Volkswagen, Nuremberg and a corporate ethical failure

We have heard the news that Volkswagen US designed and used an electronic device to thwart the emissions tests for its diesel vehicles. The device would recognize test situations and engage the vehicle in a safe mode that would reduce emissions to an acceptable level. As a result, the VW vehicles would have emitted pollution at up to 40 times the safe limit. In effect, the VW emissions poisoned millions of people as they emitted pollution beyond the acceptable safe limit. The emissions were being increased with each vehicle despite VW’s claims that their vehicles were reducing them. The VW engineers and managers intended to subvert the tests. They did not do this by mistake or as part of single decision by a rogue manager.

The corporate scandal to script but something is different

On the surface, this appears to be an example of corporate malfeasance that is depressingly common. The company is caught after they fake a result, inflate earnings reports, or manipulate their customers’ timelines. The company apologises, someone resigns or is fired, it pays a fine or settles a lawsuit and promises to learn the lessons and change. What is always clear is even as the company responds; it shows it has not learned. Someone is found to blame, the rogue employee, incompetent manager, or the authoritarian chief executive so the company can survive. Even where they identify a problem in their culture, they believe that a better compliance structure or system will deal with the problem. Yet, they miss the deeper problem that a compliance system or structure will not address.

What is the problem that lurks beneath the scandal’s surface?

On the surface, we can say that VW has a flawed corporate culture and focus on the personalities or search for rogue officers.[1] This focuses on the symptoms, without understand the problem that created the scandal.[2] Another view on the surface is to claim that it is the pressure to perform and succeed, yet this requires us to understand why other competitive firms did not cheat.[3] We leave aside the concern that they may be better at cheating. A further surface view would be to excuse it as what everyone else does it, yet this raises the question of why that makes it acceptable. Others stay on the surface by blaming someone or something in statements like “It is the regulatory system that creates the desire for a perverse outcome.” “It was an authoritarian Chief Executive.” These sound good, provide a reasonable explanation and may even contain elements of what happened. They may even lead to some changes. These approaches deal with the symptoms or contribute to the problem as they miss the heart of the problem. The problem was institutional corruption stemming from a deep, ingrained, ethical blindness if not moral callousness. At a basic level, the officers stopped being a moral person, they stopped thinking and this is why the lessons of Nuremburg have to be learned anew. The VW employees were inculcated into a management system that stopped them thinking, to stop asking questions or to question authority and required them to obey and not to raise bad news. They were inculcated to accept institutional ignorance.

Institutional Ignorance: a refusal to think about the ethical consequences

The banality of institutional ignorance is related to Hannah Arendt’s famous phrase “the banality of evil”.[4] She coined the term to describe Adolph Eichmann’s unthinking behaviour to implement the “Final Solution” to exterminate Jews and other enemies of the Nazi state. He was not a grand, malevolent figure. Instead, he was an unthinking bureaucrat who followed orders from an authoritarian leader, which explain why evil was banal. Evil is rooted in thoughtlessness, an inability to think critically, where a person engages superficially with the morality of what they do.[5] The VW employees, in particular the senior corporate officers and the boards, either choose to stop thinking or they are encouraged or trained to stop thinking. Where an organisation does not encourage critical upwards communication[6], where staff can discuss or think about bad news[7], such unthinking behaviour can occur. Eichmann never questioned the purpose of what he was doing or what was being done. If he did, then it was simply to confirm that his leader’s orders were to be obeyed. A good person would have thought about the problem, killing people, and realized it was wrong and would not have participated or actively resisted. Instead, he worked to improve the system. As a good bureaucrat, he acted as the system, and obedience to the system, was the highest moral duty. The system provided his moral framework. He never thought beyond what was required to obey a higher law.

Institutional ignorance encourages the suppression of questions.

