Tuesday, August 3, 2021
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Corporate ethics needs to be revisited

In an era of climate change and the imperative that we move beyond carbon as quickly as possible, the recent Volkswagen (VW) diesel scandal and the actions by the company yet again showcases the dire need to revisit corporate ethics.  The company admitted that 11m of their vehicles were fitted with “illegal” software that circumvent their way into passing the test.

The meltdown in VW’s global image has been swift. Many buyers felt duped into having bought a polluting car with a “green” marketing campaign.  Some outraged consumers would keep off the brand permanently.  Calculated deceit is unforgivable especially when “the consequences could have a direct impact on our planet”, echoed an aggrieved tweet. The financial hit – in fines, lawsuits and lost sales – to the venerable carmaker might take years to tally. Though VW isn’t the first auto-scamster, this one is potentially one of the most damaging yet.

Corporate governance is found wanting again. Corporate and people are not one and the same, and that has never been more obvious than in the area of criminal law. People who committed low level crimes involving drugs/violence have been prosecuted, while corporates that have defrauded, injured or killed thousands through negligence, indifference or deliberate criminal acts have simply had to write a cheque to settle their cases. The problem with corporate fines is that they tend to be absorbed as business costs. While innocent shareholders and employees are penalised, those responsible for the wrongdoing remain untouched in the cozy executive suite.

Not long ago, Toyota and General Motors were imposed a whopping $1.2b and $900m penalty for concealing accelerator and ignition switch defects. Clearly the threat of a billion-dollar sanction isn’t much of a deterrent to crimes of this magnitude. Penalties need to be coupled with criminal prosecution of the decision-makers to cut corners and conceal their malpractices.

The scandal also raises questions about the corporate ethics. This is an extraordinary example of how a company’s reputation, particularly one built over decades can be damaged, if not decimated, in mere days. It is unimaginable that management or the internal audit of such iconic companies would condone potentially criminal behaviour to boost the company’s value.

Countless failures and scams in banking, pharmaceuticals, food & beverage and other industries have not altered the reality of corporate behaviour.  In this information age, nothing stays secret for long and hoping that no one noticed is plain insane.  The phrase “German engineering” once synonymous with quality will now be the butt of jokes.

Is there scope for the German government to sue VW for damaging the “Made in Germany” brand all over the world? How likely is that VW ex-CEO was completely unaware of the emissions scandal for a long time? Who wrote the “illegal” software? The prolonged litigation will rightly cost VW in billions.

C.S. Krishnamurthy

 

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