Speaking Ethics To Power -- Lessons From Volkswagen

We may never learn the full story of the Volkswagen scandal. Rigging diesel vehicles to pass US emission tests will cost VW at least $18 billion and irreparable damage to its corporate reputation. Despite promises of transparency, VW will probably never reveal what transpired that set the company on this self-destructive path. But perhaps we can cull a cautionary ethics tale from this still unfolding scandal.

Though the how remains a mystery, the why seems clear -- beginning with a brazen obsession. In 2011, then CEO Martin Winterkorn announced that second-largest Volkswagen would overtake Toyota and achieve world dominance in the auto industry. To achieve global supremacy, VW would target the US fuel-efficient market and the hybrid competition, and increase the 5 percent of VW's 11 million diesel vehicles sold in the US.

This led to three simultaneous, though contradictory goals: to demonstrate energy efficiency, price competitiveness, and environmental safety. VW had to pass the high emission standards set by the Environmental Protection Agency, and do so without raising prices or lowering fuel mileage. This trilemma seemed irreconcilable, until a simple but reckless solution emerged. VW's engineers programmed a "defeat device" that cleverly inferred EPA test conditions, and caused the car to revert to a less polluting (but less fuel efficient) mode. In the confines of the laboratory the vehicle complied with environmental standards. But on the open road the diesel car emitted deadly nitric oxide, 40 times greater. This crime was not victimless -- NOx deaths from this fraud have been estimated, by a joint Harvard-MIT research team, at about 60.

Momentarily at least, this strategy resolved the otherwise unresolvable. By doing so, VW was able to increase US sales and compete with hybrid vehicles. For a few brief months in 2015, Winterkorn realized his dream: VW became the world leader in auto manufacturing. But, with the public revelation of this fraud, his company and his career soon came crashing down.

VW's then US president Michael Horn would have us believe this was the act of a lone rogue -- that their vehicles were vulnerable to an engineer or two acting independently, in this case to rig cars to increase sales. This saboteur, acting altruistically on behalf the company, somehow managed to program the defeat device without anyone's knowledge or approval. Were this an isolated act, why did VW stonewall the growing accusations that these diesels were programmed to fool the regulators?

On the other hand, were this fraud widely known, how could VW maintain secrecy for so long? Why did it take researchers at West Virginia University to realize it was impossible to replicate VW's laboratory performance on the open highway? How could those who participated in this deception so callously dismiss its impact on public health? Where were the internal voices of conscience and realism that should have expressed their concerns long before this became a seismic change for the company?

This says as much about followership as leadership. A major multinational like Volkswagen has the standard in-house ethics apparatus in place -- codes, hot lines, training programs, etc. In this case, someone simply needed to ask the obvious: what happens when we get caught. What caused some to overlook the readily foreseeable? Even with a callous disregard for environmental impact and obeying the law, what seemed like a brilliant solution to an immediate corporate conundrum was a reckless scheme that ultimately harmed the entire company, its dealers, stockholders, and customers.

Over the course of several years, employees complied with this fraud and remained silent on its implications. As best as is known, no whistleblower or loyal dissenter spoke ethics to power. Perhaps a software engineer was even rewarded for resolving a petty regulatory nuisance. The company would have been far better off recognizing a hero who had the courage and foresight to address the larger implications of this fraud before this became public. To preempt scandal and crisis, loyal dissent needs to be hardwired in the ethical climate of major corporations.

Those who participated in the VW fraud likely belong to professional associations, with codes of conduct for their members. One key takeaway from this scandal is that professional associations need to equip their membership with the mandate and tools to question the questionable.

Ethics theater is not enough. What companies do for show does not in itself instill and reinforce moral courage. Groupthink often trumps personal conviction and responsibility. Those who should know better perhaps rationalized and compartmentalized their own complicity. A false sense of invincibility overshadowed the realities of vulnerability. That arrogance is inevitably toppled, in extensive, painful, public ways that cause collateral damage to innocent stakeholders worldwide. Ethical burdens need to be felt and shared at all levels of a major company like Volkswagen. And followers sometimes need to take the lead when their leaders fail them.

Jay A. Halfond teaches at Boston University and serves as a Research Fellow at Bentley University's Center for Business Ethics.