Destructive Leadership at Volkswagen Company - Case Study Example

Volkswagen’s Diesel-gate Name Institutional Affiliation Volkswagen’s Diesel-gate Introduction Before diesel scandal in 2015, there was chain of mistakes that occurred in the Volkswagen Company. From the use of Toxic triangle technique, the C.E.O was using authoritarian management style that made the employees have feared that might have discouraged the engineering team to fix the problem. Also, there were personalized powers as there was a family that assumed that the company belongs to their family and should not be led by the outsiders which caused instability. The problem was also caused by the ambitions to export triple the previous number of vehicles to the U.S by 2018 which made the company cheat to overcome the emission tests and also to defeat Toyota Company which was the largest automaker worldwide. Further, there was insufficient flow of communication in the organization due to inappropriate cultural values that did not allow the subordinates to have comments on the outputs and there are perceived threats such as fines and settlements that would have a significant impact on the financial position of the company. The company also has an ideological hate in the market that is being propagated by its competitors and would great effects on its brand image. The words such as “hoax” and “Big Bad Wolf of Wolfsburg” would tarnish the brand of the company. Moreover, the company had bad values that compromised their integrity and pushed them to deceive the consumers and the governments of various countries to an extent of being awarded tax incentives that they are making the air cleaner. A toxic triangle is instruments that can be used to gain a clear understanding of the real factors that can cause a business corporation to fail in particular the market. The triangle is composing of the components such as Destructive Leaders, Conducive Environment and the Susceptible Followers. Volkswagen is a company that is based in Wolfsburg, Germany. The company deals with the manufacture of cars, and it has subsidiaries in different parts of the world especially in the United States (U.S). In 2015, it was reported that the company was involved in a fraud by cheating in the emission tastings in the U.S according to Environmental Protection Agency (EPA) (Bovens, 2016). Therefore, using the toxic triangle model, this paper would discuss the causes of the failure of the company. Destructive Leadership Charisma The leaders of the company did not consider the mechanism of failure to foster dialogue. For instance, the professional engineers in the Volkswagen Company have vast experience in solving the issue of carbon emissions, but they were denied the opportunity to tackle the problem (Mesch, 2016). It happened due to the destructive management style that was being practiced by the C.EO, Mr. WinterKorn. It is believed that Mr. WinterKorn might have discouraged the technical team from fixing the issue by asking them to intensify it further through designing of software that would deceive the emission tests. The top leadership of Volkswagen Company crafted myths about its diesel engine to deceive the members of the public. The management cheated the about the engines qualities such as the ability to cover massive mileage, efficiency performance and the environmental friendly which was not true (Nemeth and Carvalho, 2017). The leadership of the company went further to explain how their over 11 million vehicles have software that able to detect pollution. All this charm from the management has made the company to face multiple court cases across different nations in the world. Personalized Powers In the Volkswagen Company, the shareholders were being controlled. The families of Piech and Porsche decided to replace Winterkorn with Potsch for the position of the chairman of the board. It was a clear mission of the company to focus on the recovery rather than investigating the source of the scandal (Fracarolli Nunes et al., 2016). The whistleblower from the company was also fired after warning the staffs from the Information Technology (IT) department not to discard the evidence. The action of sacking the informer further tarnishes the image of the company as it shows that the corporation is based on dishonesty. Further, the report of the investigation was supposed to be represented before the sub-committee of the board was later canceled despite that the shareholders were promised that they would be informed of the preliminary reports (Fracarolli Nunes et al., 2016). The two families ensured that Mr. Potsch would chair the committee that was concerned with the investigations so that to prevent the shareholders from being aware of what transpired in the scandal. Therefore, all these events of manipulations of the Volkswagen management created an unethical leadership in the company. Moreover, the administration of the business was for a long time is under the control of one clan that gives the chance of personal ownership. After the scandal was relapsed to the public, Peich whose family has owned the company since its inception by his great grandfather, he created a series of attempts to remove the C.E.O Winterkorn from the helm of the enterprise. Peich had a belief that the company belongs to their family and an outsider should not lead it (Cue, 2015). The analyst is stating that the leadership struggle within the Company might have motivated the C.E.O to conceal the defects in the diesel engine to have more sales that can make the earnings of the shareholders to grow. It was a strategy of retaining the leadership of the company by having a good performance that was fabricated. Ideology of hate The diesel gate scandal has made the image of Volkswagen to rebrand as “Big Bad Wolf of Wolfsburg” in the market. The competitors of the company have taken advantage of the situation to discredit the image of the company in the mind of the