tag:theconversation.com,2011:/uk/topics/volkswagen-emissions-scandal-20831/articlesVolkswagen emissions scandal – The Conversation2024-01-10T16:34:08Ztag:theconversation.com,2011:article/2208052024-01-10T16:34:08Z2024-01-10T16:34:08ZPost Office will struggle to rebuild brand trust – as Boeing and Facebook scandals show<figure><img src="https://images.theconversation.com/files/568654/original/file-20240110-16-jk1eme.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4207%2C3246&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/people-line-outside-post-office-cambridge-1865055061">Edward Crawford/Shutterstock</a></span></figcaption></figure><p>The Post Office, once an <a href="https://www.emerald.com/insight/content/doi/10.1108/EJM-11-2014-0691/full/html">iconic British brand</a> has fallen from grace following the <a href="https://theconversation.com/the-post-office-scandal-is-possibly-the-largest-miscarriage-of-justice-in-uk-history-and-its-not-over-yet-211217">Horizon IT Scandal</a>. With over 11,500 branches, it’s the <a href="https://corporate.postoffice.co.uk/#:%7E:text=With%20over%2011%2C500%20branches%2C%20we,retail%20franchise%20network%20in%20Europe.&text=An%20anchor%20of%20UK%20communities,people%20who%20rely%20on%20us.">largest retail franchise</a> network in Europe, offering a variety of products – not just postal, but cash and banking, foreign exchange and government services. Post offices are also often an important social hub for communities, not to mention offering a chance to run a vital local business for people around the UK.</p>
<p>The Horizon system, developed by Fujitsu, was introduced in 1999 to help branches manage transactions, accounts and stocktaking. It has since been revealed as faulty, causing account shortfalls often initially blamed on those people running the branches (known as sub-postmasters and mistresses). As a result of the system’s errors, these workers were accused of fraud and theft, and wrongly prosecuted. A <a href="https://www.itv.com/watch/mr-bates-vs-the-post-office/10a0469/10a0469a0001">new ITV four-part drama</a> has put a spotlight on the scandal, renewing pressure on the government Post Office to <a href="https://www.bbc.co.uk/news/live/uk-politics-67926661">exonerate and compensate</a> hundreds of former workers.</p>
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<p>One of the <a href="https://www.onepostoffice.co.uk/secure/latest-news/our-business/brands-we-trust-where-we-sit-in-the-rankings/">UK’s most trusted brands</a> only a few years ago, the Post Office has since drawn near-universal ire
<a href="https://www.itv.com/news/2021-04-23/post-office-postmasters-horizon-court-of-appeal">for its treatment of its sub-postmasters and mistresses</a>. The ITV show has only reignited the controversy.</p>
<p>Trust is crucial to the relationship brands develop with consumers. These connections help attract new customers, but also create long-term buying habits. It takes time and effort to build this kind of trust, but it can crumble in an instant, as major brands like Facebook, Boeing and Volkswagen – and now the Post Office – have found. Rebuilding this trust after a scandal takes even more time and effort and the results can be mixed.</p>
<p>Brand trust is multifaceted but can be thought of as the <a href="https://www.researchgate.net/publication/257541748_Does_Having_an_Ethical_Brand_Matter_The_Influence_of_Consumer_Perceived_Ethicality_on_Trust_Affect_and_Loyalty">confidence, reliability and credibility</a> that consumers and other stakeholders – such as investors, suppliers, employees and even competitors – associate with a brand. It reflects the belief that a brand is competent, consistent, honest and takes responsibility for delivering on its promises and acting in the best interest of consumers. </p>
<p>People can <a href="https://www.jstor.org/stable/10.1086/209515">develop strong emotional attachments to brands</a> and trust is typically <a href="https://hbr.org/2019/07/the-trust-crisis">at the core</a> of these relationships. Trust underpins people’s commitment and <a href="https://business.columbia.edu/sites/default/files-efs/pubfiles/593/The_Chain_of_Effects.pdf">loyalty</a> to a brand. And when a brand earns people’s trust, it can be rewarded with more sales, positive word of mouth, and long-term custom, <a href="https://www.adobe.com/content/dam/cc/uk/aboutadobe/newsroom/pdfs/051121-future-of-marketing.pdf">according to research</a>. <a href="https://www.researchgate.net/publication/227895249_Examining_the_Antecedents_and_Consequences_of_Corporate_Reputation_A_Customer_Perspective">Academic studies also show</a> the importance of trust to corporate reputation. </p>
<h2>From hero to zero</h2>
<p>So, when this trust is broken, it can be highly damaging for a brand, as big names have found in the past. </p>
<p>In 2018, social media platform Facebook was at the centre of a major data breach. Governments around the world questioned the company’s commitment to data privacy after <a href="https://www.theguardian.com/technology/2018/apr/08/facebook-to-contact-the-87-million-users-affected-by-data-breach">87 million users</a> were confirmed to have had their personal data shared with Cambridge Analytica. The political consultant was using the data to target voters during the 2016 US presidential election. </p>
<p>Facebook founder and CEO Mark Zuckerberg apologised in a Facebook post acknowledging “a breach of trust between Facebook and the people who share their data with us and expect us to protect it”. But his initial response – <a href="https://www.theguardian.com/technology/2018/mar/21/mark-zuckerberg-response-facebook-cambridge-analytica#:%7E:text=The%20Facebook%20CEO%20broke%20his,expect%20us%20to%20protect%20it%E2%80%9D.">deafening silence for five days</a> – probably didn’t help shore up consumer trust in the brand. </p>
<p>The scandal had huge implications for data privacy and governments acted swiftly to pass laws and regulations to protect consumers, including the EU’s <a href="https://digital-strategy.ec.europa.eu/en/policies/digital-services-act-package">Digital Services Act</a>. In the aftermath of scandal, Americans were also <a href="https://theconversation.com/cambridge-analytica-scandal-facebooks-user-engagement-and-trust-decline-93814">less likely to trust</a> Facebook. </p>
<p>More recently, aeroplane maker Boeing’s reputation for quality has been decimated. First, a damning <a href="https://www.imdb.com/title/tt11893274/">Netflix documentary</a> examined the 2018 and 2019 crashes of two 737-MAX jets and the company’s choices about <a href="https://www.theguardian.com/film/2022/feb/22/downfall-the-case-against-boeing-netflix-documentary-737-max">passenger safety</a>. Boeing spent <a href="https://www.thetimes.co.uk/article/we-regain-trust-one-aircraft-at-a-time-says-boeing-boss-dave-calhoun-998fwztnv#:%7E:text=of%20Alba%202023-,We%20regain%20trust%20one%20aircraft%20at%20a,says%20Boeing%20boss%20Dave%20Calhoun&text=Boeing%20has%20spent%20four%20long,its%20bestselling%20737%20Max%20aircraft.">four years rebuilding trust</a> after <a href="https://www.boeing.com/737-max-updates/official-statements/">the two fatal crashes</a>. But the recent <a href="https://www.bbc.co.uk/news/world-us-canada-67915771">mid-air cabin panel blow out</a> of a 737 MAX 9 has seen Boeing hit the headlines again, further damaging the company image and leaving customers, pilots, crew and regulators asking why they should trust the company. </p>
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<p>At an all-staff meeting shortly after the incident, <a href="https://edition.cnn.com/2024/01/09/business/boeing-safety-meeting-737-max-factory/index.html">CEO Dave Calhoun told employees</a> that Boeing must acknowledge “our mistake” and has promised total transparency. A video of <a href="https://www.boeing.com/737-9-updates/index.page#:%7E:text=hosted%20a%20meeting%20with%20all%20employees">his opening statement</a> was also posted on the company website.</p>
<p>Volkswagen experienced similar trust issues after a scandal dubbed “emissionsgate” or <a href="https://www.bbc.co.uk/news/business-34324772">“the diesel dupe”</a>. The car company is still struggling after the US environmental regulator <a href="https://www.epa.gov/vw/learn-about-volkswagen-violations">accused the company</a> of cheating on vehicle emissions tests. Customers <a href="https://www.thedrum.com/news/2015/09/23/has-volkswagen-s-emissions-scandal-smashed-brand-beyond-repair">lost trust</a> in the brand and the company, after admitting fault, also had to pay billions of dollars in fines and compensation claims. </p>
<p>“Our most important task in 2016 is to win back trust,” Volkswagen CEO Matthias Mueller said in a January 2016 speech at an auto industry event.</p>
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<h2>Rebuilding trust in a brand</h2>
<p>In the aftermath of a brand crisis, <a href="https://www.tandfonline.com/doi/abs/10.1080/13527266.2023.2172601">communication</a> in the form of this kind of brand apology is key. But <a href="https://theconversation.com/boeing-is-doing-crisis-management-all-wrong-heres-what-a-company-needs-to-do-to-restore-the-publics-trust-114051">Boeing</a> is still being accused of doing crisis management “all wrong”, and Facebook has also been <a href="https://insigniacrisis.com/2019-facebook-a-lesson-in-crisis-management">criticised</a> for its scandal response. </p>
<p>The speed of the response matters. An effective crisis management approach typically involves company leaders issuing swift public statements – often filmed – acknowledging responsibility and full transparency about the mistakes that lead to the scandal and the remedial steps.</p>
<p>Trust can be rebuilt but it’s a long-term process. Some <a href="https://fabrikbrands.com/brands-and-companies-that-have-repositioned-themselves/">companies</a> such as Starbucks and Gucci have successfully <a href="https://press.farm/brand-repositioning-strategies-rebuild-trust/">repositioned their brands</a> to alter the perceived image held by consumers. This involves changing marketing elements such as prices or promotional methods to attract new customers and refresh the brand image. In some cases, it involves a complete rebrand with a new logo and tagline.</p>
<p>The latest headlines have reignited debate about what the Post Office and the government should do to address the Horizon IT scandal. The Post Office must find the right kind of crisis management strategy if it wants to weather this storm and regain its position as a trusted British brand.</p><img src="https://counter.theconversation.com/content/220805/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sameer Hosany does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Companies like Facebook, Volkswagen, Boeing – and now the Post Office – have seen how easy it is to destroy brand trust. But communication and transparency are key to rebuilding efforts.Sameer Hosany, Professor of Marketing, Royal Holloway University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1334112020-03-11T12:29:58Z2020-03-11T12:29:58ZVolkswagen’s climate activist won’t be able to change the green credentials of the company any time soon<p>Volkswagen’s CEO Herbert Diess announced that he wants to recruit an “<a href="https://www.ft.com/content/213c954a-5748-11ea-a528-dd0f971febbc">aggressive climate activist</a>” to work for the company, with direct access to the board in order to challenge its green policies. While this seems honourable, VW is starting from a bad position. The company belongs to an industry that is responsible for <a href="https://www.europarl.europa.eu/news/en/headlines/society/20190313STO31218/co2-emissions-from-cars-facts-and-figures-infographics">72% of transport emissions</a> in the EU – with transport itself being 30% of all CO₂ emissions.</p>
<p>In 2015, VW admitted to <a href="https://www.volkswagen-newsroom.com/en/press-releases/volkswagen-ag-has-issued-the-following-information-1690">cheating emissions testing regimes</a>. Its diesel engines were fitted with devices to make them look less polluting than they really were during testing by US and EU regulatory authorities. “<a href="https://theconversation.com/uk/topics/dieselgate-20795">Dieselgate</a>” had huge knock-on effects, with buyers shunning diesel engine vehicles from all manufacturers in the past five years, and <a href="https://www.smmt.co.uk/2020/03/uk-new-car-market-falls-2-9-in-february-as-industry-calls-for-tax-free-evs-to-kick-start-demand/">diesel sales down 27% in the UK year-on-year</a>.</p>
<p>As if this wasn’t bad enough, evidence surfaced suggesting that as late as 2014, VW was testing its vehicle exhaust emissions <a href="https://www.bbc.co.uk/news/business-42876336">on humans and monkeys in the US</a>, when it had been known the exhausts contained particles that could cause cancer. In a post-Greta Thunberg world, VW is realising that it needs to clean up its act. In fact, it sounds like it wants its very own Thunberg.</p>
<h2>The upstarts leading the market</h2>
<p>The problem for VW is that in the past decade, the car industry has moved on – helped in no small part by a Californian company whose slogan is to accelerate the world’s transition to sustainable energy. That company is Tesla, and in 2019 it delivered nearly 400,000 fully electric cars that do not produce harmful tailpipe emissions and generally, over their life cycle, <a href="https://theicct.org/sites/default/files/publications/EV-life-cycle-GHG_ICCT-Briefing_09022018_vF.pdf">produce half the CO₂ of diesel cars</a>.</p>
<p>The VW group delivered 80,000 plug-in cars over the same period, <a href="https://insideevs.com/news/392748/2019-volkswagen-sold-over-80000-plugin-cars/">with a little over half being fully electric</a> – one-tenth of Tesla’s production. This might look like progress for the German multinational, which is also the world’s largest automotive manufacturer. But when you consider VW <a href="https://www.statista.com/topics/1574/volkswagen/">made nearly 11 million vehicles in 2019</a>, 40,000 is a drop in the ocean. </p>
<p>It’s not like electric vehicles are new to the German company. VW delivered its first widely available full electric model, the e-Up!, in 2013, which was the same year Tesla delivered its first Model S cars. The difference for consumers was that the e-Up! had a range of 93 miles, and the Model S 265 miles. Tesla’s 2020 Model S is now <a href="https://www.tesla.com/models">approaching 400 miles range on one charge</a>. For many drivers choosing an electric car, the VW product has failed to keep up.</p>
<p>So is VW trying to show that sustainable vehicles are now its primary objective? Or is it simply a PR stunt? Large corporations are only too aware that “edgy” branding strategies appeal to customers, and sustainability is very much in the public consciousness. <a href="https://theconversation.com/nike-colin-kaepernick-and-the-pitfalls-of-woke-corporate-branding-102922">Nike’s advertising campaign with Colin Kaepernick</a> was just the latest, and of course, Apple perfected the use of “radical” imagery to sell stuff decades ago.</p>
<p>Certainly, VW has a long way to go – and if you take a look at the website, electric cars <a href="https://www.volkswagenag.com">compose a large part of the company’s brand identity</a>. But the problem for VW remains – an upstart electric vehicle company can sell ten times the number of cars it can, at a significantly higher average selling price. </p>
<p>International motor shows in the past five years have been dominated by the move to electrification. Most manufacturers now agree that, at least for passenger cars, the future of their products is in electric vehicles. While many have flirted with hybrid and hydrogen power, lithium-ion batteries and electric motors have now proved that they can power not only the fastest, but <a href="https://theicct.org/sites/default/files/publications/EV-life-cycle-GHG_ICCT-Briefing_09022018_vF.pdf">also the cleanest vehicles</a>, with the least disruption to existing infrastructure in developed areas. After all, electricity is already available in virtually all homes and businesses and where people park cars.</p>
<p>An enormous multinational such as VW does of course face unique challenges. Huge supply chains that have been carefully constructed, combined with numerous products that take years to develop – it all means that change is harder for VW than disruptive start-ups such as Tesla or Rivian. </p>
<p>What will change VW is what changes all businesses – demand from the market. The former CEO of General Motors, Bob Lutz, wrote the book <a href="https://archive.fortune.com/2011/06/08/autos/bob_lutz_book_review.fortune/index.htm">Car Guys vs. Bean Counters</a> when his company was the largest in the world. If electric vehicles is where the profitable business is, then that’s where all VW’s efforts will go.</p>
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Read more:
<a href="https://theconversation.com/nike-colin-kaepernick-and-the-pitfalls-of-woke-corporate-branding-102922">Nike, Colin Kaepernick and the pitfalls of 'woke' corporate branding</a>
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<p>Just as people were convinced to buy diesel cars due to favourable tax regimes and lower running costs – even though the cars were more expensive and complex to manufacture – VW made huge amounts of them, because the market demanded it. While it’s often difficult for large companies such as VW to change, market forces will eventually lead them to do so anyway. The same goes for <a href="https://inews.co.uk/opinion/columnists/shell-changing-name-shell-international-womens-day-patronising-stunt-2441110">Shell renaming itself “She’ll” on International Women’s Day</a>. Socially conscious branding is often a convenient vehicle for disguising cold, market logic.</p>
<p>Having your own boardroom Greta Thunberg simply makes for a better story.</p><img src="https://counter.theconversation.com/content/133411/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tom Stacey does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>After ‘Dieselgate’, Volkswagen appears keen to rescue its public image. Now it’s looking to hire its own ‘Greta Thunberg’.Tom Stacey, Senior Lecturer in Operations and Supply Chain Management, Anglia Ruskin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1056322018-11-05T18:49:24Z2018-11-05T18:49:24ZThe Volkswagen scandal: will the US justice system change managers’ behaviour?<figure><img src="https://images.theconversation.com/files/242126/original/file-20181024-71020-19mb29d.jpg?ixlib=rb-1.1.0&rect=0%2C15%2C1500%2C961&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">VW was hit with more than $15 billion in penalties in the United States.</span> <span class="attribution"><span class="source">KDN759/Shutterstock</span></span></figcaption></figure><p>The <a href="https://www.cleanenergywire.org/factsheets/dieselgate-timeline-germanys-car-emissions-fraud-scandal">“Dieselgate” scandal</a> is one for the management books. In 2014, Volkswagen was on track to become the world’s biggest car manufacturer when it figured just a little too prominently in an <a href="https://www.theicct.org/publications/real-world-exhaust-emissions-modern-diesel-cars">International Council on Clean Transportation study</a> that highlighted striking differences between the emissions of its cars in the lab and on the road. The company was subsequently accused by the US Environmental Protection Agency of <a href="https://www.epa.gov/sites/production/files/2015-10/documents/vw-nov-caa-09-18-15.pdf">installing devices to defeat emissions tests</a>, and 2016 VW agreed to pay nearly <a href="https://www.nytimes.com/2016/06/28/business/volkswagen-settlement-diesel-scandal.html">$15 billion to settle claims</a>, and the total eventually grew to $21 billion. This year the firm was hit with a <a href="https://www.nytimes.com/2018/06/13/business/volkswagen-emissions-germany-fine.html">1.2 billion euro fine</a> in Germany, and the battle continues, with US investors <a href="https://www.nytimes.com/2018/09/09/business/volkswagen-investors-dieselgate-trial-elliott-paul-singer.html">demanding compensation</a> for losses they suffered because of VW’s cheating, and a <a href="https://www.ft.com/content/a8def230-336a-11e8-b5bf-23cb17fd1498">looming suit in the UK</a>.</p>
<p>For a professor of management science, the central question is clear: how could a world-renowned company like Volkswagen knowingly violate US air-pollution standards despite the senseless risks to which it was exposing its reputation and bottom line?</p>
<p>The <a href="https://www.hbs.edu/teaching/case-method/Pages/default.aspx">case method</a> is one possible way of answering this question while avoiding two pitfalls. The first is being too close, making it difficult to avoid total immersion and drowning in details; the second is being too distant, leading to a featureless description of the events. In a special issue of the <em>Revue Française de Gestion</em>, <a href="https://www.cairn.info/revue-francaise-de-gestion-2017-8-page-83.htm">“Management facing the judiciary: The challenges of internormativity”</a> we attempted to track down the truth at the heart of “Dieselgate”, with a particular focus on the conflict between the legal standards produced by public authorities and the managerial standards produced by companies.</p>
<h2>A culture of arrogance?</h2>
<p>The mystery in front of us, it’s time to look for clues. There are three possible explanations: First, Volkswagen’s “company culture”, rooted in its history since the 1930s. In the rules and regulations game, neither US nor European regulators were taken seriously. The company accepted standards because it knew it wouldn’t be complying with them. The <a href="https://global.handelsblatt.com/mobility/us-monitor-vw-had-corrupt-culture-flawed-leadership-867040">seriousness of lies in American culture</a> had perhaps been underestimated.</p>
<p>The second possible explanation concerns the pre-eminence of VW’s managerial standards over US legal standards: VW’s research and development (R&D) teams knew that the environmental requirements on air pollution were much more stringent in the United States than in Europe. To meet these requirements for diesel cars, which represented only a small share of the US market, would have resulted in an intolerable extra cost for customers; consequently, disregarding legal standards became a technical problem that required a technical solution. A software cheat would become this solution.</p>
<p>The third possibility, which supplements the second one, steers us toward a normalisation of deviance. Not complying with standards – environmental in this case – is not considered a moral issue. Among the community of pollution-control specialists, the rule is actually to break rules rather than comply with them. Consequently, the fraudulent software was considered by VW engineers to be a suitable technical response approved of by their protective management.</p>
<p>These three possible explanations may then be used to organise a discussion around the power of large firms in the face of the legal system, and the questions obviously go far beyond the case of VW alone: Are large corporations above the law? Is their vast power really something that’s inevitable? Are governments defeated in advance, helpless against organisations capable of mobilising resources and skills that they themselves do not have? How can governments regain control and legal procedures be made more efficient? Is the citizen’s power up to the challenges when faced by lobbyists relaying the interests of their clients, which are precisely those same large corporations?</p>
<h2>The alliance of NGOs and universities: the new counter-power</h2>
<p>One of the unexpected outcomes of this research is the recognition of a new and powerful alliance between NGOs and universities. Their goal is to mobilise knowledge for the benefit of the common good. Had an American university laboratory and an NGO not teamed up to measure emissions in real-life situations as opposed to test-bench simulations, the “Dieselgate” scandal would never have been revealed. This is a foreshadowing of the formation of a community of knowledge that can become a formidable counter-power in Europe as well – provided that counter-investigations can be carried out effectively and alliances forged.</p>
<p>The case of VW also emphasizes the importance of judicial investigation mechanisms, which in this case involved the <a href="https://www.epa.gov/">Environmental Protection Agency</a> (EPA), the FBI, and the US Congress. Their collaboration made it possible to quickly establish VW’s fraud. Such mechanisms have no equivalent in Europe, where the imbalance of power between judges and multinationals is too great to establish civil and criminal liability.</p>
<h2>Pandora’s box</h2>
<p>“Dieselgate” for VW led to huge fines, settlements and remediation – more than $30 billion up at present. Nonetheless, the losses were quickly absorbed, and the company’s sales <a href="https://www.nytimes.com/2017/11/01/business/volkswagen-sales-diesel.html">bounced back in 2017</a>. But concentrating on its resilience means forgetting the effects that Dieselgate has had and will continue to have on the automotive sector and the industrial world in general.</p>
<p>One defining consequence of the scandal is the <a href="https://e360.yale.edu/features/end-of-the-road-are-diesel-cars-on-the-way-out-in-europe">end of diesel</a>, once presented as tomorrow’s “clean technology”. Sales are dropping all over the world, and all players have endorsed the gradual phase-out through increased regulations and, in some countries and jurisdictions, traffic restrictions. All manufacturers are therefore affected by this affair, but particularly those that poured a great deal of money into this technology, in particular Mercedes, Renault and PSA. Finally, the scandal increased mistrust of European regulators, accused of collusion with manufacturers.</p>
<p>In this respect, the boards of inquiry set up in Europe and particularly in France that bring together stakeholders under the watchful eye of the media are a sign that politicians and civil society are working to regain control over issues that were previously the exclusive concern of experts. But with this particular Pandora’s Box now open, what exactly we will discover remains to be known.</p><img src="https://counter.theconversation.com/content/105632/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Les auteurs ne travaillent pas, ne conseillent pas, ne possèdent pas de parts, ne reçoivent pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'ont déclaré aucune autre affiliation que leur organisme de recherche.</span></em></p>How could a company like Volkswagen knowingly violate US air-pollution standards despite the senseless risks to which it was exposing its reputation? The case method can provide an answer.Franck Aggeri, Professeur de management, PSL Research University, Mines Paris - PSLJean-Michel Saussois, Professeur émérite HDR en sociologie, ESCP Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1008612018-08-02T12:03:34Z2018-08-02T12:03:34ZHow Durex can recover from its product recall<figure><img src="https://images.theconversation.com/files/230425/original/file-20180802-136664-bw3i4u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/madrid-spain-may-24-view-boxes-425808787?src=RuJkjgHR-uYcAY-XQQCtpg-1-47">Shutterstock/enriscapes</a></span></figcaption></figure><p>The condom maker Durex is in brand crisis mode after it was forced to issue a recall of some of its products over <a href="https://www.bbc.co.uk/news/uk-45014118">fears they could split</a>. Durex is not the first company to suffer from high profile product recalls. There is no doubt that such episodes can cause lasting damage to a brand’s reputation but the fact is recalls happen. Other global brands which have gone though much bigger issues have shown that if they are dealt with quickly and appropriately, a company can survive and prosper.</p>
