Corporate governance is essential in promoting transparency and clarity, disclosure and non-misleading technical or financial information, and protecting shareholders' rights to the maximum extent without conflicting with the country's laws and acountry'stions. Thus, it ensures the establishment of justice frameworks for all stakeholders.
In this paper, I will discuss the Volkswagen emissions scandal and the related governance problems, such as responsibility and transparency. Finally, I will discuss the practical application of governance theories to solve this problem from the outset.
Volkswagen Emission Scandal:
According to (Al-Ruweidi, 2018), the US Environmental Protection Agency (EPA) has issued a notice of a violation of the Clean Air Act by Volkswagen Group; this is because of the fraud that the company committed by reprogramming its diesel cars for the results of emission of harmful gases in the laboratory to be less than the dangerous limit, while in fact the harmful emission is 40 times that, this is in the number of more than 11 million cars worldwide, which necessitated most countries to take severe measures against the company, especially the United States, billions of fines were imposed, until the company announced in 2016 to spend 18.32 billion US dollars to correct emissions problems, whether in its cars or the environment in general.
Organizational Governance Issues:
According to Jung & Park (2017), the Volkswagen Board of Directors did not take corporate governance into account because the CEO's only goal at that time was to dominate the global car market. The company has already reached second place in the world after Toyota. The significant shortcomings in the company's government to great companies, whether in terms of money or the brand's value, result from ineffective internal controls to detect errors or frauds.
Accountability Issue:
According to (CrĂȘte, 2016), In Germany, the administrative structure consists of a supervisory board and a separate board of directors; the Board of Directors is responsible for the executive decisions of the company; however, due to the presence of 20 individuals in this executive management, who are almost entirely equal in powers, it makes governance very difficult, even the fraudulent decision made by Martin Winterkorn and Rupert Stadler accused its quality engineers, that's because that's off the board that sectors were not aware of this fraud before it was discovered (Poier, 2020).
Transparency Issue:
Volkswagen's Volkswagen far from froVolkswagenfroVolkswagen'scyated the least amount of information to the shareholders; even after the scandal, the board of directors informed the shareholders that it would not publish the final report on the sequencing and programming of the fraud in the automobile exhaust industry, Volkswagen even agreed with the US government to withhold it from the press to agree to settle the fines (Kabeyi, 2020).
The Application of Governance Theories:
When applying the three theories (Agency, Stewardship & Stakeholder Theory) to the Volkswagen case, we find that the first two theories agree that the company's responsibility for making decisions, either through agency or stewardship, this person maintains the company and works to develop its profits and market value, the Stakeholder Theory agrees to safeguard the interests of all stakeholders, including shareholders and society as a whole, but what happened is that both (Martin Winterkorn) and (Rupert Stadler) betrayed this trust and manipulated the confidence of the board of directors and shareholders, many Volkswagen officials were not aware of any wrongdoing. However, there are people at the top who can solve this problem before it occurs.
Suggested Solutions:
The supervisory board and the board of directors should be fully responsible for monitoring the CEO's decisions. They should also increase the degree of transparency from the Chairman of the Board of Directors. There should be a system for reporting violations to alert the appropriate people in these cases to take appropriate action at the right time (Rhodes, 2016).
Conclusion
From 2015 to 2018, the company's CEOcompany's Stadler), was in office despite the resignation of the president and most of the board of directors. This is due to the significant failure in corporate governance and the excellent support of the Board of Directors and the Supervisory Board for him without there being any control over his decisions and he and the President (Martin Winterkorn) (Li, McMurray, Xue, Liu & Sy, 2018). Therefore, governance facilitates controlling and supervising the company's percompany this is done by defining the limits and mechanisms of internal control, forming specialized committees, and applying transparency and disclosure.
References
Al-Ruweidi, M. (2018). Case study: The Volkswagen emission scandal. ResearchGate, https://www.researchgate.net/publication/323998958_Case_Study_The_Volkswagen_Emission_Scandal
CrĂȘte, R. (2016). The Volkswagen scandal from the viewpoint of corporate governance. European Journal of Risk Regulation, 7(1), 25-31.
Jung, J. C., & Park, S. B. A. (2017). Volkswagen’s emissions scandal and the failure of corporate governance. Thunderbird International Business Review, 59(1), 127-137.
Li, L., McMurray, A., Xue, J., Liu, Z., & Sy, M. (2018). Industry-wide corporate fraud: The truth behind the Volkswagen scandal. Journal of Cleaner Production, 172, 3167-3175.
Kabeyi, M. J. B. (2020). Corporate governance in manufacturing and management with analysis of governance failures at Enron and Volkswagen Corporations. Am J Oper Manage Inform Syst, 4(4), 109-123.
Poier, S. (2020). Clean and Green–The Volkswagen Emissions Scandal: Failure of Corporate Governance?. Problemy Ekorozwoju, 15(2).
Rhodes, C. (2016). Democratic business ethics: Volkswagen’s emissions scandal and the disruption of corporate sovereignty. Organization Studies, 37(10), 1501-1518.