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Ken Vader
CST 373
Professor Cahill
4/11/17
Corporate Culture Shapes Employee Ethics

As I find myself nearing graduation with a Bachelors degree in Computer Science from

California State University at Monterey Bay (CSUMB), it is more clear now than ever that entering the

technology industry as a software engineer requires a strong code of ethics. Prior to enrolling at

CSUMB I was a stay at home father of triplets. Prior to that I was a system administrator for a

collection of companies, totaling approximately 300 users. During my time as an administrator, I

witnessed employees across all departments and pay grades operate in ethical gray areas. These were

not bad people doing bad things. Rather, it was good people doing what they felt they needed to do in

order to be successful in their position. In hindsight, I attribute much of this to the culture and tone that

was set by the CEO. That culture was one that generally favored profit over everything else. The CEO

may not be directly instructing employees to cut corners or make ethically questionable decisions, but

the culture of the company promotes this behavior.

In the following pages, I will explore a similar situation involving Volkswagen and their

emissions testing on diesel vehicles. Was the Volkswagen issue the result of a few rogue engineers or a

mandate from the top? This issue touches on corporate ethics and culture, as well as the personal

ethical compass of individual engineers. Exploring this subject will examine the motives of engineers,

where their motivations were coming from, as well as the motives of the executives setting the

direction and culture of the company. This exploration will also attempt to see how big of a role did

individual engineers ethics come into play. This topic is particularly fascinating as a case study in how

an individuals ethics can be shaped by the environment that they are in. There appears to be evidence

that the culture of success over ethics was a top down mandate.
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The scandal for Volkswagen came to light in 2014, when the Environmental Protection Agency

(EPA) in the United States was testing Volkswagen vehicles. The EPA was particularly curious as to

why Volkswagen diesels were appearing to emit fewer emissions in the United States than in Europe

(Lynch and Santos, 2016). As the EPA dug deeper, they eventually found that Volkswagen had placed

defeat devices on the tested vehicles. These devices were software driven components that disabled

certain parts of the car when it detected that it was being tested for emissions. The main source of that

detection relied on the fact that during normal testing only two wheels would be spinning. The

Volkswagen board had been warned about this software in 2011 via an internal memo. The company

that originally created the software, Bosch, had written a letter to Volkswagen in 2007 warning them

that the software should be used for internal testing only, not for use on vehicles to be sold (Arvinth,

2015). When news of the scandal broke, Volkswagen did something rather surprising: it admitted guilt.

The company estimated that as many as 11 million vehicles were affected, with the bulk of those

vehicles being sold in Europe (Ewing, 2015). The fallout from the scandal caused Volkswagen to

ultimately decide to replace its CEO and to set aside over $7 billion to cover the expected costs of fines

and litigation (Arvinth, 2015). It turns out, that was not nearly enough, as Volkswagen ultimately paid

close to $20 billion in fines (Overly, 2017). That shows the what, now we need to look at the why.

To fully explore this, we need to go back to 2007 when Martin Winterkorn became CEO of

Volkswagen. Mr. Winterkorns tenure as CEO begins two years before the devices were first installed

on vehicles purchased by consumers. According Lynch and Santos (2016) Mr. Winterkorn was known

as a detail oriented autocrat, that promoted the idea that management should be involved in every phase

of business. Mr. Winterkorn ordered Volkswagen engineers to design a fuel efficient diesel system and

have it ready to ship in a very tight deadline. This, ostensibly, could have created an environment that

rewarded good news over truth. Rather than find ways to work within their reality, the engineers found

it more rewarding to create an alternate reality. Volkswagen executives were determined to increase
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sales, and one way to do that was to produce the most fuel efficient non-hybrid vehicles available, with

lower emissions that could compete with hybrid vehicles..

