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.

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

[2] Ibid.

[3] Ibid.

A Planned Chinese Supercity Hinging on Technology

A Kansas-sized supercity of 82,000 square miles and 130 million people, with Beijing at the center, is in the vanguard of economic reform, Liu Gang said from Nankai University in mid-2015.[1] Six times the size of New York City’s metropolitan area, the planned regional economy would require nothing short of a feat of urban planning. The economic synergy anticipated from the planned integration is the main benefit. The sheer scale alone presents its own challenges, however, and the complexity in coordinating the various shifts of people and services suggests that unintended excesses and shortages will demand immediate action. Even so, I contend that the application of technology will make or break the viability of the anticipated supercity.

The economic diversity within the region gives economic integration tremendous potential. Lui Gang explains that the supercity, named Jing-Jin-Ji, “reflects the senior leadership’s views on the need for integration, innovation and environmental protection.”[2] The plan calls for regional integration of Beijing’s research facilities and creative culture with Tianjin’s port-city economy. “Beijing is to focus on culture and technology. Tianjin will become a research base for manufacturing.”[3] In other words, the links from university and industrial research to manufacturing are to be tightened. Hebei province is also included—the relatively cheap land being fertile ground for relieving the environmentally-hostile population density in Beijing.

The project relies on constructing a subway and a high-speed rail, and connecting 18 dead-end highways to link the major cities, including Beijing, Yanjiao, Handan, Xingtai, Tangshan, and Zhengijakou. With speeds of 150 to 185 miles per hour, 37 minutes will get a commuter from Tianjin to Beijing (and vice versa) by rail.[4] The geographical scope of the supercity, or urban region, consistent with tight economic integration can thus expand, much as military technology extended the reach and thus territory of early-modern European kings. The Chinese urban-policymakers were essentially pinning their hopes on the shift of practical integrative scope—in particular, that the technology will make the energy needed to transport people over so large an area worthwhile. The true cost may be an externality if the carbon emissions increase substantially as a result. Yet even in this respect, communications technology, such as the ability to hold meetings in virtual reality, may make it possible for the planned supercity to reap the benefits of the added economic integration without warming the planet appreciably more.

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[1] Ian Johnson, “Pain and Hope as China Molds Its Capital into New Supercity,” The New York Times, July 20, 2015.

[2] Ibid.

[3] Ibid.

[4] Ibid.