Executive Summary Thisreport will look into the background information about Volkswagen (VW) andtheir scandal that happened in 2015. It will consider the characteristics ofMartin Winterkorn and VW company as a whole.
IntroductionThisreport is being written to help the board of directors to recover lostconfidence of the shareholders. This report should help the board of directorsto come up with a way to reassure the shareholders that they are doingeverything they can to reduce financial costs. The report will be talking aboutthe 2015 VW scandal where they were using an emissions cheat device to maketheir cars look better on their emission tests. Now the company’s shares havedecreased by 6 billion because of the scandal. MartinWinterkorn was the CEO of the VW group and he urged people not to overburden thecar 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, whichwas when their first two beetles were sold. They centralised their operationsin 1978 and they moved into their headquarters in Milton Keynes.
Today VW areone of the largest importers of vehicles in the UK who employ nearly 600 peoplenationwide. After Martin Winterkorn became CEO in 2007, he wanted to make somebig changes and make VW the world’s biggest carmaker.Hotten(2015) explains what happened with the VW scandal, his states that VW wereaccused of installing a piece of software which people are calling the defeatdevice.
They were installed into diesel engines so that the car could detectwhen the emissions were being tested, this device would then change theperformance of the car to improve the results when being tested. VW had a pushto sell diesel cars in the US and they had a marketing campaign which spreadnews about their cars having ‘low emissions’. The Environmental ProtectionAgency 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 March2014 an organisation discovers that VW’s diesel cars in the US emit higherlevels of harmful nitrogen oxide (NOx) on the road than when in emission tests.In September 2015 was when US Environmental Protection Agency revealed VW wasusing illegal software in their diesel cars. Also in 2015 the CEO MartinWinterkorn resigns and claims he is not aware of any wrongdoing. Then in April2016, VW wrote a report that claims they were having the largest annual loss intheir history because of the accusations of the cheat device in their dieselcars.Johnston(2016) states that the increased sum for VW to pay out, includes the cost offixing the cars, buying back the cars and legal costs.
The German carmakers hadagreed 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 peoplesdiesel cars that were affected by the scandal and offered to fix the cars thatwere affected. Ewing (2016) states that VW bought back or fixed nearly 500,00diesel cars that were affected, and a research firm estimated that the cost ofbuying back all the cars in the US alone would have cost around $7 billion. VWoriginally only set aside $7.
6 billion to cover the global costs from thescandal, which in fact it has cost more than double that amount. VW actuallyfaced a maximum government fine of $18 billion in the US. The judge on the casestated 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.
Around53% have said that they have experienced the reduced fuel efficiency and morethan 40% have experienced reduced power and acceleration. Also, around 730people reported that their car had a sudden loss of power and the car went intolimp mode. In July 2017 VW had refused to pay any compensation to theircustomers experiencing these problems and have said they are going to fight anylegal actions. VW stated that they ‘Intend to compensate the customers fullyand to remediate any impact on the environment from excess diesel emissions’. Findingsand Discussions Characteristicsof leadersBornstein(2016) states that there are many characteristics that make a good leader andsome of them are having focus, confidence, integrity, inspiration and manymore. Brainard (1969) states that there are 12 personalities leaders will havesuch 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 acompany, referring to Martin Winterkorn. Two key characteristics that can breaka company are transparency and emotional intelligence and Martin Winterkorn canbe linked with having these traits.
Having a transparency characteristic wouldshow that he is not able to adapt to big changes within the company and couldbe unable to respond to problems in an innovative way, although on the otherhand being transparent could be a good thing because it would show that he isnot hiding anything. Innovative is defined by Cambridge Dictionary (2011) asusing new methods or ideas. If Martin Winterkorn was innovative he could havehad different ideas on how to decrease the emissions coming from the VW carsinstead of using software to cheat and just let their cars give off harmfulemissions. Cremer and Bergin (2015) explains that Martin Winterkorn was ademanding boss, who like every boss didn’t like to fail.
After MartinWinterkorn confessed about cheating on the cars emissions tests, what areEurope’s largest carmakers were put under pressure to find out who exactly wasresponsible for the scandal. In an interview VW declined to say whether it wasthe management style of Martin Winterkorn or whether it could have been thefirms culture that had been the main factors in the cheating scandal. It wasstated by the Financial Times (2016) that VW has a stubborn and unrepentantculture which led to the cheating and deception. Shortly after the scandal wasexposed and Martin Winterkorn resigned from VW, executives at the companydeclared that they need to change their approach.
