The positive side of Dieselgate, and other corporate scandals
In just a few days, the company and its top management were accused of destroying the trust of their customers and public.
Volkswagen fell hard. In just a few short days, ‘s value as a company had dropped by a quarter. The public outrage caused Martin Winterkorn, the CEO, to resign. In addition, the company lost market share on all major markets. As prosecutors around the world investigated the company, the legal bills and liabilities began to pile up.
Volkswagen has yet to recover from the scandal. research reveals that the healing process involves a mixture of explanation, regret, and rehabilitation. The ” Das auto ” tagline has already been retired. Major management and strategic change is underway. The turnaround will take time and money.
The fallout from Diselgate forced Volkswagen CEO Martin Winterkorn to resign. Ralph Orlowski/Reuters
Explosive nature of scandals
Scandals are fascinating social phenomena. Scandals involve real or alleged misconduct that is contrary to moral standards. Transgressions are often well-known before scandals. Oscar Wilde, a gay writer in Victorian London, was largely ignored until his sentence to prison.
Volkswagen was also found to have committed misconduct in an early scientific study published in 2014, but it remained below the radar.
Transgressions become scandals when they are made public. It acts as a detonator and forces others (who would otherwise have turned a blind eye) to denounce those who are guilty. Bystanders are forced to condemn the transgression once the story has been made public. The scandals start to spread. They spread like wildfire in the age of instant global news and social media.
Former associates and actors classified as similar suffer from a suspicion of guilt. “If Volkswagen is doing it, then others are probably too.”
Being guilty or innocent doesn’t really matter at this point. It is no longer assumed that companies act in an ethically acceptable way. Entire sectors are now subject to public scrutiny.
It is being questioned. Misbehaviour eventually casts a shadow over an entire industry.
Corporate scandals as regulatory tools
Scams in the corporate world are not always bad. They can open up new market opportunities for competitors when they weaken one of the central players. After the Enron affair, for example, the “big-four” audit firms ended up capturing the majority of Arthur Andersen’s former clients. Fiat-Chrysler, Volvo, and other automakers in the US recorded sales records in November 2015.
In addition, scandals can have an even greater benefit: they bring attention to moral questions and affect the way consumers and stakeholders view organizations. In a research project we are conducting with a Columbia University researcher, we found evidence indicating that organizations that are best positioned for scandal are those that provide a product similar to the perpetrator and are well known for upholding stricter standards. In other words, scandals give the most ethical firms a competitive advantage.
Corporate scandals have a positive impact on the evolution of industries. Scandals bring to light organizational practices that were previously condemned but often ignored.
Scams expose misconduct in the public eye and generate moralizing discourses. They also bring the issue of the enforcement of organisational norms to the front of the political discussion.
The rules also force regulators and governments to redefine and enforce more stringent regulations. The infamous Enron scandal of 2001 has faded, but the Sarbanes Oxley accounting rules that were implemented to limit conflicts of interest and tighten financial disclosures still guide and constrain today’s accounting practices for millions of companies.
The global automotive industry has changed dramatically in the year since Dieselgate. Playing with regulatory tests clearly is no longer an acceptable option. Cheating on tests is not only expensive, but it’s also almost impossible to avoid being caught. Regulators in all countries are closely scrutinizing the results of emission tests.
It is time to reduce engine emissions across the board. Automakers like Renault, Toyota, and others are already moving away from diesel engines due to the high cost of meeting emissions targets.
Dieselgate has changed the way organizations compete. The players who are best equipped to innovate and provide truly cleaner propulsion systems in the aftermath of the emissions scandal will be the ones to survive and thrive.