The Volkswagen Emissions Scandal

Question: Discuss about the The Volkswagen Emissions Scandal . Answer: Introduction: Compliance Management System (CMS) defines the structure that is followed in the corporation to deal with the business related risks. The management team of the organization focuses on including ethical norms for managing the compliance system effectively. Active participation of stakeholders assists in facilitating the compliance process of the firm. The involvement of Compliance Management System (CMS) assists the corporation to make the employees aware of their compliance responsibilities (Denis, 2015). It focuses on fulfilling all the requirements in order to facilitate the business outcome. CMS assists to reduce the risk related to the launch of new products in the firm. The compliance system also considers the enactment of new legislations for progressing the business operation in current market scenario. CMS comprises of three elements such as compliance program, oversight of board and management and compliance audit and strong connection between these elements enables the ent erprise to facilitate the business operation (Crane Matten, 2016). Volkswagen, a renowned conglomerate has also considered the compliance system for managing the performance of the employees in the office ambiance. The inclusion of compliance audit is effective for including laws regarding the protection of consumers. It benefits the firm to facilitate the internal business function for dissolving the risks faced by them in the business operation (Volkswagenag.com, 2017). The managers of Volkswagen have considered some compliance behavior that is beneficial for achieving success in the business outcome. Despite the presence of compliance process, the corporation has faced certain issues regarding in controlling the mission of chemical that affects the ecological balance. The aim of the paper is to address the reasons behind the failure of compliance managers of Volkswagen to deal with the problem. Issues faced in the scandal is discussed in this context. Background of the company: Volkswagen is founded by labor front of German in the year of 1937. The company has its head office in Wolfsburg , and it is considered as one of the leading conglomerates in the world. The automobile industry of German is renowned for manufacturing luxurious and commercial vehicles (Oxford Law Faculty, 2016). However, the economic condition of the common people was not stable, and they could hardly purchase any motorcycle as a vehicle in the ancient time. Therefore, the managers of Volkswagen has introduced peoples car projects for drawing the interest of layman living in the country. The designers of Volkswagen launched small car named Volksauto which is suitable for drawing the interest of middle car service users. The car manufacturing firm has started flourishing its business from the year of 1948. Volkswagen introduced Type 2 commercial vehicles and different sports cars called Karmann Ghia that influences their business operation effectively. The company has also expanded their business function in the United States in the year of 1955. The manufacturing of Type 1 of Volkswagen Beetle has enhanced up to 1 million due to the exploration of the business function in the year of 1955. Type 3 models of Volkswagen have included cars like Karmann Ghia or fastback, and these models have been launched in the year of 1961 (Volkswagenag.com, 2017). The incorporation of monocoque construction, automatic transmission or fuel injection makes the cars of type 4 model attractive and notable. Volkswagen introduces Super beetle cars in the year of 1971, and it offers space for carrying front luggage. The car manufacturing firm has also introduced models like Type 181 or 266 during the time period of 1961-1973. The expansion of Volkswagens product line assists in launching cars like Volkswagen Golf, Caddy or Volkswagen Jetta in the time of 1980s. The company has introduced Golf MK3, Concept One, Scirocco and other fuel efficient cars in the time period of 1991-1999. The arrival of new CEO in Volkswagen group has assisted in introducing a wide range of new models in the market. Car models like Volkswagen Routan and Atlas have been launched by Volkswagen in recent time (Volkswagenag.com, 2017). There are 120 production plants of Volkswagen in twenty countries all around the world. Volkswagen has 600,000 staffs in different plants, and the active participation of the employees enables the firm to enhance the quality of car products. Volkswagen groups offer development programs for enhancing the growth of employees working in various plants. The research and development sector of the conglomerate uses sustainable technology for offering eco-friendly cars to the customers. The involvement of innovative ideas is effective for availing high-quality technical equipment in order to improve the functioning of the car products. Sustainable development supports Volkswagen to manage their resources without polluting the environment (Ihlen, 2014). The CSR activities of the corporation assists to keep a balance between ecosystem and business process. The accumulation of modern engines aids the conglomerate to progress their profit and sales ratio. Therefore, revenue sales of Volkswagen have increased by 14% in the year of 2016. The share market value of Volkswagen is increased up to 146.85 euro in a recent financial year. Reasons behind the failure of compliance management of Volkswagen: The structure of the compliance management system of Volkswagen: The compliance management system of Volkswagen assists the firm to manage fair trade with business partners. The company makes certain business commitments which are beneficial for accomplishing the internal requirements. The compliance system helps Volkswagen to deal with the corruption that affects the business operation. The higher management level of the conglomerate considers the compliance activities to achieve sustainability in the business function (Sadgrove, 2016). The managers of Volkswagen endeavor to make the staffs knowledgeable about the compliance process in order to take proper service from them. The implementation