Ethical Dilemma Description

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Volkswagen Groupss recent scandal- based on the US Environmental Protection Agencys allegations and the companys own grudging admissions- with regard to the use of defeat devices in a variety of car models led to the resignation of the Groups CEO, Martin Winterkorn, and public outcry as to the daring and intentional deception that was perpetrated the companys ranks. Due to deep and systemic corporate failure, software-based defeat devices were installed in 2-litre TDI diesel engines in over 11 million vehicles, particularly the VW Passat, VW Jetta and BMW X5 models.

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The device in question constituted a parallel set of binary instructions that modulated the engine control units (ECU) emission controls, covertly but deliberately turning them on when it detected laboratory emissions tests and turning them off when the vehicle resumed regular activity. While these vehicle models had passed regulatory tests in the United States and the European Union, the EPA changed its emissions testing procedures and begun employing on-the-road emissions testing. Furthermore, due to widespread automation of engine controls, the regulators also begun auditing the ECUs software to definitively ascertain total emissions. These double factors eventually led to the discovery of the defeat devices.

Vehicle emissions compliance is increasingly being emphasized by governments around the world due to the contribution of vehicular traffic to overall pollution. To encourage compliance and manufacturer innovation towards reduced emissions, auto and tax legislation provides for significant green car subsidies and tax exemptions. In addition, designation as a green car is desirable from the consumers perspective.

Consequently, the market share of environmentally progressive vehicles in mature markets such as America and Western Europe is accelerating. These factors may have served as the financial rationale for installing the defeat devices with the goal of beating emissions tests. This is not unlike the justification provided for a number of previous corporate scandals: maximizing shareholder value.

Surprisingly, top management was warned on a number of occasions about the legal violations involved with the use of defeat devices and, once the decision had been made to install the software, the device was in actual use in VW diesel engine models. Management did not pass on this information to the board and continued dismissing allegations of the devices existence. This represented a failure in leadership and a breakdown in compliance mindset.

Ethical Dilemma Analysis

Emissions test defeat devices have traditionally been illegal. In fact, the EPA had already fined General Motors US$11 million for employing such devices to beat carbon monoxide emissions testing in 1995. However, such devices are not entirely new to the auto industry. Auto manufacturers exploit loopholes in the various testing regimes and environmental agencies have discovered as much: in a number of cases, vehicles have registered different laboratory test and real-world emissions outcomes. Indeed, on-the-road CO2 emissions are, on average, 40% higher than official fuel economy figures (ICCT, 2014). Nitrous oxide (NOx) emissions- the specific talking point in the Volkswagen scandal- in the real-world can be up to x0.6 higher than in the lab conditions (ICCT, 2015).

In VWs case, the real-world emissions were at least 40 orders of magnitude higher than those legally allowed by the EPA. To further illustrate the scale of the problem, the devices mirrored EPAs testing conditions by taking note of the vehicles speed, changes in barometric pressure, movement of the steering wheel and the duration and extent of engine use so as to produce the desired results. By so doing, VW demonstrated that not only were its efforts at beating the system insidious, but that they were also centralized and well coordinated. It is difficult to imagine that such an effort were the result of a rogue employee or a compartmentalized attempt at subterfuge. It certainly represents a system-wide failure in operationalizing corporate ethics.

The following were the primary stakeholders responsible for the breakdown:

Research and Development (R&D) staff from whom the designs for the devices may have originated,

Software engineering professionals including software auditors and security analysts who would build out the devices,

Frontline supervising staff who would be in charge of ensuring deadlines of product development were met,

Quality and Assurance (Q&A) software engineers with whom rests the decision to ship the product,

Legal advisory staff that would be required to provide legal opinion on the use of the devices and who, once the allegations of their use emerged, would conduct the year-long campaign of discrediting them in conjunction with the public relations (PR) staff,

Compliance staff that would provide subject-matter expertise on EPAs anti-diesel testing regime and the differences from that of the EUs that may have been viewed as pro-diesel,

Corporate leadership that made the final determination that would lead to allocation of R&D and product development funds and provide cover for implicated staff and

The C.E.O. with whom ultimate responsibility lies for the groups operations.

Using a consequentialist approach, VW as a corporate individual has a right to deservedly pursue higher profits. This is a just and reasonable need and is, by and large, the purpose of a for-profit organization. In turn, shareholders reward the publicly-owned company with a higher valuation for achieving higher profits. In doing so, the company simply choose to install the defeat devices and justified the decision afterwards, practicing a form of pessimistic ethical conduct where stakeholders other than its stockholders need not be convinced of the rational foundation of its decisions.

