I have been observing the Volkswagen diesel emissions fraud case and its aftermath over the past couple years. The magnitude of the scheme on so many levels and the questions it raises are enormously significant in our increasingly complex society. As is so often the case, the original understanding of the crime turned out to be just the proverbial scratch on the surface. The picture became gloomier as the investigators dug deeper.
US District Judge Sean Cox ordered Volkswagen to pay a criminal penalty of $2.8 billion. Meanwhile, separate from that tidy sum, Volkswagen is paying $1.5 billion to settle the civil litigation case filed by the environmental regulators. Oh, and by the way, the carmaker is also spending $11 billion to settle with John Q. Public by buying back cars or providing other compensation for the losses.
Criminal charges have been levied against seven employees, but five of those persons are in Germany and extradition is not probable. Nevertheless, Judge Cox has strongly encouraged the German government to prosecute those persons as criminals.
What follows are some observations and questions I ponder:
- Basic Is Best. Basic is best, especially when it comes to the honesty and integrity of doing business. The very basics of business, technology, group dynamics, public relations, and crime clearly communicate to us that hidden dark crimes of fraud will always find their way to the light of day. Private crime never remains private for long. What is private becomes public and then the penalties pound relentlessly. I realize we live in a complex world. Nevertheless, certain elements of navigation within that world will always remain basic. It is tragic and equally baffling when a major corporation such as Volkswagen displays a complete ignorance of the fact that basic is best.
- Counting Coins Correctly. Volkswagen did what it did to save money. Although the chief purveyors of the emissions scheme may have been counting coins, they sure weren’t counting coins correctly. $13.3 billion later, I’m sure Volkswagen would agree it could find much better ways to spend those coins. Unfortunately, it won’t get the chance to do so.
- Whatever Happened To Ethics? Absolute laws will supersede and override relativistic laws. I have always been as much of a realist as I am an idealist. It is both spheres of thought that lead me to ask the question whatever happened to ethics? Whether a realist or an idealist, ethics holds an intrinsic presence and power throughout our world that can never be silenced. Granted, many people try, but in the end they are the losers, and when you lose on ethics, the penalties can be painful and permanent.
As the case and its consequences continue to unfold, it is my hope that we as individuals, businesspersons, leaders, and organizations are paying attention. We can learn as much from a tragedy as we can a triumph.
[If you are interested, here is the original analysis article I first published September 23, 2015.]—–
GETTING BACK ON THE ROAD: HOW VOLKSWAGEN RECOVERS
Last week the Environmental Protection Agency accused Volkswagen of integrating a defeat device into nearly half a million cars’ software to fool emissions testers. The software programming allegedly affects numerous diesel models such as the 2009–15 Jetta, the 2009–15 Beetle, the 2009–15 Golf, the 2014–15 Passat, and the 2009–15 Audi A3. Please note that this involves seven consecutive model years.
Jack Ewing reports on exactly what the software does (The New York Times in The Kansas City Star. “Scandal Weights on Volkswagen.” September 22, 2015, pp. A6–A7):
“The software measured factors such as the position of the steering wheel, the vehicle’s speed and even barometric pressure to sense when the car was being subjected to testing, the EPA said. The car then configured itself to reduce emissions of nitrogen oxide, a gas that is a major contributor to smog and is linked to an array of respiratory ailments including asthma, emphysema and bronchitis, the EPA said Friday.” (p. A7)
Volkswagen executives have already admitted to the deception. The investigation, of course, is ongoing. A couple days ago, I identified four major ethical concerns connected to this situation:
- Ethically Indefensible Corporate Decisions. It would appear that Volkswagen made a major technical decision that may have created a certain consumer benefit—improved motor vehicle performance. However, intrinsic to that decision is the perpetration of fraud against the government, the consumer, and society. It is fraud against the government because the implication and expectation of the passed emissions test is that the vehicle is meeting specific technical parameters of exactly how much it is polluting the atmosphere. It is fraud against the consumer and against society because individually and collectively, consumers believe that their vehicles are satisfying antipollution standards. Ethically, this is an indefensible position for Volkswagen.
- Personal Integrity Violations. Regardless of how large the corporation, it remains comprised of individual people who make individual decisions. That means that at multiple steps over several years, specific persons knew that something bad was happening and they actively supported it or they chose to look the other way. In terms of personal integrity, this is a clear constellation of multiple failures.
- When The Short Term Only Works In The Short Term. When it comes to corporate success, personal success, and ethical standards, if the short term only works in the short term, then we have a problem. You want the short term to work in the long term too. This translates to corporate success, personal success, and ethical efficacy.
- When Public Relations Ignores Future Outcomes. I remain baffled when cases like this arise in which it is so obvious that people are not thinking about eventual public relations difficulties. First, with all our capabilities in technology and communications, it is foolish to believe even for a moment that poor ethical decisions will never see the light of day. After due time, they always hit the headlines. Second, once that happens, the public relations damage to the organization is always immense and irrevocable. Sometimes it is unrepairable. For a very long time, anyone considering doing business with Volkswagen will directly or indirectly ask the question do I want to do business with a company that intentionally tried to deceive? How do I know that this company will not try to deceive me?
In the wake of this corporate debacle, it will be most interesting to observe Volkswagen’s response. There is a right way and a wrong way to do this. If Volkswagen wants to do it the right way, then we should see a response that involves a convincing combination of these essential elements:
- A Serious Apology. Consumers have a right to be frustrated and angry. Those emotions only intensify when the company demonstrates no remorse. On the other hand, consumers can be very forgiving when they perceive that a company is moving in the right direction. The opportunity to win in the marketplace is huge. But that is not the fundamental reason for the apology. The fundamental reason for the apology is that it is the right thing to do, and that is enough reason. Marketplace wins are incidental at this point.
- Personnel Housecleaning. As quickly yet sensitively as possible, a company must investigate the misdeeds, determine who was responsible, and exercise its internal disciplinary process. Depending on the nature and severity of the circumstances, that will of course mean job terminations. With authority comes responsibility, with responsibility comes accountability, and with accountability comes consequences.
- Technical Housecleaning. With the personnel housecleaning, a technical housecleaning must occur. All appropriate technical, procedural, process, product, and inventory changes that are needed to repair the damages must be executed immediately.
- Corporate Culture Revision. Corporate culture can be difficult to change. Nevertheless, if the company is serious about permanent solutions instead of Band-Aid fixes, then it will do the difficult work. From the top leadership to the bench level, the company must ruthlessly evaluate all aspects of its being that enabled it to step down to such a level of inappropriate behavior and ethical compromise.
- A Study Of Lessons Learned. As painful as the process might be, the company must invest the resources to engage every employee on the introspective journey of lessons learned. Only by studying the past can the company avoid the same errors in its future.
Volkswagen presents us with a textbook case study of a tragically common corporate disaster. Let’s hope we are all satisfied with how it responds.