The United States is a huge market for vehicle sales, and Volkswagens need to produce fuel

efficient vehicles did not happen in a vacuum. After the 1973 oil embargo, the United States has

enacted a series of standards and laws that has continually raised the bar for fuel efficiency on car

manufacturers. The original goal was to increase the average fuel efficiency of new cars to 27.5 miles

per gallon by 1985. In 2007, Congress passed a new wave of legislation that required a car

manufacturer to have a combined fuel efficiency average of at least 35 miles per gallon by the year

2020. This average included cars, light trucks, and SUVs (EPA, 2009).

At the same time, the EPA was also enacting standards for allowable emissions. The first round

of these standards was put out in 1990. In the 27 years since they were first introduced, the standards

have been progressively tightened. The California standards are the strictest in the nation, and other

states are allowed to either follow the EPA standards or the California standards at their own discretion.

Under the Obama administration both the fuel efficiency standards and lower emissions standards were

put under joint EPA and Department of Transportation (DOT) regulation. The joint program supports

the fuel efficiency standards described above, as well as tightening the emissions standards further

(EPA, 2009). The impetus for the new standards was the view that climate change was a significant

threat to the global environment and needed to be addressed. The EPA/DOT report also states that it is

their opinion that climate change is the result of greenhouse gases and is a direct result of human

activity (EPA, 2009). These regulations, and the changing attitudes on global warming and climate

change, helped to shape the Volkswagen executives decision to push for high fuel efficiency and low

emissions on their diesel vehicles.

Another area that shaped Volkswagens decision is fuel cost. In general, diesel fuel is cheaper

for the consumer than gasoline. So, Volkswagen wanted to use that information as leverage to help sell
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their TDI diesel vehicles. In Europe, the emissions standards focus more on lowering carbon dioxide

and carbon monoxide, which is more concerned with fuel efficiency. In the United States, the emissions

standards focus more on lowering nitrogen oxides and particulate matter, which is more concerned with

air pollution. Most diesels imported into the United States use urea tank and injection systems to reduce

emissions to acceptable levels. Prior to 2007, Volkswagen had considered using this method, as they

had been in talks with Daimler to use their system (Lynch and Santos, 2016). When he took over as

CEO, Mr. Winterkorn abandoned that plan and ordered the engineers to find a different method that

would meet emissions standards in the United States. The end result of that decision, as we now know,

was the installation of the defeat devices and software on Volkswagen TDI models from 2009 to 2015.

The mass media jumped on this story at the time and showed little hesitation in condemning

Volkswagen for its cheating software. This condemnation took many forms. The New York Times,

framed much of their initial reaction as Volkswagen cheating, wrote about how the automaker illegally

installed software in its diesel-power cars to evade standards for reducing smog (Davenport and Ewing,

2015). Writing for Fortune, Paul Argenti (2015) placed the blame of the scandal on corporate greed

and a poor overall culture, rather than blaming any single executive. In a 2017 Washington Post article,

Steven Overly noted how out of the ordinary it was the there were any executives being indicted at all,

let alone six of them. In general, the mass media seemed to focus on the corporate culture at

Volkswagen as the primary cause for the scandal. The individual engineers are rarely mentioned

specifically or even the engineers as a group. They appear to have escaped the cross-hairs of the mass

media.

Consumers who have purchased one of the affected Volkswagen vehicles are sure to have

opinions on the scandal. The voluntary recall that Volkswagen implemented provides a fix for the

defeat device at no cost to the consumer. Some consumers that are happy with the power and fuel

efficiency that they are getting with the defeat device enabled may be reluctant to take their vehicle in
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to have it fixed. The impact their vehicle is having on the environment is probably not immediately

noticeable to them, so the performance and mileage boost is considered an acceptable trade off. Other

consumers may not be concerned with the performance but see the mileage issue in strictly economic

terms and are therefore not interested in the voluntary recall. In both of these cases, these groups of

consumers are not likely going to be interested in publicly declaring their intention to ignore the recall.

Because of that it is difficult to get an accurate estimate on how many of the vehicles that have not been

voluntarily recalled are due to these factors.

Other auto manufacturers that also sell diesel vehicles are another group that has reason to want

to see the Volkswagen scandal fade away. While it is certainly advantageous for the other

manufacturers if Volkswagen takes a considerable public relations and sales hit over the scandal, the

public perception of diesel vehicles needs to remain positive. If the public begins to closely associate

diesel vehicles with Volkswagen and scandal, diesel sales will drop across all manufacturers. Clearly,

this is unacceptable. Manufacturers such as Chevrolet, Ford, and Dodge are leveraging known auto

media, such as Car and Driver or Jalopnik, to put out positive pieces on their own diesel offerings. It is

a safe move, as the U.S. consumer has a short memory and they will not likely be thought of in the

same manner as Volkswagen.