At the Nuremberg Trials after the Second World War, the defence of following orders was ruled inadmissible. The courts reiterated that each soldier had a moral duty to question illegitimate orders. Each soldier had the autonomy to be a moral agent. That they failed to act morally and they directed others to act immorally made senior leaders culpable for their crimes. It would appear that this basic lesson has not been learned within German corporate culture. One would expect that in a country where such unthinking behaviour had been displayed so extensively and punished so completely, that the lessons would be learned that employees are ethical persons who need to make moral decisions. More directly, one would expect that a fundamental criteria or leadership in such a country would be that they can demonstrate they have learned the lessons from Nuremberg; that authority is to be questioned, and avoid an authoritarian approach that precludes questions so as to drive out ethical autonomy.

Moral autonomy within a bureaucracy is at the heart of this comparison

What is clear is that VW intended the outcomes that they achieved and the culture enabled that outcome. They intended to subvert the emissions test to sell more vehicles and to increase their market share. They had no apparent concern for what happened to the public who would breathe the polluted air. Like Eichmann the senior managers who knew of the cheat did not think about the moral consequences. If they did, they did not stop it nor did they expose it. Even now they want to avoid their moral responsibility as they to point to their authoritarian leader who created a culture of fear. Even if true that does not avoid their moral responsibility. If anything, it makes the situation worse. A leader can only create a culture of fear if others enable that behaviour. The board and senior managers, those paid to push back and challenge, carried out his orders, *even though* they know it created a culture of fear which was ethically and morally wrong. At no point did senior managers push back or seek to restrain the culture of fear. As long as it delivered the results they wanted, they turned their face. They chose wilful ignorance. Tell me no problems and I will tell you no lies. The senior managers and the board expressed no curiosity and they did not create an ethical structure where this behaviour would not be entertained let alone put into practice and endorsed. We find no evidence that they tried to think critically. Even where external organisations, through inspections, did try to provoke them to think they resisted. In many ways they worked to avoid thinking or act on the ethical consequences of pollution emissions.[8] What is striking from this scandal is VW had no whistle-blowers. No one thought this was a problem or if they did, they said nothing. In a country like Germany such behaviour is deeply troubling. Its history should be the lessons of what can happen if no one stops and asks the questions necessary to force people to think.

Does your company require to you to think ethically?

Questions would force the organisations to “think” and take responsibility to understand the problem. The system appears to have kept anyone from thinking critically or ethically about what they were doing or failing to do. When officers stop thinking, they stop being moral agents. They can avoid moral responsibility for their decisions when they transfer accountability to the system. In turn, the system absolved them of a responsibility to think about the problem. When no one is responsible for the ethical content of a decision then no one is to blame.[9]

Why question something when your superiors tell you what to think about it?

In the VW scandal, we see what Arendt saw in Eichmann except the results were not immediately fatal. For VW and Eichmann the system worked. VW had higher priorities than public safety or a responsibility to act ethically. Why should officers question the system or what they were doing when the system does not encourage it? What junior officer is going to challenge a corporate director on that view? The senior officers had an institutional reputation to defend and a success to deliver. The bureaucracy was structured to serve the senior managers and their goals. The ethics would only get in the way. Why should an employee challenge it or should a senior manager encourage anyone, in particular junior officers, to question it? The senior officers modelled the unthinking behaviour as they did not question or challenge the culture of fear. Everyone simply followed a chain of command. No one appears to have challenged the decision and the programme to defeat the tests.

When you stop thinking, you stop acting morally.

The institutional corruption explains why whistle-blowers never emerged. A whistle blower would require someone to know the scale or scope of the problem and to see it wrong within the VW context. That is the deeper problem. The behaviour was seen and understood as acceptable by everyone involved. No one stopped and said “This is immoral. This is wrong”. VW obviously lacks an ethical culture. It lacks a candid culture where challenging questions were encouraged and an ethical framework beyond what was good for VW. VW appears to be a company without a soul and an ethical compass. This did not start with Winterkorn, if it believes that then it has not learned the lessons from Nuremberg.

Professional curiosity should be mandatory, not recommended.