of compliance program enables the company to deal with the illegal activities in the business operation. The compliance management system of Volkswagen possesses certain distinct features which are effective for managing the business risks faced by the corporation. The adaptation of the preventive approach of compliance supports the firm to facilitate the participation of the workers in the work area (Volkswagenag.com, 2017). The corporate culture of Volkswagen is beneficial for increasing the involvement of the employees in the office ambiance. Regular monitoring of the compliance system assists in resisting unscrupulous activities in the organization (Weiss, 2014). Volkswagen follows an integrated approach to risk management that enables the corporation to prevent the risks faced in the business function. There are certain business principles that are followed by the firm to manage the internal business function effectively. The development of the internal function enables Volkswagen to offer high-quality vehicles to the services users existing in the global market. The inclusion of l uxurious transports assists the corporation to enhance their sales operation ion recent time (Volkswagenag.com, 2017). Partnership working has also enabled the conglomerate to offer high-quality cars to the customers. Despite the availability of high-quality compliance process, Volkswagen faces emission related issues in recent time. It creates a negative impact on the business operation of the corporation. The emission scandal confronted by Volkswagen has also affected their joint work with other firms. The analysis of eminent scholars helps in addressing the fact that Volkswagens cars create additional pollution that affects the environment. It increases the ratio of respiratory-connected illness among the children and the young population living in the society (Hopkin, 2017). The reason behind the illegal activities of Volkswagen is unclear, and it has affected their business operation drastically. However, the company has blamed some engineers for the emission scandal faced by them. The technical theory of rouge can be mentioned in this context. The theory assists in identifying the technical work of the engineers that are effective for improving the quality of service provided in the enterprise (Ferrell, 2015). The roles and responsibilities of the engineers have also been mentioned in this theory. The engineers need to make technical reports for addressing the development of the business operation. The knowledge of senior management regarding the functioning of the vehicles mig ht have supported in controlling the emission of chemical products that influences the environment in an adverse manner. The warning signs would have assisted in reducing the chances of emission by the cars. The theory of management inaction can be mentioned in this context. It assists in addressing the failure of management in case of improving the business function (Oxford Law Faculty, 2016). Despite the confusion regarding the actual reason behind emission scandal made by Volkswagen, it is observed that the idea of cost saving leads the managers of Volkswagen to avail unscrupulous ways to pass the EPAs tests. It is noticed that the competitive firms of Volkswagen such as BMW or Mercedes include expensive technology for clearing diesel (Dawson, 2014). VW should have made a license for using the technology from rival firms in order to reduce the consumption of fuel by $4.8 bn in recent time. The presence of efficient risk management process makes the corporation assume that they would be able to overcome the difficulties faced due to their illegal business operation. The presence of the compliance management system supports in managing the internal business operation (Cavico Mujtaba, 2016). However, compliance process of Volkswagen has failed in controlling the emission of gasses that affects the ecological balance. Several issues have been confronted by Volkswagen due to the presence of emission scandal. These issues reduce Volkswagens scope of expanding business and sales operation. Analysis of the issues related to emission scandal faced by Volkswagen: Volkswagen manufactures its diesel cars in a specific manner for escaping the emission test successfully. The method followed by the conglomerate for deceiving the test has shocked the nation. Volkswagen avails advent technology for cleansing the emission of Nitrous Oxide sets trade-off against the economy of fuel and business performance. The engineers of Volkswagen decide to include two distinct modes of driving in the software system of the car (Grimm, Hofstetter, Sarkis, 2016). One mode is considered as the best behavior, and it supports in fulfilling the requirements related to the emission of Nitrous Oxide. Another mode is effective for dealing with other situations confronted by the enterprise. The implementation of the smart system enables these cars to achieve the demands of the test done by Environmental Protection Agency (EPA). It assists Volkswagens cars to behave properly during the time of the test. The recent scenario has supported in understanding the fact that thes e cars release a large quantity of Nitrous Oxide in normal situations (Oxford Law Faculty, 2016). The ratio of emission is 40 times higher than the test situations. The process has also been accepted by other car manufacturing companies to pass the EPA test without facing any trouble. It leads to effect the function of around 11 million vehicles existing in the global market. On other hands, the emission of nitrous oxide and other chemicals creates a negative impact on the health status of the people living in society (Hirsch King, 2016). The company faces legal issues that affect their reputation and business function. The reputational losses affect the progress of the business operation in future time (Lee Vachon, 2016). For instance, ill reputation in front of the customers has led to reducing the ratio of sales margin in recent time. It also creates a negative impact on the partnership working done by the firm for offering high standards luxurious vehicles to the clients existing in the market. The compliance management