Corporate social responsibility as well as sustainability has recently reached an important place on the global corporate agenda. Corporations are engaged in responsible and sustainable business practices to create social and business value. In spite of this, high-profile corporate ethical scandals like that of Enron's bankruptcy in 2001, BP's Deepwater Horizon oil spill in 2010 and of late Volkswagen emission scandal in 2015, have shaken public trust in the corporations and their social accountability.
The recent emission scandal of Volkswagen Group has not only shocked the corporate world but also weakened the very basis of public trust. The German carmaker, the largest in Europe, resorted to installing in their diesel cars "defeat device", a software that changes the performance of the engine to improve result while in test to pass stringent US emission test making them appear cleaner than they actually are. When the cars operate in laboratory conditions the device puts the vehicles into a safety mode thereby allowing the engines to run below normal power and performance thus emitting nitrogen oxide within the acceptable range. But on the road, the cars emit nitrogen oxide much more than the allowable limit.
In September, 2015 The US Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to German automaker Volkswagen Group after it was found that Volkswagen had intentionally programmed Turbocharged Direct Injection (TDI) in diesel engines to activate certain emission control only during laboratory test. The programming caused the vehicles nitrogen oxide output to meet US standard during regulatory testing but emit up to forty times more nitrogen oxide in real world driving.
Meanwhile, Volkswagen already marketed 11 million diesel cars worldwide including 482 thousand (four lakh eighty two thousand) in the US. The company could face a bill as high as 35 billion Euros or US$ 38 billion for fines, lawsuits and vehicles refit.
Martin Winterkorn, the former CEO of Volkswagen Group, accepted responsibility and resigned but denied any wrong-doing on his part. He denied having any knowledge of the emission cheating. However, the emission scandal has raised some questions about the Volkswagen group dealing with the issue.
The first is why did Volkswagen Group resort to such unethical and illegal practice? Why did the engineers do this? Were they compelled to do so or they themselves invented and implemented all the manipulations? If they were following orders, knowing the purpose of the tricks, why did they not refuse to comply with such orders? Why didn't someone report to higher management about it? How could it be kept a secret for a long time even after selling so many manipulated cars worldwide?
Volkswagen Group owned 70 per cent of the US passenger car diesel market. But they were facing stiff competition to sustain their position in the backdrop of stringent US law.
At a German auto show in 2012, Winterkorn declared that Volkswagen wanted to reduce carbon dioxide emission by 30 per cent by 2015. But the engineers did not have the guts to tell him that this would be difficult to achieve. Winterkorn was a demanding boss who disliked failure. In Volkswagen group, Winterkorn had a demon-like image who used to put unusual pressure on the managers to meet targets which were difficult to achieve. One of the corporate motto of Volkswagen Group was 'Top Performance' - " to survive in the face of competition and to achieve top performance, Volkswagen Group needs employees who enthusiastically give their best. A good balance between demands and ability is the basic precondition for optimum performance and results."
In fact, Volkswagen group pursued a management style under Winterkorn that fostered a climate of fear, an authoritarianism that went unchecked partly due to a company structure unique in the German motor industry. A former Volkswagen executive said, " ... there was always a distance, a fear and a respect. . . if he would come and visit or you go to him, your pulse would go up. If you presented bad news, those were the moments that could become quite unpleasant and loud and quite demeaning."
The motto of Volkswagen Group "to survive we need people who enthusiastically give their best" and a management team brought up to "lead, demand and promote" combined with a culture of fear which does not encourage to speak freely, indicates why someone could resort to cheating.
Unfortunately, this isn't a lone case. Many CEOs run their business on fear, unwittingly damaging their companies from within, and running the risk of havoc like that experienced by Volkswagen.
The professional world is regularly tainted with anxiety from workers experiencing the fear of losing their jobs, being criticised, rejected, excluded and left behind. Nowadays, fear is one of the most powerful emotions in our work culture.
In a performance culture it is very easy to hold individual accountable for meeting specific performance targets. A corporate culture that solely focuses on those metrics as pursued by the Volkswagen Group forces people to put performance metrics first, leaving aside basic human concerns. Such a workplace is unsafe to most people. As a way of self-preservation employees will not be comfortable to speak up or to refuse to follow orders that could result in any unwanted situation. This is a toxic cultural recipe at high risk of promoting fraud and cheating.
The effects of such corporate crises are profound and lasting. Volkswagen's market value dropped by 23 per cent in September, 2015. Sales declined almost 25 per cent in the US in November, 2015. The scandal will cost the company a huge expense. However, much more difficult to estimate are the invisible and long term damages to the company such as the negative impact on brand trust and reputation, customer satisfaction, employee morale and loyalty and investors' confidence. Trust, once lost, is notoriously hard to gain.
Organisations that rely on fear in the mistaken belief that it is stimulating to employees, pursue a path which is counter-productive. They weaken the morale of employees and the structure of companies, they leave people feeling threatened and vulnerable. Fear does not motivate rather it paralyses leaving employees distracted and stressed forever or looking for ways to woo the boss at any cost and thus suffering from various psychological and physical problems. Simply put, frightened employees don't produce good work and this has the potential to cost organizations, as in the case of Volkswagen, both time and money.
Volkswagen gives us a stark lesson as to how a large company can be brought down because of whims of individuals. The future corporate leaders can take a lesson from Volkswagen scandal.
The writer is a bank professional.
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