Case1: The Volkswagen Emissions Scandal: A Case Study in CorporateMisbehavior
TheVolkswagen Company has been involved in a rigging scandal involvingcheating test results on its diesel cars. Although it is usuallydifficult for business leaders to get it all right, it is stillbaffling how the carmaker got all its strategies wrong. This actionis unacceptable in any sphere of business and any corporate studiestaught in any forum. It is a mischievous approach in all fields,including corporate social responsibility, marketing, businessdevelopment, business leadership and even finance. The myth ofshareholders’ value that a company should do all that is necessaryto make sure that the shareholders’ value is increased might be atthe heart of the cheating scandal, leading to the installation ofcheating software to post incorrect test results.
Thisscandal has been referred to as the "diesel dupe." TheEnvironmental Protection Agency (EPA) discovered that many VW carssold in America had a software in their diesel engines that coulddetect testing of the car, changing its performance according to thedesired outcome in order to improve the results. Since then, theGerman carmaker has admitted cheating in its vehicles’ testing. Thecompany has had a major push to sell more diesel cars in the USmarket, based on the marketing campaign that its cars had lowemissions according to tests. These results are based on 482,000 carsin the US market only, including the VW brands Passat, Beetle, Jetta,Golf and Audi A3, which is also manufactured by the company (Bansalet al., 2015). However, the company has admitted that about 11million cars worldwide from the company, including some 8 million inEurope, have been fitted with the cheating software. Since then, anumber of high-profile employees have left the company, including Mr.Martin Winterkon, now former chief executive of the company. Hetermed the incident as an action that has broken the trust of thepublic. More heads are expected to roll, as the company is bracingitself for a major financial loss, including a possible $37,500 forevery car, fined by the EPA and more than $7 Billion set aside forrepairs. The company’s stocks have also fallen 30% in the Europeanstock market.
Inthis light, business schools are emphasizing on managers observingthe ‘triple bottom line’ when conducting business. This includesthe people, the planet and then profits. There is a need forcorporations to balance the shareholders’ desire for a risingincome with the dual responsibilities of taking care of the needs ofother stakeholders, which are the customers, and lastly, making surethat their operations are environmentally friendly and sustainable.It is costlier to resist sending production to regions having poorworking conditions or to implement solutions that are environmentallysustainable and friendly. However, these are the correct choices forthe company’s management and the shareholders. Research has shownthat cutting R&D in order to meet short-term goals such as a goodcredit rating or increased shareholders short-term earnings may leadto a drop in the shareholders’ value in the long run.
Short-termrewards attract skewing of behavior out of the moral and responsiblescope. This has led to poor decisions such as mis-selling mortgages,money laundering, tax evasion, illegal insider trading and fixingmarket benchmarks among other vices. The fact that finance andsustainability are aligned shows that businesses need to stopfocusing on shareholders’ value and put more effort in caring forthe environment and the clients they serve. In the end, the economywould not only be balanced, but also sustainable and healthy.Volkswagen’s actions clearly show that the company had put a lot ofemphasis on short-term earnings and shareholder value as opposed topractices that would ensure the long-term strengthening of thecompany’s brand and image in the country, environmentalsustainability and customer satisfaction, which would be beneficialin the long-run.
Thisincident has shed light on managerial roles. Managerialresponsibilities are not easy because these individuals are usuallyfaced with the hard task of ensuring high short-term profitabilityand long-term environmental stability. They are supposed to offersolutions regarding high quarterly profits, but still provide ways ofensuring the business operates profitably for long. If any of theseelements fail, then it will undermine the development of the otheraspects, posing problems for the management, the organization and theshareholders (Hotten, 2015).
Thiscase study is a good case for learning more about Corporate SocialResponsibility (CSR). This is a case of an organization’s failureto observe its responsibility to the society. As one of the majorautomobile companies in the world, VW is supposed to be at theforefront in terms of CSR. This is because their products are widelyused worldwide. It is the responsibility of the management and theorganization to balance between the profitability of the company andto ensure that their operations meet the necessary legal outlinesregarding environmental sustainability.
Asan organization, VW is supposed to protect the interests of thecustomers by doing a little good. Instead of cheating on its test,the company was expected actually to fit measures that cut harmfulemissions. VW has built a reputation throughout Europe, America, Asiaand even in the third world countries as a carmaker that emphasizeson fuel efficiency. More people have been switching to VW productsbecause of the fuel efficiency and low emissions associated with thecompany.
Despitesome critics pointing out that CSR affects a company’s economicrole, there is a lot of evidence showing its profitability in thelong-run. VW must have followed the incorrect advice of the criticsby pushing for more sales in order to increase shareholders’ valueby cheating, instead of maintaining the customer loyalty and trustthey already had b incurring more expenses for reliable vehicles,which would be profitable in the long-run.
Consumersgenerally believe that companies that operate within their legalresponsibility and observing CSR receive positive responses in themarket. There is a high likelihood that this act will affect theprofitability of VW for some years to come. The company has not onlybroken the trust of the customers, but has also shown little regardtowards the environment.
