Executive device to make their cars look better

Executive Summary

This
report will look into the background information about Volkswagen (VW) and
their scandal that happened in 2015. It will consider the characteristics of
Martin Winterkorn and VW company as a whole. 

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Introduction

This
report is being written to help the board of directors to recover lost
confidence of the shareholders. This report should help the board of directors
to come up with a way to reassure the shareholders that they are doing
everything they can to reduce financial costs. The report will be talking about
the 2015 VW scandal where they were using an emissions cheat device to make
their cars look better on their emission tests. Now the company’s shares have
decreased by 6 billion because of the scandal.

Martin
Winterkorn was the CEO of the VW group and he urged people not to overburden the
car company industries with excessive emission targets states Forbes (2018).

Volkswagen
(2017) states that their first car that was sold in the UK dates to 1952, which
was when their first two beetles were sold. They centralised their operations
in 1978 and they moved into their headquarters in Milton Keynes. Today VW are
one of the largest importers of vehicles in the UK who employ nearly 600 people
nationwide. After Martin Winterkorn became CEO in 2007, he wanted to make some
big changes and make VW the world’s biggest carmaker.

Hotten
(2015) explains what happened with the VW scandal, his states that VW were
accused of installing a piece of software which people are calling the defeat
device. They were installed into diesel engines so that the car could detect
when the emissions were being tested, this device would then change the
performance of the car to improve the results when being tested. VW had a push
to sell diesel cars in the US and they had a marketing campaign which spread
news about their cars having ‘low emissions’. The Environmental Protection
Agency found about 482,000 cars in the US which had the cheat device installed,
but VW admitted to eleven million cars have been affected by the cheat device,
which eight million of them were in Europe alone.

McGee
(2017) explains what happened each year from when VW’s scandal got exposed, in March
2014 an organisation discovers that VW’s diesel cars in the US emit higher
levels of harmful nitrogen oxide (NOx) on the road than when in emission tests.
In September 2015 was when US Environmental Protection Agency revealed VW was
using illegal software in their diesel cars. Also in 2015 the CEO Martin
Winterkorn resigns and claims he is not aware of any wrongdoing. Then in April
2016, VW wrote a report that claims they were having the largest annual loss in
their history because of the accusations of the cheat device in their diesel
cars.

Johnston
(2016) states that the increased sum for VW to pay out, includes the cost of
fixing the cars, buying back the cars and legal costs. The German carmakers had
agreed to recall 630,000 of the cars affected to ‘tweak’ the engine software.

McGee
(2017) continued to state that in June 2016, VW then agreed to pay up to around
$15.3 billion in the US civil settlement, they offered to buy back peoples
diesel cars that were affected by the scandal and offered to fix the cars that
were affected. Ewing (2016) states that VW bought back or fixed nearly 500,00
diesel cars that were affected, and a research firm estimated that the cost of
buying back all the cars in the US alone would have cost around $7 billion. VW
originally only set aside $7.6 billion to cover the global costs from the
scandal, which in fact it has cost more than double that amount. VW actually
faced a maximum government fine of $18 billion in the US. The judge on the case
stated that the owners would receive substantial compensation. 

Brignall
(2017) states that more than half of the cars that VW recalled to be fixed,
they have been experiencing poor performance and bad fuel consumption. Around
53% have said that they have experienced the reduced fuel efficiency and more
than 40% have experienced reduced power and acceleration. Also, around 730
people reported that their car had a sudden loss of power and the car went into
limp mode. In July 2017 VW had refused to pay any compensation to their
customers experiencing these problems and have said they are going to fight any
legal actions. VW stated that they ‘Intend to compensate the customers fully
and to remediate any impact on the environment from excess diesel emissions’.

Findings
and Discussions

Characteristics
of leaders

Bornstein
(2016) states that there are many characteristics that make a good leader and
some of them are having focus, confidence, integrity, inspiration and many
more. Brainard (1969) states that there are 12 personalities leaders will have
such as, audacity, intellectual interests, motivation, self-assertion, submissiveness,
applied interests, expressiveness etc. 

