Was Volkswagen’s Culture to Blame for Its Engineering Fraud?

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When corporations go astray, business journalists and academics often look to the companies’ cultures to explain their aberrant behavior.

But such reflexive analyses of corporate wrongdoing are often wrongheaded, confusing organizational cultures with other organizational structures that can contribute to misconduct such as inadequate governance mechanisms. In the case of Volkswagen’s recent engineering misadventure, though, VW’s culture appears to have been at least a contributing factor.

Volkswagen’s Global Diesel Deception

  • VW has admitted that 11 million of its vehicles were equipped with software that was used to cheat on emissions tests.
  • In the U.S., VW faces a multifront fight from the Environmental Protection Agency, Federal Trade Commission, Justice Department criminal probe, and state attorney generals in all 50 states and civil lawsuits involving 580,000 improperly marketed cars.
  • Regulators across the globe are conducting investigations.
  • German prosecutors raided VW’s headquarters looking for evidence.
  • Institutional investors are now filing suits.
  • VW’s CEO Martin Winterkorn and its U.S. auto chief resigned.
  • VW said it has set aside about $7.3 billion to cover the cost of bringing vehicles with illegal software into compliance with emissions standards.
  • VW could face more than $2.2 billion in fines and penalties for understating the output of carbon dioxide from 800,000 of its cars.
  • VW posted its first annual loss since 1993

Organizational cultures have a symbolic component or “content,” which consists of assumptions, values and beliefs, and norms. Assumptions are taken for granted as understandings of the nature of the world (e.g., the assumption that business is a competitive endeavor). Values and beliefs are general conceptions about the virtuousness of different manager and employee orientations (e.g., the belief that it is virtuous to act in a competitive way). Norms are more explicit expectations about what managers and employees should and should not do (e.g., the norm that managers and employees should not share information with the representatives of competitors).

Organizational cultures also have a pragmatic component or “form,” which consists of artifacts and practices that convey the symbolic content. Artifacts include tangible items such as office furniture and artwork and more ethereal things such as jargon and stories. Practices are patterned behaviors, such as awards ceremonies, that often combine artifacts. Generally speaking, one cannot diagnose the content of an organization’s culture without closely examining its forms. But observers, especially journalists, sometimes impute an organization’s culture from an intuitive grasp of its forms.

Jack Ewing’s and Graham Bowley’s December 15, 2015, New York Times article on the Volkswagen debacle, “The Engineering of Volkswagen’s Aggressive Ambition,” outlines how VW engineers jerry-rigged emissions software so as to make the firm’s cars appear more fuel efficient than they actually were and provides a window into aspects of the carmaker’s culture that might have facilitated its misconduct.

Ewing and Bowley recount a story, which if shared widely throughout the firm would constitute an artifact: technicians were severely chastised by VW’s CEO for gently correcting him when he mistakenly thought a push-button console in a car was a touch-screen.  Such a story likely conveys the norm that employees should never contradict their superiors—and, by extension, never deliver bad news to them—even when they know their superiors are embarked on a faulty course of action. And such a norm would lead employees to remain silent when confronted with knowledge of a fraud, as appears to have been the case at VW.

Ewing and Bowley also describe a specific practice: the orienting of all cars in the corporate headquarters parking lot in the same direction. Such a practice likely conveys the belief that conformity is good. And if in effect at VW, such a norm would lead employees to obey orders to go-along with a fraud, again as appears to have been the case at VW.

But how might Volkswagen’s culture have given rise to the engineering fraud that so many VW managers and employees appeared to know about and even go along with? Based partly on VW informants’ comments, Ewing and Bowley characterize VW’s culture as “aggressive.” This might mean that VW managers, and by extension their employees, embraced the underlying assumption that setting ambitious goals and pushing the envelope of acceptable behavior to achieve them was necessary to achieve success in the auto industry. It also might mean that VW managers and employees shared the belief that setting ambitious goals and pushing the envelope of acceptable behavior to achieve them is virtuous, independent of the success to which such aggressive behavior might give rise.