Osterloh,who is chief of the VW’s council and is the person who represents the voice ofthe employees openly said that in future there needs to be no problems that gethidden and they can be openly communicated to the superiors. The culture of thecompany needs to change, and people possibly need to be able to voice theiropinions to their superiors about the best way to go about certainsituations. MartinWinterkorn has demonstrated that he isn’t of good character because he hid thefact of knowing about the software that created a cheat device which wasinstalled into VW’s cars and he said he didn’t know anything about it for overa year. EmotionalIntelligence Theterm emotional intelligence was created by two researchers called Peter Salavoyand John Mayer states IHHP (2018) but it was popularised by Dan Goleman apsychologist 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 otherpeople· Being able to handle relationshipsWharam(2009) states that their opinion on the theory of emotional intelligence comesdown to having common sense and keeping a sense of balance. Neate(2016) states Martin Winterkorn was told about the emissions scandal a wholeyear before he finally admitted to knowing about it all.
Martin Winterkornadmitted that he was sent a memo a year previous about how some of the VW carswere emitting nearly 35 times more Nitrogen Oxide emissions than regulationsallowed. Also stated in the memo was that they were emitting high emissions onthe roads but when the cars were being tested they were emitting very lowemissions. Once the scandal was fully exposed Martin Winterkorn resigned fromVW in 2015 and he still claimed he was always unaware of this issue, while thecompany continued to defend the ex-CEO claiming he did not ever read the memoabout the cars producing 35 times more Nitrogen Oxide. It was also stated inthe memo that Martin Winterkorn and the chairman of VW Herbert Diess wereactually present at a meeting which was held in 2015 and the diesel issue wasdiscussed.
After all this information was announced VW made a statement andsaid that the participants, referring to Martin Winterkorn and Herbert Diess,did not understand at the time that the new software that was being installedinto their VW cars that the software was violating US environmentalregulations, and then Martin Winterkorn asked for further clarification of theissue in question. Thenno later than a month after this happened VW technicians went to a member ofthe company’s board and told them that the cars were installed with the illegalcheat device which everyone had been talking about and it took another monthfor VW to admit that all the allegations were true, and the EnvironmentalProtection Agency made everything public later in September 2015.MartinWinterkorn did not show any emotional intelligence once people found out aboutthe scandal as he denied he knew anything about the cheat device software inthe VW cars never mind denying he had any involvement with it at all. Also 5former VW executives were interviewed by Reuters (2015) and they claimed thatthat the management style under Martin Winterkorn was just fear andauthoritarianism that went unchecked which was due to the company structure.Which again shows that Martin Winterkorn had no emotional intelligence becausehe 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 employeesinvolved in the VW scandal and the New York lawsuit says that they had doubtswhen VW’s initial defence said that there was only a small amount of staff wereresponsible for the software.
VW initially stated that it was a few members of’rogue’ staff who had acted independently which were responsible for the cheatdevice and that the there was no managers aware of what was happening. Then thenew lawsuit said there was far more VW employees involved and that it was theresult of a systematic scheme played by dozens of employees at all differentlevels of the company. AfterMartin Winterkorn resigned in September 2015, Matthias Muller took over as thechief executive officer (CEO) that same month.
Adams (2015) states that VWannounced that they were hiring a long time, well respected man MatthiasMuller, he has the support of a lot of people including VW’s controllingshareholders and both labor unions. He started off as an apprentice for VW inthe Audi division and he rose to the product manager for Audi and worked hisway up the ranks working close too Martin Winterkorn. He was then appointedhead of product strategy at VW and got praised because he helped steer Porschethrough the recession, which led to him almost doubling the delivery of newcars to nearly 200,000. The Porsche profit margins have reportedly gone up by18%.ChangeManagement Changemanagement is defined by Simpson and Weiner (2002) as the management of changeand the development within a business. It can be known as the controlledidentification and implementation of the required changes that need to be madewithin a business.MindTools (2018) states Lewin’s change model has three stages of change, such asunfreeze, change and refreeze.
The best way to look at this model is to thinkof the organisation as a cube of ice and you want to make a change and the onlyway you can do that is to firstly melt the ice to be able to make a change toit which is referred as to unfreeze. Then you must mould/change the water intothe 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, whichis finalising the change period of the organisation. Before any successfulchanges can be made, the organisation must first understand what changes needto be made. Unfreezeis defined by Connelly (2016) as the first stage of change and it involvespreparing the organisation to adapt to change, then the second stage is thechange stage, it is the stage where people in the organisation start to lookfor new ways to do things then once everyone is onboard and see that thechanges could benefit them they start to act in ways that support the new directionof the organisation.
The last stage is when the changes are taking shape andpeople in the organisation are embracing the change it is then time torefreeze. Once this stage is complete the organisation still needs to ensurethat the changes are still used at all times. Levasseur(2001) says Lewin’s change model may look simple, but states it is an elegantand practical guide to the issues in the change process. Anotherchange management model is Kotter’s 8-step change model and 2017 marked the 21stanniversary of John Kotter’s LeadingChange (1996) which was one of his books which is widely recognised. Kotter(2017) states the 8 steps of this model are;1. Establishinga sense of urgency.2.
Creatinga guide coalition.3. Developingvision and strategy.4. Communicationthe change vision.5. Empoweringbroad-based action.
