Tuesday, September 22, 2015

The Volkswagen diesel deception - 5 key questions

News about Volkswagen's (VW) emerging emissions test rigging scandal makes one wonder if there is ever a story in business ethics too preposterous to be true. But it certainly raises some interesting and important questions about the nature of corporate responsibility that demand some pretty quick answers.

In some ways, it is not a complicated story, and even the CEO Martin Winterkorn today admitted to the firms culpability and apologized. "We totally screwed up" the carmaker's US chief was also reported as saying. So, VW deliberately manipulated the software that manages their diesel engines so that the emission data in test mode appeared significantly lower (up to 40%) than in reality. And this is not just pretending the cars are more fuel efficient than they really are. The EPA clearly states that the substances whose level of emissions were concealed:
"penetrate deeply into sensitive parts of the lungs and can cause or worsen respiratory disease, such as emphysema and bronchitis, and can aggravate existing heart disease, leading to increased hospital admissions and premature death."
That wording alone should strike considerable fear into VW board. The company might face criminal investigations and court proceedings that might even compare the tobacco industry or the financial sector's travails. Already the company could be faced with fines up to $18bn and a massive recall with 11m cars thought to be affected.

From the perspective of corporate responsibility then the fascinating time has just started - how on earth could that happen? Here are a few questions to consider over the next few days and weeks as the scandal unfolds.

1. Embedding corporate responsibility and sustainability
Volkswagen is one of the European companies that really seemed to embrace 'Sustainability and Responsibility' from quite early on - and much ahead of many of its German rivals who relied on the social responsibilities of business being part of the traditional tightly regulated, corporatist consensus governing the national economy. How is it possible that a company committed to some of the core values of corporate responsibility could so blatantly cross the line into not only unethical but clearly illegal practice in a key area of its responsibilities? Is this just another greenwash case to fuel further cynicism about the CSR commitment of corporations?

2. Is it an industry phenomenon, or just one bad apple?
The debate about companies providing overly optimistic fuel consumption data is an old one, and a number of other companies have faced problems with overstating the frugality of their cars. VW's rigging of the tests takes the game to a whole new level, but does this mean it is an outlier or just the first one to get caught taking things too far?

3. What was VW thinking in terms of not getting caught?
It would be interesting to find out what the discussions within the company looked like when the software used to rig the tests were devised and implemented. VW must have been convinced they would not get discovered. What does this say about regulation of the auto motives industry, especially when they were eventually rumbled by a relatively unknown clean air group that was actually hoping to show that diesel cars were clean. Why did nobody within the company conceive that in a highly scrutinized industry, such as the global automotives industry, these practices would not get examined?

4. How far up the hierarchy did knowledge about these practices go?
When Amazon got into the headlines recently, Jeff Besos issued an immediate statement that he had non knowledge of the practices and did not approve of them. So how much did VW senior executives know? It is hard to imagine that this was just the work of some 'rogue engineers', but at the same time it is curious that VW has tried to protest its innocence for more than year since the falsified tests were uncovered, blaming a software malfunction - only eventually coming clean when the EPA threatened not to issue them with environmental certifications for their 2016 models. As one reporter noted, the VW CEO is a detail-oriented engineer himself: "It's difficult to imagine that a man who fixates on such minute details as the noise a steering column adjuster makes would know nothing about active manipulation of diesel emissions while he was in charge." So what does the scandal say about the corporate culture at VW and the role of its leaders in setting the ethical tone?

5. How can this happen in a quasi-public institution such as Volkswagen?
VW, from the outset, had a rather broad social mission. The company's mission has been from the outset to provide Germans with mobility. Even today, the social mission lives on: the company claims to "aspire to shape the mobility of the future – making it responsible, environmentally compatible and beneficial for everyone." It is even part-owned by the government of Lower Saxony, which still owns a controlling 12.7% share of the company. So this is not a company solely controlled by some profit maximizing hedge funds or other purely profit driven investors. The decision to try and cheat the regulators however has ended up wiping billions off the value of the company in a matter of days. So what should we conclude about whether ethics pays or not and whether social purpose can really be integrated into the corporate form? 

