Dieselgate Case Analysis

What?

The situation presented in the case study by Schuetz (2016) focuses on VW Group and the emissions scandal that occurred in 2015 just when the company was about to reach a significant milestone in its long-term development plan. VW had been working to become the largest automaker in the world, an intrepid plan for a company that started out of a bombed-out factory in post-war Germany. However, it had taken on an ambitious objective in the 21st century and was counting on new diesel emissions technology to produce cleaner cars that were better for the environment. This was a big part of its corporate social responsibility program, for which it received numerous awards in the years leading up to the scandal.

This scandal involved the revelation that VW was using a cheater device on its diesel cars: the device was software that could detect when a test for emissions was being conducted and would ensure that emissions came out clean by running at a high rate; but on the road under normal circumstances emissions would come out much more polluted because the cleaning mechanism would not be going full throttle. In other words, VW had the capacity to clean up emissions during a testbut its cars were not designed to run that way all day every day on the road and be as clean as they were for the tests (Schuetz, 2016).

This scandal became a huge multi-billion dollar problem for the company. Its stock value plummeted by 40% and stakeholders questioned the ethics and transparency of the company. Its CEO at first tried to apologize his way out of the scandal, but then he resigned and the companys long-term CFO and veteran leader took over. He promised to leave no stone unturned in order to get to the bottom of who was responsible for the installation of the cheat device on VWs diesel cars. But at the end of the day, he determined that no one individual or group of individuals was responsible and that instead it was the result of a chain of errors caused by a loosening of the organizational culture in which creativity had been emphasized over a more rigid, structured by-the-books approach.

The main problem now faced by the new CEO and key player, Matthias Mueller (former CEO of Porsche), was that VW faced a branding problem: it had been at the top of its game prior to the scandal, and now it needed to reassure the public and regulators that it was a brand that could be trusted once more. Its image had been tarnished, and, moreover, the entire German lineup was now in question, from VWs luxury brand Audi, to the classic German sports car lineup of Porsche. VW had seemed on the cusp of success as the worlds greatest automakerand now suddenly it was finding itself at risk of ending up at the back of the pack over an emissions scandal that seemed like something from a bad dream.

The CEO had to find a way to navigate this scandal and reassure stakeholders that VW cared about the environment, that it was a brand that could be trusted, and that sales would continue to climb. It also had to find a way to deal with the huge penalty it was now facing of more than $17 billion in fines due to the installment of the cheat device in millions of cars. VW Group had painted itself as one way to customers and investors, and now it was being exposed as something else altogether. Plus, the new CEO (but old leader within VW Group) seemed tone deaf on the matter of accountability, preferring to place blame on no one in particular but rather on a serious of questionable calls.

So What?

The situation is important because it gets to the...…oil spill: Im sorry. This was the common refrain of CEOs of major corporations anytime something bad happened and the bad decisions made ended up blowing up stakeholders faces: it was as if they collectively decided that no one would hold them accountable and all they really had to do was say, Oops, sorry.

For a company to really flourish and become a trusted brand, it has to do more than apologize when it gets caught stealing. It has to actually address the issues that pushed into theft in the first place. A culture of lies and deception starts at the topnot at the bottom; it is the leaders who set the tone for the culture, and VWs leaders had established an Enron-type of authoritarian culture with a look-the-other-way type of leadership to avoid seeing anything illegal going on (even though the leaders essentially encouraged engineers to engage in illegal applications).

If I had been CEO dealing with this scandal, I would have taken a more definitive approach, firing top leaders and replacing them with an accountable staff that would make sure to work with engineers that would be dedicated to reaching the emissions goals the company had actually set for itself and promised to stakeholders. I would not let the company off with an insincere apology. I would then focus on establishing a culture of integrity by affirming the values that the company had promoted to the public; I would not tolerate the blatant hypocrisy at the corporate level: saying one thing to the public and doing another behind the curtain. I would insist on transparency and insist that research and development be increased in order to meet the objectives that had been meant to define the company in the 21st century. In my eyes, those goals had not been met: the company had seemingly come close, but that close call was really based on fraudulence and was not deserved. Therefore, I would drive the company to be…