Common sense suggests that such cultural content can be problematic because the higher the goals one sets for oneself, the more likely one is to fail. Research indicates that when managers fail to achieve their goals via legitimate means, they turn to illegitimate ways to achieve them, especially when reaching goals is paramount.

Book Cover

Professor Donald Palmer has co-edited a new book to be published in August, 2016, Organizational Wrongdoing: Key Perspectives and New Directions, by Cambridge University Press. The co-editors are Kristin Smith-Crowe of the University of Utah and Royston Greenwood of the University of Alberta

It would appear that meeting superiors’ ambitious performance targets was of critical at Volkswagen, considering the emphasis it’s culture placed on obedience to superiors. While VW’s top executives might not have ordered the firm’s engineers to modify VW car’s emissions equipment to make their cars appear more fuel efficient, their promulgation of a culture that emphasized an aggressive stance, unquestioned obedience to authority, and adherence to conformity might have given rise to and facilitated the fraud.

This raises the question: how can the impact that organizational cultures play in misconduct be blunted? Journalists and academics who point the finger at organizational culture as the cause of corporate misconduct typically conclude their analyses with exhortations to re-engineer cultures to make them supportive of right doing rather than wrongdoing. I think such appeals, while sensible sounding, are naive.

It is typically the case that the same organizational cultures that contribute to wrongdoing contribute to efficient and effective behavior; up until the moment that they give rise to wrongdoing.

I suspect that Volkswagen’s culture was partly responsible for the rapid growth it enjoyed in the last two decades. Aggressive competition is a fundamental feature of capitalist economies. And obedience and conformity are essential elements of formal organizations. For these reasons, I am confident that the Volkswagen scandal will not be the last of its kind.



4 Responses to “Was Volkswagen’s Culture to Blame for Its Engineering Fraud?”

  1. Mike Holzer

    Whether it was the culture or not who in their right mind would ever buy a Volkswagen after this debacle. They committed a huge fraud on their customers and have done nothing to make it right by these customers. If they were willing to commit this fraud what is next? Safety features and capabilities come to my mind. Personally they should spin off their brands in anticipation of this brand going under.

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  2. Volkswagen as an international brand, in particular, the need to establish a good reputation, we hope this will not happen again similar to the scandal, particularly as Volkswagen owners

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  3. Important part of a corporate culture of corporate social responsibility, if there is to deceive consumers, it is a great influence for the company, noted that the public want to back their own problems

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  4. Jax Williamson

    It’s naive to re-engineer culture to reduce wrongdoing?
    First, that presumes that “aggressiveness” and morality are incompatible. I don’t think that is well argued, or at least completely so. A balanced approach, or perhaps a culture that allows both aggressive goals and candid feedback to managers might do better in both regards.
    But why are we throwing aside doing right in the first place? Do we, as a society, treat business as exempt from rules as long as they just toe the line and only break the law occasionally, or do we insist that they stay within bounds as much as we’d want individuals to do the same?
    From a managerial perspective, should we not also take into account the massive losses in fines, repairs, and reputation that comes about? This does seem to put a damper on efficiency, unless, again, we think that businesses shouldn’t be punished for these things.
    But beyond all that, why is this efficiency worth fighting for? Worth advocating for a tarnished brand? What is this efficiency? Is this just pure economic efficiency? If that is the case, is this the myopic view from the business world, refusing to find value outside? That is the major argument against capitalism, is it not? Externalities, one of them “fundamental features” of capitalist economies. This is surely an argument for the ages, but I think that just taking the business perspective and saying that changing company culture does not maximize profits is being extremely shortsighted and not taking into account the multidisciplinary approach all them universities advocate, including the UCD GSM. At least, that’s what they said to me before I started taking classes there. Is it not true?

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