<p>The Reckitt Benckiser Group plc (RBG) (the manufacturer of Durex condoms) is the latest business to fall foul of product deficiencies. It has <a href="https://www.durex.co.uk/pages/product-recall">recalled ten batches of Durex Real Feel condoms</a> and Durex Latex Free condoms due to a “risk that the condom might tear or leak, reducing its protection from sexually transmitted diseases and pregnancy”. Durex confirmed that “a limited number” had not passed its “stringent shelf life durability tests” and <a href="https://www.durex.co.uk/pages/product-recall">apologised</a>.</p>
<p>A product recall can mean life or death to a business. Over the next few days, RBG will have to strategically coordinate how it manages the product recall to reduce any lasting damage to its reputation, brand and product value. </p>
<h2>High profile brand issues</h2>
<p>Product recalls are not new and occur in every sector where there is a threat to safety or life due to defective parts, unreliability of materials or quality assurance issues. </p>
<p><a href="https://www.investopedia.com/articles/investing/010815/how-do-recalls-affect-company.asp">Research has shown</a> that small companies can flounder, curl up and die with the onslaught of dealing with product recalls, customers, claims, returns and repairs. Their cash flow and infrastructure cannot cope. It becomes all too much and bankruptcy looms. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/230384/original/file-20180802-136667-1o5lbme.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/230384/original/file-20180802-136667-1o5lbme.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=628&fit=crop&dpr=1 600w, https://images.theconversation.com/files/230384/original/file-20180802-136667-1o5lbme.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=628&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/230384/original/file-20180802-136667-1o5lbme.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=628&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/230384/original/file-20180802-136667-1o5lbme.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=789&fit=crop&dpr=1 754w, https://images.theconversation.com/files/230384/original/file-20180802-136667-1o5lbme.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=789&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/230384/original/file-20180802-136667-1o5lbme.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=789&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The world’s largest toy manufacturer has had to recall batches of toys over the years.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/circa-march-2014-berlin-logo-brand-187664108?src=Q2Lm0gUYN6hRDe9Ls0_oJw-1-28">Shutterstock/360b</a></span>
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<p>For example, the recall of 1,000 toys cost small business owner Cynthia Thomas US$15,000 and nearly her business <a href="https://money.cnn.com/2010/03/19/smallbusiness/product_recalls/index.htm">due to a drop in customers and sales</a>. Larger companies cope much better as they have deeper pockets, additional, non-affected assets and an army of resources at their disposal. This is perhaps why the world’s biggest toymaker, Mattel, has coped better with a number of major recalls of Chinese-made products after <a href="http://news.bbc.co.uk/1/hi/business/6979151.stm">lead was found in the paint of some toys</a>.</p>
<p>And Durex as a brand can take comfort in the fact that the impact of product recalls is felt to be more short term than long. Companies such as Toyota and Volkswagen have demonstrated that you can face <a href="https://money.cnn.com/2012/10/10/investing/toyota-recall/index.html">huge catastrophes</a>, the wrath of your customers and the sector, but still regain a strong place within the market. </p>
<p>In 2012, Toyota had 7.43m cars recalled globally while Volkswagen had to recall <a href="https://www.reuters.com/article/us-volkswagen-emissions-plan/volkswagen-to-refit-cars-affected-by-emissions-scandal-idUSKCN0RT0OL20150929">11m vehicles</a> after it admitted cheating on US emissions tests. Both companies have managed to stay stable in the market despite the fact that their reputation has been dented on more than one occasion. </p>
<p>The public will always acknowledge that defective products exist, regardless of stringent operational systems, checks and balances. So what should RBG do to reduce the level of condemnation that it now faces? </p>
<h2>Apologise quickly and take action</h2>
<p>A company in this situation needs to act fast, taking immediate responsibility for its actions and deliver action, not rhetoric. An apology goes a long way to fixing the problem. Durex has made this important first step and <a href="https://www.durex.co.uk/pages/product-recall">said sorry to its customers</a> and offered refunds. </p>
<p>The refund of product costs to customers is an expected response but the business may need to do more in order to avoid more damning repercussions – such as loss of sales, sponsorship and affiliations. </p>
<p>So an apology alone may not be enough. RBG will need to build up confidence in the brand through decisive action. One way to do this is to settle claims quickly. The business needs to ensure that it proactively seeks out failed products – as opposed to waiting for them to come out of the woodwork. Companies which voluntarily address this issue, as opposed to being forced to by their customers, are much <a href="https://www.emeraldinsight.com/doi/abs/10.1108/10610420910949004">more likely to retain them</a>. </p>
<p>An opposing view is that the need to act quickly may be seen as an admission of guilt and inflate <a href="http://journals.ama.org/doi/abs/10.1509/jmkg.73.6.214?code=amma-site">anxiety in the marketplace</a>. So RBG needs to tactfully handle all communications to present a positive image to the public. </p>
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<p>The Medicines and Healthcare products Regulatory Agency <a href="https://www.gov.uk/government/news/batches-of-durex-condoms-recalled-people-urged-to-check-their-batch-numbers">has stated</a> that pharmaceutical wholesalers will collect damaged stock immediately from pharmacies. But customers are being asked to act responsibly and return products from their point of purchase. This can lead to a reduced number of returns as there is no collection mechanism and the customer has to make all the effort to return the product. The lure of refunded money may not be enough to make a return happen.</p>
<p>To address this, RBG could arrange for drop off points for the customers (convenient to them) or arrange for local collections, piggybacking on other delivery networks, like couriers, pharmaceutical wholesalers and the Royal Mail.</p>
<h2>Looking ahead</h2>
<p>In the future, RBG has to make its customers believe in the quality and safety of its product. For example, Rolls Royce was very transparent in its need to recall products in 2015 – even when it affected <a href="https://www.ft.com/content/347f7b7e-87d9-11e5-9f8c-a8d619fa707c">just one car</a>, a Rolls Royce Ghost which was recalled because of a problem with the side-impact airbags. In doing so, customers were reassured that quality and safety were at the forefront of the business. RBG needs to adopt the same stance with Durex and its other products. </p>
<p>Condoms are a very popular product. In the Rio Olympics 2016, it was reported that the event lasted 17 days, had 10,500 athletes, 33 venues, and <a href="https://www.theguardian.com/sport/shortcuts/2016/jul/18/rio-2016-42-condoms-per-athlete-olympic-village-sex">450,000 condoms</a>. The amount allocated was three times more than in the <a href="https://www.mirror.co.uk/lifestyle/sex-relationships/sex/london-2012-sex-mad-athletes-given-1148988">London Olympics in 2012</a>. As a product they provide a vital public health function and provide psychological and emotional support to people using them.</p>
<p>A good solid corporate reputation can withstand most business traumas. Companies in crisis have to work harder to be seen as a “good” business to buy from and trade with. RBG needs to think strategically, act responsibly and react quickly to stay in business and provide its products to the masses.</p><img src="https://counter.theconversation.com/content/100861/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Liz Breen does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Major brands which suffer from high profile product recalls need to follow some basic rules to make sure they weather the storm.Liz Breen, Reader in Health Service Operations, University of BradfordLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/944682018-04-11T23:04:10Z2018-04-11T23:04:10ZWhy the price-fixing scandal might not be all bad for Loblaws<figure><img src="https://images.theconversation.com/files/214163/original/file-20180410-536-11ebgpe.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Loblaws bread price-fixing scandal may have eroded public trust in the company, but will it truly hurt the grocery giant in the long run? Galen G. Weston, executive president and chairman of Loblaw Ltd., is seen in this 2016 photo.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Fred Thornhill</span></span></figcaption></figure><p>The bread price-fixing scandal has garnered Canada’s biggest grocery chain a lot of negative media attention.</p>
<p><a href="https://cdn.dal.ca/content/dam/dalhousie/pdf/management/News/News%20%26%20Events/Food%20Retail%20Sector%20Supplementary%20release%20March%202018.pdf">A recent survey</a> from Dalhousie University suggested that consumer trust in Loblaws has fallen by 10 per cent since the announcement of the bread price-fixing issue.</p>
<p>But will the scandal have a sustained negative impact on Loblaws?</p>
<p>While the company may face civil suits at some point, there is no risk of prosecution under the whistle-blower provisions of Canada’s competition regulations. And so the outstanding question is whether the decline in consumer trust results in significant losses in sales and market share to Loblaws.</p>
<p>Several factors suggest perhaps not. </p>
<h2>All retailers painted with same brush</h2>
<p>It’s clear that consumers are becoming <a href="https://www.forbes.com/sites/forbesagencycouncil/2017/04/11/dealing-with-declining-trust-among-consumers/#14f5add8f880">increasingly distrustful</a> of business generally. They feel in many cases that bad behaviour is the norm, and aren’t surprised when stories like the Loblaws price-fixing emerge.</p>
<p>This is particularly true in this case because Loblaws has claimed (and preliminary findings from the Competition Bureau suggest) that many, but not all, Canadian retailers were involved in the bread scheme. </p>
<p>The Dalhousie study suggested that on average, trust went down for all Canadian retailers following the scandal, although trust in Loblaws declined the most. And so if consumers believe everyone cheats, there’s little motivation to switch stores. Food is a staple. We can’t choose to forego groceries.</p>
<p>It’s worth noting the case of Volkswagen. The <a href="http://www.bbc.com/news/business-34324772">emissions scandal</a> that engulfed the German company in 2015 was a significant challenge. Volkswagen paid huge fines and had to retrofit millions of cars. Despite that, the company has seen unit <a href="http://www.dw.com/en/volkswagen-group-achieves-record-sales-in-2017/a-42177892">sales growth</a> of 3.8 per cent in 2016 and 4.3 per cent in 2017. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=382&fit=crop&dpr=1 600w, https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=382&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=382&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=480&fit=crop&dpr=1 754w, https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=480&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/214164/original/file-20180410-566-1ooryaq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=480&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Volkswagen cars are lifted inside a delivery tower of the company in Wolfsburg, Germany in March 2017. The CEO of Volkswagen said the United States remains a core market for the company despite its diesel emissions scandal.</span>
<span class="attribution"><span class="source">(AP Photo/Michael Sohn)</span></span>
</figcaption>
</figure>
<p>There were financial challenges, and Volkswagen performed in some markets better than others, but customers aren’t staying away in droves despite the negative media attention and bad corporate behaviour.</p>
<h2>Who is Loblaws anyway?</h2>
<p>Another factor that will likely buffer the Loblaws parent company is that many customers likely shop at Loblaws without knowing it. </p>
<p>Loblaws sells food under many <a href="http://www.loblaw.ca/en.html">different banners</a> including Real Canadian Superstore, Zehrs, Provigo, Fortino’s, No Frills and Shoppers Drug Mart. Many customers likely shop at a favourite store without making an explicit connection to the Loblaws name.</p>
<p>That means even those customers who are inclined to punish Loblaws might not even know they are shopping there.</p>
<h2>Free groceries</h2>
<p>Loblaws has reportedly distributed <a href="http://www.macleans.ca/news/canada/you-can-sign-up-for-the-25-loblaw-gift-card-starting-today-heres-how/">as much as $150 million</a> in gift cards (in $25 increments) as part of the campaign to win back public trust in the wake of the price-fixing revelations. These gift cards need to be spent in Loblaws stores. It will bring customers back into the store and they will likely spend more than the $25 they’re entitled to via the gift cards.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/214162/original/file-20180410-577-6rtetn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A $25 Loblaws gift card is shown in Oakville, Ont., in March 2018.</span>
<span class="attribution"><span class="source">(THE CANADIAN PRESS/Richard Buchan)</span></span>
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<p>There will also be people who have never shopped at a Loblaws store who applied for gift cards. Rival grocery chain Sobeys has said it expects <a href="https://www.theglobeandmail.com/report-on-business/sobeys-parent-empire-beats-profit-expectations-in-third-quarter/article38285355/">to feel an impact</a> from the distribution of the gift cards. </p>
<p>Once again, we would expect customers who may have never set foot in a Loblaws store before to spend more than the gift card. It’s even possible that they’ll enjoy shopping at Loblaws so much that they’ll switch stores after spending the card.</p>
<h2>Short-term pain</h2>
<p>That’s not to say Loblaws won’t feel an impact from the price-fixing scandal. They distributed millions of dollars in gift cards. Some of them will not be redeemed — <a href="https://nypost.com/2014/01/26/unused-gift-cards-total-44b-since-2008-study/">that’s always true of gift cards.</a> </p>
<p>Those that are redeemed will not cost Loblaws the full $150 million as they must be spent in Loblaws stores. That means that, although Loblaws will lose the margin they would have made on the sales, the actual out-of-pocket cost of the card is less than the face value of the card. There also remains the real threat of class-action lawsuits.</p>
<p>In the long run, however, it doesn’t seem likely that Loblaws will suffer significant losses in food market share. The price-fixing announcement came very late in the year, so <a href="http://media.loblaw.ca/English/media-centre/press-releases/press-release-details/2018/Loblaw-Reports-2017-Fourth-Quarter-and-Fiscal-Year-Ended-December-30-2017-Results1/default.aspx">fourth-quarter results</a> will not provide much insight. </p>
<p>It’s worth noting that same-store food sales were up 0.5 per cent over the previous year in the fourth quarter. While third-quarter results showed a 1.5 per cent increase over the previous year, it does not appear that there was a dramatic flight from shopping at Loblaws in the immediate aftermath of the announcement. </p>
<p>Loblaws’ first-quarter 2018 results will be telling. But the market also seems to believe Loblaws will weather the price-fixing storm. Share price did not decline significantly after the announcement, and a late January drop <a href="https://www.ctvnews.ca/business/loblaw-shares-downgraded-to-hold-after-new-generic-drug-deal-reached-1.3781673">was attributed</a> to generic drug-pricing reform and the cost of minimum wage increases.</p>
<p>There are still challenges in the market. Stiff competition in the grocery sector still exists and will increase if and when online sales grow. Other factors will continue to keep Loblaws on its toes, but the price-fixing scandal might not be among them.</p><img src="https://counter.theconversation.com/content/94468/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael von Massow receives funding from the Tim Hortons Sustainable Food Management Fund, the Longo's Retail Research Laboratory and the Ontario Ministry of Agriculture and Food. </span></em></p>Loblaws’ reputation has taken a hit following the bread price-fixing scandal. But will it do prolonged damage to Canada’s biggest grocery chain?Michael von Massow, Associate Professor, Food Economics, University of GuelphLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/897042018-01-28T09:51:56Z2018-01-28T09:51:56ZDid Steinhoff’s board structure contribute to the scandal?<figure><img src="https://images.theconversation.com/files/203258/original/file-20180124-107963-1a2kwcp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Steinhoff's former CEO, Markus Jooste, is partly blamed for the corporate scandal that threatens to collapse the company.</span> <span class="attribution"><span class="source">Financial Mail/Jeremy Glyn </span></span></figcaption></figure><p>The global retail group Steinhoff is reeling under allegations of accounting fraud. Since the allegations surfaced last year the CEO of the multi-billion dollar business, Markus Jooste, has <a href="https://www.iol.co.za/business-report/steinhoff-shares-nosedive-after-ceo-markus-jooste-resigns-12286137">fallen on his sword</a> and the company’s stock has been <a href="https://www.sowetanlive.co.za/business/2017-12-07-steinhoff-share-price-continues-to-fall/">hammered</a>, at one point losing about 90% in market value in a few days.</p>
<p>Observers are calling for <a href="https://theconversation.com/steinhoff-scandal-points-to-major-gaps-in-stopping-unethical-corporate-behaviour-88905">harsh punishment</a>, including jail, for the culprits.</p>
<p>Early reports suggest that Steinhoff was involved in massive <a href="https://www.timeslive.co.za/sunday-times/business/2017-12-14-steinhoff-accounting-woes-go-back-to-2016-as-scandal-grows/">accounting fraud</a>, including the overstatement of the company’s financial position. </p>
<p>The company is listed on both the Johannesburg Stock Exchange in South Africa as well as the Frankfurt Stock Exchange in Germany. With a primary listing in Frankfurt and an <a href="http://www.steinhoffinternational.com/corporate-information.php">Amsterdam</a> corporate address, Steinhoff follows the Dutch corporate governance code. </p>
<p>Consistent with this code, Steinhoff has a <a href="http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1001&context=fisch_2016">two-tier board structure</a>. This <a href="http://www.steinhoffinternational.com/leadership.php">is made up of</a> a management board (comprised of four top executives) and a supervisory board (comprised of 9 non-executive directors).</p>
<p>The point of the two-tier board structure is to ensure that the supervisory board is independent from the executives who sit on the management board. The management board accounts to the supervisory board, which accounts to the shareholders or to the company.</p>
<p>The two-tier board structure is favoured in western Europe. The US and UK prefer the <a href="http://www.steinhoffinternational.com/leadership.php">one-tier</a> – or unitary board – structure, as does South Africa for historical reasons.</p>
<p>It appears that Steinhoff’s decision to opt for the two-tier board structure may have contributed to its undoing. Natural holes in the structure, the biggest one being the fact that the management board doesn’t always keep the supervisory board in the loop, combined with Steinhoff’s corporate culture which was anchored by a <a href="https://www.moneyweb.co.za/in-depth/investigations/we-have-always-been-wary-of-markus-jooste-36one-founder-cy-jacobs/">dominant personality</a>, appear to have created accountability holes. </p>
<h2>Two-tier versus one-tier structure</h2>
<p>There are pros and cons to both systems.</p>
<p>One of the good things about the one-tier board system is that executive directors and non-executives directors sit together on a single board. Traditionally there would be two or three executive directors (the CEO, chief financial officer and the chief operating officer) sitting alongside a majority of non-executive directors. </p>
<p>This means that there’s a seamless flow of information between executives and non-executives. The executives can be asked questions with the entire board present. This closes any information asymmetry. In addition, it can also facilitate quicker decisions. </p>
<p>On the downside, the unitary board structure has been criticised for its propensity to compromise the independence of the non-executive directors. This dilutes their oversight role. </p>
<p>For its part the two-tier system seems to have more checks and balances built into it given that the management board is subject to oversight by the supervisory board, and the supervisory board has to answer to shareholders.</p>
<p>But the two-tier structure is often <a href="http://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1001&context=fisch_2016">criticised</a> for information asymmetry between the management board and the supervisory board. In other words management knows a great deal more about the business than the supervisory board. This can lead to operational challenges developing without the board noticing until it’s too late. </p>
<p>Steinhoff’s board structure followed the two-tier system. In 2016 its management board comprised three members, Jooste (CEO), <a href="http://www.huffingtonpost.co.za/2018/01/05/steinhoff-cfo-ben-la-grange-steps-down_a_23324706/">Ben La Grange</a> (Chief Financial Officer) and <a href="https://www.fin24.com/Companies/Retail/steinhoff-shares-rally-as-beleaguered-retailer-names-acting-ceo-20171219">Danie van der Merwe</a> (Chief Operating Officer and now acting CEO). As is normal under the two-tier system, none of the three members of the management board sat on the supervisory board. </p>
<p>Some analysis of the <a href="https://www.theguardian.com/business/2016/jun/22/volkswagen-handling-emissions-scandal-shambles-investors-agm-german-carmaker">Volkswagen emissions scandal</a> apportioned blame to the two-tier system combined with a <a href="https://www.nytimes.com/2015/09/25/business/international/problems-at-volkswagen-start-in-the-boardroom.html">corporate culture</a> that was anchored by dominant personalities.</p>
<p>A similar case can be made for the Steinhoff saga.</p>
<h2>Flaws in the Steinhoff structure</h2>
<p>Did the two-tier structure give the CEO too much leeway to take decisions that in the end led to the near collapse of the company? </p>
<p>This may indeed have been the case. Take, for example, the fact that some believe the company <a href="https://www.iol.co.za/business-report/opinion/opinion-steinhoff-shock-the-warning-signs-were-all-there-12314186">grew too quickly</a>.</p>
<p>The danger of companies expanding too rapidly was highlighted decades ago by <a href="https://books.google.co.za/books/about/Corporate_planning.html?id=FRMPAQAAMAAJ&redir_esc=y">author and corporate strategy guru </a> John Argenti who came up with <a href="https://accountingandplanning.files.wordpress.com/2014/12/qualitative-models-of-corporate-failure.pdf">a model</a> that considered factors leading to corporate failure. Two of the higher scored factors were expanding too fast (referred to as overtrading) and high levels of loan borrowing.</p>
<p>Steinhoff seems to have suffered from both. And yet the supervisory board appears to have failed to raise the red flag when it comes to large transactions. An example of it failing to fulfil its oversight role was when it decided to not make public Steinhoff’s <a href="https://www.reuters.com/article/us-steinhoffintlaccounting-disclosure/steinhoff-didnt-tell-investors-about-nearly-1-billion-in-deals-idUSKBN1D81BZ">USD$1 billion</a> transaction with a related company. Even if the supervisory board didn’t legally have to make this public knowledge, ethically it should have made the disclosure.</p>
<p>The functioning of the audit and risk committee didn’t help the situation either.</p>
<h2>Audit and risk committee</h2>
<p>Steinhoff had three standing committees of the supervisory board – audit and risk, human resources and remuneration and the nominations committee. The committee structure had two weaknesses. </p>
<p>The first was that too few of its non-executives actually served on the committees – only 5 of the 11 supervisory board members. And given that the then chairman Wiese and Claas Daun only sat on one, it begs the question how only three members of the supervisory board could have been expected to carry the real responsibility of the standing committees.</p>
<p>The second flaw was that audit and risk were wrapped up in one committee. This is the norm under a two-tier governance structure. </p>
<p>South Africa’s corporate governance structures might have helped to address both these problems. </p>
<p><a href="http://www.iodsa.co.za/?page=KingIV">King IV </a> stipulates that the risk governance committee should be made up of a mixture of non-executives and executives (the majority being non-executives). And the governance guidelines warn against audit and risk being under one committee. Its advice is that a company should only combine them if it’s able to devote enough time to dealing with risk related issues. </p>
<p>For a company of Steinhoff’s complexity, it seems inconceivable that the audit and risk committee could have devoted the necessary time to undertake its responsibility.</p>
<h2>Conclusion</h2>
<p>The Steinhoff case highlights weaknesses in the governance structure the company had chosen to operate under. That said, the rules have worked perfectly well for thousands of other companies. The lesson therefore is be alert to the warning signs such as dominant directors who don’t heed the rules. They can pose a grave risk to any company.</p><img src="https://counter.theconversation.com/content/89704/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Owen Skae does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Gaps in the two tier board structure which is favoured in Europe may be partly responsible for the Steinhoff corporate scandal.Owen Skae, Associate Professor and Director of Rhodes Business School, Rhodes UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/830562017-08-30T10:15:44Z2017-08-30T10:15:44ZNO₂ – not as bad as we thought?<figure><img src="https://images.theconversation.com/files/183471/original/file-20170825-28497-j04y2n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/shirokazan/8196523329/sizes/l">shirokazan/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Air pollution has been found to cause <a href="https://theconversation.com/take-a-deep-breath-heres-what-2016-revealed-about-the-deadly-dangers-of-air-pollution-70375">hundreds of thousands of deaths</a> every year around the world. As a result, there has been growing public concern about the health impacts of roadside air pollution – especially in the wake of the 2016 Volkswagen scandal, when investigations found that almost <a href="https://www.theguardian.com/business/2015/sep/22/vw-scandal-caused-nearly-1m-tonnes-of-extra-pollution-analysis-shows">a million tonnes of excess pollution</a> had been pumped into the atmosphere in the US alone. </p>
