Tuesday, August 1, 2017

Unethical Business at Volkswagen: Loans Cut off

As R&D was at a premium in car companies reorienting to electric and even driverless cars, Volkswagen could ill-afford the suspension of the European Investment Bank’s low-cost financing in 2017. The company “was barred from receiving European Union research funding over allegations it misused a previous loan to cheat on emissions” by programming “11 million cars to fool regulators.”[1] At issue were the company’s “use of so-called defect devices, software that caused pollution controls in diesel motors to work properly only when the engine computer detected that an official emissions test was underway.”[2] Accordingly, the European Anti-Fraud Office concluded that the company had misled authorities about how €400 million ($472 million) was used ostensibly to develop engines to be more fuel efficient and thus pollute less. I contend that the company’s reply was worse than none.
In spite of the fact that the company had pleaded guilty to having installed defect devices in cars in the U.S., the company’s management in the E.U. issued the following statement: “All funds received by Volkswagen from the European Union were used for the designated purposes”[3] Such boiler-plate language that leans on perfection as if it were a daily phenomenon actually makes a culprit look more guilty (and oblivious). Why is it that managers can be so utterly tone-deaf in replying in a defensive way to an accusation against their respective companies? I suspect that going on the advice of PR people is not the best plan, for such people are oriented to making someone or something look good. Meanwhile, a corporate legal department is also narrowly concerned; in this case, the concern is to minimize or obviate entirely any legal liability. The result is a company that doesn’t look very good because efforts to evade taking responsibility for oneself never do. Better not to issue a statement than to go down the road most travelled. The challenge for managers in formulating a company statement is to take responsibility and demonstrate contrition as in accepting the consequences, such as the suspension of low-cost loans in Volkswagen’s case, while not admitting to legal liability that the company genuinely disputes. A statement thus may not be available in short order, but even a delayed response is better than boiler-plate obviating for a company’s reputation.

A related book:  Cases of Unethical Business, can be obtained in print or as an ebook at Amazon.com.

[1] Jack Ewing, “European Bank Cuts Funds to VW Because of Emissions Fraud,” The New York Times, August 1, 2017.
[2] Ibid.
[3] Ibid.