Although Volkswagen Group owes shareholders high returns for their investment, the integration of deceptive engineering to facilitate the evasion of standards on diesel emissions was unethical and compromised the company’s ability to pursue success. The German multinational automotive organization is a globally reputed manufacturer and distributor of vehicles, dealing in a range of luxury car brands, including Bentley, Volkswagen, and Bugatti. In 2006, the company embarked on an ambitious plan to expand its low market share in the United States as it sought to become the biggest automobile company globally (Georgeevski & AlQudah, 2016). To accomplish this, Volkswagen resolved to use fuel-efficient diesel engines to compete with Toyota effectively, but the newly developed system could not meet the stringent American emission standards. However, executives of the company decided to install illegal software which could initiate pollution controls after detecting that a test was being conducted on the vehicles’ exhaust gases. After the evaluation, the systems resumed emitting excessive levels of pollutants to protect the engine components from wear and tear. Although the company intended to increase its market share in America, installing cheating software on its diesel engines was unethical.
Background
Diesel engines are globally known for their many benefits over gasoline motors, such as cost-saving of early repairs, low carbon monoxide levels, durability, and fuel efficiency. However, they required frequent changes of fuel and air filters and additional equipment to meet the established strict emission guidelines. Numerous vehicle manufacturers, including Volkswagen, developed innovative technology, such as turbochargers, to enhance the engines’ combustion precision alongside other mechanisms of minimizing nitrogen emissions. Volkswagen diesel engines integrated into their exhaust system a nitrogen oxide trap, which required more fuel to trap the emissions effectively. As a result, the manufacturer had to devise a mechanism to reduce fuel consumption and enhance the vehicles’ acceleration capabilities (Jung & Park, 2016). They programmed the turbocharged direct injection system to ensure that the emissions control would only be activated after detecting an ongoing laboratory test to meet the U.S.’s standards for exhaust gases. However, the vehicles emitted more nitrogen-oxygen gases in real-world driving.
Additionally, Volkswagen’s intention to increase its share in the American automobile market required the organization to ensure that their engines’ exhaust emissions did not exceed the thresholds stipulated by the U.S.’s Environmental Protection Agency (EPA). Upon further reached, it was established that the vehicles emitted excessive levels of nitrogen oxide, revealing the integration of a tricking software designed to defeat the discovery of toxic gases. In this regard, the vehicles met the standards during laboratory tests but reverted to emitting excessive nitrogen oxide outside the assessment facilities. From this perspective, Volkswagen’s executives sought to increase the organization’s profits as their core obligation. This dimension corresponds with Milton Friedman’s assertion that a business’ exclusive social responsibility is to engage in activities and utilize resources designed to increase profits and value to shareholders (Schwartz & Saiia, 2012). Friedman’s stockholder or shareholder philosophy justifies Volkswagens’ executives’ decision to disregard the environmental ramifications of their deceptive engineering and the violation of stipulated statutory regulations.
Volkswagens’ Executives’ Decision and Milton Friedman’s Corporate Social Responsibility
Corporate social responsibility (CSR) is a fundamental and indispensable concept in the conduct of business by contemporary organizations. Consequently, numerous entities are increasingly adopting and integrating this theory and ethics as a guiding principle of sustainable operations. Through the shareholder’s value proposition, Milton Friedman argues that businesses’ exclusive social obligation is to maximize profits for the stockholders (Schwartz & Saiia, 2012). This view contrasts the tenets of business ethics as a key element in CSR, requiring that organizations should comply with the set standards in their conduct and decision-making as an indicator of their internal values (Adda et al., 2016). This implies that ethics govern the activities, practices, and actions undertaken by an organization regarding what is socially acceptable or inappropriate. In this regard, although companies engage in business primarily to derive and maximize profits for owners and shareholders, this pursuit should be directed and directed by morally appropriate behaviors.
CSR and corporate social responsibility are intertwined and concerned with the conduct of business practices for the benefit of all, including shareholders and stakeholders such as the society and government. This contradicts Friedman’s view since it accentuates the essence of conscious decisions which are socially responsible and pose minimal harm to the community and society. From this perspective, Volkswagens’ executives adopted Friedman’s philosophy of CSR, which sought to derive maximum profits exclusively for stockholders through deceptive strategies, disregarding ethics, and harming the environment. Instead of voluntarily reducing pollution, which could benefit the wider society, the firm opted to pursue a larger market share of America’s automobile market. This was executed for the benefit of the exclusive group of people directly connected to the firm while fraudulently defeating governmental regulations formulated to protect the environment. Therefore, Volkswagens’ executive implemented Friedman’s theory of CSR which was inappropriate.