<p>Governments came under increasing pressure to act – and many drew up plans to reduce harmful pollutants below legal limits. In late July, the UK government published <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/633270/air-quality-plan-detail.pdf">its own national plan</a> for bringing down roadside nitrogen dioxide (NO₂) concentrations. The plan was met by considerable criticism, on the basis that it lacked urgency and effectively dumped the problem on the worst affected local authorities, which would be required to implement <a href="https://www.gov.uk/government/publications/air-quality-clean-air-zone-framework-for-england">Clean Air Zones</a> (CAZ). </p>
<p>But what was perhaps even more remarkable about the publication, was that it revised the estimated value of minimising the damage to public health through these measures downward by 80%.</p>
<p>On the final page of the 155-page <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/632916/air-quality-plan-technical-report.pdf">technical report</a> which accompanied the plan, new estimates of the economic benefits from reducing damage to health through measures to reduce NO₂ were very substantially below those that had been published in <a href="https://consult.defra.gov.uk/airquality/air-quality-plan-for-tackling-nitrogen-dioxide/supporting_documents/Technical%20Report%20Amended%209%20May%202017.pdf">a previous report</a>. The previous estimated health benefit of a further 21 CAZs was costed at £3.6 billion, but is now £620m – an 80% reduction.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/183474/original/file-20170825-28531-j89497.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/183474/original/file-20170825-28531-j89497.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=903&fit=crop&dpr=1 600w, https://images.theconversation.com/files/183474/original/file-20170825-28531-j89497.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=903&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/183474/original/file-20170825-28531-j89497.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=903&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/183474/original/file-20170825-28531-j89497.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1135&fit=crop&dpr=1 754w, https://images.theconversation.com/files/183474/original/file-20170825-28531-j89497.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1135&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/183474/original/file-20170825-28531-j89497.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1135&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">What’s the damage?</span>
<span class="attribution"><span class="source">from www.shutterstock.com</span></span>
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</figure>
<p>This huge reduction was attributed to new advice from the independent experts of the Committee on the Medical Effects of Air Pollution (COMEAP), which had found it difficult to disentangle the impacts of specific pollutants – in this case NO₂ – from that of the whole mix of traffic-related pollutants. Previously COMEAP had advised that for every 10ug/m3 increase in NO₂ concentration, the increase in mortality risk would be 2.5%. </p>
<p>It now recommends that when measures are primarily targeting NO₂ emissions, this coefficient should be adjusted to account for possible overlap between the direct impacts of small particulates and NO₂. This puts the increase in mortality risk at 0.92%. </p>
<p>My enquiries of the government’s Joint Air Quality Unit (JAQU) confirmed that overall the updated damage costs of NO₂ for road transport are approximately 80% lower than those used during the consultation prior to publication of the new air quality plan. This splits into roughly 60% to 65% resulting from the revised COMEAP advice, with the remaining 15% to 20% resulting from the other updates, such as new dispersion modelling and population data. </p>
<p>The JAQU confirmed that the reduction in the road transport NO₂ damage cost primarily reflects a reduction in the estimated mortality impact associated with NO₂ alone. </p>
<h2>Change is in the air</h2>
<p>It is not yet clear what this means for the government’s policy on air pollution. Current legislation stems from a European Union directive, which imposes a statutory limit for NO₂ concentration across all regions. In this context, the scale of health benefits from remedial measures is not relevant. </p>
<p>But with Britain on course to leave the EU, future regulation of air quality could be based on UK targets, set to reflect the balance of benefits in relation to costs. In this case, the downgrading of health benefits of policies such as Clean Air Zones would then be relevant, particularly given the expected reductions in pollutants from improved vehicle technology and the introduction of electric propulsion. </p>
<p>But ultimately, future regulation may depend on the outcome of the Brexit negotiations where the politics of air pollution may yet play a key role.</p><img src="https://counter.theconversation.com/content/83056/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Metz is a member of the Commission on the Future of London's Roads and Streets, convened by the Centre for London, a think tank.</span></em></p>The estimated economic value of minimising the damage to public health has been reduced by 80 percent.David Metz, Honorary Professor of Transport Studies, UCLLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/738282017-03-14T00:20:18Z2017-03-14T00:20:18ZWhy powerful people fail to stop bad behavior by their underlings<figure><img src="https://images.theconversation.com/files/160609/original/image-20170313-9620-9nczny.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Who you gonna listen to?</span> <span class="attribution"><span class="source">Ethical dilemma via www.shutterstock.com</span></span></figcaption></figure><p>Imagine you were recently promoted at work. You now command a higher salary, lead more people and control more of the organization’s resources. As such, you have more influence over strategy, more authority to hire and fire and more responsibility for your team’s outcomes. </p>
<p>As you undertake your new role, however, you are also faced with evidence of an unethical business practice that plagues your organization. This practice is harmful, potentially embarrassing at best and possibly illegal at worst. In your new, more powerful position, would you be more or less likely to stop it than in your previous role?</p>
<p>This situation is hardly unheard of and might even be common. Leaders often set goals but delegate responsibility for how they are achieved, providing leeway for unethical practices to creep in. Leaders also inherit business practices from their predecessors and gain visibility only as they achieve higher rank in the hierarchy. Unethical practices <a href="http://www.sciencedirect.com/science/article/pii/S0191308503250012">can become routine and taken for granted</a> when embedded in the organization’s structures and processes. </p>
<p>Consider the <a href="https://www.wsj.com/articles/how-wells-fargos-high-pressure-sales-culture-spiraled-out-of-control-1474053044">salespeople at Wells Fargo</a> who were reaching their goals by opening fake accounts, the <a href="https://www.wsj.com/articles/volkswagen-probe-in-germany-extended-to-chairman-1478429066">engineers at Volkswagen</a> who installed software to cheat on emissions tests or the <a href="https://dealbook.nytimes.com/2013/11/04/sac-capital-agrees-to-plead-guilty-to-insider-trading/">traders at the hedge fund SAC</a> who were using inside information to make investment decisions. In each of these situations, unethical practices emerged on the front line, and higher-ups failed to stop those practices.</p>
<p>In <a href="https://authors.elsevier.com/a/1URkI2gS5NWMA5">recent research</a>, we asked: Why do powerful people so often fail to stop unethical practices such as these, even after learning of them? </p>
<h2>People in power</h2>
<p>After all, plenty of <a href="http://amj.aom.org/content/56/4/1002.short%22%22">psychological theories</a> say that individuals in a position of power <a href="http://psycnet.apa.org/psycinfo/1988-12437-001">are situated</a> to respond well to such practices. </p>
<p>After a promotion, people are particularly motivated to ensure the long-term success of the business, and unethical practices might put that success at risk. People in power also command the necessary authority and influence to intervene. They are often seen as more personally responsible when ethical lapses are exposed by whistle-blowers or the press. So you might expect a promotion to increase the likelihood that you would stop such practices in your group or organization.</p>
<p>However, <a href="https://authors.elsevier.com/a/1URkI2gS5NWMA5">our research recently published</a> in <a href="https://www.journals.elsevier.com/organizational-behavior-and-human-decision-processes/">Organizational Behavior and Human Decision Processes</a> suggests the reverse is true: Holding higher rank makes it less likely someone will object to an unethical act. We call this behavior “principled dissent.”</p>
<h2>Taking a stand</h2>
<p>Principled dissent is an effort to protest or change a morally objectionable practice. It challenges the status quo. </p>
<p>For instance, when <a href="https://www.susanjfowler.com/blog/2017/2/19/reflecting-on-one-very-strange-year-at-uber">Susan Fowler at Uber</a> protested the refusal to provide jackets to women engineers, she was expressing principled dissent.</p>
<p>This is often the first step toward correcting ethical failures in organizations. It is typically less costly for the organization than alternative forms of correction, such as political pressure from external parties or free market discipline. </p>
<p>For example, as reluctant as some Uber executives might have been to respond respectfully to Fowler’s claims, they probably are finding the public outcry generated by her blog post and the <a href="https://www.nytimes.com/2017/02/19/business/uber-sexual-harassment-investigation.html">related New York Times article</a> more painful. Worse yet could be free market discipline, whereby unethical practices lead to the company’s demise over the long term.</p>
<p>Sometimes principled dissent is enough to stop an unethical practice completely – such as when the person expressing it holds higher rank. In light of this fact, the relation between hierarchical rank and principled dissent is important to understand.</p>
<h2>How rank affects principled dissent</h2>
<p>To learn more, we conducted a study in which we randomly assigned participants to hold a high- or low-ranking position in a group, or assigned them to a control condition where they had no information about their rank in a group. We then gave participants an ethical dilemma to discuss, asking them to decide whether to lie to another group in a way that would benefit their own team financially but harm the other one.</p>
<p>A key element of our study was that before participants were asked what to do they learned that four of the other five members in their group were apparently willing to lie for monetary gain. We wanted to know whether participants would then openly disagree with this supposed consensus (which we concocted). That is, would they recommend telling the truth even if it goes against what their peers preferred?</p>
<p>We found that almost 40 percent of participants in the low-rank and control conditions disagreed with the group’s dishonest decision. In other words, a sizable number of those people went against the grain and engaged in principled dissent. </p>
<p>However, a paltry 14 percent of participants in the high-rank condition did the same. Very few people who were given high rank were willing to disagree with their group’s unethical choice.</p>
<p>We wondered: Did holding high rank corrupt people somehow? That is, did high-ranking participants simply prefer lying to honesty? </p>
<p>The answer was no. Holding high rank led people to accept the group’s preference more readily, regardless of whether that preference was ethical or not. We included another condition in that study in which participants were told that the rest of their group wanted to be honest, even if it incurred some monetary cost to their group. In these conditions, high-ranking participants were still less likely to go against the grain than participants in low-ranking or control conditions.</p>
<p>We also explored the impact of organizational rank on principled dissent in a study of over 11,000 randomly selected government employees. In that study, holding higher rank was again associated with less principled dissent – specifically reporting illegal or wasteful practices – even after we statistically accounted for a variety of factors such as tenure in the organization, education, knowledge of rules about retaliation for reporting unethical practices and other demographic variables. </p>
<p>This study thus suggested that the patterns we observed in the laboratory extend to the real world, when unethical practices are real and have more severe consequences.</p>
<h2>Group identification</h2>
<p>Although the failure to stop an unethical practice is often attributed to character problems such as greed, sexism or the relentless pursuit of self-interest, our explanation is subtler.</p>
<p>According to <a href="https://authors.elsevier.com/a/1URkI2gS5NWMA5">our studies</a>, ethical failures like these can also stem from a psychological factor endemic to very successful teams: identification with the group or organization. Identification is a feeling of oneness with the group. When you identify highly with a group or organization, you define yourself in terms of your membership in it. When asked, “Who are you?” your answer will reflect a category (e.g., you might refer to yourself as a man, a Texan, a Yankees fan, an environmentalist, a Christian). You focus on the traits that you and other group members share, rather than on personal traits that distinguish you.</p>
<p>We found that holding higher rank increases identification. People in high-ranking positions feel more connected to their group or organization and value their membership in it to a greater degree than do lower-ranking people. This trend has benefits for the group, as strong identifiers cooperate more readily and contribute more to the group’s goals. </p>
<p>But stronger identification has an ethical cost: It makes it more difficult to perceive ethical problems within the group. </p>
<p>For example, people who identify strongly with a group are more likely to consider unethical acts committed by its members to be more ethical than someone with a weaker connection to it. So one reason high-ranking people might fail to stop unethical practices is that their stronger identification blinds them: They don’t see the act as unethical in the first place. They fail to step in and intervene because they do not see any need to do so.</p>
<p>In another study, we made it easy or difficult for participants to identify highly with their other group members. We randomly assigned them to positions of high or low rank, and then tasked their group with making a decision based on a popular business ethics case study. Participants were led to believe that their group wanted to price-gouge hospitals in the aftermath of a hurricane. High-ranking participants engaged in principled dissent less frequently than low-ranking participants only when they identified strongly with the group.</p>
<h2>Silver lining</h2>
<p>There is some good news. </p>
<p><a href="http://www.jstor.org/stable/40575061?seq=1#page_scan_tab_contents">Earlier research</a> found that people who strongly identify with their group are more likely to engage in principled dissent than weak identifiers – as long as they recognize a problem as unethical. That is, while these strong identifiers may have trouble recognizing that certain activities are unethical, when they do realize it, they’re more likely to intervene and try to put a stop to the bad behavior. </p>
<p>This shows just how important it is to instill a strong moral compass in future business leaders, and for companies to find ways for them to maintain it as they climb the corporate ladder. </p>
<p>The other option is to make it easier for managers to leverage the ethical perspectives of lower-ranking employees who, according to our research, have a clearer eye for spotting wrongdoing. In other words, a more democratic approach to management could offer an ethical advantage that could be more profitable in the long run.</p><img src="https://counter.theconversation.com/content/73828/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Higher-ups at Wells Fargo, Volkswagen and Uber all failed to stop unethical practices that had significant repercussions. New research offers some clues on why.Jessica A. Kennedy, Assistant Professor of Management, Vanderbilt UniversityCameron Anderson, Professor of Leadership and Communication, University of California, BerkeleyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/699212016-12-08T09:31:18Z2016-12-08T09:31:18ZThese four cities are cracking down on diesel vehicles to improve air quality – here’s how<figure><img src="https://images.theconversation.com/files/148889/original/image-20161206-25749-kag1fy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/jafsegal/8497651302/sizes/l">jafsegal/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Four of the world’s biggest cities are to <a href="http://www.bbc.co.uk/news/science-environment-38170794">ban diesel cars</a> from their city centres by 2025, in order to improve air quality. The mayors of Paris, Madrid, Athens and Mexico City announced the plans at the <a href="http://www.c40.org/events/c40-mayors-summit-2016">C40 Mayors’ Summit</a> on climate change. This bold move could lead other cities to take action, and help to accelerate a shift away from diesel.</p>
<p>Diesel engines are seen as major contributors to air pollution in cities, as they exude nitrogen dioxide and tiny particulates. These pollutants have a known impact on human health: they <a href="https://theconversation.com/the-not-so-invisible-damage-from-vw-diesel-cheat-100-million-in-health-costs-48296">can cause</a> heart attacks, breathing difficulties and even <a href="https://theconversation.com/how-londons-next-mayor-could-fix-air-pollution-and-save-lives-58597">premature death</a>. </p>
<p>Anne Hidalgo, the mayor of Paris, <a href="http://www.pbs.org/newshour/rundown/cities-quit-diesel-environment/">stated that</a>: “we no longer tolerate air pollution and the health problems and deaths it causes, particularly for our most vulnerable citizens”. Mexico City’s mayor, Miguel Ángel Mancera, said that the city would also increase <a href="http://www.cbc.ca/news/business/ban-diesel-paris-athens-madrid-mexico-city-1.3878883">investments in public transport</a>, so as to improve air quality and reduce greenhouse gas emissions. Meanwhile Giorgos Kaminis, the mayor of Athens, <a href="https://www.theguardian.com/environment/2016/dec/02/four-of-worlds-biggest-cities-to-ban-diesel-cars-from-their-centres">said that</a> he aimed to remove all cars from the city centre and work with governments and manufacturers to promote electric vehicles and cleaner transport options.</p>
<h2>Ditch the diesels</h2>
<p>Government attitudes had started to turn against diesels anyway. A year ago, the (now ex-) French prime minister, Manuel Valls, admitted that the promotion of diesel cars – on the basis that they are more fuel efficient and emit less CO₂ than petrol engines – had been a <a href="https://www.motoringresearch.com/car-news/france-to-begin-move-out-of-diesel">“mistake”</a>. His comments reflected a wider shift in thinking in Europe, which has been accelerated by Volkswagen’s “dieselgate” scandal. Indeed, <a href="http://arstechnica.com/cars/2016/06/paris-bans-pre-1997-cars-from-its-streets-during-the-week/">Paris</a> already had plans in place to ban older diesels from 2020. </p>
<p>These measures are likely to increase pressure on other nations – including the UK – to phase out diesel vehicles, or at least introduce clean air zones. London’s <a href="https://tfl.gov.uk/modes/driving/ultra-low-emission-zone">ultra-low emissions zone</a>, for example, aims to stop the dirtiest diesels driving through the centre of the city. The question now is whether this will be tightened up further and whether other UK cities such as Birmingham and Manchester will act to reduce air pollution too.</p>
<p>In the wake of the VW scandal we should see tougher testing of emissions and fuel efficiency by regulators which better reflects real-world driving conditions. If this requires diesel-powered cars to be fitted with systems that clean up their emissions, they may become <a href="http://www.autocar.co.uk/car-news/industry/future-diesel-cars-could-cost-more-hybrids-toyota-powertrain-boss">more expensive</a>. This would, in turn, affect their popularity. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/148890/original/image-20161206-25742-1q2qe1t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/148890/original/image-20161206-25742-1q2qe1t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/148890/original/image-20161206-25742-1q2qe1t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/148890/original/image-20161206-25742-1q2qe1t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/148890/original/image-20161206-25742-1q2qe1t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/148890/original/image-20161206-25742-1q2qe1t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/148890/original/image-20161206-25742-1q2qe1t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Bad reputation.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/hamzadaoui/3145992682/sizes/l">Hamza Daoui/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>It’s as well that European nations are taking firm action to curb the use of diesel vehicles. For years now, diesels have been pushed by European manufacturers and governments as a supposedly clean alternative to petrol cars, producing lower tail-pipe CO₂ emissions and offering better fuel efficiency. Diesel car sales account for just short of <a href="http://www.forbes.com/sites/bertelschmitt/2016/10/13/in-europe-diesel-falls-slowly-out-of-favor/#1989dbf588a5">50% of the European car market</a>, in stark contrast to other major markets where diesel sales are tiny.</p>
<p>For example, in the UK, company cars (which account for about half of annual car sales) have a “benefit-in-kind” tax for drivers, related to the car’s CO₂ rating, which makes diesels more attractive from a tax point of view. As a result, diesel sales in the UK have grown dramatically in recent years. European governments have effectively subsidised diesels and, in doing so, have slowed a much-needed transition to cleaner vehicles. </p>
<h2>Playing catch-up</h2>
<p>Fortunately, a range of hybrids and electric vehicles (EVs) have been developed to meet this need. Japanese and American car makers have gone down two different technological routes. Japanese car makers – and Toyota in particular – went down the petrol hybrid route, while US firms such as General Motors and Tesla have gone into pure electrics and plug-in hybrids. </p>
<p>With the exception of Renault-Nissan and BMW, European producers are now particularly exposed to a diesel downturn – it seems they may have placed the wrong technological bets. Petrol hybrids and electric cars could well emerge as winners from the VW debacle – something which Tesla founder <a href="http://www.autoexpress.co.uk/tesla/92959/elon-musk-what-i-d-do-if-i-was-running-vw">Elon Musk has been keen to stress</a> </p>
<p><a href="http://fortune.com/2016/11/30/toyota-president-electric-cars/">Toyota</a> is trying to play catch up on EV development while Jaguar Land Rover also recently announced a belated electric push with its <a href="http://www.birminghampost.co.uk/business/business-opinion/jaguar-gets-ready-charge-quite-12175462">I-PACE launch</a>. Meanwhile, VW is trying to clean up its act in the hope that <a href="https://www.theguardian.com/environment/2016/nov/22/vw-shifts-focus-to-electric-cars-with-us-expansion-plan">25% of VW sales</a> will be EVs by 2025.</p>
<p>But so far, apart from Tesla’s in roads into the premium market, sales of EVs have been something of a disappointment. EV take up has only really happened on a big scale <a href="https://electrek.co/2016/11/09/norway-keeps-electric-vehicle-tax-exemption-until-2020-positions-itself-to-stay-ev-leader/">in Norway</a>, thanks to substantial government support. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/148892/original/image-20161206-15334-1thtezr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/148892/original/image-20161206-15334-1thtezr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/148892/original/image-20161206-15334-1thtezr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/148892/original/image-20161206-15334-1thtezr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/148892/original/image-20161206-15334-1thtezr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/148892/original/image-20161206-15334-1thtezr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/148892/original/image-20161206-15334-1thtezr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Gap in the market.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/simotronics/14396479818/sizes/l">Simopala/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<p>This is partly down to huge over-hyping early on: despite several years of high expectations for EVs, it’s only now that the first genuinely viable models have appeared on the market in the form of the BMW i3, Nissan Leaf 2 and Tesla Model S.</p>
<p>Other factors slowing the take-up of electric vehicles could include a lack of confidence in electric vehicle technology and performance, uncertainty over the lifespan of expensive batteries, a lack of awareness of the incentives that make electric vehicles cheap to run and a relative lack of choice, which results in the perception that electric vehicles are not particularly stylish.</p>
<p>Yet we can be hopeful that these attitudes will change. We’ll see a lot of new mass market EVs in 2017, with significantly greater range. Models such as the Tesla Model 3, the Chevrolet Bolt, as well as designs from Renault and Nissan, will be game-changers.</p>
<p>Let’s be clear. Diesels should be restricted in cities to improve air quality. Policy needs to favour public transport, as well as alternative car technologies such as hybrids and EVs. Viable models are already here; it’s time for governments to start encouraging and supporting citizens to use them.</p><img src="https://counter.theconversation.com/content/69921/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Bailey receives funding from the European Union under its Horizon 2020 Marie Sklodowska-Curie Research and Innovation Staff Exchange project MAKERS (grant agreement number 691192), the ESRC under its City Evolutions project, and the Regional Studies Association under its ‘New Manufacturing Regions’ research network.</span></em></p>It’s about time Europe ditched the diesels – so what are the alternatives?David Bailey, Professor of Industry, Aston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/698672016-12-08T07:25:52Z2016-12-08T07:25:52ZThe bright side of Dieselgate and other corporate scandals<figure><img src="https://images.theconversation.com/files/148934/original/image-20161206-25727-hm9jnw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Volkswagen HQ in Wolfsburg, Germany, where it all began.</span> <span class="attribution"><a class="source" href="https://upload.wikimedia.org/wikipedia/commons/7/71/Wolfsburg_VW-Werk.jpg">Andreas Praefcke/Wikimedia</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>2015 was supposed to be a year of honours and glory for Volkswagen: it was about to <a href="http://money.cnn.com/2015/07/28/investing/volkswagen-toyota-biggest-carmaker/">steal the crown</a> from Japanese rival Toyota and dominate the global automobile market. Then came September, and the revelation that one of the most admired companies in the world had <a href="http://www.nytimes.com/2015/09/19/business/volkswagen-is-ordered-to-recall-nearly-500000-vehicles-over-emissions-software.html">falsified</a> engine emissions tests. </p>
