REFLECTIVE JOURNAL SESSION 8

Pre and Post workshop

Automobile Scandal

Luann Lynch’s case study on the Volkswagen (VW) Emissions Scandal, co-authored with former Darden students Elizabeth Bird and Cameron Cutro, explores how autocratic leadership and inadequate controls led to unethical decisions within VW. Martin Winterkorn, who became CEO in 2007, aimed to make VW the world’s largest automaker, partly by boosting sales in the U.S. market. To achieve this, VW engineers needed to develop diesel cars that were both powerful and fuel-efficient while meeting stringent U.S. emission standards.

Under the autocratic leadership of Winterkorn and his mentor, Ferdinand Piëch, VW fostered a culture where failure was not tolerated, and subordinates were fearful of contradicting superiors. This high-pressure environment led engineers to install cheating software in U.S.-bound cars. The software detected when the cars were being tested for emissions and activated controls to meet standards, which were deactivated during regular driving, causing emissions to exceed legal limits.

The scandal was uncovered in 2014, leading to regulatory investigations, halting of sales, and significant financial and reputational damage for VW. Lynch identifies the "fraud triangle"—pressure, opportunity, and rationalization—as key factors enabling the unethical behavior. The pressure to meet ambitious goals, the opportunity provided by sophisticated software, and the rationalization based on past minimal consequences all contributed to the decision to cheat.

To prevent such unethical behavior, Lynch suggests that companies need strong oversight, clear consequences for misconduct, and leadership that exemplifies core values. A genuine commitment to ethical behavior from top management is essential for fostering an ethical corporate culture.

Critical Analysis

Autocratic Leadership and Corporate Culture: The VW case exemplifies the detrimental impact of autocratic leadership on corporate culture. Winterkorn’s and Piëch’s tight control and aggressive goals created a high-pressure environment where employees felt compelled to achieve results by any means necessary. This leadership style stifled open communication and discouraged ethical decision-making. Effective leadership should balance ambition with ethical considerations, fostering a culture where employees feel safe to voice concerns and admit challenges without fear of retribution.

Pressure, Opportunity, and Rationalization: The presence of the fraud triangle in VW’s situation highlights how systemic issues can lead to unethical behavior. The intense pressure from leadership to meet ambitious sales targets, combined with the opportunity provided by sophisticated software, created a perfect storm for unethical actions. Rationalization, based on past minimal consequences and perceived organizational approval, further facilitated the cheating. This underscores the need for comprehensive ethical training and a robust internal control system to mitigate these factors.

Ethical Leadership and Oversight: Lynch’s recommendations for preventing unethical behavior are crucial. Companies need clear values statements and strong internal oversight to ensure ethical behavior. More importantly, leaders must embody these values consistently. The VW scandal demonstrates that values statements are ineffective if not supported by actions. Leadership should prioritize ethical behavior and create an environment where integrity is valued over short-term success.

Long-term Impact and Lessons: The VW scandal had significant long-term impacts, including legal penalties, loss of consumer trust, and financial losses. It serves as a cautionary tale for other companies about the risks of prioritizing aggressive goals over ethical practices. By learning from VW’s mistakes, companies can implement stronger ethical guidelines and create a culture that promotes sustainable and responsible business practices.

In conclusion, the VW emissions scandal illustrates the critical importance of ethical leadership, robust oversight, and a corporate culture that prioritizes integrity. Companies must ensure that their leaders not only articulate core values but also demonstrate them through their actions, creating an environment where ethical behavior is the norm.

The Business logic of Sustainability

The speaker, Ray Anderson, shares his journey of realizing the environmental impact of business and industry, particularly through his company, Interface. He highlights the pivotal moment when he read Paul Hawken's book, "The Ecology of Commerce," which convicted him as a "plunderer of the earth." Anderson challenged his company to lead the way in sustainability, aiming for zero environmental impact by 2020. He outlines the transformative changes Interface has made, including significant reductions in greenhouse gas emissions, water usage, and fossil fuel consumption, while increasing sales and profits. Anderson emphasizes that sustainable business practices can be profitable and beneficial for the environment.

He discusses the environmental impact equation (I = P × A × T) and suggests modifying it to reduce impact through technology (I = P × A / T). Anderson argues for a shift from a "take-make-waste" industrial system to a cyclical, sustainable model. He underscores the importance of ethical business practices and leadership in addressing climate change and protecting the future for "Tomorrow's Child." The poem by Glenn Thomas, "Tomorrow's Child," inspires Anderson and encapsulates the responsibility of current generations to protect the planet for future ones.

Insights

1. Leadership in Sustainability:

• Anderson’s journey from an industrial entrepreneur to a sustainability leader demonstrates the potential for businesses to drive significant environmental change. His transformation underscores the role of leadership in fostering a corporate culture focused on sustainability.

1. Business and Environmental Responsibility:

• The narrative highlights the dual role of business as both a major contributor to environmental degradation and a powerful agent for change. Anderson's commitment to reducing Interface's environmental footprint shows that businesses can thrive while adopting sustainable practices.

1. Technological Innovation:

• By rethinking the environmental impact equation, Anderson advocates for technological innovation to minimize ecological damage. His approach encourages leveraging technology to create more sustainable industrial processes.

1. Profitability of Sustainability:

• The success of Interface in reducing costs, enhancing product quality, and boosting profits through sustainable practices challenges the myth that environmental responsibility is economically burdensome. Anderson’s experience provides a compelling business case for sustainability.

1. Ethical Imperative:

• The poem "Tomorrow's Child" and Anderson’s reflections on the future emphasize the ethical imperative of protecting the planet for future generations. This perspective encourages a long-term view of business practices and their impact on the environment.

1. Call to Action:

• Anderson's message is a call to action for other businesses and individuals to adopt sustainable practices. He suggests that if Interface, a petroleum-intensive company, can achieve sustainability, any company can. This inspires confidence in the feasibility of widespread environmental responsibility.

By embracing sustainable practices, businesses not only contribute to environmental preservation but also benefit economically and ethically. Anderson’s story serves as a powerful example of how industry leaders can drive positive change and ensure a sustainable future.