system of Volkswagen has failed in arranging investigation program to identify the reasons behind the emission scandal (Baitz, 2015). The stock price of Volkswagen has also reduced by 40% in the time of pre-scandal situation. The company has faced market losses by $ 18 billion due to the emission scandal that creates a strong position on their current market position. Volkswagen confronts legal cases filed by rival firms and suppliers due to the illegal activities are done by them. Recruitment of law official in case of internal investigation of the emission scandal faced by the firm in current scenario (Goel, 2015). The higher authority of Volkswagen introduces legal agreement for dissolving the legal disputes with the authorities of US. The managers of the conglomerate also accept the idea of offering additional compensation for dissolving the disputes faced by them. However, the inclusion of legal agreement is effective for dissolving the civil litigation confronted by the United States. Different liability issues are visible in the legal agreement made by Volkswagen to deal with the opponents parties. Volkswagen has spent almost 7.0 billion for handling the legal disputes, and it influences their business operation in an adverse manner (Rhodes, 2016). The car manufacturing firm has also spent $ 1.2 billion in order to deal with the contingent liabilities. The inclusion of product recall system enables the firm to replace the affected engines with fresh items. Volkswagen faces certain legal risks that affect their reputation and business operation immensely. The positional loss influences the business process and sales function of the organization (Siano, Vollero, Conte, Amabile, 2017). It reduces the interest of other firms to deal with this firm due to the illegal issues confronted by them. For example, Volkswagens emission scandal affects the relation with rival corporations such as Toyota or Audi. The company also faces problems to gather capital for exploring the business function in the proper direction. The business partners of Volkswagen endeavors to understand whether the reputational harms confronted by Volkswagen also affects their business function. In the case of the visibility of harm caused to the third party, the enterprise fails to make any movement in the stock price rather than the legal liability that is expected (Brand, 2016). The cheating done by Volkswagen for clearing the emission test has increased the risks that can be faced in the business function. The decision of cheating has been taken by the management for reducing the operational cost up to $5 bn. The higher management level of Volkswagen expects to avoid the risk of getting exposed to the illegal activities performed by them. The managers of the firm bring allegation against the engineers for making illegal software in order to clear the emission test (Oldenkamp, van Zelm, Huijbregts, 2016). However, it is evident that the engineers of the firm might not be able to be involved in this activities in the abs ence of the support provided by the managers of Volkswagen. It triggers the importance of corporate governance in the emission scandal case confronted by the conglomerate. Reasons behind the failure of the compliance process followed in the company: The managers of risk-averse in Volkswagen fails to introduce internal investigation during the time of emission cheating. The involvement of high ratio of incentive scheme creates problems leads the managers to take effective decision for exploring the business operation in recent time (Barrett, et al., 2015). Here, high incentive schemes support in addressing the performance connected payments that are offered to the employees of an enterprise. The criteria of performance are related to the price of the stock market share. The case of Volkswagens emission scandal assists in understanding the fact that the presence of high powered of incentives is connected with the compliance challenges that are faced by the corporation. Despite the absence of shareholder value, the two-tier structure of board assists Volkswagen to manage their business operation successfully (Burki, 2015). The CEO of VW works on introducing pay packages for drawing the interest of employees in the office ambiance. Active participation of the staffs is effective for enhancing the ratio of productivity that influences the profit scale. Availability of wide range of products enables the firm to satisfy the changing requirements of service users existing in the market. However, the inclusion of performance awards has encouraged the employees to take various steps for retaining the growth of the business (Volkswagenag.com, 2017). The analysis of the corporate governance is beneficial understanding the difference between the cost of agency and externalities. Corporate governance lines the system that is observed for controlling the business performance of an organization. It defines the rules and regulations considered by the corporation to manage all the stakeholders and shareholders efficiently. The description of the corporate governance supports in addressing the concept of agency cost. The example of agency cost is the interest conflicts raised between managers and different shareholders existing in the corporation (Oxford Law Faculty, 2016). On the other hand, damages caused by the corporation to external things or environment can be considered as an externality. The structure of the corporation creates an impact on the agency cost and externality. For example, the two-tier structure of Volkswagen is effective for reducing the troubles between managers and shareholders. However, the structure followed in the enterprise is not beneficial for managing the problems faced in the externality (Crane Matten, 2016). The corporate endeavors to achieve business growth and pollute the environment in the process of doing the business expansion. In the case of Volkswagen, it is noticed that the managers have lacked in the perfect implementation n of the corporate governance in the c urrent business scenario. The incorporation of corporate governance is beneficial for enhancing the function of risk management system for retaining