What we see in all bureaucracies is a focus on secrecy that limits information on a need to know basis. These characteristics inhibit questions. A bureaucracy encourages respect for hierarchy and authority. It discourages dissent and it ensures that any dissent is channelled within the system. It also helps to ensure that the workers remain institutionally ignorant of the moral consequences of their behaviour.

What needs to change to encourage ethical thinking?

For VW to change, it has look at the whole organisation. If it focuses on the one service it will miss the forest for the trees. A curiosity culture, an ethical culture, across the company is needed. Officers have to be required to think and act ethically and question each decisions ethical consequence beyond what is good for VW. The following are some steps to create a curiosity culture one that asks questions that force it to think ethically.

First, they need to demonstrate a culture where bad news can be discussed and acted upon by the organisation collectively. Bad news is not left to a service or a senior management team to manage. The organisation has to demonstrate how it, as the whole organisation, has engaged in the problem.

Second, they need to create a candid culture. The culture will encourage critical upwards communication so bad news is welcomed and addressed with publicly accountable outcomes. The work by Tourish, mentioned earlier, is vital.

Third, they need to train staff in ethical practices. They need to use scenarios to raise awareness of how institutional factors can discourage critical ethical thinking and that the law comes before what is good for VW.

Fourth, they need to publish standards of behaviour. The senior officers and political leaders have to model the standards and be held to account for lapses.

[2] Did VW fail to find this problem because it pursued single loop learning and not double loop learning? Single loop is focused on dealing with the symptoms and not with causes. See the HBR classic article by Chris Argyris.

[3]There has been the suggestion that VW’s unique position within Germany’s economy especially its ability to deliver jobs in politically important areas meant that corporate boards were relaxed about their oversight. As long as the results were delivered, profitability and continued employment, then the means would not be questioned.

[4] I am relying heavily on, but not exclusively on, Judith Butler’s excellent article Hannah Arendt’s challenge to Adolf Eichmann (Guardian Online 29 August 2011) and Elisabeth Young-Bruehl’s The capacity for evil can spread like an epidemic (Guardian Online 19 August 2011) I have referred to Arendt’s work Eichmann in Jerusalem: the banality of Evil (2nd Edition)

[5] See Bethania Assy Eichmann, the Banality of Evil, and Thinking in Arendt’s Thought The problem raised by Eichmann exists within all bureaucracies and societies. The individual is caught between being too thoughtful, to the exclusion of humanity (see Martin Heidegger as an example), or thoughtless to the point of evil (Eichmann). Bureaucracies favour thoughtlessness because they thrive on routine and procedures rather than curiosity and critical thinking and it is easier to keep bad news or challenges to authority in check.

[6] The work by Denis Tourish is excellent in this area. VW has admitted they lacked a robust system where critical upwards communication was welcomed. Had VW followed his 10 commandments they would not have had a problem with reporting bad news or critical information. VW like many organisations lacked an ethical culture where the employee’s first duty is to the law and not the organisation.

[7] Where do you discuss bad news?

[8] The issue here is VW wanted to defeat the tests and inspections.

[9] Arendt saw at work with Eichmann. “An issue or responsibility that belongs to everybody effectively belongs to nobody” and “And one can debate long and profitably on the rule of Nobody, which is what the political form known as bureau-cracy truly is.” p.289.

About lawrence serewicz

An American living and working in the UK trying to understand the American idea and explain it to others. The views in this blog are my own for better or worse.
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2 Responses to Volkswagen, Nuremberg and a corporate ethical failure

  1. The comparison used by Lawrence Serewicz is a good one. Not because VW is a German Company rooted in the Nazi times but as the author describes no one is thinking about what he or she does. We act not for winning but just to have no problem with our neighbours and officers at our proper level of the organization. But, if I believe a friend of mine, we act such in this manner because all the people in the whole company is using what was called by Karl Kraus a perverted language and act in a carnivalesque style. I give an example. Critics against the lies of the company must become the nationalist reason for German customers to buy more WV cars and the sells of the company are, in September, higher than before the scandal. So we have to lie for selling more and more and becoming ethic is a fault. And so on. How is it possible? People are afraid to lose their business, to be a bad neighbour, they love their company and her flag and the main reason is people hate thinking and knowledge. In a perverted company using a perverted language and a carnivalesque style of management people are paid by a huge amount of hate against what it’s feared them, thinking, knowledge, as it’s saying about the Talibans, name which means “Those who know”.