Appropriateness of Friedman’s CSR Approach by Volkswagen
Volkswagen executives’ deceptive engineering decision to integrate devices and software in their diesel engines to fraudulently pass the EPA’s emission test was inappropriate. In the organization’s bid to increase its American vehicle market share, the German automobile manufacturer promoted its cars as among the most fuel-efficient and environmentally friendly products. As a result, the company registered an increase in its sales volume as it bypassed emission testing standards, which exposed the community to toxic pollutants and degraded the environment. Friedman’s corporate governance perspective justifies this approach as the business’s exclusive obligation is to maximize profits and value to stockholders, shareholders, and owners. However, adopting such a strategy by a firm is inappropriate since it delinks the business from the society and environment in which it operates (Boubakary & MoskolaĂŻ, 2016). In this regard, organizations should not be driven exclusively by profit maximization motives and expansionist plans without considering the adverse implications of their activities.
Additionally, today’s business activities have a massive impact on the environment and society in which they operate. Organizations exploit the available resources and emit hazardous substances and pollutants, thereby contributing to the degradation of ecosystems (Zelazna et al., 2020). It is therefore imperative for companies to initiate programs and activities which ameliorate the detrimental impacts of their operations. For instance, Volkswagen is socially responsible for reducing the environmental burden of its business activities in strict compliance with the established laws. This strategy is increasingly becoming an integral concept in corporate governance as it views organizational benefits as inherently intertwined with society. Indeed, socially responsible businesses demonstrate their obligation for the ecological ramifications of their activities, endeavor to minimize pollutions and emissions, and increase the efficiency of their products, thereby alleviating the ecological footprints. In this regard, Volkswagen’s plan as promoted by Friedman was inappropriate as it sought to disregard the firm’s environmental ramifications.
Recommendation for the Implementation of CSR
Volkswagen should implement a CSR strategy which balances the interests of the stockholders and stakeholders. Organizations should be conscious of the environmental impacts of their economic operations and should demonstrate a sense of obligation to the society and surroundings in which they conduct their activities. The organization should voluntarily integrate social and environmental concerns within the core plans and operations of the business to achieve a competitive advantage (Newman et al., 2020). Moreover, the firm should go beyond maximizing profits for the owners and comply with all applicable legal obligations and invest more in minimizing environmental impacts. Implementing this strategy will not adversely affect the profitability of the entity. Indeed, corporations realize improvements in their profitability and customer loyalty through CSR (Tiba et al., 2018). Disregarding Friedman’s philosophy would not be injurious to the firm’s profitability but beneficial in the long run. In a highly competitive business environment, such as in the automobile manufacturing sector, CSR provides firms with a significant competitive advantage over rivals.
Conclusion
Volkswagen’s emission scandal involving the integration of deceptive engineering to beat the assessment of exhaust gases was unethical conduct. Organizations are integral constituents of society and should operate in a manner that minimizes environmental harm. Notably, firms can achieve this by incorporating corporate social responsibility to guide their processes and decision-making. Such strategies effectively enhance the firm’s profitability and increase the value of the organization to both stakeholders and shareholders. Therefore, although organizations are driven by pursuit of profits and value maximization for stockholders and shareholders, this motive should not be pursued in a morally and socially responsible manner.
References
Adda, G., Azigwe, J. B., & Awumi, A., R. (2016). Business ethics and corporate social responsibility for business success and growth. European Journal of Business and Innovation Research 4(6), 26–42. Web.
Boubakary, & Moskolaï, D. (2016). The influence of the implementation of CSR on business strategy: An empirical approach based on Cameroonian enterprises. Arab Economic and Business Journal, 11(2), 162–171. Web.
Georgeevski, B., & AlQudah, A. (2016). The effect of the Volkswagen scandal (a comparative case study). Research Journal of Finance and Accounting, 7(2), 54–57. Web.
Jung, J., & Park, S. B. A. (2016). Case study: Volkswagen’s diesel emissions scandal. Thunderbird International Business Review, 59(1), 127–137. Web.
Newman, C., Rand, J., Tarp, F., & Trifkovic, N. (2020). Corporate social responsibility in a competitive business environment. The Journal of Development Studies, 56(8), 1455–1472. Web.
Schwartz, M., & Saiia, D. (2012). Should firms go “beyond profits”? Milton Friedman versus broad CSR. Business and Society Review, 117(1), 1–31. Web.
Tiba, S., van Rijnsoever, F., & Hekkert, M. (2018). Firms with benefits: A systematic review of responsible entrepreneurship and corporate social responsibility literature. Corporate Social Responsibility and Environmental Management, 26(2), 265–284. Web.
Żelazna, A., Bojar, M., & Bojar, E. (2020). Corporate social responsibility towards the environment in Lublin Region, Poland: A comparative study of 2009 and 2019. Sustainability, 12(11), 4463. Web.