<p>In a matter of days, dishonour fell on the corporation and its top management, accused of breaking the trust of its customers and the public. </p>
<p>Volkswagen fell hard. Within a few days, a quarter of the company’s market value <a href="http://money.cnn.com/2015/09/24/investing/volkswagen-vw-emissions-scandal-stock/">evaporated</a>. Public outrage forced CEO Martin Winterkorn to <a href="http://www.nytimes.com/2015/09/24/business/international/volkswagen-chief-martin-winterkorn-resigns-amid-emissions-scandal.html">resign</a>, and the firm <a href="https://www.ft.com/content/35575f80-4a75-11e6-b387-64ab0a67014c">lost ground</a> in all major markets, retreating from leading positions it had patiently built over decades. Adding insult to injury, legal bills and liabilities started piling up as <a href="http://www.nytimes.com/2015/09/25/business/dealbook/thepotential-criminal-consequences-for-volkswagen.html">prosecutors</a> across the globe investigated the company.</p>
<p>A year after the scandal, nobody knows how long it will take for Volkswagen to fully recover. The healing process, <a href="http://amr.aom.org/content/33/3/730.short">research</a> tells us, involves a combination of explanation, contrition, and rehabilitative change. The hubristic “<em>Das auto</em>” tagline is already history. Major management and strategic <a href="https://www.ft.com/content/fa44e6c2-2ef1-11e6-a18d-a96ab29e3c95">changes</a> are under way. No doubt the turnaround will require considerable expense and time.</p>
<h2>The explosive nature of scandals</h2>
<p>Scandals are intriguing social phenomena. They involve misconduct – real or alleged – that runs counter to established moral norms. The transgression is often known before scandal emerges. In Victorian London, everyone knew Oscar Wilde was gay, but mostly ignored that fact until <a href="http://www.cambridge.org/fr/academic/subjects/sociology/sociology-general-interest/scandal-moral-disturbances-society-politics-and-art?format=HB&isbn=9780521895897">he was sent to jail for it</a>. </p>
<p>Likewise, early evidence of Volkswagen’s misconduct was published in a 2014 scientific study but remained otherwise <a href="http://www.citylab.com/crime/2015/09/the-study-that-brought-down-volkswagen/407149/">under the radar</a>.</p>
<p>Publicity is what turns transgression into scandal. Acting as a detonator, it forces third parties (who might have otherwise turned a blind eye) to denounce the perpetrators. Once the story is out there, bystanders have no other option than to condemn the publicised transgression. Scandals then start diffusing. In the age of social media and instant global news, they spread like wildfire.</p>
<p>Former associates of the perpetrator and actors categorised as being similar quickly suffer from a <a href="http://asq.sagepub.com/content/54/2/195.short">suspicion of culpability</a> – “If Volkswagen does it, others probably are too, right?” </p>
<p>At this point, being guilty or innocent does not really matter. The taken-for-granted assumption that corporations act in a morally acceptable manner vanishes; entire sectors become subject to public scrutiny. </p>
<p>The practices of Ford, BMW, Renault-Nissan, and others, are <a href="http://www.independent.co.uk/news/business/news/volkswagen-emissions-scandal-more-carmakers-implicated-as-tests-reveal-pollution-levels-of-popular-a6674386.html">questioned</a>. Eventually, misbehaviour casts a cloud over a whole <a href="http://amj.aom.org/content/58/1/169.short">industry</a>.</p>
<h2>Corporate scandals as regulatory devices</h2>
<p>Corporate scandals are not always bad news. When they weaken one or more central players, they open market opportunities to competitors. In the aftermath of the Enron scandal, for instance, the “big four” audit firms ended up <a href="http://amj.aom.org/content/51/3/495.short">capturing</a> most of Arthur Andersen’s former clients. In November 2015, Fiat-Chrysler and Volvo both recorded all-time high <a href="http://www.automobilemag.com/news/november-2015-auto-sales-records-everywhere/">sales</a> in the US.</p>
<p>Scandals may also have a greater virtue: they call attention to moral issues and durably affect how consumers and stakeholders evaluate organisations. In an ongoing research project with a researcher at Columbia University, we find <a href="https://www.researchgate.net/project/The-Consequences-of-Scandals-on-Organizational-Competition">evidence</a> that the organisations best positioned to benefit from scandal are those which provide a close substitute to the perpetrator’s product and are known for enforcing stricter norms. In other words, scandals provide the most virtuous firms with a competitive edge.</p>
<p>In all, corporate scandals contribute positively to the long-term evolution of industries. Scandals shed light on organisational practices that used to be formally condemned yet commonly ignored, such as cooking the books (such as <a href="http://www.worldfinance.com/special-reports/the-parmalat-scandal">Parmalat</a>) or struggling with research (such as <a href="http://www.wsj.com/articles/theranos-has-struggled-with-blood-tests-1444881901?mod=djemalertNEWS">Theranos</a>).</p>
<p>By exposing misconduct to the public eye, scandals generate moralising discourses and bring the question of organisational norm enforcement to the forefront of the political debate. </p>
<p>They also force governments and regulators to redefine and enforce stricter rules. While the clamour of the 2001 infamous Enron bankruptcy has long faded away, the Sarbanes-Oxley accounting rules, implemented in the wake of the scandal to tighten financial disclosures and limit conflicts of interest, <a href="http://www.forbes.com/sites/hbsworkingknowledge/2014/03/10/the-costs-and-benefits-of-sarbanes-oxley/#1221974f2776">guide and constrain</a> the accounting practices of millions of corporations today.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=519&fit=crop&dpr=1 600w, https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=519&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=519&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=652&fit=crop&dpr=1 754w, https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=652&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/148937/original/image-20161206-25768-n3qhg1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=652&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Theranos, which claims to get accurate test results from small amounts of blood, also had a tough year.</span>
<span class="attribution"><a class="source" href="https://c2.staticflickr.com/6/5480/12113343003_9962d13513_b.jpg">Steve Jurvetson/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>New rules of the game</h2>
<p>A year has passed since Dieselgate, and the global automobile industry is already different: playing with regulatory tests is clearly no longer an option. Not only has the cost of cheating tests has <a href="http://www.nytimes.com/2016/04/23/business/international/volkswagen-loss-emissions-scandal.html">become exorbitant</a> but the probability of being caught is now almost certain, with regulators in all countries tightly scrutinising emission test results. </p>
<p>The result is much more than symbolic: actual engine emission reductions are in order across the industry. Faced with the true cost of meeting emission targets, automakers such as <a href="http://www.reuters.com/article/us-renault-diesel-exclusive-idUSKCN11C1MF">Renault</a> and <a href="http://uk.reuters.com/article/uk-autoshow-paris-toyota-diesel-idUKKCN11Z1AC">Toyota</a> are already phasing out diesel engines and reorienting their research and development effort towards low-emission technologies. </p>
<p>Others will follow suit, because Dieselgate displaced the nature of organisational competition. In the post-emission scandal car industry, the players best able to innovate and offer truly cleaner propulsion systems are the ones that will survive and thrive. </p>
<p>Volkswagen’s top managers learnt the lesson firsthand. They recently announced the firm’s <a href="http://www.forbes.com/sites/greatspeculations/2016/06/21/volkswagens-strategy-2025-focuses-on-a-greener-future-for-the-company/#7efb79923ce5">ambition</a> to become the world leader in electric cars by 2025.</p><img src="https://counter.theconversation.com/content/69867/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Julien Jourdan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Fallout from the Volkswagen case shows how scandals can give virtuous organisations a competitive edge and help industries evolve.Julien Jourdan, Professeur, Université Paris Dauphine – PSLLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/669512016-10-14T19:09:30Z2016-10-14T19:09:30ZWill Samsung forget its safety lessons as it moves beyond the Note 7 debacle?<figure><img src="https://images.theconversation.com/files/141592/original/image-20161013-31310-pchemh.jpg?ixlib=rb-1.1.0&rect=210%2C10%2C800%2C456&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/135518748@N08/27458903223/in/photolist-HeEURS-GsE9Pz-JvedyC-JzcNNi-HQs4gV-HQs4TX-vFMxxu-uws54G-MVuLSd-N3Beay-LkFpJq-JY44Zu-JR1Xg4-JR1VB2-KJxFcf-JR1C3p-KMochr-KEyEcB-JR1AP2-KmeJBd-JQLXHq-KEx396-JQYNRx-KJvJQS-KmeGgS-JQLUFJ-KJvGsf-JQLTX9-KJvFbs-JQYLqv-KJvEps-Kjijay-Jt93SF-GXRhoJ-GXRfJS-Ho6GDF-Ho6Esg-GsFjiH-Gsy1DE-Ho6qe6-GXQULL-Hh3bg4-GsEWUa-Hh32jr-HeFqM3-Hh1SrZ-GXPoqN-GsD3rB-Hk7RQJ-Hh1yvt">portal gda/Flickr</a></span></figcaption></figure><p>The massive recall of Samsung Note 7 smartphones, accompanied <a href="https://www.ft.com/content/58d215d4-8f69-11e6-a72e-b428cb934b78">by a halt to production</a> after reported battery fires is the latest in another year of breaking corporate scandals. The South Korean firm isn’t the first to experience safety problems as happened in this case – and it is a feature of corporate behaviour to let focus on this issue come and go in favour of other priorities.</p>
<p>The quagmire that Samsung finds itself in is of a different character to many other high-profile cases including Volkswagen’s <a href="https://theconversation.com/how-volkswagen-got-caught-cheating-emissions-tests-by-a-clean-air-ngo-47951">emission-cheating device</a> or the <a href="https://theconversation.com/how-wells-fargo-encouraged-employees-to-commit-fraud-66615">Wells Fargo fake account scandal</a>. For a start there appears to be nothing deliberate about Samsung’s faulty phone problem. And judging by appearance, its reactions to the ballooning scandal have been sincere, including its <a href="http://www.bbc.co.uk/news/business-37253742">previous decision to recall 2.5m Samsung Note 7 devices</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=281&fit=crop&dpr=1 600w, https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=281&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=281&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=353&fit=crop&dpr=1 754w, https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=353&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/141595/original/image-20161013-31336-oj2wsg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=353&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Tarnished image.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/mynameispaul/2319745226/in/photolist-qJdgxB-qG65Cb-qrXt1Z-qJnPAF-qJnLTg-qG62Td-8rwYp4-4r1kip-4r5qDm-4r5qsE-4wZirm">Paul/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>Rather than irresponsibility, Samsung appears likely to have underestimated some crucial safety issues. The company has reportedly worked very hard to implement cutting-edge technological features such as an <a href="https://news.samsung.com/global/everything-you-need-to-know-about-the-galaxy-note7s-iris-scanner">iris scanner</a> for improved security. </p>
<p>If it does turn out to be the case that the company temporarily took its eye off the ball on safety issues, it wouldn’t be alone. As it happens, large business organisations have a tendency to gradually <a href="http://amj.aom.org/content/53/3/451.abstract">“forget” safety routines or protocols</a> that have been put in place for accident prevention or safety improvement in favour of an increased focus on innovation or cost efficiency. </p>
<h2>Brand damage</h2>
<p>Whatever the outcome of Samsung’s investigations, the company now has to deal with the media commotion this scandal has attracted. This incident has not had especially dire consequences compared to other scandals – in VW’s case, for instance, the <a href="http/theconversation.com/the-not-so-invisible-damage-from-vw-diesel-cheat-100-million-in-health-costs-48296">health implications are on a grander scale</a>. In Samsung’s case, damage and injury are not to the fore, but there are two main characteristics. The first is the sheer scale of the recall: some estimates reckon <a href="http://www.reuters.com/article/us-samsung-elec-smartphones-costs-idUSKCN12B0FX">Samsung could end up losing around US$17 billion because of the recall</a>. </p>
<p>The nature of the Samsung case also has an impact in terms of perceptions and visibility. Damage <a href="https://www.cnet.com/news/why-is-samsung-galaxy-note-7-exploding-overheating/">has been limited</a>, but some effects have been extremely visible – and for many, scary. Several airlines, airports, and aviation bodies warned against or even <a href="http://whatson.ae/dubai/2016/09/the-samsung-galaxy-note-7-has-been-banned-on-board-uae-airlines/">banned the devices</a>, or insist they are turned off for the duration of the flight. There was <a href="http://www.nytimes.com/2016/10/06/business/southwest-samsung.html">one evacuation prior to take-off on a Southwest Airlines flight</a> due to smoke in the passenger section, emanating from a Samsung Note 7 device. Making people fear for their lives is guaranteed to provoke negative attention to a brand however effective and honest a company’s response might be.</p>
<p>What should Samsung do? Seeing as public attention is still very much on this issue, dealing with it robustly is important. A full recall has already been made, which is a signal to stakeholders that the company is taking the issue seriously. One video apology has already been made. Likely more will be needed, along with a promise to prevent such incidents from recurring. Some form of compensation may be in order.</p>
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<p>An apology certainly does not hurt when a company is clearly culpable. It may encourage the public to forgive – and possibly forget – faster. It was essentially with such manoeuvres that <a href="http://mobile.nytimes.com/2002/03/23/your-money/tylenol-made-a-hero-of-johnson-johnson-the-recall-that-started.html">Johnson & Johnson dealt with the far more serious Tylenol scandal in 1982</a>, in which cyanide-laced painkiller capsules left seven people dead. The company and the product were back on their feet in a matter of months. If Samsung successfully manages the PR, <a href="http://amr.aom.org/content/early/2015/09/08/amr.2014.0208.short">the public will likely forget the issue relatively quickly</a>, and the company’s long-term reputational damage will be negligible at worst.</p>
<h2>Break the pattern</h2>
<p>All of this, of course, depends on preventing similar problems from occurring in the future. For this, that tendency for safety routines to fall short of the required standard needs to be definitively addressed, and efforts made to make those routines stick – long term. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=486&fit=crop&dpr=1 600w, https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=486&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=486&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=611&fit=crop&dpr=1 754w, https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=611&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/141594/original/image-20161013-31310-19003xv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=611&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The 1986 Challenger disaster.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-245968618/stock-photo-space-shuttle-challenger-disaster-space-shuttle-exhaust-plumes-entwined-around-a-ball-of-gas-after-a-few-seconds-after-the-explosion-caused-by-ruptured-o-rings-jan-28-1986.html?src=5CjH1PHkxutQH6QBlJmEjQ-1-1">Everett Historical/Shutterstock</a></span>
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<p>This will not be easy. As time passes, organisations tend to oscillate back towards more innovation and efficiency and away from a safety-focused approach. They can forget the lessons they learned from these episodes, as observed in a recent longitudinal <a href="http://pubsonline.informs.org/doi/abs/10.1287/orsc.2015.1010">study of 146 pharmaceutical firms in the US</a>. Such a process was painfully experienced by US space agency NASA with the disintegration of the <a href="http://www.space.com/19436-columbia-disaster.html">Columbia shuttle</a> in 2003, after the tragic <a href="http://www.history.com/topics/challenger-disaster">Challenger shuttle accident</a> of 1986. While initially focusing on safety after the Challenger accident, efficiency slowly gained priority over the years. There was <a href="https://www.nasa.gov/columbia/home/CAIB_Vol1.html">a reduction in the number of safety personnel</a> and <a href="https://books.google.co.uk/books?hl=fi&lr=&id=wIfAU5exEPQC&oi=fnd&pg=PA33&dq=vaughan+columbia+2005&ots=DPy1ibuJxf&sig=f6-iCbaVekjtcQIuvtw6VurUUIY&redir_esc=y#v=onepage&q=vaughan%20columbia%202005&f=false">a general depreciation of organisational knowledge</a>, and a similar accident eventually followed. To avoid this type of reversion, Samsung will need to safeguard its safety routines from now on and embed the memory of the faults that lead to this incident. </p>
<p>This could be achieved through integrating safety training into recruitment and career development processes, by introducing safeguards against safety routines being overridden – and could even, in a brave and humble company, include an annual commemoration of the debacle as a lasting and powerful warning.</p><img src="https://counter.theconversation.com/content/66951/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jukka Rintamäki receives funding from the European Commission as part of the Marie Skłodowska-Curie actions (MSCA). The funding is related to his continuing work on collective remembering and forgetting of corporate irresponsibility.</span></em></p>How can companies brought low by scandal or failure remember the lessons they should be learning?Jukka Rintamäki, Marie Curie Research Fellow, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/657182016-09-21T20:28:47Z2016-09-21T20:28:47ZNo, cutting your car’s carbon emissions won’t cost you more<figure><img src="https://images.theconversation.com/files/138572/original/image-20160921-29747-oigmj2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Carbon dioxide standards for cars are the cheapest way to cut emissions.</span> <span class="attribution"><span class="source">Car exhaust www.shutterstock.com</span></span></figcaption></figure><p>The Australian government has started looking into <a href="https://www.environment.gov.au/minister/frydenberg/media-releases/mr20160829.html">carbon dioxide emissions standards</a> for light vehicles, as part of new measures to meet the nation’s 2030 climate targets. </p>
<p>However, some are already questioning the use of standards, with <a href="http://www.theaustralian.com.au/national-affairs/climate/emission-rules-shift-cost-on-to-new-car-buyers/news-story/4e774eee872aafb4261e7437421f0279">media reports</a> pointing to higher costs for new car buyers and the possibility of the government bungling the introduction of standards.</p>
<p>Ministers Josh Frydenberg (energy and environment) and Paul Fletcher (urban infrastructure) have <a href="https://www.environment.gov.au/minister/frydenberg/media-releases/mr20160829.html">acknowledged these concerns</a>, stating that “the reform agenda raises issues which need to be carefully considered including for their impact on motorists, the automotive sector and others”.</p>
<p>In 2015, new Australian vehicles produced an average of <a href="https://www.ntc.gov.au/Media/Reports/(C19AD85F-32EC-4605-886F-8448F1CB00A2).pdf">184 grams of CO₂</a> for each kilometre. Introducing a standard is the cheapest way to cut carbon emissions in Australia’s economy. </p>
<p>At ClimateWorks Australia, we’ve long been <a href="http://climateworksaustralia.org/sites/default/files/documents/publications/climateworks_vehicle_efficiency_standards_briefing_paper_feb2014_0.pdf">calling</a> for best-practice standards for new light vehicles. This has been supported by <a href="http://climateworksaustralia.org/sites/default/files/documents/publications/climateworks_submission_to_ministerial_forum_on_vehicle_emissions_-_discussion_paper.pdf">Global Fuel Economy Initiative, Future Climate Australia</a>, and other environmental groups. Indeed, the latest <a href="http://climatechangeauthority.gov.au/sites/prod.climatechangeauthority.gov.au/files/files/Special%20review%20Report%203/Climate%20Change%20Authority%20Special%20Review%20Report%20Three.pdf">report</a> from the Climate Change Authority also recommended a mandatory CO₂ emission standard.</p>
<p>Our <a href="http://climateworksaustralia.org/sites/default/files/documents/publications/climateworks_vehicles_emission_standards_infographic_feb2014_0.pdf">research</a> shows that the introduction of emission standards for light vehicles has considerable benefits for motorists and Australia more broadly. </p>
<p>So let’s look at five key concerns and why light vehicle CO₂ emission standards should be introduced in Australia.</p>
<h2>Emission standards will cuts costs for drivers</h2>
<p>Based on a conservative estimate, we estimate that more efficient vehicles would add A$2,500 to the upfront costs for motorists (<a href="http://climatechangeauthority.gov.au/files/files/Light%20Vehicle%20Report/Lightvehiclesreport.pdf">the Climate Change Authority estimates A$1,500</a>). However, <a href="http://climatechangeauthority.gov.au/sites/prod.climatechangeauthority.gov.au/files/files/Special%20review%20Report%203/Climate%20Change%20Authority%20Special%20Review%20Report%20Three.pdf">our research</a> shows that the average driver could recoup these within three years through fuel savings, or even sooner for fleet drivers travelling greater distances. These payback periods are well within the average ownership periods for new cars.</p>
<p>With best-practice vehicle emission standards in place, by 2025 the average vehicle owner driving 14,000km a year would achieve annual fuel savings of up to A$850, while a fleet driver averaging 20,000km each year would save up to A$1,200.</p>
<h2>Emission standards are the cheapest way to cut carbon</h2>
<p>ClimateWorks’ <a href="http://climateworksaustralia.org/sites/default/files/documents/publications/climateworks_lcgp_australia_full_report_mar2010.pdf">Low Carbon Growth Plan for Australia</a> and a range of other <a href="https://www.environment.gov.au/system/files/resources/b8540c8a-8a31-4aba-a8b5-63cc46466e33/files/modelling-and-analysis-australias-2030-abatement-opportunities.pdf">studies</a> shows that reducing emissions from cars and light commercial vehicles through better fuel use is the cheapest way to reduce emissions across our economy.</p>
<p>Our analysis shows best-practice standards for new light vehicles, equivalent to 130g of CO₂ per km in 2020 and 95g CO₂ per km in 2025, would reduce CO₂ emissions by about 100 million tonnes from 2020 to 2030. This is bigger than the 76 million tonnes of CO₂ previously identified by the <a href="https://infrastructure.gov.au/roads/environment/forum/files/Vehicle_Emissions_Discussion_Paper.pdf">federal government</a>.</p>
<p>Currently Australia is one of the few remaining developed countries without light vehicle CO₂ emission standards in place, with standards covering over 80% of the global automotive market. Any delay in implementing CO₂ emission standards will lock-in less efficient vehicles, resulting in higher costs to consumers, and higher emissions.</p>
<h2>We don’t have to wait for better testing</h2>
<p>The <a href="https://theconversation.com/au/topics/volkswagen-emissions-scandal-20831">Volkswagen emissions scandal</a> has increased scepticism about introducing standards here. The scandal highlighted the issue that laboratory testing of emissions does not reflect on-road driving conditions resulting in an overestimate of actual emissions reductions. </p>
<p>In fact, <a href="https://www.theguardian.com/technology/2016/sep/19/many-car-brands-emit-more-pollution-than-volkswagen-report-finds">a recent report</a> found completely legal inconsistencies between testing and on-road use in car models across Europe. </p>
<p>Some argue that Australia should do nothing until a better testing system has been developed to address these issues. However, even taking into account the fact that on-road emissions may possibly be higher than what current standards testing show, Australia would still improve the efficiency of its vehicle fleet by 50% with standards in place.</p>
<h2>Fuel quality standards won’t get in the way</h2>
<p>Some groups argue that Australia’s lack of low-sulfur fuel could be a roadblock in meeting future new vehicle CO₂ standards and that we need to have more stringent fuel quality standards in place before we look to introduce CO₂ standards.</p>
<p>Vehicles do run more efficiently with low-sulfur fuel, meaning they produce less CO₂. However, the sulfur content of our current fuel quality standards does not present an obstacle for vehicle efficiency technologies for compliance with CO₂ standards. The <a href="https://infrastructure.gov.au/roads/environment/forum/files/Climate_Works_and_Future_Climate_Australia.pdf">International Council on Clean Transportation</a> has stated that Australia’s fuel quality now doesn’t present any impediment to reduce vehicle emissions at rates comparable to the other regions of the world.</p>
<p>As improving fuel efficiency now is shown to be cost-effective and technically feasible, we shouldn’t delay the implementation of CO₂ emission standards. <a href="http://climatechangeauthority.gov.au/sites/prod.climatechangeauthority.gov.au/files/files/Special%20review%20Report%203/Climate%20Change%20Authority%20Special%20Review%20Report%20Three.pdf">Our research</a> shows that any delay in improving vehicle emissions standards will lead to a level of emissions lock-in – where a larger proportion of vehicles on our roads will be less efficient than they would be with standards in place – reducing the potential by which vehicle emission standards can contribute to Australia’s emission reduction targets. </p>
<h2>Australians will have more choice</h2>
<p>The introduction of best-practice emission standards does not mean that drivers will have less choice. Under emissions standards, manufacturers are required to meet an average emissions standard across the entire fleet. This allows manufacturers to provide a range of models so long as the average emissions of the fleet as a whole does not exceed the agreed standard. </p>
<p>Rather than limit consumer choice, standards should increase the availability of more efficient vehicles into the Australian market and continue current trends of increasing the number of green vehicles.</p>
<p>The federal government has the opportunity to introduce best practice emission standards for light vehicles. If designed well, in collaboration with industry and consumers, it presents a significant opportunity to reduce emissions from the transport sector while providing benefits for vehicle owners and the broader economy.</p><img src="https://counter.theconversation.com/content/65718/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>ClimateWorks is funded by philanthropy through The Myer Foundation with Monash University. ClimateWorks Australia also periodically conducts research with funding from Federal, State and local governments and from private companies; all our work is focused on supporting strong emissions reductions in Australia.