consumers so that to attract them into their brands (Franco, 2016). The competitors are stating that Volkswagen Company cheated the EPA in the emission test so that they can boost their total sales in various part of the world. They modified their engine system a manner that emission testing gadget cannot be able to detect any pollution to conceal the fraud. Susceptible Followers Bad Values There were great desires to have vehicles that have better fuel economy and environmentally friendly to tackle the problem of climate change. It made the Volkswagen Company introduce a diesel engine in late 2008 that meets various requirements in its principal markets such as in the U.S (Lang, 2015). The diesel engine made the brand of the company to earn good image in the market because of its fuel efficiency, good performance, and the affordable price. However, when the Environmental Protection Agency in the U.S issued a notice of violation of the environmental standards by the 580,000 Volkswagen vehicles that were sold in the country, the image of the company was tarnished for deceiving the entire world about the quality of their products (Cavallone et al., 2016). It happened after the company had been involved in the massive advertisement activities from the print Medias and Super Bowl Commercials to enhance their sales from the defective products. After the scandal, the company was rebranded names such as “false advertising,” “Hoax” and “consumer fraud” that tarnished the image of the enterprise further. It marked one of the horrific damage of reputation that the company faced after a long history of more than 80 years. The engineers of Volkswagen Company might have been motivated by some factors to make such a horrific decision. Various business analysts state that the factors could be pressure, opportunity, and rationalization (Koplin et al., 2007). These factors are widely known for as fraud triangle or dangerous triad as their simultaneous present would often force the employees to commit unethical acts. In the company, there was intense pressure from the top management of the company such as code of conduct that states that employees should be well trained on the ethical values. The values seemed that they were compromised in a situation where the dictatorship management style of the leaders and the goal-focused attitude that was intending to succeed by all means possible (Krachler and Rzehorska, 2017). The reputation of those company engineers was also at stake. Their failures in the design and manufacturing would have significant consequences to the economy of German and their expertise would be questionable. There was also an opportunity for the deceiving to take place in the organization. There was a directive from the management to the engineers to search for an effective solution (Koplin et al., 2007). The engineers knew that internal testing would be conducted by the agencies such as EPA in the U.S that made them introduce software that would interfere with the emission tests. They went further to fit the modern vehicles with multiple codes with the intention of deceiving the tests in a sophisticated manner (Fabbio, 2017). The other factor was due to rationalization. The engineers had a clear understanding that in the 1970s, the company had cheated by introducing some devices that had a mere consequence of $ 120,000 as a penalty. The engineers knew that even if the commit the same of offense on the newly established emission standards, they have already rationalized. They did it with the intention of working in the best interest of the firm, and the resultant outcome was that the management approved it. Volkswagen Company also deceived the shareholders to purchase their stocks in various money markets in different countries and the consumers to continue buying their products (Koplin et al., 2007). The staffs of the company also helped in making of faulty cars, and the dealers also persisted because they had a feeling that had no reason to raise complaints about the defects (van Someren and van Someren-Wang, 2016). The company was able to use all these stakeholders to boost their sales and propel their growth without considering that these parties have a right to make their individual decisions. Ambitions When WinterKoorn took over the leadership of the company, he unveiled a bold strategy that would see the company triple its previous sales volume in the U.S in a decade. It was an effective strategy to overtake Toyota Company that was the largest automaker globally (Go et al., 2016). The target was to introduce diesel-powered vehicles that have high mileage performance and limited emission without compromising the efficiency. The management realized that they cannot be able to achieve those goals without cheating the consumers and the EPA about the emission by installing software that would make the defects not to be detected (POLICY et al., 2016). The record of the sales of the company at the time the fraud was noticed by the EPA, they were on the right track to achieve their goals as they were able to sell over 500,000 vehicles for a short duration. However, due to cheating on the emission testing, the company now faces numerous liabilities that range from the lawsuits to fines from the consumers and the federal government in the U.S alone. Conducive Environment Cultural Values The cultural values are critical in the determination of the company success. They are powerful forces that can make individuals make decisions that do not match with the best interest of the enterprise (Koplin et al., 2007). The company is always consisting of people who would not allow an honest exchange of information regarding the operations of the company to take place internally which results in a disaster (Dee, 2015). It is the cultural failure that led to Volkswagen’s diesel gate scandal. The organization had a top-down management structure that did not allow the junior staffs to share