The government, specifically the EPA, has a different view on this. For the EPA, the scandal

was both a source of frustration and a success story. It was frustrating to find out that they had been

fooled for six years, defrauded some would say. But there is also at least a small sense of pride in that it

was EPA engineers that found the defeat device. When the scandal broke, the Obama administration

made the decision to make an example out of Volkswagen and made every effort to hit them with the

harshest penalties possible. They wanted to send the message to other international corporations that

the United States government was to be taken seriously.


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Viewing the scandal through the ethical framework of utilitarianism presents an interesting

discussion. Utilitarianism is described as the greatest good for the greatest number. The first thing

that needs to be established is: the greatest good for whom? Which majority are we seeking to do the

greatest good for? The answer to those questions can have dramatic effects on what is then considered

ethical. In the case of the Volkswagen scandal, if we say that the majority to be served is consumers,

then it would seem that Volkswagen being honest about the mileage and performance of their vehicles

without the defeat device is the ethical choice. Hiding that information from consumers does not allow

the consumer to make an informed choice about the vehicle they are purchasing. If they wish to own a

vehicle that has a minimal impact on the environment, they are instead buying a vehicle that has the

opposite effect. If we instead decide that the majority is the company itself, then a case can be made

that anything short of illegal activity is ethical. Under these conditions, even some illegal activity could

be rationalized away as being better for the company, and therefore acceptable. The companys

dishonest behavior regarding the defeat device could be seen as a reasonable step, as it allows the

company to benefit the greatest number of its group.

If the Volkswagen scandal is examined with egoism in mind, it becomes a bit more

straightforward. In his 1962 work Capitalism and Freedom, Milton Friedman wrote In such an

economy, there is one and only one social responsibility of business - to use its resources and engage in

activities designed to increase its profits so long as it stays within the rules of the game, which is to say,

engages in open and free competition, without deception or fraud. . . . That last part is particularly

relevant to Volkswagen. Volkswagen did engage in open and free competition, but it made a concerted

effort to do so fraudulently. Under egoism, Volkswagen should do what it can to increase profits, even

at the expense of social justice. But competing in a deceptive way is not acceptable. And without the

deception, they would not have been able to compete in the United States with the defeat devices on, so
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the results would most certainly have changed. Volkswagens pursuit of dominating the worldwide auto

market would have required finding an alternate path.

Viewing Volkswagen and the scandal using the environmentalism framework tells a story of

missed opportunity. Volkswagen wanted to become the worlds largest auto manufacturer, and they saw

the United States as a key market in their strategy. It is currently popular in the U.S. to drive a low

emissions, high fuel efficiency vehicle. Volkswagen could have taken advantage of those factors and

created vehicles that fit what the market was clamoring for. Instead, they chose to pretend they had

done that, and sold cars that were quite damaging to the environment. Once this became public,

consumers that are concerned with the environment stayed away from Volkswagen. Volkswagen had an

opportunity to license existing technology from Daimler that would have lowered their emissions,

while still maintaining performance. There is no one-size-fits-all in the auto industry, but Volkswagen

effectively removed themselves from competing in the environmentally friendly market for at least a

few years. It will take some time, and a hefty public relations campaign, to make people forget how

anti-environment they were.

The further away we get from this scandal the more questions it raises about the future of

Volkswagen, the future of diesel vehicles in America, and potential health risks incidents like this pose.

In an open letter on the Volkswagen website (Woebckin, 2017), new CEO Hinrich Woebcken has

charted the companys vision for its place in the American automotive industry over the coming years.

According to Mr. Woebckin, Volkswagen will respond to American needs by iterating on

autonomous driving or future electric vehicles. Volkswagen has also reorganized, creating a North

American unit that will oversee all operations relevant to Canada, the U.S., and Mexico. Mr. Woebckin

feels that This structure marks an important culture shift for Volkswagen, bringing Volkswagens

engineering, decision-making and leadership closer to our dealers and the customers we serve here

(Woebckin, 2017). There is no mention of steps that have been or will be taken to ensure that a
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scandal like the one from 2015 does not happen again. The implication here is that the newly created

North American unit will keep tighter control over the processes since they are geographically closer.