The author has no other relevant affiliations.</span></em></p>Carbon standards for cars are the cheapest way to cut emissions, and will save drivers money.Scott Ferraro, Head of Implementation, ClimateWorks Australia, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/647952016-09-02T03:40:13Z2016-09-02T03:40:13ZACCC unlikely to secure compensation for Volkswagen customers<p>The Australian Competition and Consumer Commission’s (ACCC) is unlikely to secure compensation for customers from German car maker Volkswagen and its Australian subsidiary for breaching emission standards. This is because Australia standards, even though they are based on European emission standards, aren’t as stringent as in Europe or the United States.</p>
<p><a href="http://www.accc.gov.au/media-release/accc-takes-action-against-volkswagen-over-diesel-emission-claims">The ACCC alleges</a>:</p>
<blockquote>
<p>“consumers rightly expect that their vehicle’s emissions would operate as advertised and this was not the case with more than 57,000 vehicles sold in Australia by Volkswagen over a five year period.” </p>
</blockquote>
<p>The cars in question include various models made between 2008 and 2015 including the Amarok, Golf, Polo and Passat.</p>
<p>The ACCC alleges Volkswagen engaged in misleading or deceptive conduct, made false or misleading representations and engaged in conduct liable to mislead the public in relation to diesel vehicle emission. More specifically, that Volkswagen represented the vehicles as complying with Australian and European standards and all regulatory requirements, when this was in fact not the case. </p>
<p>The European emission standards for passenger cars (including SUVs) applied to the vehicles mentioned in the ACCC’s claim, ranged from Euro 5 for new models in 2009 and all new vehicles 2011, to Euro 6 <a href="http://www.theicct.org/sites/.../ICCT_comparison%20Euro%20v%20US.pdf">for new vehicles sold from September 2015</a>. This means that Euro 5 applied for the above vehicles. </p>
<p>However in Australia, the European regulations Euro 4 applied to vehicles launched before November 1, 2013, and Euro 5 vehicle emission standards will only apply to all new cars <a href="https://www.legislation.gov.au/Details/F2011L02016">(including SUV’s and LCV) on November 1, 2016</a>. In effect, Euro 4 regulatory standards applied and Euro 5 applied to new models.</p>
<p>In the United States this is different again. The US Tier 2 and Tier 3 regulatory standards on nitrogen oxide emissions are stricter than Europe’s regulatory standards for Euro 5 and Euro 6. So much so that Volkswagen diesel engine manufacturers concede it will be far harder to meet the stricter US standards. </p>
<p>This has led to <a href="http://www.autonews.com/article/20160111/RETAIL/160119974/vw-to-expand-diesel-compensation-program-in-u.s.-to-larger-vehicles">a US$10 billion buyback program</a> for turbocharged direct injection car owners. They can now sell their cars back to Volkswagen. The initial action was initiated by the US Department of Justice, which first sued Volkswagen on behalf of the Environmental Protection Agency. </p>
<p>This is not the case in Europe and in Australia. Volkswagen is recalling the affected vehicles and offering no compensation.</p>
<p>Pressure is mounting on countries in the Europe for not taking action. In the United Kingdom, Volkswagen appeared before the Transport Select Committee in 2015 to answer <a href="http://www.parliament.uk/documents/commons-committees/transport/16-Letter-from-Louise-Ellman-to-Paul-Willis-MD-Volkswagen-UK.pdf">questions on its emissions testing for its cars</a>. </p>
<p>The UK arm of Volkswagen said it wasn’t required to pay compensation because it removed the defeat device from its vehicles. This is the software in engines that could detect when they were being tested, changing the performance accordingly to improve results. </p>
<p>It said the removal won’t have an impact on performance and the cars will pass the less stringent European Union emission tests after the approval of new technical measures by the relevant authorities. </p>
<p>When questioned whether vehicle owners would be compensated in the UK, Volkswagen said it was not necessary to do so. It argued compensation requires a fault which has given rise to some form of loss, and they did not believe this was the case. Any discrepancy between the advertised carbon dioxide emissions and fuel economy and actual performance was expected to be very slight in the UK. If this is the case, then the same argument could apply in Australia which adopts more lenient regulatory standards than in Europe.</p>
<p>The ACCC’s case assumes consumers expect vehicle emissions would operate as advertised. In the review of Euro 5/6 Light vehicle emission standards, the Australian <a href="https://infrastructure.gov.au/roads/environment/files/Final_RIS_Euro_5_and_6_Light_Vehicle_Emissions_Review.pdf">Department of Infrastructure and Transport said</a>for consumers buying a new car, emissions don’t rate highly on their concerns. </p>
<p>This latest case brought against Volkswagen is likely do to little to alleviate the concerns from customers about whether the scandal will affect the value of their car.</p><img src="https://counter.theconversation.com/content/64795/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anna Mortimore does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The court action ACCC has brought against Volkswagen might not succeed because Australia’s emissions standards are not as strict as those in the US and Europe.Anna Mortimore, Lecturer, Griffith Business School, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/647962016-09-02T01:45:02Z2016-09-02T01:45:02ZACCC takes VW to court – but will it help consumers?<figure><img src="https://images.theconversation.com/files/136374/original/image-20160902-1061-wxhq50.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The ACCC is taking VW to court. </span> <span class="attribution"><span class="source">VW image from www.shutterstock.com</span></span></figcaption></figure><p>Yesterday the Australian Competition and Consumer Commission (ACCC) announced that it has <a href="https://www.accc.gov.au/media-release/accc-takes-action-against-volkswagen-over-diesel-emission-claims">instituted proceedings against Volkswagen (VW)</a>. The ACCC is pursuing VW for allegedly misleading consumers (in contravention of Australian Consumer Law) around emissions from its diesel cars. </p>
<p>In 2015, VW admitted it had installed software in certain diesel-engine cars that ensured the cars met <a href="http://www.euronews.com/2015/09/22/volkswagen-admits-it-totally-screwed-up-as-emissions-rigging-scandal-spreads">US standards</a> for nitrogen oxide emissions in testing, but turned off in real road driving conditions. This meant that the diesel engines were dirtier than consumers realised. The affected cars were sold globally, including in Australia. </p>
<p>It has been reported that in the United States, <a href="http://www.smh.com.au/business/world-business/vw-to-offer-to-buy-back-500000-us-cars-20160420-gobddy.html">VW has agreed to buy back cars</a> affected by the emissions scandal. </p>
<p>In Australia, affected <a href="https://www.choice.com.au/transport/cars/general/articles/vw-pollution-cheating-scandal">consumers have been offered corrective software</a>, although just what that software will achieve and how well it will do that is disputed. </p>
<p><a href="http://www.abc.net.au/news/2016-09-01/volkswagen-emissions-scandal-taken-to-court-by-accc/7804352">The ABC reports</a> VW as saying that “the ACCC’s action did not provide any practical benefit to consumers”. VW says this is because “the best outcome for customers whose vehicle is affected is to have the voluntary recall service updates installed.”</p>
<h2>What’s in it for VW owners?</h2>
<p>The ACCC proceedings may appear to offer little direct benefit for disgruntled VW owners who have purchased cars without the features that were represented to them. However, contrary to VW’s suggestion, those consumers might want more by way of redress than the installation of new software to correct the original problem. </p>
<p>The attractions of low-emission diesel engines that were kinder to the environment may well have been central to affected consumers’ decision to purchase the VW car models in question. Without those benefits consumers might have purchased a different car. </p>
<p>Such consumers may be disgruntled by finding their VW is not what they had expected and they may also be facing a reduced resale value of their affected car. They may therefore want compensation for loss of value, lost opportunities and even disappointment and distress.</p>
<p>The <a href="https://www.accc.gov.au/media-release/accc-takes-action-against-volkswagen-over-diesel-emission-claims">ACCC is seeking</a> “declarations, pecuniary penalties, corrective advertising, findings of fact and costs” against VW.</p>
<p>Penalties awarded for breaches of the Australian Consumer Law may be considerable, amounting to A$1.1 million for each contravention. However, any penalties that the court determines VW will have to pay for its alleged misleading conduct will be imposed as a punishment for contraventions of the law, not to compensate affected consumers. </p>
<p>It is interesting that the ACCC does not appear to be relying on its powers itself to seek compensation for disgruntled consumers, or to seek a refund and damages on behalf of consumers for possible failures by VW to comply with the <a href="https://theconversation.com/explainer-can-i-get-a-refund-for-my-emissions-cheating-volkswagen-48815">consumer guarantee regime</a> in the Australian Consumer Law.</p>
<p>This may be for the practical reason that it would be difficult for the ACCC in this kind of action to show the required levels of causation and loss on the part of individual consumers that would be required in seeking redress on their behalf. </p>
<p>Nonetheless, the ACCC action is not entirely without benefit to consumers, albeit in a more indirect manner. The action sends a strong reminder to businesses operating in Australia about the need for “fair play” in the Australian market. </p>
<p>Moreover, any findings of fact or declarations may be made by a court in response to the ACCC action may be useful in establishing the alleged baseline wrong in <a href="http://www.abc.net.au/news/2016-09-01/volkswagen-emissions-scandal-taken-to-court-by-accc/7804352">private litigation by VW-owning consumers</a>, including under the class action filed in the Federal Court by law firm Maurice Blackburn <a href="http://www.abc.net.au/news/2016-06-08/volkswagen-accused-of-ignoring-australian-car-owners/7494290">seeking financial redress</a> for a group of affected consumers.</p><img src="https://counter.theconversation.com/content/64796/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeannie Marie Paterson receives funding from the Australian Research Council. </span></em></p>The ACCC has launched proceedings against VW for allegedly misleading consumers. But consumers won’t be directly compensated from the case.Jeannie Marie Paterson, Associate Professor, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/623862016-07-15T01:29:22Z2016-07-15T01:29:22ZHow Volkswagen is using tried-and-tested tactics to avoid paying compensation<p>Volkswagen Group has so far paid a high price for admitting it knowingly sold diesel model cars designed to manipulate emissions tests. It has felt the wrath of shareholders, suffered <a href="http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2016/04/Y_2015_e.bin.html/binarystorageitem/file/Y_2015_e.pdf">its largest ever annual loss</a> and been forced into an US$15 billion restitution settlement in the United States. </p>
<p>By insisting that restitution will only be offered to consumers in the US and Canada, Volkswagen has adopted a crisis management strategy used by a raft of multinational companies that could see Australian consumers miss out.</p>
<p>This strategy is simple: highlight the unique characteristics of the most demanding markets, and exploit the weaknesses of institutions elsewhere in a bid to diminish or avoid restitution.</p>
<h2>Fallout</h2>
<p>Volkswagen Group has admitted it installed <a href="http://www.abc.net.au/news/2015-09-19/vw-charged-over-car-pollution-loophole/6789294">“defeat devices”</a> in 11 million diesel cars so that emissions under laboratory conditions appeared up to 40 times lower than under everyday operating conditions. </p>
<p>The reaction from consumers has been less severe than predicted, with the company’s worldwide unit sales dropping by only 2% in 2015. Unit sales in the US and Europe, the locations most affected by the scandal, even <a href="http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2016/04/Y_2015_e.bin.html/binarystorageitem/file/Y_2015_e.pdf">grew by 4.4% and 2.6%, respectively.</a></p>
<p>So far, the US - where the scandal originally broke - is the only market where significant advances have been made towards resolving the crisis, owing to its strong consumer protection ethos and aggressive enforcement. </p>
<p>A fortnight ago Volkswagen agreed <a href="http://www.autonews.com/article/20160111/RETAIL/160119974/vw-to-expand-diesel-compensation-program-in-u.s.-to-larger-vehicles">to US$10 billion compensation for US consumers</a>, the <a href="http://www.abc.net.au/news/2016-06-28/volkswagen-to-settle-emissions-scandal-case/7549940">largest-ever settlement in US auto industry</a>, coupled with the offer of a vehicle buyback or a technical solution (still to be approved by authorities). </p>
<p>The company also agreed to pay US$2.7 billion to offset excess diesel emissions and another $2 billion for investments in environmentally-friendly vehicle technology. In total, the company has agreed to pay nearly US$15 billion. The company set aside €16.2 billion to deal with the crisis, nearly all of which is accounted for by the (partial and provisional) US settlement.</p>
<h2>Resisting compensation elsewhere</h2>
<p>But Volkswagen has resisted increasingly vociferous demands for restitution in other parts of the world, insisting that financial compensation will be reserved for customers in the US and Canada. </p>
<p>The company maintains that these customers deserve compensation because they bought a vehicle specifically advertised as a “clean diesel”. <a href="http://europe.autonews.com/article/20151121/ANE/151129984/vw-refuses-compensation-for-european-owners-of-rigged-diesels?cciid=email-autonews-blast.">It has further argued</a> that US customers were investing in a niche technology compared with Europe where more than half of new cars sold are diesels. </p>
<p>In Europe, Volkswagen’s significant political clout - the company is one the EU’s largest employers and part-owned by a German Lander government – might offer some protection. </p>
<h2>What’s happening in Australia</h2>
<p>In Australia, Volkswagen Australia finally came clean <a href="https://theconversation.com/volkswagen-fallout-shows-how-not-to-manage-a-crisis-48590">with local customers in October 2015</a>, admitting that more than 90,000 of its vehicles, including Volkswagen, Skoda and Audi models, had been fitted with the device.</p>
<p>Australian consumers seemed to shrug off the scandal and Volkswagen’s Australian sales <a href="http://www.afr.com/news/volkswagen-emissions-scandal-has-no-impact-on-sales-20160106-gm0apm#ixzz4EGTdmGzX">increased by nearly 10% in 2015</a>. The lack of impact may be attributable to the fact that diesel models account for less than 10% of local sales. </p>
<p>For the past nine months the Australian Competition and Consumer Commission (ACCC) has been investigating whether Volkswagen engaged in false or misleading representations in their marketing of the affected vehicles. If customers relied on these representations when buying their cars, they would be entitled to a range of options <a href="https://theconversation.com/explainer-can-i-get-a-refund-for-my-emissions-cheating-volkswagen-48815">under the Australian Consumer Law</a>. </p>
<p>Meanwhile, class action laws suits have commenced. Last week lawyers appearing in the Federal Court for Volkswagen Australia <a href="http://www.drive.com.au/motor-news/volkswagen-australia-denies-using-defeat-devices-20160707-gq0r4k.html#ixzz4E0TbxJYT">denied the use of defeat devices</a> in local models and argued that the fines and compensation agreed to in the US were <a href="http://www.drive.com.au/motor-news/volkswagen-australia-denies-using-defeat-devices-20160707-gq0r4k.html#ixzz4E0TbxJYT">irrelevant for the Australian context</a>. </p>
<p>Volkswagen Australia has also argued the best outcome for its customers is a technical solution, chiefly in the form of a software update. </p>
<p>The company has recalled <a href="http://volkswagendieselinfo.com.au/">just one of the affected models</a> in Australia although recent testing in Europe has raised <a href="http://www.autocar.co.uk/car-news/industry/vw-emissions-scandal-consumer-group-claims-dieselgate-fix-ineffective">doubts about the effectiveness</a> of the proposed technical fix.</p>
<h2>Tried-and-tested tactics</h2>
<p>Volkswagen’s approach reflects a crisis management strategy employed effectively by other multinationals in the past. </p>
<p>In 2009 Maclaren recalled one million strollers in the US due to finger amputation risks for kids and offered a technical solution. Elsewhere the company <a href="http://www.dailymail.co.uk/news/article-1226583/Pram-maker-Maclaren-recalls-1m-models-after-children-sever-fingers.html">continued to sell the same models</a> and refused to offer a fix. It simply asked the parents to mind their children while closing the stroller. </p>
<p>It was only after sustained pressure from parents, regulators and media that the company reluctantly offered the same fix to those who approached it, but the company never issued a recall notice <a href="https://www.theguardian.com/money/2011/may/25/second-maclaren-pushchair-recall">outside the US</a>. </p>
<h2>Global integration, local responsiveness</h2>
<p>Multinationals frequently pride themselves on providing high quality products and superior customer service to consumers compared to domestic companies. </p>
<p>To achieve this, multinationals attempt to realise the benefits of global integration while also maximising local responsiveness. </p>
<p>Global integration broadly refers to the centralised management of value chain activities (such as product design, procurement and logistics), while local responsiveness refers to adapting products and value chain activities to suit local consumer tastes and local stakeholder expectations, resulting in benefits such as premium prices, government subsidies and motivated employees. </p>
<p>But this approach has also exposed them to the risks of product failures. </p>
<p><a href="http://www.palgraveconnect.com/pc/doifinder/view/10.1057/9780230116344">Our research</a> has shown that global product recalls are on the rise because of the disconnect between the design function at multinational headquarters and manufacturing operations spread around the world. </p>
<p>Coinciding with the rise in recalls is the rise in unethical practices in crisis situations, such as suppressing product failures and not reporting them to regulators so as to avoid or delay recalls. </p>
<p>While we have some understanding of company delays in issuing recalls in different markets around the world, we know very little about the phenomenon of differential restitution around the world. </p>
<p>But the notion of multinationals refining their mix of local responsiveness and global integration offers some clues. While the world is an increasingly interconnected place, most stakeholders of multinationals are firmly anchored at the level of the nation state, although some are moving towards a regional setting (for instance, the EU) or have begun to coordinate closely (for example, the US and Canada). </p>
<p>As a result, laws, regulations and associated institutions apply mostly at the national level. </p>
<h2>Exploiting institutional differences</h2>
<p>Multinationals have always exploited institutional differences across countries through mechanisms such as differential pricing and tax arrangements. Increasingly they are also exploiting institutional differences by offering differential remedies in case of corporate wrongdoing. The fragmentation of stakeholders in different countries may even be reinforced by the companies. </p>
<p>For instance, in a <a href="http://volkswagendieselinfo.com.au/Content/Document/VGAstatement29-06-16.pdf">recent press statement</a> Volkswagen Australia’s managing director, Michael Bartsch, was at pains to point out: </p>
<p>The relevant facts and complex legal issues that have played a role in coming to these agreements in the United States are materially different from those in … Australia. </p>
<p>In the same vein, the group’s corporate website makes it exceedingly difficult to access the crisis communications provided to individual markets. Queries are either looped back to the local (Australian) emission website or require a valid VIN number in the overseas market. Such tactics help to keep individual countries and their stakeholders apart, and prevent countries with less bargaining power from obtaining comparable restitution.</p>
<p>To even the odds in negotiations with multinationals, stakeholders around the world must follow companies’ lead and become more globally connected. Only through global coordination in developing and enforcing standards will stakeholders boost their bargaining power in negotiating with transgressing companies.</p><img src="https://counter.theconversation.com/content/62386/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tom Osegowitsch owns shares in Volkswagen Group. </span></em></p><p class="fine-print"><em><span>Hari Bapuji receives funding from Social Sciences and Humanities Research Council of Canada. </span></em></p>Fresh from a record US$15 billion settlement, Volkswagen is resisting paying compensation in other countries.Tom Osegowitsch, Senior Lecturer, International Business and Strategic Management, The University of MelbourneHari Bapuji, Associate professor, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/618112016-07-04T01:32:05Z2016-07-04T01:32:05ZVolkswagen’s record settlement payout: treating the symptom not the disease<p>German car maker Volkswagen is paying out up to <a href="http://www.reuters.com/article/us-volkswagen-emissions-settlement-idUSKCN0ZD2S5">$15.3 billion</a> to address the effects of the emission crisis in the United States. This by far the <a href="https://www.washingtonpost.com/news/the-switch/wp/2016/06/27/volkswagen-agrees-to-pay-consumers-biggest-auto-settlement-in-history/">biggest settlement</a> in the history of the auto industry.</p>
<p>However what happened at Volkswagen, is a symptom that of <a href="http://oss.sagepub.com/content/early/2016/04/06/0170840616641984.abstract">an economic system characterised by</a> hyper-competition, enormous stakes and inflated corporate power. This system is ultimately what needs to change if they want to address the root causes of scandals like this. </p>
<p>Since the emissions scandal broke in September 2015 Volkswagen has suffered a fall from grace of mammoth proportions. The whole sorry affair has hit Volkswagen where business hurts most. Share price, sales revenues, pre-tax profit; they are <a href="http://www.cityam.com/242224/volkswagens-share-price-drops-after-it-reports-profits-and-sales-to-have-tumbled-in-first-quarter-of-2016">all down</a>. </p>
<p>The carmarker’s new aggressive business strategy and their willingness to <a href="http://www.dailymail.co.uk/wires/reuters/article-3664877/Why-VW-smart-fold-emissions-cheating-case-Frankel.html">quickly agree to the terms of the recent settlement</a>indicates that they are focused on the future. </p>
<p>But road ahead will be rough. Even after this landmark settlement is agreed in the US, <a href="http://uk.reuters.com/article/us-volkswagen-shareholders-idUKKCN0Z60V6">legal claims in Europe and elsewhere</a> are still outstanding. The US Justice Department and investigators in Germany are working together to establish whether <a href="http://home.bt.com/news/world-news/vw-agrees-11bn-emissions-scandal-deal-in-us-11364070499502">criminal charges</a> should be laid.</p>
<p>The costs of the emissions scandal are still not fully known, <a href="http://www.nytimes.com/2016/06/29/business/in-vw-showrooms-there-is-little-to-show-from-the-settlement.html?smid=tw-nytimesbusiness&smtyp=cur&_r=0">car dealers are disgruntled</a>, and there are calls from <a href="http://www.ft.com/cms/s/0/12789d2e-388e-11e6-9a05-82a9b15a8ee7.html#axzz4D8AgEc00">angry shareholders</a> to have a more independent supervisory board are not being heeded.</p>
<p>The announcement of the settlement in the US has also raised criticisms about how Volkswagen is compensating its other customers. <a href="http://uk.reuters.com/article/uk-volkswagen-emissions-idUKKCN0ZF24V">European Industry Commissioner Elzbieta Bienkowska</a> has just called again on the company to pay damages in Europe comparable to those in the US. The company has rejected those calls, with European law lacking the same mechanisms for class action law suits that are available in the US. </p>
<h2>Strategy and culture</h2>
<p>Despite the public indignation that the emissions scandal produced, it was in fact entirely consistent with the company’s strategy. In 2009 Volkwagen announced that within nine years it would become <a href="http://annualreport2009.volkswagenag.com/managementreport/reportonexpecteddevelopments/strategy/strategy2018.html">“the most successful and fascinating automaker in the world”</a>. </p>
<p>Focusing on customer satisfaction and technological innovation, including what it used to call ‘clean diesel’, Volkswagen aimed to be selling more than 10 million vehicles per annum and returning an 8% return on sales before tax.</p>
<p>The strategy was working, and half way through last year <a href="http://www.cnbc.com/2015/07/28/vw-overtakes-toyota-as-worlds-biggest-carmaker.html">Volkswagen overtook Toyota</a> to become the largest car manufacturer in the world. They were seen as an exemplar of how world leading business performance could be matched with a dedication to ethics and environmentalism.</p>
<p>The emissions scandal revealed a different part of that strategy, and one that reflected a central value of contemporary global business: all that matters is competition and winning. At Volkswagen this was coupled with an autocratic management style. Arguing with a ‘superior’ was seen as impermissible and work environment was well known for s<a href="http://www.newsweek.com/2015/12/25/why-volkswagen-cheated-404891.html">hunning debate and criticism</a>.</p>