Biro
(2015) states it is some leaders own psychology that will make or break a
company, referring to Martin Winterkorn. Two key characteristics that can break
a company are transparency and emotional intelligence and Martin Winterkorn can
be linked with having these traits. Having a transparency characteristic would
show that he is not able to adapt to big changes within the company and could
be unable to respond to problems in an innovative way, although on the other
hand being transparent could be a good thing because it would show that he is
not hiding anything. Innovative is defined by Cambridge Dictionary (2011) as
using new methods or ideas. If Martin Winterkorn was innovative he could have
had different ideas on how to decrease the emissions coming from the VW cars
instead of using software to cheat and just let their cars give off harmful
emissions. Cremer and Bergin (2015) explains that Martin Winterkorn was a
demanding boss, who like every boss didn’t like to fail. After Martin
Winterkorn confessed about cheating on the cars emissions tests, what are
Europe’s largest carmakers were put under pressure to find out who exactly was
responsible for the scandal. In an interview VW declined to say whether it was
the management style of Martin Winterkorn or whether it could have been the
firms culture that had been the main factors in the cheating scandal. It was
stated by the Financial Times (2016) that VW has a stubborn and unrepentant
culture which led to the cheating and deception. Shortly after the scandal was
exposed and Martin Winterkorn resigned from VW, executives at the company
declared that they need to change their approach.

Osterloh,
who is chief of the VW’s council and is the person who represents the voice of
the employees openly said that in future there needs to be no problems that get
hidden and they can be openly communicated to the superiors. The culture of the
company needs to change, and people possibly need to be able to voice their
opinions to their superiors about the best way to go about certain
situations. 

Martin
Winterkorn has demonstrated that he isn’t of good character because he hid the
fact of knowing about the software that created a cheat device which was
installed into VW’s cars and he said he didn’t know anything about it for over
a year.

Emotional
Intelligence

The
term emotional intelligence was created by two researchers called Peter Salavoy
and John Mayer states IHHP (2018) but it was popularised by Dan Goleman a
psychologist and author states Daniel Goleman (2018).

Goleman
(2012) defines emotional intelligence in five steps which are:

·        
Knowing your emotions

·        
Managing those emotions

·        
Motivating yourself

·        
Being able to recognise emotions in other
people

·        
Being able to handle relationships

Wharam
(2009) states that their opinion on the theory of emotional intelligence comes
down to having common sense and keeping a sense of balance.

Neate
(2016) states Martin Winterkorn was told about the emissions scandal a whole
year before he finally admitted to knowing about it all. Martin Winterkorn
admitted that he was sent a memo a year previous about how some of the VW cars
were emitting nearly 35 times more Nitrogen Oxide emissions than regulations
allowed. Also stated in the memo was that they were emitting high emissions on
the roads but when the cars were being tested they were emitting very low
emissions. Once the scandal was fully exposed Martin Winterkorn resigned from
VW in 2015 and he still claimed he was always unaware of this issue, while the
company continued to defend the ex-CEO claiming he did not ever read the memo
about the cars producing 35 times more Nitrogen Oxide. It was also stated in
the memo that Martin Winterkorn and the chairman of VW Herbert Diess were
actually present at a meeting which was held in 2015 and the diesel issue was
discussed. After all this information was announced VW made a statement and
said that the participants, referring to Martin Winterkorn and Herbert Diess,
did not understand at the time that the new software that was being installed
into their VW cars that the software was violating US environmental
regulations, and then Martin Winterkorn asked for further clarification of the
issue in question.

Then
no later than a month after this happened VW technicians went to a member of
the company’s board and told them that the cars were installed with the illegal
cheat device which everyone had been talking about and it took another month
for VW to admit that all the allegations were true, and the Environmental
Protection Agency made everything public later in September 2015.

Martin
Winterkorn did not show any emotional intelligence once people found out about
the scandal as he denied he knew anything about the cheat device software in
the VW cars never mind denying he had any involvement with it at all. Also 5
former VW executives were interviewed by Reuters (2015) and they claimed that
that the management style under Martin Winterkorn was just fear and
authoritarianism that went unchecked which was due to the company structure.
Which again shows that Martin Winterkorn had no emotional intelligence because
he was not able to identify the emotions he was making his employees feel. Campbell
(2016) states in the Financial Times that there were dozens of employees
involved in the VW scandal and the New York lawsuit says that they had doubts
when VW’s initial defence said that there was only a small amount of staff were
responsible for the software. VW initially stated that it was a few members of
‘rogue’ staff who had acted independently which were responsible for the cheat
device and that the there was no managers aware of what was happening. Then the
new lawsuit said there was far more VW employees involved and that it was the
result of a systematic scheme played by dozens of employees at all different
levels of the company.