the growth of business operation. The inclusion of corporate governance is useful for fulfilling the interest of shareholders and stakeholders who are involved in the business function (Ferrell Fraedrich, 2015). The board of directors is considered as direct stakeholders who play a vital role in managing the corporate governance. The shareholders recruit these board of directors and members for taking an effective decision in the recent business situation. The engagement of bad governance can create problems for the business firm in case of achieving trust and loyalty of the shareholders and stakeholders. In the case of Volkswagen, it is noticed that the support of unscrupulous activities increases the scope of emission scandal confronted by the organization. The enterprise has faced issues in recruiting efficient auditors for managing the financial situations that have affected their business situation (Barrett, et al., 2015). The issues of corporate governance have affected the expansion of business operation considered by Volkswagen. The execution of negative compensation package creates a hindrance for managing optimal incentives in case of corporate officers. The management inaction theory is applicable for analyzing the emission scandal faced by Volkswagen in recent time (Dawson, Searle, Paterson, 2014). Lack of the involvement of corporate governance affects the compliance management system considered by the corporation. Failure in the compliance process leads the firm to confront the emission scandal that affects their business operation. Conclusion: In the present situation, it can be concluded that compliance management system plays a significant role in managing the business function of the corporation. The function of corporate governance assists in managing the compliance process that is observed by the enterprise. Corporate governance covers the issues that are related to the corporate social responsibility. Therefore, the engagement of corporate governance is beneficial for marinating the balance between business operation and environmental process. It also assists in incorporating the ethical issues that should be followed by the enterprise. In the recent case scenario of Volkswagen, it is noticed that the involvement of bad governance influences the managers to take illegal steps for dealing with the emission test. The engagement of poorly structured board creates a negative impact on the business function of the corporation. The shareholders also face issues in excluding unworthy incumbents who affect the progress of th e business operation. The presence of bad corporate of governance leads the officers to include compensation packages for resolving the emission issues faced in the current scenario. Their failure of introducing optimal incentive has created more troubles after the emission scandal. Despite the presence of compliance management system, the company has faced legal issues regarding the emission of Nitrous Oxide that creates a negative impact on the environment. The emission scandal has created a strong impact on the sales function of the corporation. It has also affected the joint ventures made by Volkswagen with other car manufacturing companies existing in the global market. The managers of Volkswagen also fails to retain the trust and loyalty of their staffs that influences their expansion of business immensely. The illegal activities of Volkswagen have also created an impact on their market reputation. These reputational losses have reduced the chances of business exploration by Volkswagen. It also affects the revenue sale of the firm that affects their business operation. The involvement of management inaction theory has also facilitated the chances of illegal activities performed by the corporation. The current study assists in addressing the issues of Volkswagen that affects their business function. Certain recommendations have also been provided to dissolve the issues of the firm. Recommendation: The involvement of good process of corporate governance might have been beneficial for managing the business operation of Volkswagen. It enables the corporation to follow the rules and regulations to manage the business operation effectively. The engagement of corporate governance is beneficial for maintaining heath professional relation among the shareholders and stakeholders existing in the office ambiance. The incorporation of the high level of corporate governance might enable the firm to offer high profit to the shareholders. The availability of corporate governance supports the shareholders to incorporate several principles regarding corporate citizenship. The involvement of the environmental awareness programs would also be beneficial for retaining the environment effectively. The engagement of ethical issues is also effective for managing the business function without violating the business norms and conditions. The involvement of the corporate governance would also be effect ive for modifying the business structure followed in then enterprise. It would assist the managers of Volkswagen to develop the internal business process in order to dissolve the business related problems confronted by them. Corporate governance also aids the corporation to improve the compliance management process considered by the firm. The inclusion of effective compliance process would support the enterprise to improve the business function. It would support the higher authority to derive proper service from the employees existing in the corporation. The improvement of the compliance process is effective for addressing the business risks that influences the business expansion in an adverse manner. Therefore, the company should focus on facilitating the risk management system for presenting the scandals confronted in recent time. The high-quality compliance management system would be beneficial for dealing with the external obligations confronted by the corporation. The inclusion of effective training sessions would also be beneficial for making the staffs aware of the ethical rules and regulations that should be followed by them in the office ambiance. 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