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Volkswagen Assignment

Volkswagen engaged in corporate governance failure by installing software to manipulate emissions levels during testing of its diesel vehicles. The Environmental Protection Agency accused Volkswagen of illegally installing software that turned on full emissions controls only during testing, allowing higher emissions during normal operation. This showed Volkswagen's corporate structure did not exercise proper controls to ensure management acted in shareholders' interests. The scandal damaged Volkswagen's environmental reputation, profits, and credibility. Shareholders could have helped prevent damages by being more active in using their voting powers within the company.

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Vishal Malhi
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396 views

Volkswagen Assignment

Volkswagen engaged in corporate governance failure by installing software to manipulate emissions levels during testing of its diesel vehicles. The Environmental Protection Agency accused Volkswagen of illegally installing software that turned on full emissions controls only during testing, allowing higher emissions during normal operation. This showed Volkswagen's corporate structure did not exercise proper controls to ensure management acted in shareholders' interests. The scandal damaged Volkswagen's environmental reputation, profits, and credibility. Shareholders could have helped prevent damages by being more active in using their voting powers within the company.

Uploaded by

Vishal Malhi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Vishal 14951

Managerial Policy (2501) by: Sir Shahid Zaki

Corporate Governance failure at Volkswagen

Corporate governance refers to rules, processes, and practices that are enforced to direct and
control a company or organization. It should take care of the interests of all stakeholders, namely
shareholders, employees, community, regulatory authority, suppliers, government and all with
interests in the organization.
Corporate failure of an organization refers to its inability to conform to its set standards of
expectations and plans, financial obligations, as well as ethical expectations and targets set.
On September 18, 2015, The Environmental Protection Agency (EPA) of US gave an
announcement accusing Volkswagen of illegally installing a software in its diesel engine cars
whose role was to manipulate the level of emissions during engine emission testing. In this case
Volkswagen used the software to turn on the full emissions control systems for the vehicle only
during testing for emissions. During other times, the vehicles were operating, with emissions
control system turned off hence no pollution control. The software was programmed such that it
would turn on the emissions control systems only when the car was running in a stationary
position since that would be the condition when the car was being tested for emissions by
regulators.
It is clear that, Volkswagen scandal is the corporate governance failure, because it mainly
provides the evidence related to the fact that corporate structure of the company does not
exercise appropriate control system for the purpose of ensuring that management of the company
ensures interest of the shareholders. The system related check and balance is not appropriate and
because this interest of the management prevailed over the interest of the shareholders. The other
issue related to the corporate governance in the present case is stand on the part of shareholders
of the company exercise ultimately control over the management of the company through the
voting power they held in the general meeting of the company. In this company shareholders of
the company are the one who have been damaged with the most by this scandal.
The most important changes which raise concerns of the company is its damage occurred to the
environmental reputation to the company and cause huge loss to the company’s profitability. All
these consequences reduce the Volkswagen credibility, and this also cause huge impact on the
future business. Additionally, there are number of observers who believe that it is possible that
Volkswagen is under pressure to sell one of its divisions or increase its share capital.
Shareholders of the company can these damages by becoming little more active and by using
their voting power in the company.

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