Case2: British Pharmaceutical
TheBritish pharmaceutical giant, GlaxoSmithKline (GSK) has been usingcorporate philanthropy in community education in promoting itsproducts. However, this network of supposed corporate philanthropyhas led to a complex and connected network of bribery uncovered inChins where the organization has been bribing doctors and othermedical experts to endorse their products.
Giantpharmaceutical companies such as GSK have been using conferences andworkshops as a way of creating community awareness of their products.In such forums, the company pays for all the expenses regarding thefair, allowing interested parties to attend the luxurious eventsfree. With such financial light, such events can tilt the sales ofthe company if the management decides to alter the perspective of thecustomers by inviting experts who endorse the products. Additionally,as ‘ambassadors’ of GSK products, these people are expected toprescribe their medicine.
Asmuch as the pharmaceutical company has been donating their productsfor community health activities such as medical camps in medicalschools, it has also been using the doctors, some of whom arelecturers in the different medical institutions, to promote theirproducts. The bribery of doctors has been uncovered in China, withthe company forking out about $450 million in a period of 8 yearsfrom China. It is estimated that the company spends approximately $82million annually on bribing doctors (Taylor, 2013, n.p). The companyuses this pretext to claim corporate social responsibility bysponsoring educational conferences where experts are paid to talk andoffer insight on GSK products. This vice has been noticed in mostplayers in the industry. Therefore, the company has taken theinitiative under intense pressure from the Chinese authorities to endthe vice of paying doctors to tilt the market balance in their favor.It is a big step taken by the company and all eyes are on the otherindustry players to see if they will follow suit (Hirschler, 2013).
Somecompanies have been using the community approach to promote bribery.These companies have realized that putting a well-known expert ordoctor as the flag bearer of a certain project in the community canchange the market dynamics in their favor. Cases of bribery where anexpert is invited to oversee a community development project or acharity function after receiving lavish gifts or money have beenreported. The companies target individuals that are powerful andinfluential in the community. They make them the face of the charityprojects, encouraging people identifying with the expert to havefaith, trust and loyalty to the company.
Payingbribes is unethical because it promotes unhealthy businesscompetition. Big companies thrive over smaller companies with lessfinancial might due to their ability to bribe their way through thesystem. As seen in this case study, the company has used massivefunds in bribing experts in just seven years. Smaller countries mightnot afford such payments because the amount of money paid by GSK todoctors in bribes is as much as the operating capital of some smallerpharmaceutical companies.
Customersdo not have a fair chance of accessing a variety of products thatcould be beneficial to them because of bribery. The fact that doctorsare paid to subscribe GSK products shows that the smaller companiesmight not get the chance to have their products tested and accreditedI the market by consumers. Bribery has been characteristic of thepharmaceutical companies with large companies spending millions ofdollars (like GSK’s $450 million expenditure) to ensure the almostmonopoly of the market. The dominance of the industry by the largeindustry players kills the initiative to produce quality productsbecause the large players are assured of sales even if they produceinferior products.
Briberyamong the large industry players has killed the morale of the smallerlocal companies in different countries worldwide. One of the roles ofeconomies is to ensure that local companies are promoted to increasethe country’s GDP and general industrial productivity. However,with the bulldozing attitude adopted by the big companies by bribingmedical practitioners, the smaller local companies do not get a fairchance to argue out their competence and quality in the market.
Doctorsare supposed to put the interest of the patient first. Briberydiscourages this. No matter what quality of products is produced byGSK, it will continue to dominate the market over possibly betterproducts. Doctors’ hands are tied on this. Bribery forces them toprescribe specific medications regardless of the quality, expectedresponse or side effect profile because they have a financial andbusiness agreement as well as obligation to promote the commoditiesof their briber.
Corruptionhas led to irregular and unlawful awarding of tenders in hospitaldrug procurement. By influencing the decision of experts, bigcompanies have managed to win lucrative procurement tenders to supplymedicine to health institutions following the advice of the selectoversight committees, where bribed experts sit. Not that it is wrongto award big companies these tenders, but the tendering processshould be as competitive as possible to ensure that the finalconsumer gets the best quality available in the market at a verycompetitive price. However, when large companies buy influence withtheir financial might, the whole process stops being fair andcredible and rest on the influence and recommendations of a fewdishonest individuals. The final loss is on the consumer.
Bansal,T., King, M., & Seijts, G. (2015). The Volkswagen EmissionsScandal: A Case Study in Corporate Misbehaviour. The Globe and Mail,Business.
Hirschler,B. (2013). GlaxoSmithKline to Stop Paying Doctors In Major MarketingOverhaul. Business Insider.
Hotten,R. (2015). Volkswagen: The Scandal Explained. BBC Business News.
Taylor,A. (2013). China Accuses GlaxoSmithKline Of Enormous And ElaborateBribery Network. Business Insider.