After
Martin Winterkorn resigned in September 2015, Matthias Muller took over as the
chief executive officer (CEO) that same month. Adams (2015) states that VW
announced that they were hiring a long time, well respected man Matthias
Muller, he has the support of a lot of people including VW’s controlling
shareholders and both labor unions. He started off as an apprentice for VW in
the Audi division and he rose to the product manager for Audi and worked his
way up the ranks working close too Martin Winterkorn. He was then appointed
head of product strategy at VW and got praised because he helped steer Porsche
through the recession, which led to him almost doubling the delivery of new
cars to nearly 200,000. The Porsche profit margins have reportedly gone up by
18%.

Change
Management

Change
management is defined by Simpson and Weiner (2002) as the management of change
and the development within a business. It can be known as the controlled
identification and implementation of the required changes that need to be made
within a business.

Mind
Tools (2018) states Lewin’s change model has three stages of change, such as
unfreeze, change and refreeze. The best way to look at this model is to think
of the organisation as a cube of ice and you want to make a change and the only
way you can do that is to firstly melt the ice to be able to make a change to
it which is referred as to unfreeze. Then you must mould/change the water into
the shape you want which is referred to as the second stage which is change.
The final stage is referred to as refreeze and solidifying the new shape, which
is finalising the change period of the organisation. Before any successful
changes can be made, the organisation must first understand what changes need
to be made.

Unfreeze
is defined by Connelly (2016) as the first stage of change and it involves
preparing the organisation to adapt to change, then the second stage is the
change stage, it is the stage where people in the organisation start to look
for new ways to do things then once everyone is onboard and see that the
changes could benefit them they start to act in ways that support the new direction
of the organisation. The last stage is when the changes are taking shape and
people in the organisation are embracing the change it is then time to
refreeze. Once this stage is complete the organisation still needs to ensure
that the changes are still used at all times.  

Levasseur
(2001) says Lewin’s change model may look simple, but states it is an elegant
and practical guide to the issues in the change process.

Another
change management model is Kotter’s 8-step change model and 2017 marked the 21st
anniversary of John Kotter’s Leading
Change (1996) which was one of his books which is widely recognised. Kotter
(2017) states the 8 steps of this model are;

1.    Establishing
a sense of urgency.

2.    Creating
a guide coalition.

3.    Developing
vision and strategy.

4.    Communication
the change vision.

5.    Empowering
broad-based action.

6.    Generating
short-term wins.

7.    Consolidating
gains and producing more change.

8.    Anchoring
new approaches in the culture.

Kotter
(2012) states that the first four steps of the process help weaken a status quo
and he says, “If change were easy, you wouldn’t need all that effort”. Steps
five to seven are the steps that introduce new practises and the last step,
step eight, grounds the changes and helps them stick. The company can now
change their leadership style and try to get some of their reputation back
which will help their sales profit, so they can get their stakeholders back.
The company didn’t like change, so it would be hard to make some changes at
first, but if the VW company follows some of the change management styles step
by step and at their own pace then they could be able to make some important
decisions that can help their company in the long run and they can get the
respect back and their customers back.

Realo
(1999) defines collectivism as the principle of giving a group priority over
every individual.

Geert
Hofstede (2018) states that there are 6 dimensions of natural culture to
individualism. Individualism is defined in a book by Kim (1995) by Hofstede
(1991) as everyone having to look after himself or herself and be independent. The
first dimension is

·        
Individualism is the extent to were people feel
independent, as to being independent. Having individualism is good but collectivism
is better because you need to work as a team.

·        
Power Distance is the extent to which less
powerful members of organisations will accept that power is distributed
unequally. VW has a high-power distance because Martin Winterkorn was at the
top and most employees were too afraid to say anything.

·        
Masculinity is the extent which the use of
force is endorsed socially. Masculine being more to the point and wanting more
profit and feminine being more thoughtful to the staff.