<p>Take massively ambitious commercial goals, stir in a ‘whatever-it-takes’ attitude, and sprinkle liberally with an unwillingness to be questioned. This is a recipe for disaster, and disaster is what it caused. </p>
<h2>Volkswagen’s future</h2>
<p>In what has been dubbed ‘Strategy 2025’ Volkswagen have switched focus from growth in sales volume to profitability and efficiency. In terms of products, the plan is to put <a href="http://www.autoexpress.co.uk/volkswagen/93120/vws-strategy-2025-plan-over-30-electric-cars-planned-for-next-10-years">30 new models of electric car</a> on the market in the next nine years. </p>
<p>CEO Matthias Müller says <a href="http://www.volkswagenag.com/content/vwcorp/info_center/en/news/2016/06/2025.html">the strategy</a> will involve the <a href="http://www.wsj.com/articles/vw-ceos-strategy-overhaul-focuses-on-electric-vehicles-1466073807">“biggest transformation in the company’s history”</a>. Included is an aggressive cost cutting program that is looking for €8 billion in savings per year. But this is a serious challenge give the <a href="http://www.reuters.com/article/us-volkswagen-shareholders-idUSKCN0Z60V6">power of Volkswagen’s labour unions</a>. Resistance to eliminating jobs has so far proved successful. </p>
<p>Dealing with the emissions scandal is central to the new strategy. Müller says that his <a href="http://www.volkswagenag.com/content/vwcorp/info_center/en/news/2015/10/naechste_Schritte.html">top priority</a> is to support customers affected by the diesel crisis, through compensation and technical solutions.</p>
<p>But you don’t have to read between the lines to see that Volkswagen just wants to put the whole thing behind them as quickly and cheaply as possible. Despite the US deal, for example, Volkswagen are still persistent in <a href="http://www.abc.net.au/news/2016-06-28/volkswagen-to-settle-emissions-scandal-case/7549940">defending claims</a> for compensation being made in the Australian courts.</p>
<p>Given how aggressively they are pursuing this strategy there’s a good likelihood that the comeback will be successful and while this might work, the conditions that brought it about are where the real problems lie.</p>
<p>Volkswagen is paying the price, but trying to cure one patient doesn’t stop the spread of the virus. What happened at the company is a prime example of how big business is treated by some as a game of risk-and-reward where people are encouraged to do what needs to be done to be ‘winners’, even if that means flouting the law and abandoning personal ethics.</p>
<p>Until that game changes we can expect the corporate scandals to continue.</p><img src="https://counter.theconversation.com/content/61811/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carl Rhodes does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Volkswagen’s strategy shows that problems like the emissions scandal are likely to continue.Carl Rhodes, Professor of Organization Studies, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/585592016-04-29T14:12:43Z2016-04-29T14:12:43ZVolkswagen, emissions and the ‘crisis spiral’<p>The event that triggered the Volkswagen emissions scandal – which saw the group admitting that it had allowed “cheat” devices to be used in US emissions tests – was just the start of the downfall of one of the world’s largest car manufacturers. </p>
<p>In 2010, I <a href="http://www.e-elgar.com/shop/the-automotive-industry-in-an-era-of-eco-austerity?___website=uk_warehouse">published a book</a> in which I discussed the <a href="http://slideplayer.com/slide/7834976/">hypothetical possibility of a “crisis spiral”</a>. The VW Group, in the worst case scenario, faces this spiral of decline in which revelations and attempts by management to resolve the situation combine in a toxic cocktail of falling sales, disintegrating consumer confidence, stressed suppliers, over-stretched management, spooked investors, and nervous franchise dealers.</p>
<p>Initially, <a href="http://www.wsj.com/articles/volkswagens-shares-take-tumble-after-epas-fresh-allegations-1446559388">analysts assumed that the scandal had cost VW US$2 billion</a>, but the ripples have continued, pushing this price far beyond expectations. </p>
<p>In the final three months of 2015, VW <a href="http://www.ibtimes.co.uk/volkswagens-main-brand-swings-127m-loss-fourth-quarter-after-emissions-scandal-1557259">reported a loss of €127m</a>, yet the full impact of the crisis was much stronger. While Volkswagen Group’s operating profit was on a level with 2014 – at €12.8 billion – the diesel scandal led to a total net loss of €1.6 billion for 2015 – <a href="http://www.ft.com/cms/s/eadc3150-0d17-11e6-ad80-67655613c2d6,Authorised=false.html?siteedition=uk&_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Feadc3150-0d17-11e6-ad80-67655613c2d6.html%3Fsiteedition%3Duk&_i_referer=http%3A%2F%2Fwww.ft.com%2Fvw-emissions-scandal&classification=conditional_standard&iab=barrier-app">the worst since the company was founded</a> 78 years ago. </p>
<p>This figure includes provisions for pending technical modifications to the affected diesel engines and repurchases, which total €7.8 billion. Another €7 billion has also been set aside as a provision for probable legal risks worldwide. </p>
<h2>How the crisis played out</h2>
<p>When news of the emissions scandal <a href="http://www.theguardian.com/business/video/2015/sep/24/vw-volkswagen-diesel-emissions-carmaker-why-video">first broke in September 2015</a>, initial reactions from the VW Group and its PR team were sporadic. VW owners were left uncertain as to whether they were specifically affected, what technical remedies might be available, what effect those remedies might have on the performance of their vehicles, or the impact on residual values, or indeed whether any form of financial compensation might be forthcoming.</p>
<p>Less than a month later, governments around the world had taken strong action <a href="http://europe.autonews.com/article/20151015/ANE/151019932/vw-ordered-to-recall-2-4-million-cars-in-germany-with-cheat-software?cciid=email-autonews-blast">to compel recalls and instigate fines</a>. Despite attempts to issue a fix, in the US some proposed solutions from VW Group were still deemed “incomplete, substantially deficient and falls far short of meeting the legal requirement” <a href="http://europe.autonews.com/article/20160112/COPY/301129924/volkswagens-diesel-fix-plan-rejected-by-california-regulators?cciid=email-autonews-blast">and resoundingly rejected</a>.</p>
<p>By March 2016, <a href="https://www.moodys.com/credit-ratings/Volkswagen-Aktiengesellschaft-credit-rating-146500">credit rating agencies had downgraded the VW Group</a>, making raising money more expensive, and further limiting the ability of the business to secure its medium term future. Some investors began to <a href="http://europe.autonews.com/article/20160316/ANE/160319910/u-s-law-firm-says-it-will-pursue-customer-claims-against-vw-in-europe?cciid=email-ane-daily">seek legal redress</a> and compensation – <a href="http://europe.autonews.com/article/20160303/ANE/160309937/volkswagen-denies-breaching-market-disclosure-rules?cciid=email-ane-daily">despite the group’s denial of breaching market disclosure rules</a>.</p>
<p>The money used to pay fines to regulators or governments, and compensation to vehicle owners must come from somewhere - and it began to be taken from the R&D budget, <a href="http://www.autoblog.com/2015/11/22/vw-investment-cut-diesel-scandal/">which was cut by 10%</a>. While a logical step, it is likely to damage the future model and/or technology programme, with a resulting loss of competitiveness. CEO Matthias Müller has simply stated that the company’s financial damage will be <a href="http://europe.autonews.com/article/20160308/ANE/160309885/vw-ceo-says-scandal-will-inflict-substantial-financial-damage?cciid=email-ane-daily">“substantial and enduring”</a>.</p>
<p>The group further proposed cutting more than €2 billion from the purchasing budget. However, cutting costs from suppliers may also cut corners, leading to quality and reliability problems in the future – and yet more problems for VW. Other investments in factory upgrades or capacity expansions, which were presumably considered “necessary” by the group before this crisis hit, <a href="http://www.autoblog.com/2015/11/22/vw-investment-cut-diesel-scandal/">are also being postponed or cancelled</a> – with direct consequences for production quality and volume.</p>
<h2>A brand in trouble?</h2>
<p>VW brand sales were already <a href="http://europe.autonews.com/article/20150630/ANE/150629920/new-vw-brand-boss-diess-needs-to-cut-costs-boost-profits?cciid=email-ane-daily">in trouble months before the crisis</a>. In order to keep sales up, and keep factories running, the group began discounting vehicle prices to “shift the metal”, resulting in a decrease in per-unit profitability. By October 2015, VW posted a <a href="http://europe.autonews.com/article/20151028/ANE/151029826/vw-slumps-to-third-quarter-loss-on-emissions-scandal">third quarter loss of US$3.84 billion</a>, compared to a US$3.6 billion profit in the same period in 2014.</p>
<p>In situations such as these, market share may in any case fall. If, as was the case for VW, <a href="http://europe.autonews.com/article/20151121/ANE/151129984/vw-refuses-compensation-for-european-owners-of-rigged-diesels?cciid=email-autonews-blast.">customers in the EU are not offered compensation</a> while those in the US are, there will be more questions and bad publicity. <a href="http://www.bbc.co.uk/news/business-34977697">VW sales in the US fell by 25%</a> in November.</p>
<h2>Impacts elsewhere</h2>
<p>It is not just buyers and investors who have been unhappy: in a spiral such as this, key executives and management may also be tempted to leave. At VW, <a href="http://europe.autonews.com/article/20151025/ANE/151029900/vw-suspends-more-execs-in-emissions-rigging-scandal-reports-say?cciid=email-ane-daily">several high ranking employees have had to go</a>, including former CEO Martin Winterkorn, or been suspended, <a href="http://www.wsj.com/articles/volkswagen-widens-suspensions-in-emissions-scandal-1445791586">such as Hanno Jelden</a>. Recruitment will probably suffer as well, damaging the ability of the business to keep up with the competition.</p>
<p>Franchised dealers have <a href="http://europe.autonews.com/article/20160321/COPY/303219858/vws-u-s-dealers-seek-reparations-for-emissions-scandal?cciid=email-ane-daily">also been upset by the scandal</a> and many sought financial compensation, while others started to look to sell other brands. Recruitment of new dealers would also have become more difficult, resulting in gaps appearing in the network for some or all brands, depending upon territory. </p>
<p>Management attention meanwhile continued to be directed at firefighting, not the mainstream job of running the business. According to VW Group, the scale of the scandal is huge, with about <a href="http://www.newspress.co.uk/public/ViewPressRelease.aspx?pr=61922&pr_ref=27774">450 internal and external staff reportedly involved in the investigation</a>. This internal over external focus could easily result in multiple strategic errors, management lapses, and a loss of direction that will further hinder the ability of the business to regain its competitiveness.</p>
<p>And various investigations and court cases roll on – probably for years.</p>
<h2>Looking ahead</h2>
<p>Müller has now said that VW will place great emphasis on its modular electrification toolkit, <a href="http://www.newspress.co.uk/public/ViewPressRelease.aspx?pr=64558&pr_ref=29855">to support a new generation of electric vehicles</a>. If the scandal succeeds in propelling Volkswagen Group more rapidly into the era of electric mobility and services then the long-term impact will be beneficial –- so long as the company is able to halt the crisis spiral that is greatly damaging its brand.</p>
<p>After all, the most valuable thing that the VW Group needs to protect is its brand – and announcements include a promise by the company that it is <a href="http://www.ft.com/cms/s/0/eadc3150-0d17-11e6-ad80-67655613c2d6.html#axzz477lIACtx">“standing by its responsibility” and will regain customers’ trust</a>. Whether it can do this, and climb back to its place as a respected car manufacturer, remains to be seen.</p><img src="https://counter.theconversation.com/content/58559/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Wells does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The scandal that rocked the automotive industry is far from over.Peter Wells, Professor of Business and Sustainability, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/511812015-12-29T20:49:10Z2015-12-29T20:49:10ZFive traits of an ethical leader<p>The year just past saw many major business scandals including those at <a href="https://theconversation.com/how-could-vw-be-so-dumb-blame-the-unethical-culture-endemic-in-business-48137">Volkswagen</a>, <a href="http://www.smh.com.au/interactive/2015/7-eleven-revealed/">7-Eleven</a> and <a href="http://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html?_r=0">Turing Pharmaceuticals</a>. All pointed to a business culture using the “end justifies the means” argument to justify unethical if not illegal practices. </p>
<p>While hopefully the exception and not the rule, these cases all left the public asking whether getting caught was seen by some leaders as the worst crime of all.</p>
<p>What are the qualities of an ethical leader and how might someone with those qualities think and act?</p>
<h2>The personality to defy group-think</h2>
<p>Good leaders display certain personality traits that are common across cultures and history; those of intelligence and imagination to create a compelling vision of the future, and bring those who can deliver it with them. </p>
<p>A good leader must also be trustworthy and display unshakeable integrity, be action-oriented, resilient in the face of setbacks while treating people with respect, not as mere units of production. They have rid themselves of delusion and are brutally honest with themselves, know when to take risks and when to play it safe. Leaders are courageous, defy group-think and accept the backlash against their unorthodox practices. </p>
<p>Outwardly, leadership can be expressed in countless ways, yet if a person embodies these traits, they will be perceived as a leader by those around them. </p>
<h2>The ability to set a good example</h2>
<p>The defining feature of the ethical leader is that in addition to the foundational qualities mentioned above, they are seen to act from their own well developed set of ethical principles, setting a consistently good example for others to follow. </p>
<p>The steady force of their attitude over time trickles down and becomes embedded in the culture. They have created a moral matrix that people internalise and operate from day to day. This was as true in ancient China as it is today, nicely summed up by <a href="http://www.ancient.eu/Lao-Tzu/">Lao Tzu</a> who observed that:</p>
<blockquote>
<p>“A leader is best when people barely know he exists, when his work is done, his aim fulfilled, they will say: we did it ourselves.”</p>
</blockquote>
<h2>Selflessness</h2>
<p>Ethical leaders are strong on selfless service in the interests of the greater good. They would probably resonate with this quote from Nobel Prize winner <a href="http://www.nobelprize.org/nobel_prizes/literature/laureates/1925/shaw-bio.html">George Bernard Shaw</a>: </p>
<blockquote>
<p>“This is the true joy in life, the being used for a purpose recognised by yourself as a mighty one; the being thoroughly worn out before you are thrown on the scrap heap; the being a force of Nature instead of a feverish selfish little clod of ailments and grievances complaining that the world will not devote itself to making you happy.”</p>
</blockquote>
<p>Shaw was not one to mince words.</p>
<h2>Their door is always open</h2>
<p>The whole topic of ethics is open for discussion, and everyone is encouraged to become part of the ongoing conversation. </p>
<p>The moral DNA of the organisation is a work in progress; a living entity that evolves, becomes stronger. It is not enshrined in a framed mission statement, then forgotten about. </p>
<h2>They’re not afraid to be challenged</h2>
<p>Having one’s subordinates call you out, disagree with you, challenge your judgement; all of this calls for great understanding and tolerance. Ethical leaders understand that it’s part of a culture of continuous improvement. There can be no “I’m the boss, don’t you dare challenge my authority”. It is part of not taking oneself too seriously. Self-deprecating humour is used to good effect. </p>
<p>Ethical leaders do not identify too closely with the position they occupy, such that they will be tempted to overstay their welcome. They cultivate successors and know when to step aside, leaving on a high rather than being pushed. New blood rejuvenates; it’s often the best strategy for moving with the times. </p>
<h2>They take responsibility for everything</h2>
<p>The ethical leader accepts that they are either directly or indirectly responsible for everything that happens in the organisation. They understand that blame shifting and finger pointing is a failure of leadership as we saw in the VW fiasco when the CEO sought to put the blame on the engineers and technicians. The ethical leader does not resort to the “plausible deniability” defence. </p>
<p>Ultimately, good ethics is good business. The organisation that does the right thing, and is <em>seen</em> to be doing the right thing is the one that will prosper in today’s more connected and accountable world. The community expects moral behaviour in our leaders, and will punish those that transgress through loss of reputation and jail. The old paradigm of win-lose is giving way to win-win.</p><img src="https://counter.theconversation.com/content/51181/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>There were many examples of ethics failures in 2015. So what’s missing from company leaders?David Tuffley, Senior Lecturer in Applied Ethics and Socio-Technical Studies , Griffith UniversityAmy Antonio, Lecturer, University of Southern QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/501502015-11-26T10:48:37Z2015-11-26T10:48:37ZDon’t let the VW emissions scandal destroy your faith in the car industry<figure><img src="https://images.theconversation.com/files/100762/original/image-20151104-29065-1oipdva.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">from www.shutterstock.com</span></span></figcaption></figure><p>The <a href="https://theconversation.com/how-volkswagen-got-caught-cheating-emissions-tests-by-a-clean-air-ngo-47951">Volkswagen emissions scandal</a> has shattered trust in the automotive industry the world over. After news broke that VW had knowingly circumvented US emissions regulations, shares in a number of car companies <a href="http://www.theguardian.com/business/2015/sep/21/volkswagen-emissions-scandal-sends-shares-in-global-carmakers-reeling">took a hit</a>, while <a href="http://fortune.com/2015/09/26/heres-how-regulators-around-the-world-have-reacted-to-the-vw-emissions-scandal/">other regulators</a> launched investigations of their own, finding <a href="http://www.bbc.co.uk/news/business-34857404">similar breaches</a>. </p>
<p>It has been hugely damaging to consumer confidence. In fact, it seems that a majority of consumers are <a href="http://www.rac.co.uk/press-centre#/pressreleases/motorists-not-put-off-diesel-by-vw-emissions-scandal-1260714">now sceptical</a> about the environmental claims made by any car manufacturer – whether they cheated the tests or not. </p>
<p>But as VW continues to <a href="http://uk.reuters.com/article/2015/10/28/uk-volkswagen-results-idUKKCN0SM0QA20151028">suffer the consequences</a> of its deception, there’s no reason to tar the whole industry with the same brush. In fact, doing so could lead to the introduction of regulations that are too tough, too soon – and this would risk stalling progress on emissions altogether. </p>
<h2>Lab vs life</h2>
<p>The fact is, all vehicles perform much better in laboratory tests than in real life. This means that there has always been a difference between a vehicle’s emissions levels in the lab – which are used to ensure that legal requirements are met – and those it produces during day to day use. <a href="http://www.theicct.org/sites/default/files/publications/ICCT_LaboratoryToRoad_2015_Report_English.pdf">The data</a> which points to these discrepancies has been in the public domain for many years. </p>
<p>Part of the problem is that it’s very difficult to mimic real life conditions in the lab. The type approval test we use today was designed three decades ago by the EU in consultation with the industry, to deliver a precise benchmark for vehicle emissions system performance. </p>
<p>But back then, the technology used to test vehicles could not fully and accurately represent the dynamics of driving. Real driving is much more aggressive and varied than testing technologies could then account for reliably. The tests must measure exhaust emissions in a robust and repeatable manner. And while the tools we use for testing have developed enormously over the years, the challenge to be ever more dynamic and accurate still persists.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/103302/original/image-20151126-28268-784jer.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/103302/original/image-20151126-28268-784jer.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/103302/original/image-20151126-28268-784jer.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/103302/original/image-20151126-28268-784jer.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/103302/original/image-20151126-28268-784jer.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/103302/original/image-20151126-28268-784jer.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/103302/original/image-20151126-28268-784jer.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Put to the test.</span>
<span class="attribution"><span class="source">University of Bath</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>So, regulatory tests were never intended to be a predictor of real world behaviour. Rather, they are an incredibly useful tool for ranking and comparing technologies, vehicles or manufacturers, and have proven very effective at driving technological change. For example, tests which revealed the effectiveness of the diesel particulate filter – a device which removes soot from exhaust fumes – led to their uptake right across Europe by the late-2000s. </p>
<p>Progress like this comes about by maintaining a delicate balance between the realities of the car industry, and the environmental and public health aims of the regulators. </p>
<h2>A most demanding business</h2>
<p>As a result of this process, the EU Technical Committee for Motor Vehicles recently <a href="http://europa.eu/rapid/press-release_IP-15-5945_en.htm?locale=en">agreed to</a> introduce recently developed <a href="http://www.ricardo.com/en-GB/News--Media/Press-releases/News-releases1/2015/Real-Driving-Emissions-provides-pathway-to-cleaner-diesels--Ricardo-research/">real driving emissions (RDE) tests</a> for diesel cars. This is part of the latest set of
regulations – <a href="https://circabc.europa.eu/sd/a/751657be-f83b-49d8-9454-f53f4ecd30af/1515125-RDE%20act.pdf">called EU6</a> – which marks the largest ever revision to emissions standards. </p>
<p>The RDE requirements will introduce on-road emissions measurements for the first time, with initial real world emissions limits set 2.1 times higher than the lab-based limits. This should make it impossible for any company to subvert the process in the way it seems VW has. And it means that discrepancies between lab and real driving performance will be clearly reported. Even so, the measures were still <a href="http://www.theguardian.com/environment/2015/oct/28/eu-emissions-limits-nox-car-manufacturers">less severe</a> than some were expecting. </p>
<p>Yet meeting them will still present a significant hurdle for the industry. Car makers operate in one of the most demanding of all business environments, and automotive engineers have to resolve the complex trade-offs that are inevitable between legal requirements, customer preference, innovation, cost and fuel efficiency.</p>
<p>It’s crucial that the targets set by regulators are achievable, under these circumstances. If they are not, it would seriously damage the commercial viability of car companies. And this would lead to an economic and social fallout too huge to consider: I am from Coventry – the home of the British motor industry – and old enough to have seen the damage caused by <a href="http://www.coventry.ac.uk/Global/05%20Research%20section%20assets/Research/SURGE/Working%20papers/SURGE%20WPS%20Working%20Paper%206.pdf">the loss</a> of so many of the great companies that once built cars in the city.</p>
<h2>The next step</h2>
<p>Over the past 25 years, regulations in the EU <a href="http://www.smmt.co.uk/industry-topics/environment/intro/european-engine-emission-standards/">have evolved</a> to see real world emissions from petrol and diesel engines fall dramatically – in many cases by a factor of around 100. </p>
<p>One important exception to this trend is the level of nitrogen oxides (NOx) in emissions from diesel passenger cars. NOx – the most intractable of all emissions for diesel engines – was at the centre of the emissions scandal. But until <a href="http://www.euro.who.int/__data/assets/pdf_file/0004/193108/REVIHAAP-Final-technical-report-final-version.pdf?ua=1">very recently</a>, it was also the pollutant with the least robust evidence of negative health impacts. For this reason, it was not a high priority target for regulators, compared with particulates, unburnt hydrocarbons and deadly carbon monoxide emissions. </p>
<p>But today, the effective elimination of these other emissions from modern passenger cars, and the attention warranted by VW’s behaviour, has cleared the way to focus on the NOx issue. The introduction of EU6 and RDE requirements will undoubtedly promote the adoption of technologies that work well in the real world. In fact, several diesel cars currently on sale in Europe already meet the future regulations.</p>
<p>Automotive engineers can now focus on what is really important for the customer, rather than meeting an outdated approval test. Addressing NOx emissions, improving air quality and reducing CO₂ will be the order of the day. So, despite the VW scandal continuing to unfold, consumers have more cause for optimism than suspicion.</p><img src="https://counter.theconversation.com/content/50150/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Chris Brace receives funding from Innovate UK, Advanced Propulsion Centre and the automotive industry to conduct research into clean and efficient vehicle propulsion.
