Corporate_Social_Responsibility_Volkswagen_Scandal_A._C._Ping

March 10, 2017

A. C. Ping, Colin Brain Governance Fellow at Queensland University of Technology (QUT), Australia, received the 2002 Coral Sea Scholarship from the Fulbright Foundation to study corporate social responsibility trends. In this article he explores corporate social responsibility in the light of the 2015 Volkswagen scandal and asks why consumers can so quickly forgive a corporate breach of trust.


In September 2015 the Environmental Protection Authority (EPA) in the United States found that many Volkswagen (VW) diesel cars had a defeat device embedded in their engine software that allowed the cars to “know” when they were being emission tested (Hotten, 2015). The software then changed the engine mapping of the car and effectively detuned it so it produced less emissions. It should be noted that the device didn’t make a small change – in real-world testing the cars emitted nitrogen oxide emissions up top 40 times over what is allowed in the United States. The German carmaker eventually admitted to cheating on the emissions tests and has since disclosed that approximately 11 million cars worldwide are fitted with the device. This admission amounts to fraud on a global scale.

Reactions to the scandal from VW have been blunt (Hotten, 2015). “We’ve totally screwed up,” said VW America boss Michael Horn, while Martin Winterkorn, the group’s chief executive at the time, resigned and said VW had “broken the trust of our customers and the public”. The new chief executive, Matthias Mueller, the former boss of Porsche, instigated an internal inquiry and said, “My most urgent task is to win back trust for the Volkswagen Group – by leaving no stone unturned.”

“Why are consumers so indifferent to having their trust so comprehensively broken?”

One might reasonably imagine that such a catastrophic breach of trust by a corporation would result in its demise, but the result has been far from it. Initially, the reaction of the share market was to knock almost 30% off the value of the company, approximately €15 billion, in one day, cutting the share price from around €160 to the low €120s and then to continue to fall until it reached a low of just over €90 down from a 52-week high of about €250. Sales also took a big hit falling by approximately 10%; however, surprisingly within one year, worldwide sales showed an increase and by the end of 2016 VW was crowned (Schmitt, 2017) the world’s largest automaker with sales of 10.3 million cars. The share price has rebounded to be in the €140–150 range. How did this happen, and why are consumers so indifferent to having their trust so comprehensively broken?

One answer may lie in the emotive responses consumers have to brands. For years, prior to 2015, VW positioned its cars using the “clean diesel” tag through a high-profile marketing campaign that included Super Bowl ads, online social media campaigns, and print advertising, targeting “environmentally-conscious” consumers. In its 2014 Annual report VW stated its intentions, “Our pursuit of innovation and perfection and our responsible approach will help to make us the world’s leading automaker by 2018 – both economically and ecologically” (Volkswagen, 2014).

New research into the limitations of reason (Kolbert, 2017) indicate that once impressions have been formed they are remarkably resilient to change. Factors in play include confirmation bias which causes people to ignore information that doesn’t support decisions already made and flawed justifications that allow people to hold views that conflict with their own values without having internal conflict. Neutralisation theory (Sykes & Matza, 1957) was proposed over half a century ago to explain the anti-social behaviour of delinquents. At the time, existing theories proposed that delinquents held anti-social values but Sykes and Matza’s research showed that they held the same values as mainstream society but used a series of flawed justifications to validate their behaviour. These justifications included: it’s not hurting anyone; I’m just following orders; they deserve it; it’s a stupid rule anyway; or, a call to higher purpose. Neutralisation theory has more recently been applied to the field of business by Heath (2008) to explain why the corporate environment presents such opportunities for “good” people to do bad things. To the five justifications proposed by Sykes and Matza, Heath added two more – everyone else is doing it; and, a claim to entitlement.

These two theories have been neatly applied in the case of the VW “dieselgate” scandal. Firstly, environmentally conscious consumers have been seduced by the notion of “clean diesel” and the positioning by VW as an ecological leader. The factual revelations that this has not been the case, have failed to provoke an angry backlash from a majority of consumers.