To this end, VWs leadership may view higher market share such as in the American vehicle market as the ends and the installation of defeat devices as the means. In light of market competition, the corporate leadership may have seen the need to act with finality to override the demands of the law so as to meet its shareholder-mandated ends. In doing so, the company may have estimated that it will maximize its benefits and ensure that it has sufficient capital to compete and innovate going forward. This is in agreement with the principle of egoism- acting in ones self interest. Furthermore, VWs financial gain may also positively impact its charity and sustainability efforts, organized within the framework of people, planet, and profit and this is of noteworthy utility.

Table 1. Consequences of VWs Emissions Scandal

Positive Consequences to VW Weight Negative Consequences to VW Weight

Increased revenue leading to higher profits, stock valuation and stock compensation 7 Loss of hard-won consumer confidence 8

Maximization of shareholder value 7 Damage to a well-cultivated brand image as the peoples car 9

Increased access to funds that can be used for further benevolence/charity/philanthropy 1 Loss of stock market value 8

A better competitive profile due to acquisition of market beachhead in the American market 8 Allocation of monies to fund crisis management, recalls, software updates, legal representation, compliance and staff re-training 6

Stability for employees, suppliers, vendors and partners 5 Enactment of stringent emissions legislation that may be broadened to include independent/agency safety audits 9

Competitors reclaim market share 8


From a consumers consequentialist point of view, however, VW deliberate deception is a sordid betrayal. Consumers have a right to honest and reliable advertising. They do not expect corporations, to whom they have surrendered a number of their personal rights, to prioritize their own profits over consumer welfare. There is an expectation to do the just and right thing by providing quality products and services in exchange for a reasonable fee.

VWs scandal is a betrayal in several ways. Firstly, it is harmful to the environment upon which both she and VW- its staff- depend on. While the consumer does seek out environmentally progressive vehicles, it is likely that it is just a means to an, for example, environmental protection or fuel economy. In the larger effort to combat climate change, such corporate malficience is a significant step backward. The tricks that the company used to pass emissions standards also had negative health effects on consumers due to the higher pollution. Secondly, this scandal will undermine consumer confidence in green car designations, leading to a boomerang effect on the environment and company profits. Already, the scandal has been referred to as Dieselgate and bears negative connotations to its brand and association with sustainability. This peripheral damage to diesel-powered and environmentally conscious engines, for which there are in existence, is a genuine and lamentable disaster as it delays the adoption of vehicles with lower emissions. As governments attempt to seal regulatory gaps, tighten emissions standards and enact stricter laboratory and real-world testing, the resultant compliance costs for auto manufacturers are likely to be passed on consumers.

Ethical Dilemma Solution

Deontological ethics assert that the imperatives of ethics are applicable to all rational beings in spite of the position they hold within society (Crane & Matten, 2010). Kantian ethics are, therefore, ethical imperatives and must be consistently abided by if they are to have meaning and are to treat people as an end as opposed to the means towards and end. In VWs case, the corporate leadership selectively applied ethics, pursuing an egoistic goal with its consumers (people)as the end to a means (higher profits).

Although consequentialist ethics contradicts Kantian ethics in their assessment of universality, there is subtle agreement as to need to achieve good. Consequentialism asserts that decisions must seek achievement of a greater good. Indeed, ethicists have provided the basis for merging the two theories to formulate business codes of conduct. VW failed this ethical test by optimising for the benefit of one set of stakeholders (stockholders) over that of others (consumers).

Using a deontological approach, it would seem that there is a moral imperative for the management to have changed its strategy with regard to meeting emissions tests. There are various justifications for this approach.

Firstly, the management should have been alive to the possibility of its deception being discovered by regulators and researchers. Such a discovery would obviously be problematic and, as has already been demonstrated, would lead to leadership change, legal prosecution and other forms of regulatory actions such as fines. Furthermore, the discovery of the defeat device would all but certainly affect the companys brand and reputation. To this end, it would be difficult for the company to be competitive going forward.

Another justification would be the effect on the companys staff and vendors. A degradation of a compliance mindset would provide a crucible for accelerated corporate malficience. Such habits would ultimately handicap the corporations ability to compete in the marketplace and would undoubtedly prove difficult and expensive to remedy. Vendors would also be wary of conducting business with VW lest their image suffer as a consequence. There may be short-term benefits to the company, but over the long term, the company would likely suffer potentially irreparable damage.

The management seems to enforce a focus on self to the exclusion of others. This, acco...

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