The truth in that concept remains to be seen.

The environmental impact of Volkswagens deception can only be estimated. An MIT study

claims that Volkswagens use of software to evade emissions standards in more than 482,000 diesel

vehicles sold in the U.S. will directly contribute to 60 premature deaths across the country...(Chu,

2015). This estimate is based on the number of vehicles sold with the defeat device between 2008 and

2015. The MIT study goes on to further estimate that if Volkswagen had recalled no vehicles that it

would have resulted in approximately 140 to die early (Chu, 2015). Since Volkswagen did roll out a

voluntary recall, the number of affected individuals is certainly lower than 140. The study did not

measure the impact that these vehicles had on global warming or climate change. There is no way to

force the owners of these vehicles to take them to a dealer to be fixed. Estimating the impact over 20

years is difficult, as many of these cars will be off of the road by then from salvage.

Diesel still has a place in the American automotive sector, but it will need to be clean diesel for

it to gain much traction in the light truck and passenger vehicle sectors. Researchers at West Virginia

University foresee this scandal spurring on innovation. Dan Carder, a researcher at West Virginia

Universitys Center for Alternative Fuels, Engines and Emissions (CAFEE) claims In our 25 years of

experience, we have seen that situations like this tend to spur rapid acceleration in technology

advancement...(WVU, 2016). If the researchers at CAFEE are correct, that could mean clean diesel

that comes much closer to what Volkswagen was doing fraudulently. CAFEE researchers also feel that

the stricter regulations following the Volkswagen scandal will lead to auto manufacturers having no

choice but to innovate (WVU, 2016). It seems likely that diesel will be a part of that innovation. The

auto industry does not typically cast aside technology that it has been iterating on for over a decade.
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Wharton Professor Eric Orts and University of Maryland Professor Rena Steinzor note that for

lasting change to occur, the company culture must change (Orts and Steinzor, 2016). They compared

the situation at Volkswagen to the inaction that occurred at General Motors during the ignition switch

scandal that they went through. During the GM crisis, executives would agree that action needed to be

taken, even agreeing on what action to take, and then never implement those actions (Orts and Steinzor,

2016). A company must reward innovation by its engineers, but that innovation needs to be proven

through rigorous testing. Volkswagens North American unit may fit this bill, but it will take solid

evidence and testing prior to their innovations being taken seriously in the future.

The Volkswagen scandal was a series of breakdowns at every level. In 2007, the CEO sets up a

culture that rewards results, but does not reward thorough testing. The engineers, feeling the pressure of

these executive imposed deadlines, implemented a system that they knew was fraudulent. Test

engineers, with knowledge of the software bought from Bosch, had to have known why the numbers

were dramatically lower on the vehicles being exported to America. Whether or not the executives

knew specifically what was going on is irrelevant. They created the environment where this behavior

would be rewarded, rather create an environment that rewarded actual innovation with thorough

testing. There is enough blame to go around. If just one executive had inquired as to how they were

making such strides or just one engineer chose to speak up, none of this would have happened. My

guess is that the engineers valued their jobs over their integrity.

The more research I did on this topic, the more I realized it was really a systemic problem. Yes,

Volkswagen takes the hit in this case, as they should. But it occurred to me that the need to have

unparalleled success and dominate a market, any market, could lead to a similar result. That drive for

success is a great quality for a company or an individual to have, but if there is no commitment to

honesty and integrity then you have the breeding ground for deceptive or fraudulent behavior. This

situation becomes especially complicated in the auto industry. The EPA regulations are some of the
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most strict in the world, because we want to feel like we are attempting to protect our environment.

This makes it more difficult for a foreign auto manufacturer to export cars into the U.S., as they have to

make special modifications for the cars to be legal here. Thus, providing incentive to cheat on

emissions testing, either to make your cars look more efficient or to just make them legal so you can

get into the American market. There is a substantial amount of money involved in the auto industry and

America is a car culture. Foreign manufacturers are not going to give up just because the testing is too

strict.