Secondly, much of the background chatter has focussed on the fact that the tests don’t work anyway – implying “it’s a stupid rule anyway” and that “everyone else is doing it”. Thus, providing environmentally conscious consumers with a (flawed) justification for the company’s actions. Thirdly, VW conveniently found scapegoats to blame. On December 10, 2015 the company released the initial findings of its internal investigation (Toor, 2015) and blamed three main factors: individual misconduct, flawed internal policies, and a “mindset” in some parts of the company that tolerated cheating. A relatively small group of engineers were blamed for acting irresponsibly.

“Have we entered an age of indifference where corporations can get away with socially irresponsible behaviour by utilising clever market positioning and defensive justifications?”

The result of these three things has been the quick recovery of the VW share price and sales results, with a shift in emphasis of the company from diesel to electric cars. Despite ongoing investigations by regulators, and the admission by VW (Wissenbach & Cremer, 2017) that more employees will need to be disciplined, consumers have seemingly justified the gross breach of trust with a series of flawed justifications and have chosen instead to hold onto their initial view of VW as an ecological leader. This view has been supported by the release, in November 2016, by VW of a new and ambitious strategic direction entitled “Transform 2025+” (Volkswagen, 2016). In launching “Transform 2025+”, Brand CEO Dr Herbert Diess stated “By 2025, we want to sell a million electric cars per year and to be the world market leader in e-mobility. Our future electric cars will be the new trademark of Volkswagen.”

So, have we entered an age of indifference where corporations can get away with socially irresponsible behaviour by utilising clever market positioning and defensive justifications?

Image | portal gda, Flickr

References

Heath, J. (2008). Business Ethics and Moral Motivation: A Criminological Perspective. Journal of Business Ethics, 83(4), 595-614. doi:10.1007/s10551-007-9641-8

Hotten, R. (2015, December 10). Volkswagen: The scandal explained, BBC News. Retrieved from www.bbc.com/news/business-34324772

Kolbert, E. (2017, February 27). Why Facts Don’t Change Our Minds, The New Yorker. Retrieved from www.newyorker.com/magazine/2017/02/27/why-facts-dont-change-our-minds

Schmitt, B. (2017, January 30). It’s Official: Volkswagen Is World’s Largest Automaker In 2016. Or Maybe Toyota., Forbes. Retrieved from www.forbes.com/sites/bertelschmitt/2017/01/30/its-official-volkswagen-worlds-largest-automaker-2016-or-maybe-toyota/#4358b2ce76b0

Sykes, G., & Matza, D. (1957). Techniques of Neutralization: A Theory of Delinquency. American Sociological Review, 22(6), 664-670.

Toor, A. (2015, December 10). Volkswagen blames emissions scandal on a “mindset” that tolerated cheating, The Verge. Retrieved from www.theverge.com/2015/12/10/9884256/volkswagen-emissions-scandal-investigation-results

Volkswagen. (2014). Volkswagen Aktiengesellschaft – 2014 Annual Report. Retrieved from annualreport2014.volkswagenag.com/strategy.html

Volkswagen. (2016, November 22). TRANSFORM 2025+ Volkswagen presents its strategy for the next decade. Retrieved from www.volkswagen-media-services.com/en/detailpage/-/detail/TRANSFORM-2025-Volkswagen-presents-its-strategy-for-the-next-decade/view/4257735/7a5bbec13158edd433c6630f5ac445da

Wissenbach, I., & Cremer, A. (2017, March 7). VW expects to discipline more employees in emissions scandal, Automotive News Europe. Retrieved from europe.autonews.com/article/20170307/ANE/170309837/vw-chairman-expects-to-sanction-more-employees-in-emissions-scandal

A. C. Ping

About A. C. Ping

A. C. Ping is the Colin Brain Governance Fellow at Queensland University of Technology (QUT) and was previously awarded the 2002 Coral Sea Scholarship from the Fulbright Foundation to study corporate social responsibility trends in the United States. He has worked as a corporate consultant, trainer and executive coach in Australia, the United States, the United Kingdom and Africa, and is the author of eight books including a trilogy of personal development books that are sold around the world and have been translated into 11 different languages as well as numerous magazine and newspaper articles. His current research draws on the inter-disciplinary fields of moral philosophy, criminology, social psychology and neuro-cognitive science to address the question "why do good people do bad things?"

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