·        
Uncertainty Avoidance deals with a society’s
tolerance for situations that are uncertain. They have low Uncertainty
Avoidance which was demonstrated by the fact they used the cheat device.

·        
Long Tern Orientation deals with change and
preparing for the future.

·        
Indulgence is doing things what your impulses
want you to do, it’s about the good things in life.

The new
CEO of VW Matthias Muller stated that he wanted

Corporate
Citizenship   

Business
Dictionary (2017) defines Corporate Citizenship as the legal status of a
corporation in the jurisdiction in which it was incorporated.

Another
view emerged, and it is being referred to as an ‘extended view’ of Corporate
Citizenship and it is to indicate how it also extended to responsibilities
beyond those of philanthropy. The extended view is suggested that the idea of citizenship
can provide a political conceptualization of the corporation states Scherer, A,
G. and Palazzo, G. (2008). 

Corporate
Social Responsibility (CSR) is in place to ensure that companies run their businesses
in an ethical way. This means they must consider their social, economic and
environmental impact and consideration of human rights states The University of
Edinburgh (2017). To do this there are a range of activities a company can do
to be noticed as having Corporate Social Responsibility such as, working with
other local companies in partnership and developing a good relationship with
their employees and customers. Which Martin Winterkorn showed he could not do
by allowing the cheat device to be installed into around 11,000,000 of the VW,
therefore scamming his loyal customers. Embracing CSR is important to companies
because Epstein-Reeves (2012) states there are six reasons why, the first
reason being innovation, as previously stated innovation is a huge benefit to a
company because they should be able to innovate new products that as well as
benefiting their companies they could potentially benefit the environment which
would show that the company respects CSR. Whereas the CEO at the VW company
done the very opposite when he allowed a cheat device to be installed into
their VW cars which led everyone to believe that VW’s cars had low emissions
when there were letting off nearly double the amount everyone thought, which
research shows that VW could be harming the environment. A private research university in Cambridge named
Massachusetts Institute of Technology (MIT) done studies to show that the VW
scandal could be harming people states Cox (2017) she also states that more
than a thousand people are most likely to die in Europe as a result of being
exposed to the very high percentage of emission fumes emitted by VW cars that
were involved in the emissions scandal.

Recommendations

University
of Glasgow (2018) defines S.M.A.R.T as;

S –
Specific, to be specific in knowing what you want to achieve.

M –
Measurable, to measure how the target is going to be achieved.

A –
Achievable, to be able to set an achievable target.

R –
Relevant, is the target appropriate and relevant to the end goal.

T –
Time, are there time frames for the target to be achieved, is there enough time
for it to be completed.

A big
recommendation for the VW company would be to change because the way they were
working before when Martin Winterkorn was leading them didn’t work and he
controlled everything.

They
could offer regular checks for their cars to prove to everyone that they are
not cheating anymore and that would then build a new relationship of trust with
their customers and the customers would then feel better about buying their
cars.

Zhou
(2016) states that VW should now dedicate everything including their resources
into re-establishing their reputation within the company. Its stated that
customers would slowly regain the trust if VW chose to re-brand and join
independent verification agencies and if they were to sell one of their brands.

Things
they could do in the future to help boost shareholders values are that they
could expand and produce cars that really do have low emissions which would
start to gain back customers trust.

They
could also change their leadership style because the old leadership style did
not work for them as the ex-CEO did wrong doing and through that they lost a
lot of future sales and profits. So, if they could successfully do this they
would be able to sell more cars, so the shareholder value will increase. A good
way to do this would to be to hire someone who has previously had a good impact
with their leadership style at another company. They could also put more
funding into making new cars that don’t need to use fossil fuels and they would
also be able to achieve this better if they have a new leader who is
innovative. If the new CEO is open to making some changes with the company,
then the company will be able to be successful again in the future and get
their customers back and can continue to make more profits. As the new CEO is
Matthias Muller, he has spoken out and said he is an approachable team player,
which the VW company needs to help them get back on track as Martin Winterkorn
was not a team player. The VW company need to put in place a change management
scheme for them to achieve everything that is stated above, because if they do
not change the way things were getting done in the past, then they will not be
able to gain any level of respect back from their customers or shareholders. VW
need to develop a new management style that is going to work better for them in
the future.