VWs Battle with Contractors gets Unusually Messy by Geoffrey Smith - Article Example

Table of Contents Introduction 2 Arguments raised in the article 2 Corporate governance issues 3 Reasons for argument in the media 5 Personal Opinion 6 Conclusion 7 References 9 Introduction This paper evaluated an article titled “VW’s Battle with Contractors gets Unusually Messy” by Geoffrey Smith published on 22nd August in the Fortune. The paper will evaluate the above mentioned article on different parameters. This paper will start by providing the different arguments raised in the article which will be followed by the corporate governance issues raised. The paper will then provide the reasons for the article to be in the media and provide my personal opinion on the same. This will thereby help to understand the entire framework and highlight the different corporate governance issues which were presented in the article. Arguments raised in the article The article highlights the manner in which Volkswagen is treating its suppliers and the manner in which their relation is being impacted. Volkswagen which has already being affected by the emission scandal is looking to reduce cost but not looking towards job cuts. This has forced the management to look at other ways where they are looking to reduce cost by having more bargain with the suppliers. Volkswagen while looking to tackle the issue has looked at cancelling contracts with the premise that the goods supplied by the contractors are of poor quality and doesn’t meets the standard requirements. This is on the backdrop that Volkswagen has already cancelled the contractual obligation with two of its suppliers and the suppliers have already manufactured the goods. This has led towards a battle with the suppliers and suppliers are not willing to supply any products and have already filed a case in the court. The situation is impacting the overall business as the brand image has already being affected by the emission scandal and the situation has become worse as sale of cars have grown in the local market but sales of Volkswagen has been negative. This is resulting in a tussle between the suppliers and the car manufacturer as it could lead towards legal action on the car manufacturer as they will have to provide compensation to the suppliers due to contractual obligation being not met. The article also brings forward the fact that the previous emission scandal has impacted Volkswagen which has resulted in such actions to be taken which would further have an impact on the brand. Corporate governance issues The article highlights the different corporate governance issues which Volkswagen is facing and needs to take appropriate steps so that proper functioning can be ensured. On the forefront the thing which is being clearly witnessed in the article is lack of transparency in the working style. Volkswagen has looked at breaching the contractual agreement with the suppliers because it wants to reduce cost and has provided different reasons like substandard material are being used by the suppliers. Some contracts have been terminated on the grounds that the company no longer needs those suppliers and will carry out the process of searching new suppliers (Corfield, 1998). The entire process lacks transparency as the suppliers haven’t been informed beforehand and they have thereby carried out the production on behalf of Volkswagen. The process which has been taken by Volkswagen is further not clear as no communication about the same had been passed on to the suppliers and without providing any notice the contract has been breached. This clearly shows that the requirements of corporate governance hasn’t been adhered to as steps have been taken without ensuring proper transparency in the working style. In addition to it another issue of corporate governance which is being witnessed is lack of fairness. The process which Volkswagen has adopted to reduce suppliers is unfair and suppliers haven’t been provided the required time and information to deal with it. The process which has been adopted is one which is ambiguous as fairness hasn’t been looked at (Freeman, Edward, Wicks & Andrew, 2004). It is imperative that organizations working at the higher level incorporate a degree of corporate governance so that fairness can be ensured. This will help to build long term relations and would ensure that the entire mechanism to carry out different work is better. The article also brings forward the manner in which proper disclosures are not maintained by Volkswagen. It was imperative on the part of Volkswagen to ensure that they bring forward the reason for removing suppliers (Bonazzi & Islam, 2007). The company should have acted fairly and should have ensured that proper disclosure was made regarding the removal of suppliers. Volkswagen should have followed a policy where the suppliers were informed first and after a certain period of time any action was taken. This would have helped the suppliers to make proper strategies and ensure that the different reasons which have been highlighted were dealt in a better way. Proper disclosure would have helped Volkswagen to ensure that corporate governance policies were properly followed and would have ensured that they acted fair in all the dealings carried out by them. In addition to it the article indirectly highlights the manner in which proper monitoring and governance was lacking in the working style. This resulted in rapid actions and suppliers filing a law suit against the organization. Since, the process of monitoring was not properly carried out the organization was not able to find out whether the products supplied by the suppliers were substandard or not (Jensen, 2004). This resulted in different scandals which had an impact on the brand image. As a result Volkswagen was in no position through which they could have brought about the required dimensional changes through which proper monitoring and governance would have become possible. The overall dimension shows that Volkswagen ignored the different corporate governance requirements which would have eased the entire process and would have helped to take better decisions. The process would have also led towards ensuring that the brand image was not impacted and would have benefitted both the suppliers and the car manufacturer. Reasons for argument in the media The article has found a place in the media as it has highlighted the manner in which Volkswagen didn’t look at adhering the corporate governance requirements. It is imperative that all organizations have a plan where they look at proper corporate governance needs. This is lacking as