tests showed that the Passat emitted 5-20 times the permissible emissions (Plungis & Hull, 2015). At that point, emissions experts knew that something was incorrect.

At first, CAFEE experts believed there were testing errors, so CAFEE retested Volkswagen vehicles with actual road driving again, then double-checked and triple-checked the data. CAFEE's results were still significantly different from those of the CARB tests. The experts decided the substantial differences had to be caused by vehicle software (Wendler, 2015). CAFEE submitted its test results to the Environmental Protection Agency (EPA), which started an investigation with CARB in 2014. Volkswagen was evasive at first, and then asserted the "problem" was fixed and recalled nearly 500,000 U.S.-sold diesel vehicles in late 2014. CARB kept investigating and testing, still discovering substantial discrepancies, and advising the EPA and Volkswagen of its results in summer 2015.

Volkswagen remained apparently unconcerned the Company learned that many of its diesel-model vehicles would not be certified for sale in the United States in 2016. At that point, the U.S. diesel market was almost 25% of Volkswagen's U.S. sales. In an effort to save its U.S. diesel market, Volkswagen confessed using the "defeat device" software. The company's stock dove $65/share Volkswagen may be fined more than $17 billion by the United States alone. In order to repair its brand and assets, Volkswagen fired its CEO, Martin Winterkorn, and vowed to repair and refit the affected vehicles. The EPA states that the affected 2.0 liter vehicles include: Audi A3 (2010-2015); Beetle (2013-2015); Beetle Convertible (2013-2015); Golf (2010-2015); Golf Sportwagen (2015); Jetta (2009-2015); Jetta Sportwagen (2009-2014); and Passat (2012-2015). The EPA also announced that the affected 3.0 liter vehicles include: Volkswagen Touareg (2009-2016); Porsche Cayenne (2013-2016); Audi A6 Quattro (2014-2016); Audi A7 Quattro (2014-2016); Audi A8 (2014-2016); Audi A8L (2014-2016); Audi Q5 (2014-2016); and Audi Q7 (2009-2016) (United States Environmental Protection Agency, 2016). As the announced number of affected vehicles expanded to 11 million vehicles worldwide (Ewing, 2016), the stunning extent of Volkswagen's deliberate deceit became clear. In fact, just days before this paper's completion, The New York Times reported that Volkswagen prepared a PowerPoint presentation for a 2006 internal meeting instructing the Company's relevant personnel on exactly how U.S. emissions standards could be cheated (Ewing, 2016), showing a Company-wide system of deceit.

2. Decision-Maker and Conflicting Demands to Accommodate

The existence of a 2006 PowerPoint presentation for an internal meeting instructing the Company's relevant personnel on exactly how U.S. emissions standards could be cheated (Ewing, 2016), shows a Company-wide system of deceit. Consequently, the decision-maker was not a rogue engineer deep in the bowels of Volkswagen; rather, the decision-maker(s) must have been those in the highest offices who are responsible for Company-wide practices. The Board of Management of Volkswagen AG (Volkswagen, 2016), the parent company of Volkswagen Group, was the decision-maker and the termination of its CEO, Martin Winterkorn...

The conflicting demands the decision-makers were forced to address are the legal and ethical demands of vehicle emissions standards vs. competitively advantageous vehicle performance.
3. Initial Ethical Dilemma Faced By the Decision-Maker

The ethical dilemma facing the decision-makers was the conflict in ethical demands of vehicle emissions standards vs. competitively advantageous vehicle performance. Vehicle emissions standards are set to deal with the air and particle pollution that endangers all forms of life on Earth. The laws are enacted to enforce ethical considerations of preserving a vital life resource on the planet (Young, 2015). Meanwhile, diesel vehicles tend to get superior fuel economy over gasoline-powered vehicles; however, diesel exhaust has more pollutants. Required emission controls are challenging in that they can hinder engine performance, lessening power and/or fuel economy. Volkswagen competitors Daimler and BMW technically solved the conflicts but the required systems are costly. Volkswagen was apparently unable to create a cost-effective system that would meet emissions requirements and retain competitively superior engine power and fuel economy for its mass market diesel Volkswagens. Consequently, Volkswagen engineers designed the "defeat device" software (Rosevear, 2015), violating the letter and the spirit of the emissions laws.

4. Analysis of Ethical Dilemma

a. Utilitarianism

Utilitarianism promotes the greatest good for the greatest number affected by a given decision/action; consequently, an action is 'right' if it maximizes good results and 'wrong' if it does not, regardless of intent. "Consequence" is an important aspect of Utilitarianism, as any reasonably foreseeable consequence of an act must be considered to determine whether it is ethical per Utilitarianism, even if there are multiple contradictory reasonably foreseeable consequences of the act. "Act utilitarianism," which is the type relied upon in this course, evaluates the rightness of each and every act by its consequences. In practice, Utilitarianism determines the rightness or wrongness of a decision by examining who will be affected and how intensely they will be affected. The process is repeated for each possible decision. Then the option that will produce the greatest good for the greatest number is chosen (Stanford Center for the Study of Language and Information, 2014).

Analyzing the Volkswagen case with Utilitarianism, parties who would be affected by Volkswagen's decision to comply with emissions standards are: the Company; its Board of Management, including but not limited to its CEO; its stockholders; and the public. The Company would make a less cost-effective engine in order to comply with the emissions standards and therefore would lose some of its competitive edge in mass-market automobile sales and would make lower profits. The Company Board of Managers would be affected in that compliance and the resulting lower competitive edge and lower profits could affect their acceptability to stockholders and their job security, salaries and bonuses. The Company's stockholders would be affected because their equity will be lowered if the Company's competitive edge and profits are lowered. The public will be affected because the compliance with emissions standards will help lessen the air and particle pollution that can seriously affect their health and even kill them.

The parties affected if the Volkswagen decides to cheat on emissions standards with the "defeat device" software would be: the Company; its Board of Management, including but not limited to the CEO; its stockholders; and the public. The Company would make a more cost-effective engine to defeat emissions standards and therefore would gain some competitive edge in mass-market automobile sales and would make higher profits; however, if caught, the Company could sustain considerable penalties, including but not limited to high fines and denial of certification to sell vehicles by various countries. The Company Board of Managers would be affected in that deliberate noncompliance and the resulting higher competitive edge and higher profits could enhance their acceptability to stockholders and their job security, salaries and bonuses; however, if caught, the Board of Management could be severely criticized and even terminated due to illegal behavior. The Company's stockholders would be affected because their equity will be raised if the Company's competitive edge and profits are raised; however, if the Company is caught, the stockholders' equity could be severely affected by significant drop in stock price, penalties including but not limited to high fines, and refusal by some countries to certify sales of Volkswagen vehicles within their borders. The public will be affected because the deliberate noncompliance with emissions standards will further increase the air and particle pollution that can seriously affect their health and even kill them, unless and until the Company is caught and is forced to comply…