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

Oil

While in New York recently, we took in Edward Burtynsky’s latest exhibition, ‘Oil’, at the Hasted Hunt Kreutler Gallery in Chelsea. It’s an impressive collection, put together over more than a decade, and tracing the value chain of oil from extraction to use, and disposal.

Some of the shots are simply stunning, more akin to abstract art than photojournalism. From Australian mines to Azerbaijani wells, and Shanghai car factories to LA freeways the overwhelming scale and embeddedness of oil as a feature of the contemporary global landscape is thrown right in our faces. Burtynsky’s large format pictures are simultaneously shocking and beautiful, prompting for us a strong, but somewhat ambiguous response. Yes, this addiction to oil has got out of hand; yes, our thirst for oil has ravaged the environment; but, wow, isn’t this pinnacle of modernity also in some ways just downright amazing?

Now for those of us interested in issues of corporate responsibility such ambiguity is nothing new. Balancing the good with the bad, the value creation for some with the value destruction for others, is what much of what our field is all about. But Burtynsky takes this a little further. By seeking to absorb us in the global experience of oil, by joining up the dots in ways that make us want to learn more about what we’re looking at, what we are … yes, enjoying, he draws into the debate not just business ethics nerds like Crane and Matten, but also people that might like a good picture but who might never otherwise give much of a second thought to the ‘oil problem’.

Burtynsky’s exhibition, which is showing simultaneously in New York, Toronto and Washington, is also accompanied by a book, also called simply ‘Oil’. As he says in the introduction:

“In 1997 I had what I refer to as my oil epiphany. It occurred to me that the vast, human-altered landscapes that I pursued and photographed for over twenty years were only made possible by the discovery of oil and the mechanical advantage of the internal combustion engine. It was then that I began the oil project. Over the next ten years I researched and photographed the largest oil fields I could find. I went on to make images of refineries, freeway interchanges, automobile plants and the scrap industry that results from the recycling of cars. Then I began to look at the culture of oil, the motor culture, where masses of people congregate around vehicles, with vehicle events as the main attraction. These images can be seen as notations by one artist contemplating the world as it is made possible through this vital energy resource and the cumulative effects of industrial evolution.”

Growing up in Ontario as the son of a former GM worker, Burtynsky had his initiation into these cumulative effects at first hand. He has described for instance how his father’s death from cancer (and that of many of his co-workers) might be linked to PCBs in oil used in the workplace. The moral ambivalence of flying in a helicopter to take beautiful shots of the substance that likely killed his father injects an urgency into his work that makes it all the more compelling. Of course, as fellow Ontarians now, this has particular resonance for us. It’s perhaps no surprise that a Burtynsky piece hangs in the boardroom on our school … and next week the film based on his work, Manufactured Landscapes, is going to be shown in our Responsible Business Movie Night series. But Burtynsky speaks not just to his neighbours; his captivating depictions of the global culture built around oil have something for everyone. And you don’t even need to grow your carbon footprint flying to New York to see it. Click here for some large format shots at Photo District News and here for some previews from The Guardian newspaper.

Barack Obama to be a boost to CSR?

As many people have remarked, last week's election of Barack Obama to the US Presidency was a historic event. One of the questions we have been musing on though is what exactly an Obama Presidency might mean for business ethics and CSR in the future. The George Bush years are certainly finishing with a nasty bang in terms of the financial crisis and the legacy of ethical mismanagement, as we have discussed in previous blogs. That said, for better or for worse, the free market agenda endorsed by Bush has clearly provided plenty of scope for voluntary CSR initiatives ... and for a fair dose of corporate irresponsibility. So it is perhaps no coincidence that the last eight years have seen the issue of responsible business come to the fore like never before. Without regulatory oversight, business self-regulation has been the main game in town for those seeking responsible practice.

So what of the future then under Obama? Much has been made of the President-elect's commitment to climate change mitigation strategies (specifically cap-and-trade legislation). Andy Savitz, writing in Ethical Corporation recently, suggested that would be the area where he would be likely to make immediate impact:

"Climate change, one of his recurrent campaign messages, is the easiest and most dramatic way for president Obama to deliver on his promise of bi-partisanship at home and to show the rest of the world that we are back in the international relations business. The financial mess may slow it down, but we can expect to see a complete turnabout in Washington, with national cap and trade legislation and the emergence of the US as a leader in the global climate change negotiations."

But there are also many other areas where, we might see the change that Obama promises having an impact on CSR - from health care reform (where private sector responsibilities might be fundamentally reshaped), to labour conditions (where minimum requirements may be put on foreign imports), to clean technology and "green jobs" (where companies may face new incentives and disincentives to accelerate sustainability and oil independence).

So perhaps it was no surprise then that a survey conducted at last week's Business for Social Responsibility (BSR) conference reported that almost nine in ten of the survey's 400 or so respondents welcomed Obama's election as promising a positive impact on advancing CSR. But the scale of optimism was quite remarkable given the circumstances of the financial crisis. Plus, this anticipation of an Obama boost to CSR is matched by an increased expectation of business regulation. The same survey reported that an overwhelming majority (94 percent) anticipated increased government regulation of issues related to corporate responsibility, including climate change (86 percent) and corporate governance and financial transparency (83 percent).

So what's going on here? On the one hand, we see expectation of more CSR, which is typically associated with voluntary activity beyond that required by law. On the other, we're also seeing greater expectation of regulation itself - which according to many would be seen as an alternative to voluntarist CSR. Its an interesting confluence, which at some level is perhaps a reflection of an underlying conviction that the US could move towards an approach to CSR where different constellations of regulation, self-regulation, and voluntarism are developed at the industry level through multipartite initiatives. Certainly, one of the main areas that we see enthusiasm for Obama from the CSR movement is his commitment to a unifying agenda, which many see as promising a new era of collaboration between business, government, and civil society.

The first test of this will probably be in the automotive industry, where the failing "big 3" car companies are seeking financial assistance, and where Obama could potentially see millions of people lose their jobs in the first year of his presidency. At present the rhetoric is still about protecting ordinary workers and ensuring that the car industry remains both economically and environmentally sustainable within a broader agenda of reducing America's oil dependency (which for Obama appears to be more about developing renewable energy sources than military manoeuvring in the Middle East). But there are going to be tough choices to be made here, and it is uncertain yet whether the new administration will have the skill (or the time) to develop a sophisticated package that manages to simultaneously save the industry, protect jobs in the long term, AND turn the American car giants around into sustainable innovators. Whatever the outcome, it appears that we will be getting deep insight into Obama's real impacts on CSR sooner rather than later. Its going to be an interesting few months...