their comments about the production output. The administration believed that they had autonomy of ideas and they did not expect to either receive or share with another group of stakeholders within the company. The business analysts’ states that suppose there was a free flow of information within the company, the scandal would have been avoided (Riehm and Lindner, 2017). The management was pushed with much pressure to meet the production timeline and the great desire for the promotion that makes them not to consider the consequences of their actions (Koplin et al., 2007). There were classified secrets of the mechanical details of the engines and the employees were not permitted to access such kind of information. The infamous diesel engine was a product that was designed and developed internally, and the technology did not meet the set standards of emission. However, instead of rectifying the problem, the company decided to fabricate it using the installation of software that is developed to hinder emission tests. It was able to make the vehicles to appear an environmental friendly than they were (Koplin et al., 2007). It all happened due to the cultural values that the leadership of the company established. Martin Winterkorn, the C.E.O of Volkswagen Company, was a leader who demanded more from the employees that created an environment of fear within the organization (Cue, 2015). The C.E.O used an authoritarian management style that created fear among his subordinates to the extent that they were not able to express their opinions on the design of the diesel engine. Further, the C.E.O had ambitious goals such as becoming the largest carmaker in the entire world. On those goals, there was an aim of penetrating into the U.S market in a significant manner to sell more than 5 million cars in early 2015 so that to beat the record (Colli, 2016). Being driven by the motive to achieve those goals, it resulted in a notice of violation from the EPA, the massive number of lawsuits from the car consumers and the criminal probes from the department of justice in the U.S. Perceived threats The company would be facing certain threats that could have an adverse impact on its operations. The immediate threat is the expenses of recalling the vehicles to rectify the issue. The company was planning to spend estimated $7.25 billion to handle the worsening situation from the scandal that was to be factored in the third quarter financial budget (Terry-Armstrong, 2016). Although, the budget to cover the damage could be evaluated again because the investigation over the issues is still in progress. The other perceived threat is the private settlement. It is expected that the company would face private lawsuits in the coming years that would cost the company a significant amount of money that could affect their financial positions. For instance, there are more than 50 cases that have been filed by customers for being deceived by the company that they are driving cleaner vehicles (Boretti, 2017). Further, the company enjoyed the tax incentives from the federal government of the U.S that worth more than $ 50 million. The amount was gained from the falsified diesel engine benefits. It shows that the company would have more parties to compensate if the cases go through. The company was expected to lose some volume of sales in the future. Various studies on the enterprises that have been implicated in fraud, the financial implication that is imposed would be more than seven times than the legal liabilities. Apart from the settlements and the fines that Volkswagen would be facing in the future, the company would also risk losing a significant segment of its total sales (Cârstea, 2016). For example, from 2008, 12 percent of the total sales was in the U.S, and if that country would ban the importation of the Volkswagen Vehicles, then that would be much greater. The experts in the automotive industry assert that the scandal would cut-off the total sales of the company at the rate of 2 percent annually shortly. The government of various countries would impose fines and settlements against the Volkswagen Company especially in the U.S. According to the Environmental Protection Agency (EPA), there would fine each vehicle that did not adhere to the federal standards of clean air at the rate of $ 37,500. It means that in the U.S alone, the company would incur a penalty of $18 billion before the other countries across the world also do the same (Colli, 2016). It is an indication that Volkswagen would incur huge additional expenses to settle the fines which would have a significant implication on the company to the extent that it falls in the verge of bankruptcy. Instabilities There was an insufficient corporation within the company as each party was blaming one other over the cause of the diesel gate scandal. The management board of the company and the supervisory board had a wide rift with each (Barth et al., 2017). For instance, Piech claims that the oversight board of the business was aware of the defects and they all colluded to cheat. It is an indication that the company was operating as a divided unit before the occurrence of the scandal. The analysts in the industry are suggesting that suppose the company was having the culture of corporation and coordination; the fraud would not have occurred. The fraud took place due to fractures within the organizational structure of the company. Padilla and colleagues (2008) argued that having unethical and destructive leaders alone are insufficient in triggering destructive leadership outcomes. Based on your analysis, do you agree or disagree with their conclusion? I do not agree with their conclusions because there are other factors apart from unethical and destructive leaders such as personalized powers, narcissism, ideology of hate and the negative life themes that contribute to destructive leadership results. 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