shown in the article as Volkswagen didn’t look to have enough transparency and fairness in the working style. Further, Volkswagen has undergone an emission scandal before the incident which also highlighted that the organization didn’t have corporate governance policies in place. The article and the steps which Volkswagen has undertaken follow the emission scandal. Bringing the same to the knowledge of the society at a large has been one of the reasons for the article being highlighted in the media. In addition to it the need for corporate governance is increasing. Each and every organization is looking to take steps through which they can highlight the manner in which they are looking to contribute towards the society. Organizations not adhering to the find difficult to manage the business as media continuously look towards bringing forward the issue so that the stakeholders interest can be protected. This is another reason which has led towards the article to be highlighted in the media. This will help to bring forward the attention of the people and will help the society to understand the manner in which the organization was working and the different aspect of corporate governance was adhered. The other reason which has led the article to be in the media is that the media wants the society to understand the actual situation which Volkswagen is facing. The media wants to bring towards the knowledge of the society the tussle which Volkswagen is facing between the suppliers and the manufacturer. This will help the society on a large to take a stance regarding the one who is correct so that they can be supported and the interest of the stakeholders can be easily protected. This will help to ensure that the differences which are present between the suppliers and the car manufacturer can be easily resolved and the overall business can be carried out in the most effective manner. Thus, there are diverse reason which has made the article to be in the media as it helps to draw the attention of the people in the society and provides an impetus through which corrective actions can be taken. Personal Opinion I feel that Volkswagen has completely ignored the corporate governance norms as the steps which are taken by them is due to the pressure they are feeling from the emission scandal which has impacted their business. The steps which Volkswagen has taken against the suppliers are an after effect of the emission scandal. Volkswagen which is looking to cover up the emission scandal is looking to remove suppliers and bring forward the manner in which the suppliers had a role in the emission and due which the brand image is being impacted. It is further seen that the steps which Volkswagen has taken in appropriate as it lacks transparency and fairness. Volkswagen didn’t give many of the suppliers an opportunity to discuss the situation. The organization is looking to control cost and since the sale has fallen after the scandal the car manufacturer is using it as an opportunity to directly breaching the contract with the suppliers (Donaldson & Davis, 1991). The car manufacturer should have instead ensured transparency and fairness so that suppliers who were previously supplying the materials were rightly addressed and the issues were resolved. The other issue of corporate governance which was witnessed is that the organization didn’t follow the prescribed code of conduct which should have been followed while looking to appoint or remove the suppliers. It is imperative that Volkswagen follows the prescribed code of conduct which they have determined for carrying out the activities (Tony & Kerry, 2009). Since, Volkswagen hasn’t looked at following the correct code of conduct it has resulted in breaching the corporate governance norms which should have been followed. The article also shows that an aspect of corporate governance which was not followed is proper monitoring and governance. If Volkswagen had already used a process of proper monitoring then the products which the suppliers were supplying would have been checked. This would have ensured that the entire process would have checked the authenticity of the product. This would have ensured that the products would have been as per the standard and Volkswagen need not have to look at taking steps of reducing the suppliers and breaching the contract. This also puts the organization in a bad light as it is impacting the relation with the suppliers which would make it difficult even in the future to build healthy relations. Thus, there are several aspect of corporate governance which hasn’t been followed by Volkswagen which has resulted in impacting the overall manner in which different activities were carried out. It is important that Volkswagen looks at achieving the required code of practice so that corporate governance norms can be achieved and the overall working can be better shaped. Conclusion The paper thereby evaluated the article titled “VW’s Battle with Contractors gets Unusually Messy” by Geoffrey Smith published on 22nd August in the Fortune. The paper evaluated the above mentioned article on different parameters and highlighted the manner in which the different aspects of corporate governance were ignored. This paper started by providing the different arguments which were raised in the article which was followed by the corporate governance issues raised. The paper then provided the reasons for the article to be in the media and provided my personal opinion on the same. The article thereby helped to understand the manner in which corporate governance which is an important aspect of the society was ignored and the different dimensions which the car manufacturer has to look at so that better working relations can be developed. References Bonazzi, L. & Islam, S. 2007. Agency Theory and Corporate Governance: A study of effectiveness of board in monitoring of CEO’s. Journal of Modelling in Management, 2 (1), 7-23 Corfield, A. 1998. The Stakeholder Theory and its Future in Australian Corporate Governance. Bond Law Review, 10 (2), 213 Donaldson, L. & Davis, J. 1991. Stewardship Theory or Agency Theory: CEO Governance & Shareholder Return. Australian Journal of Management, 16 (1), pp. 49-64 Freeman, S., Edward, R., Wicks, H. & Andrew, C. 2004. Stakeholder Theory & the Corporate Objective Revisited. Organization science Jensen, M. 2004. Value Maximization, Stakeholder Theory & Corporate Objective Function. Harvard Business School, Research Paper No 01-01 Tony, N. & Kerry, H. 2009. The stakeholder theory in the modern global business environment. International Journal of Applied Institution Governance, 1 (1), 3 Read More