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  2. Cayzia Mills says:

    I would like to comment on two claims made in this article under the section “Moral autonomy within a bureaucracy is at the heart of this comparison”
    The first part I would like to comment on is stated in the first line of the paragraph “VW intended the outcomes that they achieved and the culture enabled that outcome” (Volkswagen, 2015, para.6). Firstly, who makes up VW? I think that VW needs to establish who the company is and who created the culture, was it the companies’ intentions or the stakeholders? The stakeholder group of such a large organisation would be enormous not just based in one country and there would be no way every stakeholder knew the intention. This draws me to the phrase “intention”, what was the intention of VW to pursue using modified technology? If VW wanted to increase their market shares for their shareholders and produce greater profits, it is fair to say that the managers of VW are responsible under Freidman’s profit maximisation theory. He claims that “business managers have a contract with their employers that imposes a fiduciary duty on managers to act as agents on behalf of their employers” (Open Polytechnic, 2015, M4). One might suggest that the emission was a business developing strategy so the social rules were not to count until the goals were reached, this would follow Freidman’s profit maximisation rule but the fact it was deceiving still breaches his theory. However, while making profit is the primary goal for managers, they must conform to the laws and social rules of society. Seeing as the managers were not conforming to social rules (using technology to deter the amount of pollution emitting from the vehicles during testing is not considered socially acceptable as deterring pollution at all times would be socially acceptable), and were more likely to be acting in deception. They were deceiving the customers when selling the vehicles; therefore I don’t believe that Freidman’s theory can be exercised under his social responsibility theory or the profit maximising concept which means that managers are not eliminated from responsibility in this scandal.
    Secondly the article states that Eichmann and the senior managers are avoiding their moral responsibility. Again though, who is responsible? Is it the corporation or the individuals working in the organisation who should be held morally responsible? Jennifer Moore (1992) says that a corporate can have a character that we ought to hold morally responsible in some way for actions carried out on its behalf. Moore (1992) argues that VW as a corporation has policies, procedures, and target measures both financially and non-financially that will define itself as this corporation. Therefore these methods are what makes up VW as a corporate character which can itself be “morally culpable” of wrongdoing as an individual agent. As the wrongdoing of VW is a global issue, it would be difficult to pinpoint to the select few whom are responsible. Volkswagen has quite a solid reputation as being a great car and this stunt has damaged that reputation considerably. However, as it is a globally recognised company, VW should be the ones held morally responsible. Whereas Manuel Velaquez (2003) would argue that only the individuals acting within the organisation should be held morally accountable, and the corporation can never be held morally culpable for its actions (Open Polytechnic, 2015, M4).
    Velaquez’s would argue that VW should be holding the individual employees who are involved morally responsible to rectify the company name because there is a violation of law. For law to be permissible someone needs to be held liable for the actions. This scandal has affected over 11 million cars in the world, New Zealand itself has approximately 7600 of the affected cars (VW emissions scandal, 2015) and the complaints arising from it include; increasingly difficultly to sell, the money value of the vehicles have dropped, and other non-financial implications. All these factors are creating problems globally, not specifically New Zealand. Therefore because the individual’s make up the moral agents of the corporation, they are the ones to be held morally and legally responsible for their actions which are having much greater consequences than they thought about.
    Velasquez (2003) states this because by punishing the corporation and not the individuals it fails to punish some individuals, and then those who are punished have to deal with the consequences. Also by punishing the corporation it may not deter the individuals from reoffending in the future. All employees would be affected by the corporation being punished and it is unlikely all employees were involved. Finally those involved are unlikely to go punished, as all the punishment falls on the corporation. He would argue that the corporation itself lacks casual powers and the intentionality required to be morally responsible.


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