There are many more aspects to the story. At the end of the day, the 'green car' and VW's 'BlueDiesel' will maybe just count among the many ways car companies (and yes, the rest of us) try and disguise the fundamental ecological contradictions of our modern automotive civilization. But it will also be fascinating to watch the details of this story unearthing the kind of decision making prevailing at supposedly responsible companies. VW's original motto, 'Kraft durch Freude' or 'strength through joy', it certainly won't be though. 

Photo by John Matthies. Reproduced under Creative Commons Licence

Thursday, September 17, 2015

Exciting Case Competition with Final Round in Davos 2016

Decarbonize Norway’s sovereign wealth fund
in this year’s Business for a Better World MBA case 

Team registration is now open for the third-annual CK-Schulich Business for a Better World case competition, a partnership between Corporate Knights magazine and York University’s Schulich School of Business.

With a prize pool in 2015/2016 of $10,000, the final round of this MBA competition will see three top teams present their case analysis in front of a live panel of high-profile judges in Davos, Switzerland, coinciding with the World Economic Forum in January.

Student teams will be asked this year to decarbonize the holdings of the Norway Government Pension Fund Global, the largest sovereign fund in the world with a value of $940 billion (USD). Managed by Norges Bank Investment Management, the fund is commonly referred to as The Oil Fund because it has been built from the surpluses of Norway’s petroleum income. Teams will have four key objectives:
  • Minimize the carbon footprint of the fund;
  • Reduce risks that might strand assets;
  • Maximize returns and engagement impact with companies;
  • Position the fund to thrive in and drive a world that does not exceed an average 2-degree temperature increase.
Throughout this competition, students will have access to a tool, designed by Corporate Knights, which will help them assess the carbon profile of the fund’s holdings and allow them to watch this profile change as the holdings mix is altered.

“With our first two competitions, teams were asked to broadly improve the sustainability performance of a case subject. This year, apropos to the lead-up of the Paris climate summit in December, we’re taking a different approach targeted strictly at carbon,” says Tyler Hamilton, editor-in-chief of Corporate Knights. “The case subject will be a sovereign fund worth nearly a trillion dollars. The MBA team that can show the best returns with the lowest portfolio carbon footprint will take the top prize, and send a strong message to investors around the world.”

For more details or to register a team, visit http://www.corporateknights.com/affiliates/2016contest/

The registration deadline is October 16. Case details will be released on October 2, so teams that register early will have an advantage.

Toby Heaps, CEO, Corporate Knights, toby@corporateknights.com
Dirk Matten, Professor, Schulich School of Business, DMatten@schulich.yorku.ca
Julia Shtopel, Schulich MBA student and event organizer, julia.lev1103@gmail.com

About Corporate Knights Inc.

Founded in 2002, Corporate Knights Inc. is a Toronto-based media, research and financial products company focused on clean capitalism. Corporate Knights, the company’s quarterly magazine, was named “Magazine of the Year” in 2013 by the National Magazine Awards Foundation. It is distributed in Canada as an insert inside the Globe and Mail and in the United States inside the Washington Post. With a circulation of more than 120,000, Corporate Knights is one of the most widely read publications devoted to business and sustainability issues. Corporate Knights Inc. is proud to be a certified B Corporation. Visit: www.corporateknights.com

About the Schulich School of Business

Known as Canada’s Global Business School, the Schulich School of Business is ranked among the world’s leading business schools by a number of global surveys. Schulich’s MBA program has been ranked #1 in the world by the Aspen Institute and on the Corporate Knights Global Green MBA Ranking. In Canada, the school has been ranked #1 by Forbes, The Economist and others. The Schulich School is based out of Toronto's York University. Visit: www.schulich.yorku.ca