He is the immediate past chair of the Automobile Division of the Institution of Mechanical Engineers.</span></em></p>Cooperation between regulators and the car industry has led to a huge reduction in dangerous emissions – and we can expect further progress.Chris Brace, Professor of Automotive Propulsion, University of BathLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/495102015-11-09T03:47:39Z2015-11-09T03:47:39ZAustralia’s new emissions rules will put yet another bump in the road for diesels<p>Diesel cars have been rather controversial lately, as anyone who has been following Volkswagen’s <a href="https://theconversation.com/au/topics/volkswagen-emissions-scandal">recent tribulations</a> will know.</p>
<p>In the past few years diesels have <a href="https://theconversation.com/the-rise-of-diesel-but-how-cheap-and-clean-is-it-5589">surged in popularity</a> in Australia. They now account for <a href="http://www.abs.gov.au/ausstats/abs@.nsf/lookup/9309.0Media%20Release131%20Jan%202015">19.7% of all registered vehicles</a> (up from 13.8% in 2010). The number of registered diesels increased by <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mediareleasesbytitle/5A6E485518BA413BCA257BB00011A2EC?OpenDocument">more than 60% from 2007 to 2012</a>.</p>
<p>Consumers have embraced diesels mainly because of the savings delivered by their favourable fuel economy. But the Volkswagen scandal suggests that some manufacturers can design engines that meet either the requisite emissions standards or the market’s expectations of fuel economy and driveability, but might struggle to achieve both.</p>
<p>Australian emissions standards have generally <a href="https://theconversation.com/australias-weaker-emissions-standards-allow-car-makers-to-dump-polluting-cars-48172">lagged behind</a> those of Europe and the United States, but the gap will reduce in November 2016, when Australia will <a href="https://infrastructure.gov.au/roads/environment">adopt the full Euro 5 standard</a> for all light vehicles. </p>
<p>Motorists will see the advent of hitherto unfamiliar emissions control devices, and it could potentially signal the end of the road for booming diesel sales.</p>
<h2>Exhausting issue</h2>
<p>Diesel exhaust contains many compounds, although the regulations are mainly concerned with just three: carbon dioxide (CO₂), nitrogen oxides (NO<sub>x</sub>), and particulate matter. CO₂ is a greenhouse gas and one of the principal combustion products of the fuel itself (the other being water). Virtually all of the carbon in the fuel is converted to CO₂, so a reduction in these emissions must necessarily come from an improvement in fuel economy. </p>
<p>NO<sub>x</sub> is formed in diesel engines under the twin conditions of high temperature and high oxygen concentrations. Particulate matter, meanwhile, consists mainly of carbon nanoparticles from partially burnt fuel and is formed when temperature and oxygen concentrations are low. </p>
<p>This means that any attempt to reduce NO<sub>x</sub> emissions by altering temperatures and/or air-fuel mixing would tend to increase particulate matter emissions, and vice versa.</p>
<p>Australia’s impending move from the Euro 4 to Euro 5 standards will require a 28% reduction in NO<sub>x</sub> emissions and an 80% cut in particulate matter emissions, as this graph shows.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/101207/original/image-20151109-16263-dkzpmd.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/101207/original/image-20151109-16263-dkzpmd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/101207/original/image-20151109-16263-dkzpmd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=566&fit=crop&dpr=1 600w, https://images.theconversation.com/files/101207/original/image-20151109-16263-dkzpmd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=566&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/101207/original/image-20151109-16263-dkzpmd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=566&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/101207/original/image-20151109-16263-dkzpmd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=712&fit=crop&dpr=1 754w, https://images.theconversation.com/files/101207/original/image-20151109-16263-dkzpmd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=712&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/101207/original/image-20151109-16263-dkzpmd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=712&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Successive sets of Euro standards call for ever-lower pollution emissions.</span>
<span class="attribution"><a class="source" href="http://www.lowemissionvehicles.sa.gov.au/knowledge_bank/emissions_policy/australian_design_rules">http://www.lowemissionvehicles.sa.gov.au/knowledge_bank/emissions_policy/australian_design_rules</a></span>
</figcaption>
</figure>
<p>There are several methods to achieve these cuts, each with its own technical problems. Exhaust gas recirculation (EGR) returns a portion of the exhaust gas to the engine’s air intake, thus reducing the amount of air (hence oxygen) entering the cylinders. This also reduces cylinder temperatures, all of which helps cut NO<sub>x</sub> emissions. </p>
<p>The downsides of EGR are a reduction in fuel economy (and therefore an increase in CO₂ emissions), as well as reduced power and an increase in particulate matter. The system is also prone to fouling by particulate matter and can increase maintenance costs.</p>
<p>Diesel particulate filters (DPFs) are widely recognised as the most practical way to meet the 80% reduction in particulate matter emissions required by the Euro 5 standard, but these are <a href="http://www.theaa.com/motoring_advice/fuels-and-environment/diesel-particulate-filters.html">also problematic</a> for car owners. </p>
<p>To avoid the DPF becoming clogged, removal of the particulate matter collected by the filter is done periodically by oxidation. This typically requires at least 10 minutes’ continuous fast driving, such as on a highway, roughly once every 300-800 km. So if the car is predominantly driven on short urban trips between home, work and the shops, the DPF could prematurely stop working. </p>
<p>Even for diligent owners who follow this procedure, DPFs are not without their problems. By acting as an obstacle to the free flow of exhaust gases, they reduce engine efficiency and fuel economy, resulting in higher CO₂ emissions. And while the carbon in the collected particulate matter can be oxidised, metallic ash from lubricating oils and engine wear remains in the filter, which necessitates periodic cleaning. </p>
<p>Buyers of used cars in particular should factor in the cost of replacing a DPF, which can be several thousand dollars.</p>
<h2>The future of diesel</h2>
<p>Where does this leave diesel cars versus petrol ones? Diesel engines have historically offered fuel economy savings of 5-20% relative to petrol (see <a href="http://www.sciencedirect.com/science/article/pii/S0301421511008913">here</a> and <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2380034">here</a>), and these savings increase with the size and weight of the vehicle. </p>
<p>Against these savings must be weighed the generally higher price of diesel fuel over petrol in Australia, greater vehicle purchase and maintenance costs, and now the fuel economy penalty caused by new emissions control systems. </p>
<p>EGR and DPFs can reduce fuel economy by <a href="http://papers.sae.org/2012-01-0680/">up to 6%</a> and <a href="http://ac.els-cdn.com/S001021801200315X/1-s2.0-S001021801200315X-main.pdf?_tid=8bdd53b2-7df9-11e5-a516-00000aab0f26&acdnat=1446094825_8e1c31e482f87801ff880ed73c4e7a93">3%</a>, respectively. The need to regenerate DPFs through periodic long-distance driving might be a burden for some drivers not used to driving these distances.</p>
<p>As increasingly stringent emissions standards begin to weaken the financial rationale for owning a diesel, we may start to see diesel car sales drop – particularly for small and mid-sized passenger cars, where the fuel economy advantages were weakest to begin with.</p><img src="https://counter.theconversation.com/content/49510/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Varun Rao receives funding from ACARP and equipment manufacturers on projects related to diesel emissions aftertreatment systems.</span></em></p><p class="fine-print"><em><span>Damon Honnery receives funding from ACARP and the ARC on project topics related to this topic</span></em></p>Diesels typically have good fuel economy, but hot on the heels of the Volkswagen affair, Australia is set to tighten the rules for diesel car emissions - which will put a dent in engine performance.Varun Rao, Research Engineer, Maintenance Technology Institute, Department of Mechanical and Aerospace Engineering, Monash UniversityDamon Honnery, Professor, Department of Mechanical Engineering, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/493512015-11-02T09:54:38Z2015-11-02T09:54:38ZHow VW took the corporate ethics industry to the brink<p>The Volkswagen emissions scandal may have fatally undermined the credibility of claims that corporations care about being benign and useful participants in society. When a company can top the list of car firms in the Dow Jones Sustainability Index one week and then be caught using sophisticated <a href="http://www.telegraph.co.uk/finance/newsbysector/industry/11896546/Corporate-Social-Responsibility-has-become-a-racket-and-a-dangerous-one.html">software to avoid compliance with environmental regulation</a> the next, we have to question if the concept of corporate social responsibility (CSR) has any meaning at all.</p>
<p>The VW scandal follows close on the heels of the publication of Lord Browne’s book, Connect. The former CEO of BP now questions the worth of CSR, saying it has become a prop that companies can use to put people’s legitimate concerns “into a side pocket”. The whole idea of CSR “should be dead” he concluded in a recent <a href="http://www.bbc.co.uk/news/business-34195308">BBC interview</a>.</p>
<p>So, does the VW scandal prove Lord Browne right? Should we dismantle the myriad of programmes that have been implemented since the 1990s to encourage firms to improve their environmental and social practices, and admit that CSR is a failed experiment?</p>
<h2>Accountability</h2>
<p>The results of <a href="http://www.abdn.ac.uk/research/borderlesspolitics/about/">our research project</a>, which examined how transnational corporations have engaged with CSR over the last 20 years, suggest that CSR, for all its very real weaknesses, might just be worth saving, and certainly worth improving.</p>
<p>By analysing company CSR reports from the 1990s to the present, we found that firms have become more transparent about their environmental, labour and human rights practices and impacts. Companies are also more likely than in the past to disclose measurable future goals in these areas and have their reports verified by independent auditors. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/100153/original/image-20151029-15342-9nnl4v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/100153/original/image-20151029-15342-9nnl4v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/100153/original/image-20151029-15342-9nnl4v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=491&fit=crop&dpr=1 600w, https://images.theconversation.com/files/100153/original/image-20151029-15342-9nnl4v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=491&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/100153/original/image-20151029-15342-9nnl4v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=491&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/100153/original/image-20151029-15342-9nnl4v.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=617&fit=crop&dpr=1 754w, https://images.theconversation.com/files/100153/original/image-20151029-15342-9nnl4v.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=617&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/100153/original/image-20151029-15342-9nnl4v.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=617&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The classic CSR report imagery. Smiling faces; aspirational text.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/whydesignworks/4248462497/in/photolist-7tqtTp-7tqtUi-7tusi7-7tqtS6-4uNxPQ-iuEEAa-xYaug3-xYaufG-xYaueE-9Muahg-ddVhKg-ddVdqP-a7p3Gx-a7p3U2-a7rUk9-a7s77f-kd3h6e-7uyceR-7j5V9P-jcn3Yh">Nicole Curran</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>These improvements in transparency and accountability are uneven; they vary across companies, countries and issue areas. Reporting on environmental sustainability is more advanced than reporting on labour and <a href="http://www.sbcscot.com/businesses-happier-to-show-green-credentials-than-social-conscience/">human rights</a>. Still, this evidence suggests that large companies are increasingly engaging with the notions of best practice that have been promoted by the wider CSR movement and prominent codes of practice. These findings reinforce periodic surveys by <a href="https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/corporate-responsibility/Documents/corporate-responsibility-reporting-survey-2013-exec-summary.pdf">KPMG</a> that show over 90% of the largest transnational corporations now publish a CSR report and an increasing number apply the UN-endorsed <a href="http://database.globalreporting.org/">Global Reporting Intiative</a> guidelines to structure these disclosures. </p>
<h2>Action</h2>
<p>Reports are one thing, of course, real world behaviour is another. So does positive progress in the former feed through to the latter? Are companies actually improving how they manage their environmental and social impacts? If the VW scandal shows how far companies’ CSR rhetoric can deviate from practice, it also shows how corporate misconduct can defy easy solutions. </p>
<p>Better government regulation is clearly part of the answer, but doesn’t cover all the bases. VW, after all, was caught violating legally binding, not just voluntary, commitments. The difficulty of working out how viable a company’s performance data might be, applies to government as well as to voluntary regulation. </p>
<p>The VW scandal also highlights some of the often unrecognised strengths of the CSR movement. First, the dramatic fall of VW’s share prices over the past few weeks sends a clear message to corporate leaders about the dangers of lying about their green and social credentials. Critics of corporate social responsibility rightly worry about the undeserved reputational gains that companies can accrue through “green-washing”. <a href="http://www.theguardian.com/environment/2008/nov/20/fossilfuels-energy">BP faced sharp criticism</a> for running a campaign in the early 2000s that sought to rebrand the company as “Beyond Petroleum” while still investing heavily in oil.</p>
<p>But these critics often fail to consider the negative consequences that a breach in this false trust can have. Those who live by fraudulent CSR credentials can also be severely undermined by them. </p>
<p>It is also worth noting that the scandal <a href="http://www.economist.com/news/briefing/21667918-systematic-fraud-worlds-biggest-carmaker-threatens-engulf-entire-industry-and">was first uncovered by a nonprofit organisation</a>, the International Council on Clean Transportation (ICCT), which conducts research to improve the environmental performance of the transport sector. The ICCT is one of <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1467-6486.2006.00582.x/pdf">many NGOs that exist</a> in part thanks to the rise of the CSR movement since the 1990s. Such non-state organisations check whether companies meet their stated environmental and social commitments. The fact that regulators in Europe <a href="http://www.ft.com/cms/s/0/d0d7ba40-6394-11e5-9846-de406ccb37f2.html#axzz3p2WoSGvY">ignored previous warnings</a> about the emissions from VW diesel models emphasises the importance of greater corporate transparency and NGO monitoring.</p>
<h2>Building a new CSR</h2>
<p>Ultimately, though, the VW scandal highlights that both government regulation and voluntary CSR programmes will be ineffective if corporate managers do not foster shared assumptions about ethical conduct. Although it is important to keep companies honest by monitoring their behaviour, it is not possible for governments or NGOs to oversee the actions of transnational corporations at all times. To a certain extent, we have to trust that most companies have instilled an ethos that encourages their employees to comply with the law and wider social expectations. CSR is one tool – along with better regulation and protection of whistle-blowers – that can help build such an ethos.</p>
<p>The whole idea of corporate social responsibility needs to be improved, not abandoned. In particular, there are three things that policymakers and civil society can do to make CSR more effective.</p>
<p>First, do away with the unhelpful distinction between binding and voluntary corporate regulation. The future lies in better co-regulation. For example, regulators in the <a href="http://www.legislation.gov.uk/uksi/2013/1970/pdfs/uksi_20131970_en.pdf">UK</a> and the <a href="http://ec.europa.eu/finance/company-reporting/non-financial_reporting/index_en.htm">EU</a> recently adopted policies that increase the information companies have to disclose about their environmental, labour and human rights practices in their annual financial reports. This information can help NGOs and investors better monitor CSR performance and properly reward improvement. </p>
<p>Next, we should strengthen NGOs’ ability to <a href="https://theconversation.com/how-volkswagen-got-caught-cheating-emissions-tests-by-a-clean-air-ngo-47951">hold transnational corporations to account</a>. NGOs can help uncover corporate malfeasance and use carrots to improve company behaviour through collaborative projects and CSR certification. The scope and credibility of these efforts depend on sufficient resources. </p>
<p>And lastly, governments should send corporations consistent messages about their responsibilities. It has been <a href="http://www.economist.com/news/leaders/21666226-volkswagens-falsification-pollution-tests-opens-door-very-different-car">widely reported</a> that governments in several countries turn a blind eye to the fact that car manufacturers frequently fudge the laboratory tests on which their published fuel efficiency standards are based. It seems likely that this lax regulatory environment contributed to an atmosphere in which VW’s malfeasance was seen as more acceptable. </p>
<p>Such reforms could strengthen the CSR movement in the future. It is an experiment whose outcomes are far from guaranteed, but one that we think is worth continuing.</p><img src="https://counter.theconversation.com/content/49351/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kelly Kollman receives funding from the Economic and Social Research Council.</span></em></p><p class="fine-print"><em><span>Alvise Favotto receives funding from the Economic and Social Research Council. He is affiliated with the World Wildlife Fund. </span></em></p>How to make companies take seriously their responsibilities to the rest of us.Kelly Kollman, Senior Lecturer, Politics, University of GlasgowAlvise Favotto, University Teacher in Accounting and Finance, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/489072015-10-22T13:13:00Z2015-10-22T13:13:00ZHow to build a car company after the VW emissions scandal<figure><img src="https://images.theconversation.com/files/99063/original/image-20151020-32225-18uza3u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Awaiting a new model. Car firms struggle to adapt.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/macwagen/2266404921/in/photolist-4sgVdV-aYNzAa-5RvpJT-d2RtAf-9yp384-8bkCFC-bEWMvz-rGJE-uqg2Nk-6XeFk-rKcCxi-um5H1-9gF6tX-4Uqk56-fKTKZ-vZxVBp-g6XT1o-6bCGNv-bo8Dvm-5GT98w-uigR9-yEqNZc-CB69i-i6Seyb-6N3uLw-7vfi9o-aEg96-ytQFiB-8h7HWs-ykfLwf-8hMEyT-6ijTA6-eb9qN-g7HtX-tFFdwG-dTMKnM-4oGvFe-cvBsN9-gKc2Cd-4VDQbk-6a9yqd-amGYFg-427uS-4tNsmH-fSUGkY-vTiC5-bjD1Ac-51PCt6-9v4wyQ-xj7uM2">Dan Buczynski</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span></figcaption></figure><p>Misconduct in the auto sector has had quite a history. German group Volkswagen may find itself in the midst of the storm right now, but the application of <a href="http://www2.epa.gov/sites/production/files/2014-06/documents/defeat.pdf">defeat devices</a> actually dates back to the early 1970s. Now that the industry is caught in the headlights, it may be the ideal moment to chart a course to a change in corporate culture.</p>
<p>So how do we build a car company that gets it right? Well, at its heart, this is a question of priorities. It is important that the CEO and top management team understand the need to shift their attention away from forcing an ill-formed business model to market through the regulatory system by hook or by crook. Instead, they should be willing to adapt their technology and strategy to glide through unblemished. </p>
<h2>Top management team dynamics</h2>
<p>Changing corporate culture in response to a public outcry requires top managers with experience in public-facing jobs. Think marketing, sales and customer service. <a href="http://www.jstor.org/stable/2392472?seq=1#page_scan_tab_contents">These managers</a> are known to be more vigilant and serve a broader range of stakeholders. Currently, top managers are more concerned with efficiency, echoing their background in functional jobs such as operations, finance and accounting. </p>
<p>Firms that appoint this kind of manager to the executive suite tend to be better equipped to <a href="http://pubsonline.informs.org/doi/abs/10.1287/orsc.1060.0192">read the environment</a> they are operating in and are more effective in devising suitable responses when corporate strategy and environmental requirements misalign. </p>
<p>Top management must also avoid a common trap in many industries. The career horizon of the CEO and top management team members will be crucial as they consider how best to design and formulate long-term strategy. The natural career path of managers, especially in pronounced hierarchical organisations which are typical in the auto sector, tends to give us executive teams where most are older than 55. The average age of the <a href="http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/03/Y_2014_e.bin.html/binarystorageitem/file/GB+2014_e.pdf">top managers at VW was 59 in 2014</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/99317/original/image-20151022-8031-1mwenj7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/99317/original/image-20151022-8031-1mwenj7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/99317/original/image-20151022-8031-1mwenj7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/99317/original/image-20151022-8031-1mwenj7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/99317/original/image-20151022-8031-1mwenj7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/99317/original/image-20151022-8031-1mwenj7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/99317/original/image-20151022-8031-1mwenj7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/99317/original/image-20151022-8031-1mwenj7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Getting younger execs in to chew things over can boost performance.</span>
<span class="attribution"><span class="source">from www.shutterstock.com</span></span>
</figcaption>
</figure>
<p>This means you have teams largely comprised of executives nearing the end of their natural career, a position which in some circumstances can encourage greater concern with short-term accounting goals than with decisions that safeguard the more <a href="http://onlinelibrary.wiley.com/doi/10.1002/hrm.21730/abstract">distant future</a> of the organisation. This makes it more likely that less support will be made available for designing technologies that see the firm fit for the future.</p>
<h2>Middle lane</h2>
<p>The next step to building a more flexible car company is to look down the chain towards the middle managers. These are the people who can bring local expertise and knowledge about technological development that can only become diluted as strategy decisions are moved up into the boardroom. It is these people who will be instrumental in directing a new field of vision at auto firms. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/99022/original/image-20151020-32235-y5hge8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/99022/original/image-20151020-32235-y5hge8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/99022/original/image-20151020-32235-y5hge8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=277&fit=crop&dpr=1 600w, https://images.theconversation.com/files/99022/original/image-20151020-32235-y5hge8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=277&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/99022/original/image-20151020-32235-y5hge8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=277&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/99022/original/image-20151020-32235-y5hge8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=348&fit=crop&dpr=1 754w, https://images.theconversation.com/files/99022/original/image-20151020-32235-y5hge8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=348&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/99022/original/image-20151020-32235-y5hge8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=348&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Future car firms need to prioritise innovation… and not in test cheats.</span>
<span class="attribution"><a class="source" href="http://anthonybalducci.blogspot.co.uk/2014/01/the-flying-cars-of-television.html">Anthony Balducci/Jack Kirby</a></span>
</figcaption>
</figure>
<p>Middle managers are better able to <a href="http://europepmc.org/abstract/med/11550632">enact</a> the radical change that is needed in the automotive sector. They are <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1467-6486.2007.00681.x/abstract?userIsAuthenticated=false&deniedAccessCustomisedMessage=">central</a> to the firms’ informal social network. They can embed new ethical standards that focus on advances in technology that genuinely create a desired result. </p>
<h2>Communication</h2>