Going forward, there does not need to be lower barriers on emissions testing, quite the opposite.

In fact, I would support not just stricter emissions laws, but allowing EPA or DOT engineers to fully

road test any vehicle that would be sold here. Lab testing is not enough, and proper road testing is the

only way to be sure the vehicles adhere to the regulations. This is easier said than done, as regulation is,

at times, a hotly debated topic. So, to help spur that on, there needs to be a groundswell of support from

citizens. People will have to voice their desire for cleaner and more fuel efficient vehicles. One part of

that is voicing those desires with your wallet and only buying efficient, low emission vehicles. That is

not enough. Educating people on the harmful effects of higher emission vehicles is also necessary. Part

of that education must involve information regarding climate change and the role the auto industry has

in global warming. This is still a very politicized issue, and it is not going to be solved in our lifetime.

We need to start the conversation now, and keep it going with our children to have a chance. In the long

term, starting that conversation and pushing for green innovation is where we can contribute the most.
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Sources

Argenti, Paul. (2015, October 12). The Biggest Culprit in VWs Scandal. Fortune. Retrieved from

http://fortune.com/2015/10/13/biggest-culprit-in-volkswagen-emissions-scandal/

Arvinth, Karthick. (2015, September 28). VW Scandal: Carmaker Was Warned By Bosch About Test-

Rigging Software In 2007. International Business Times. Retrieved from http://www.ibtimes.co.uk/vw-

scandal-carmaker-was-warned-about-test-rigging-software-2007-1521442

Chu, Jennifer. (2015, October 28). Study: Volkswagens emissions cheat to cause 60 premature deaths

in U.S. MIT News. Retrieved from http://news.mit.edu/2015/volkswagen-emissions-cheat-cause-60-

premature-deaths-1029

EPA (2009, September). EPA and NHTSA Propose Historic National Program to Reduce Greenhouse

Gases and Improve Fuel Economy for Cars and Trucks. Environmental Protection Agency. Retrieved

from https://nepis.epa.gov/Exe/ZyPDF.cgi/P1005POO.PDF?Dockey=P1005POO.PDF

Davenport, Coral and Ewing, Jack. (2015, September 18). VW Is Said to Cheat on Diesel Emissions.

New York Times. Retrieved from https://www.nytimes.com/2015/09/19/business/volkswagen-is-

ordered-to-recall-nearly-500000-vehicles-over-emissions-software.html

Ewing, Jack. (2015, September 22). Volkswagen Says 11 Million Cars Worldwide Are Affected in

Diesel Deception. New York Times. Retrieved from

https://www.nytimes.com/2015/09/23/business/international/volkswagen-diesel-car-scandal.html?_r=0
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Lynch, Luann J. and Santos, Carlos. (2016, October 17). VW Emissions And The 3 Factors That Drive

Ethical Breakdown. Darden Ideas to Action.Retrieved from

https://ideas.darden.virginia.edu/2016/10/vw-emissions-and-the-3-factors-that-drive-ethical-

breakdown/

Orts, Eric and Steinzor, Rena. (2016, July 5). The Latest Fallout from the Volkswagen Scandal: Five

Key Takeaways. Knowledge @ Wharton. Retrieved from

http://knowledge.wharton.upenn.edu/article/five-takeaways-from-the-volkswagen-scandal/

Overly, Steven. (2017, January 11). Six Volkswagen Executives Indicted in Emissions-Cheating

Scandal. The Washington Post. Retrieved from

https://www.washingtonpost.com/news/innovations/wp/2017/01/11/justice-department-volkswagen-to-

plead-guilty-to-three-criminal-counts-in-emissions-scandal/

Woebcken, Hinrich. (2017, January 3). Driving Volkswagens Future in America. Volkswagen.

Retrieved from http://newsroom.vw.com/company/driving-volkswagens-future-in-america/

WVU. (2016, September 19). One year after Volkswagen scandal WVU researchers look to the future

of emissions technology. WVU Today. Retrieved from http://wvutoday-

archive.wvu.edu/n/2016/09/19/one-year-after-volkswagen-scandal-wvu-researchers-look-to-the-future-

of-emissions-technology.html

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