6. Generatingshort-term wins.7. Consolidatinggains and producing more change.8.
Anchoringnew approaches in the culture.Kotter(2012) states that the first four steps of the process help weaken a status quoand he says, “If change were easy, you wouldn’t need all that effort”. Stepsfive 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 nowchange their leadership style and try to get some of their reputation backwhich 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 atfirst, but if the VW company follows some of the change management styles stepby step and at their own pace then they could be able to make some importantdecisions that can help their company in the long run and they can get therespect back and their customers back.Realo(1999) defines collectivism as the principle of giving a group priority overevery individual.
GeertHofstede (2018) states that there are 6 dimensions of natural culture toindividualism. Individualism is defined in a book by Kim (1995) by Hofstede(1991) as everyone having to look after himself or herself and be independent. Thefirst dimension is · Individualism is the extent to were people feelindependent, as to being independent. Having individualism is good but collectivismis better because you need to work as a team.· Power Distance is the extent to which lesspowerful members of organisations will accept that power is distributedunequally. VW has a high-power distance because Martin Winterkorn was at thetop and most employees were too afraid to say anything. · Masculinity is the extent which the use offorce is endorsed socially.
Masculine being more to the point and wanting moreprofit and feminine being more thoughtful to the staff. · Uncertainty Avoidance deals with a society’stolerance for situations that are uncertain. They have low UncertaintyAvoidance which was demonstrated by the fact they used the cheat device.· Long Tern Orientation deals with change andpreparing for the future.· Indulgence is doing things what your impulseswant you to do, it’s about the good things in life.The newCEO of VW Matthias Muller stated that he wanted CorporateCitizenship BusinessDictionary (2017) defines Corporate Citizenship as the legal status of acorporation in the jurisdiction in which it was incorporated.
Anotherview emerged, and it is being referred to as an ‘extended view’ of CorporateCitizenship and it is to indicate how it also extended to responsibilitiesbeyond those of philanthropy. The extended view is suggested that the idea of citizenshipcan provide a political conceptualization of the corporation states Scherer, A,G. and Palazzo, G. (2008). CorporateSocial Responsibility (CSR) is in place to ensure that companies run their businessesin an ethical way. This means they must consider their social, economic andenvironmental impact and consideration of human rights states The University ofEdinburgh (2017). To do this there are a range of activities a company can doto be noticed as having Corporate Social Responsibility such as, working withother local companies in partnership and developing a good relationship withtheir employees and customers. Which Martin Winterkorn showed he could not doby 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 companiesbecause Epstein-Reeves (2012) states there are six reasons why, the firstreason being innovation, as previously stated innovation is a huge benefit to acompany because they should be able to innovate new products that as well asbenefiting their companies they could potentially benefit the environment whichwould show that the company respects CSR. Whereas the CEO at the VW companydone the very opposite when he allowed a cheat device to be installed intotheir VW cars which led everyone to believe that VW’s cars had low emissionswhen there were letting off nearly double the amount everyone thought, whichresearch shows that VW could be harming the environment. A private research university in Cambridge namedMassachusetts Institute of Technology (MIT) done studies to show that the VWscandal could be harming people states Cox (2017) she also states that morethan a thousand people are most likely to die in Europe as a result of beingexposed to the very high percentage of emission fumes emitted by VW cars thatwere involved in the emissions scandal.RecommendationsUniversityof 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 timefor it to be completed. A bigrecommendation for the VW company would be to change because the way they wereworking before when Martin Winterkorn was leading them didn’t work and hecontrolled everything. Theycould offer regular checks for their cars to prove to everyone that they arenot cheating anymore and that would then build a new relationship of trust withtheir customers and the customers would then feel better about buying theircars. Zhou(2016) states that VW should now dedicate everything including their resourcesinto re-establishing their reputation within the company. Its stated thatcustomers would slowly regain the trust if VW chose to re-brand and joinindependent verification agencies and if they were to sell one of their brands.Thingsthey could do in the future to help boost shareholders values are that theycould expand and produce cars that really do have low emissions which wouldstart to gain back customers trust.
Theycould also change their leadership style because the old leadership style didnot work for them as the ex-CEO did wrong doing and through that they lost alot of future sales and profits. So, if they could successfully do this theywould be able to sell more cars, so the shareholder value will increase. A goodway to do this would to be to hire someone who has previously had a good impactwith their leadership style at another company.
They could also put morefunding into making new cars that don’t need to use fossil fuels and they wouldalso be able to achieve this better if they have a new leader who isinnovative. 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 gettheir customers back and can continue to make more profits. As the new CEO isMatthias 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 Winterkornwas not a team player. The VW company need to put in place a change managementscheme for them to achieve everything that is stated above, because if they donot change the way things were getting done in the past, then they will not beable to gain any level of respect back from their customers or shareholders.
VWneed to develop a new management style that is going to work better for them inthe future.