<p>The final piece of the jigsaw is a simple one. We can’t promote every middle manager to executive level, but we can make sure they have a permanent and robust way of being heard by top managers. <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6520.2005.00104.x/abstract?userIsAuthenticated=false&deniedAccessCustomisedMessage=">Investment in that interface</a> between the top management team and the middle managers of our new car firm will be essential if we are to avoid a common flaw seen in heavily consolidated and hierarchical organisations. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/99321/original/image-20151022-8010-1xrif5k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/99321/original/image-20151022-8010-1xrif5k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/99321/original/image-20151022-8010-1xrif5k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=435&fit=crop&dpr=1 600w, https://images.theconversation.com/files/99321/original/image-20151022-8010-1xrif5k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=435&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/99321/original/image-20151022-8010-1xrif5k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=435&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/99321/original/image-20151022-8010-1xrif5k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=547&fit=crop&dpr=1 754w, https://images.theconversation.com/files/99321/original/image-20151022-8010-1xrif5k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=547&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/99321/original/image-20151022-8010-1xrif5k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=547&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Too tied up to call. Companies suffer when communications break down.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/furryscalyman/1034889957/in/photolist-2zs5Ji-qAbb-kvBpFe-xRe5SS-nwMJDC-mFZUJV-zgX6Vf-8eJv5k-8eMNZY-e5qJiT-oxibA-7hENJ-9P2NjK-iAT49i-vM88W6-4dDD3w-cVN18S-ba67YV-5xzXva-4dX9HG-7hPF-icCgF-4Ajvkf-88gAcM-qxghm-g6qxa-5Qe2RB-thtvPj-64xxgi-nPPEAa-88gA3t-uCffUb-f5p52P-8vS1w5-3fUPUm-xRvkLh-arAkrt-cA1TLd-tECQ3-dmCsuW-n37EXH-5wQAgd-kiUoZU-kx3AFf-6685bY-8LLvSU-bWyZhR-sDjsR-rtN4bx-x9ujd">Matt Reinbold</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>When VW sought to explain how the emissions cheating scandal had taken root, <a href="http://www.nytimes.com/2015/09/24/business/international/volkswagen-chief-martin-winterkorn-resigns-amid-emissions-scandal.html">it claimed</a> that top management was not aware of fraudulent practices. This defence is proof that no effective liaison existed with its middle managers, undermining the whole management structure. Effective communication will increase control, facilitate timely information exchange and keep top managers closely informed on the operational side of activities. Simultaneously, it will allow middle managers to champion initiatives and secure support and legitimacy in early stages of research and development. </p>
<p>This blueprint for managing a car firm might seem simple, but changing company culture is notoriously hard to achieve, especially in an industry where some firms have historically committed to tactics that go against rather than work with institutional standards. </p>
<p>The VW scandal has given us an opportunity though. The auto industry is globally important, and as it finds itself under increased scrutiny, it should allow management culture to be reshaped to shift the direction of strategy and harness talent throughout its ranks.</p><img src="https://counter.theconversation.com/content/48907/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sebastiaan van Doorn receives funding from the British Academy for a project on CEO life cycles.</span></em></p>Volkswagen’s example offers up a useful lesson in managing a troublesome hierarchy.Sebastiaan van Doorn, Assistant professor of Enterprise, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/487682015-10-16T10:05:06Z2015-10-16T10:05:06ZVW emissions scandal: was it the customers’ fault all along?<p>When Paul Willis, the UK managing director of Volkswagen, gave evidence to the transport select committee, he was <a href="http://www.telegraph.co.uk/finance/newsbysector/industry/11926772/Watch-live-Volkswagen-emissions-scandal-UK-boss-Paul-Willis-appears-before-transport-select-committee.html">quick to apologise</a> to the more than 1m of his customers affected by the emissions scandal that has <a href="https://theconversation.com/uk/topics/volkswagen">engulfed the German car firm</a>. He was never likely to lay any blame at their door, of course, but over the past few weeks of gradual revelations, an interesting strand has begun to emerge: how little was expected of customers. </p>
<p>It would appear that one of the reasons VW opted to avoid installing the full suite of technologies ideally needed to meet California, US, and <a href="http://www.rac.co.uk/community/blog/rac-blog/january-2012/euro-6-and-diesel-vehicles">indeed Euro 6 regulations</a> is that it feared that you and I would prove resistant to the demands this placed on us. </p>
<p>In order to deliver diesel engines which meet the demands of those emissions standards, then in most applications the best option would be to fit a <a href="http://www.autonews.com/article/20150930/OEM11/150929774/illegal-vw-diesel-emission-systems-may-require-2-solutions?cciid=email-autonews-daily">selective catalytic reduction (SCR) system</a>. In fact, <a href="http://www.wsj.com/articles/vw-to-cut-investment-by-1-billion-a-year-1444728786">the latest reports</a> suggest this is exactly what VW will now do in the US and Europe. The trouble is, these systems are not an entirely hassle-free solution. </p>
<h2>Service history</h2>
<p>I have spoken to industry journalists who wondered why different diesel truck engine technologies were being used in the US and Europe in 2003 shortly before new emissions targets were introduced in the US. They were told at press conferences that manufacturers feared the average American truck driver would not be capable of adding the required urea solution to keep such SCR systems operational and that therefore this technology was best avoided. </p>
<p>This was despite the fact that their European counterparts had proved perfectly capable of doing so – and as, subsequently, have those same US truck drivers. There has been resistance however, as you can <a href="http://www.trucknetuk.com/phpBB/viewtopic.php?f=2&t=32163&start=60">witness on professional forums</a>, and you can see how the idea would develop that the average consumer would simply not be able to, or want to, handle this same task. That is without <a href="http://www.thetruthaboutcars.com/2010/01/the-truth-about-clean-diesels-adblue-is-freaking-expensive/">factoring in the increased running costs to drivers</a>. </p>
<p>It is worth pointing out here that although the urea liquid is less benign than windscreen washer fluid, the procedures are pretty much the same for both. If you didn’t want to lay this task on the driver, then the other option was to include it as part of a regular service. This would work fine, were it not for the fact that in normal use the urea tank <a href="http://duramaxhub.com/lml.html">lasted around 5,000 miles</a>, while the service intervals had, over the years, been extended to 10,000 miles. That lengthy gap between services had evolved into a key selling point for auto companies. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/98061/original/image-20151012-17839-1bfj7i0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/98061/original/image-20151012-17839-1bfj7i0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/98061/original/image-20151012-17839-1bfj7i0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=373&fit=crop&dpr=1 600w, https://images.theconversation.com/files/98061/original/image-20151012-17839-1bfj7i0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=373&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/98061/original/image-20151012-17839-1bfj7i0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=373&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/98061/original/image-20151012-17839-1bfj7i0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=469&fit=crop&dpr=1 754w, https://images.theconversation.com/files/98061/original/image-20151012-17839-1bfj7i0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=469&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/98061/original/image-20151012-17839-1bfj7i0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=469&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Under the bonnet.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/hisgett/5726530803/in/photolist-9J2Y6H-fKTTqn-hYqXpF-fFuGjx-iuS49e-e3CR24-66rwcH-c3n9xo-8BLabf-hCxrzp-fLiHbL-fKsdxx-fL26ex-bEYJpi-fGPgAW-a84G18-a84F3V-K3hk5-fL26Nc-c7veEU-e4Ruey-haVgZx-4UEdj-ea5PLH-9fW42z-r7iT6A-dB387s-hCw9k9-9Fr5Ym-hCvShB-hCxozr-EUh4m-4AM1UJ-568Z9H-hCw4Sb-4AM269-4AGKXn-9jtoSw-kvvKk-hCw6oY-hCw3Lo-hCwkou-eXxjPA-66rwgt-eXkY2n-568pei-56b5y3-56bVfu-5pAg5T-569gxc">Tony Hisgett</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>There was also a more prosaic problem. At times, urea could be over-delivered into the exhaust system, producing an off-putting ammonia smell. In short, do people want to buy a car that occasionally smells like a public toilet?</p>
<p>These may be valid concerns. On the face of it, this final point, as well as the urea topping-up procedure could be addressed through customer education, and in fact catalysts or catalyst washes that process such excess urea are on their way to market. One way of tackling the broader problem is to introduce a very quick interim service for urea top-up which could even be carried out by a roving mechanic at the owner’s home or place of work; it is, after all, <a href="http://www.halfords.com/wcsstore/libraries/document/AdBluebooklet.pdf">a five-minute job</a>. This could be used to enhance customer loyalty, dealer loyalty and overall customer care. </p>
<p>Car makers’ doubts about their customers’ abilities and patience are not entirely baseless. Petrol/diesel mis-fuelling is a daily occurrence, while users have also been found trying to put diesel in the urea tank. Similarly the diesel particulate filter is causing problems on many cars due to <a href="http://www.theaa.com/motoring_advice/fuels-and-environment/diesel-particulate-filters.html">inner city usage patterns by diesel car owners</a> which don’t suit the technology. Which brings us to the wider issue of the relationship between car manufacturers and their customers. </p>
<h2>Humble consumers</h2>
<p>In the early days of motoring, there were close links between car makers and their customers. Car buyers were often skilled or interested in the engineering of their cars, or employed people who were. <a href="http://www.upenn.edu/pennpress/book/14136.html">Kathleen Franz has described</a> how early motorists often provided an input into the design of cars, suggesting and even patenting improvements to cars that were regularly adopted by manufacturers. </p>
<p>By the 1930s this had started to change. It may be that with the wider availability of motorisation, drivers had become less skilled, but a more likely scenario, presented by Franz, is that car manufacturers themselves began to resent this amateur interference in what was by then a highly professional industry, with the design function in particular a new and still novel area of professionalism in the industry, spearheaded by General Motor’s “Art and Color Section” <a href="https://books.google.co.uk/books?id=7cCAASTW6IQC&pg=PA45&lpg=PA45&dq=%22Art+and+Color+Section%22+under+the+legendary+Harley+Earl&source=bl&ots=vvUZ-UdNpO&sig=EEsVIZcecw-qWV6QNbV9PwBFXKQ&hl=en&sa=X&ved=0CC0Q6AEwAmoVChMIuJnihMi8yAIVC7cUCh2miA4F#v=onepage&q=%22Art%20and%20Color%20Section%22%20under%20the%20legendary%20Harley%20Earl&f=false">under the legendary Harley Earl</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/98063/original/image-20151012-17839-19qkbcp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/98063/original/image-20151012-17839-19qkbcp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/98063/original/image-20151012-17839-19qkbcp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=435&fit=crop&dpr=1 600w, https://images.theconversation.com/files/98063/original/image-20151012-17839-19qkbcp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=435&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/98063/original/image-20151012-17839-19qkbcp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=435&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/98063/original/image-20151012-17839-19qkbcp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=546&fit=crop&dpr=1 754w, https://images.theconversation.com/files/98063/original/image-20151012-17839-19qkbcp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=546&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/98063/original/image-20151012-17839-19qkbcp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=546&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Simpler times. When customers drove innovation.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/33037982@N04/5670822844/in/photolist-apThXW-8mhpnv-mjjjL8-wHzWSz-9D7s4E-mQ3JKR-mQ5632-mQ4BgT-mQacHh-mQfuEy-mQ6phs-mQ51VW-mQaBAY-mQdYrD-mQ7exX-mQ58qP-nymNGU-8wfCcG-tiCqFU-ctW58G-cNNsq5-hrKo9m-345ccz-hrKgHV-7rPf53-rW1o6q-6ugb6H-aw3pKy-8RSRus-aQHhpP-boXx6h-psX8Dh-9osRe1-aw3oTU-bofeZT-p59rTZ-7TfD8M-bLin8F-ctW4pf-aQHgMt-9VwtUP-pA25ET-piNcsS-aw3paS-ntaE2W-4BA2tN-oA5GhL-9VzjLN-4BA2WC-fV225j">Leonora Enking</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>The model was increasingly one of the professionalisation of design, whereby the professionals would determine what was good for the customer, who then gratefully and humbly received the products of these professionals’ creativity and skill. With this started a process of alienation that prevented car buyers building too close a relationship with the product, such that its subsequent replacement with a newer and better car was never too painful – the industry is, after all still driven by a new car sales model. </p>
<p>At the same time, the car buyer gradually lost either the skill or the interest in looking after the car and caring for it. Many motorists nowadays do not open the bonnet, nor would they know what to do if they did. This process of industry-induced alienation has led, ultimately, to a situation whereby manufacturers do not trust customers to top up a new liquid in their cars and whereby customers expect their cars to deliver performance, fuel consumption and emissions performance, however they drive it or look after it.</p><img src="https://counter.theconversation.com/content/48768/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paul Nieuwenhuis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Volkswagen and others may have been hamstrung by a low opinion of indifferent car buyers.Paul Nieuwenhuis, Senior Lecturer and Co-Director, Electric Vehicle Centre of Excellence (EVCE), Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/492502015-10-16T05:25:20Z2015-10-16T05:25:20ZVW emissions testing scandal shows that environmental governance is in trouble<p>If we cannot figure out how to properly test car emissions, we might as well give up on regulating forests, factories or garbage dumps. After all, cars ought to be ideal targets for environmental regulators. They’re largely standardised – most look and act more or less the same – and they’re produced by the <a href="http://www.bbc.co.uk/news/business-30945288">thousand or million</a>. Test one Volkswagen Polo and you should have tested them all. In theory.</p>
<p>Yet it hasn’t worked like that in practice. A month after the VW scandal broke most eyes are still on the German carmaker and its plunging shares, the desk clearing in management, and its hectic efforts at retrofitting. Fewer people are reflecting on what the scandal means for our system of <a href="http://www.theguardian.com/environment/2015/sep/22/volkswagen-air-pollution-uk-poisoning-government-legislation">environmental governance</a>. This is missing the bigger story.</p>
<h2>Bypassing the system</h2>
<p>In a way, the emissions scandal shows there is a difference between clever cheating and dumb cheating. By its own admission, Volkswagen tampered with the car’s software in order to get good emission figures in testing mode. This is dumb cheating, especially if you get caught: it’s clearly against the rules.</p>
<p>But what if car manufacturers and regulators agree on a set of rules for testing that could deliver good figures for fuel efficiency? It is widely known that cars achieve notably better mileage per gallon on the <a href="http://www.telegraph.co.uk/motoring/green-motoring/9241054/Fuel-economy-why-your-car-wont-match-the-official-mpg.html">test stand than in everyday practice</a>. In fact, the difference has increased dramatically in recent years: according to the <a href="http://www.theicct.org/about-icct">International Council on Clean Transportation</a>, the NGO whose emission tests led to the fall of Volkswagen, the gap between official and actual carbon dioxide emissions in new European cars grew from 8% in 2001 to <a href="http://www.theicct.org/sites/default/files/publications/ICCT_LaboratoryToRoad_2015_Report_English.pdf">40% in 2014</a>. Such a divergence is clearly misleading customers and the general public, but it’s not illegal. That’s smart cheating.</p>
<p><a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/296475/geho0112bukp-e-e.pdf">Standard setting on environmental matters</a> is a murky area that few people bother to enter. Scientific results may provide some guidance, but there is always room for interpretation, and many rules and regulations are negotiated behind closed doors. The botched numbers for fuel efficiency are a good occasion to take a closer look. Is this the power of the automobile industry at work? Is this about lazy bureaucrats whose principal aim in life is to be out of the office at five? Or maybe it is about a third party such as the facilities that do the actual testing?</p>
<h2>Testing times</h2>
<p>Negotiations over test procedures are inherently boring, but they matter a lot. If the upcoming <a href="http://www.green-alliance.org.uk/resources/Paris%202015-getting%20a%20global%20agreement%20on%20climate%20change.pdf">Paris climate summit</a> finally seals a deal on global warming, it will all be about numbers, and there will be endless worries if we can no longer trust them. Thanks to standardised mass production, cars should be one relatively simple part of a global system of emissions regulations. If we cannot secure reliable numbers here, we are in trouble when it comes to forests, soils, and other parts of the biosphere.</p>
<p>The trouble with test procedures is particularly disturbing since there really is not much room for debate. It is obvious that numbers should be accurate and that tests should reflect the real world. It’s also clear that an <a href="https://theconversation.com/where-were-the-whistleblowers-in-the-volkswagen-emissions-scandal-48249">independent authority should certify the rules</a>. The Volkswagen scandal indicates the industrial economies of the West cannot sustain that kind of independence anymore.</p>
<p>When today’s framework of environmental governance <a href="http://www.nrdc.org/international/fgovernance.asp">evolved in the 1970s</a>, the general idea was that environmental ministries and other government bodies would serve as a counterweight to the vested interest. Now it turns out that the presumed watchdog is curiously reluctant to bark. A lot has been written over the last month about the loss of trust, but it’s really a matter of institutions rather than morals. Maybe we need a watchdog for the watchdog?</p>
<p>Volkswagen has shown the huge toll of dumb cheating, but the scandal also suggests the risk of getting caught was not significant. The story only broke because of a study that worked with a grand <a href="http://www.bbc.co.uk/news/business-34519184">total of three cars</a>, two of which happened to be Volkswagens. A cash-strapped NGO could not afford to cast a wider net, and it was a matter of luck that it made the right choices. No system of environmental governance can rely on these kinds of coincidences.</p>
<p><a href="http://www.theguardian.com/business/2015/sep/25/volkswagen-appoints-matthias-muller-chief-executive-porsche-vw">Volkswagen’s managers</a> are red-faced, but that will be a temporary thing. They will either change their corporate culture, or there will be no more Volkswagen managers. Whether regulators are red-faced is anyone’s guess, but they certainly should be embarrassed. The question is whether anyone bothers to look them in the face.</p><img src="https://counter.theconversation.com/content/49250/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Frank Uekötter does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If we even can’t secure reliable data on car emissions then environmental regulators throughout the world are in trouble.Frank Uekötter, Reader in Environmental Humanities, University of BirminghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/483932015-10-15T10:07:31Z2015-10-15T10:07:31ZVW is not alone: how metrics gaming is commonplace in companies<p><a href="http://theconversation.com/how-volkswagen-got-caught-cheating-emissions-tests-by-a-clean-air-ngo-47951">The Volkswagen “dieselgate” story</a>, in which the company helped their cars pass emissions tests under special conditions that they later failed when the car was driven normally, is not an isolated incident – there has long been a culture of gaming metrics in the automotive industry and other sectors do it too. </p>
<p>Metrics are shorthand for good performance – they focus the mind of the setter and the tested and are costly and embarrassing if targets are missed. So why take the risk?</p>
<p>This gap between the rhetoric of good practice and the reality falling short in manufacturing has been <a href="http://www.jstor.org/stable/2393677?seq=1#page_scan_tab_contents">noted elsewhere</a>. And research <a href="http://www.emeraldinsight.com/doi/full/10.1108/01443570410514894">I co-authored back in 2004</a> showed how another car supplier which had multiple sites across the world gamed the standards placed on it by customers. Winning business depended on performing well on various measures, with the company’s customers assessing each delivery of parts on quality, cost and whether it was on time and in full. One of us spent six weeks in two different sites carrying out participant observation. We found that the company gamed the system rather than admit issues with performance, presenting an image of good practice which was a facade. </p>
<p>Quarterly or biannually, customer procurement staff visited the supplier and undertook a complex evaluation process of the company we studied and the rest of their supply base. The quality and delivery performance over an extended time period was assessed as were cost increases, manufacturing and the supply chain capabilities and staff performance. League tables were produced and further business was awarded on good performance, or business was lost if the supplier scored badly. </p>
<p>The customers wanted to trust the supplier manufacturing process. This meant believing it was capable of producing good parts and meeting variations in demand. We found three examples of gaming to meet process measures. </p>
<p><strong>1. Presenting a smooth-running operation</strong></p>
<p>The semblance of high quality at every stage of the manufacturing process gives an indication to customers of the eventual product quality. It is common practice for suppliers to provide statistical process control charts where samples of car parts are checked to see if they match up to various metrics. Ideally, all the machinery and equipment should be measured and in control so that it does not produce bad parts. In our research, the supplier sent the charts taken from places in the process they knew were performing best, not a general sample and most certainly not from areas that they knew would make the graphs look bad. </p>
<p><strong>2. Hiding stoppages and delays</strong></p>
<p>The second measure was about stoppages or downtime in the process. Minimising unexpected breakdowns or downtime in the manufacturing process is key to being seen as a capable supplier. In order to achieve this, the best manufacturers plan maintenance periods where the line is stopped deliberately to service machines. </p>
<p>When the supplier process we studied stopped unexpectedly, management immediately reallocated the time to “planned maintenance”, so they met the downtime target and looked like an advanced manufacturer to the customers. </p>
<p><strong>3. Minimising the appearance of waste</strong></p>
<p>A good manufacturing process does not produce much wasted product. On the factory floor the designated container for our study company had an acceptable level of scrap product, which was measured and recorded. Material which could have been counted as scrap was disposed of via conveyor belts intended for other purposes. We even found that it was placed in employee trouser and coat pockets to be hidden and taken out the factory, so that waste targets were met.</p>
<p>Buyers would visit and audit the supplier, so the supplier was well practised at turning the factory floor into a stage where ideal manufacturing practices were displayed and performed during the visit. Examples include the accident reporting chart beginning after the last accident, records of employee skills being up to date, even if the employee went on the course a long time ago and might not be able still to perform the tasks in question. Machines were hidden, cleaned and floor spaces painted, all to create the impression of a competent organisation which lapsed as soon as the buyers left.</p>
<p>The major car manufacturing customers were not above gaming measures themselves. When an employee was honest with a customer about having problems with an aspect of the process they were told to “move the curve up” on the chart, rather than investigate the root cause and improve the process. Perfectly good batches of parts were rejected one week then accepted the next so that customer stock levels met their target.</p>
<h2>Beyond the car industry</h2>
<p>It would be wrong to just demonise VW and the car industry. The downside of having measurement and metrics on performance is a far wider phenomenon. I have witnessed similar processes <a href="http://www.inderscience.com/info/inarticle.php?artid=57402">in the food sector</a> and it seems very similar to the distorted affect of performance measures at the failing <a href="http://webarchive.nationalarchives.gov.uk/20150407084003/http:/www.midstaffspublicinquiry.com/">Mid-Staffordshire hospitals</a> and even <a href="http://bds.sagepub.com/content/2/1/2053951715578951">in football</a>. People focus on the measure, not the wider good the measure was intended to represent. Plus, the setters of the measure are equally culpable.</p>
<p>I respectfully disagree with <a href="https://theconversation.com/how-could-vw-be-so-dumb-blame-the-unethical-culture-endemic-in-business-48137">Edward Queen’s article on The Conversation</a>, which makes the case for teaching business students better ethics – this is too little, too late. The problem is far wider and systemic. </p>
<p>Trying to meet measures with no extra effort is considered an ethical activity <a href="http://www.isixsigma.com/community/blogs/lean-manufacturing-is-a-form-of-ethics/">in many organisations</a> and rewarded at annual appraisal time – another example of targets shaping performance. The attractiveness of metrics lies in their appearing to give managers control; the problem is that they cannot cover all aspects of performance and leave scope for short cuts, interpretation and gaming – by every party involved.</p>
<p>Returning to the car industry, it’s worth paying heed to the ideas of management expert W Edwards Deming. His ideas are widely attributed to be responsible for improving the reliability and quality of cars and achieving market dominance for companies who followed them. <a href="https://www.deming.org/theman/theories/fourteenpoints">He believed</a> that organisations should not be run on targets, quotas, or objectives, as they are usually a distraction from improving processes. In the case of VW and the car industry, the overarching goal is to lower emissions, which is a far riskier option to ignore in the long term.</p><img src="https://counter.theconversation.com/content/48393/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lynne Frances Baxter does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An obsession with metrics has led to a business culture in many industries that is more concerned with meeting targets than the wider good the measure was intended to represent.Lynne Frances Baxter, Senior Lecturer in Management Systems, University of YorkLicensed as Creative Commons – attribution, no derivatives.