in September 2015, the US Environmental Protection Agency accused Volkswagen of committing violations of the Clean Air Act and according to the report Volkswagen attempted to pass the emission test by installing a defeat device that works to minimize the toxic fumes during the emission testing whereas driving the vehicle in normal conditions the vehicle begins to produce nitrogen oxide that higher forty times than the permissible limit, and it is estimated that the crisis may affect at least 11 million cars worldwide.
The story took place earlier in 2014, when a non-governmental entity drew attention to the toxic emissions that Volkswagen cars produce, followed by a request to the company made by the Environmental Protection Agency to inspect defective vehicles, however the crisis escalated when the California Air Resources Board (CARB) passed to The Environmental Protection Agency reports emboldening the continuation of the tests, which Volkswagen initially denied the results of it. After that denial, confessions were made by some of the company's engineers confirming these accusations.
Later on, Volkswagen publicly accepted the defeat causing a massive recall of vehicles, bring about a significant drop in the company's share price and a loss in revenue that estimated about $ 1.84 billion in addition to a fined of $ 2.8 billion, besides forcing CEO Martin Winterkorn to resign and was supplanted by Matthias Muller, who made an order of an independent investigation into the case, as well as the suspension of several senior officials in the company such as the head of brand development and head of research and development for Audi and Porsche.
There are three pillars that contribute to effective leadership, which are personality, competence and commitment, and whenever there is a weakness in any of these pillars, there will be a noticeable impact on leadership ability. There is no doubt that Volkswagen leaders are well educated and surrounded by bright managers who have the experience to effectively tackle any obstacles or challenges, however, the crisis proves that the lack of integrity and sobriety in leaders may expose businesses to risks. In addition, the alternate CEO of the company stated that employees were not able to freely express their concerns and this indicates that there was a failure in fully utilize the potential of their employees, as most activities are carried out within a strict dictatorship environment and the insufficient flow of data from Top-down is one of the main reasons of this issue. Furthermore, as Volkswagen is a giant company the decision-making process is long and complex and as a result, it becomes difficult to make a decision and respond in a timely manner. Despite Volkswagen's commitment to social responsibility and the environment, according to what was stated on its official website, however, this commitment has become remarkably inconsistent with the strategy of the company and its goals of being one of the largest car companies in 2018.
The hierarchical organization in the company also boosted the bureaucratic culture and employees did not have the freedom to convey their needs and feeling about change, as VW revealed that the previous style of management was authoritarian and the new CEO of the VW had set an ambitious goal to encourage employees to express their opinions and conduct an open communication across different organizational levels. This is expected to enhance creativity and productivity, sense of belonging and enthusiasm, in addition, to reduce the potential risks that may affect the company reputation. It was also noted the lack of diversity and comprehensiveness in the recruitment processes, as the majority of the company's officials are German males resulted in a lack of different perspectives that could diminish the media crisis.
When the US Environmental Protection Agency attempted to warn Volkswagen concerning the emissions of its diesel vehicles, the company's response to the warnings was ineffective. Followed these warnings, the media launched a stinging attack that resulted in the resignation of CEO “Martin". The new CEO, "Muller," stated that he will work to restore trust through open communication and implement a strategy that addresses five key points. First, assisting clients who have suffered by the scandal, secondly, identifying the responsible person or department, third, providing more autonomy for each area in purpose of increasing efficiency and productivity. Fourth, promote open communication between employees and collaboration. Finally, changing the company's strategy timeline to 2025 instead of 2018.
Moreover, the suspension of several officials in addition to the resignation of others has caused an ineffective response. However, the new CEO Muller's five-point strategy was a good start to the correction, and the plan is expected to be more effective when there is a concentrate on improving the organizational culture of the company.
This review clearly demonstrates the importance of ethical leadership as well as the ability to bring about rapid change in the business environment. It also shows how corporate social responsibility is an essential and important component of the business. Companies must realize that they have a moral duty to society and the environment. It also proves that an inappropriate approach to success may leads organizations to achieve successes but it will certainly be unsustainable. The company should focus on the existing capabilities and talents to create positive industry transformations, environmentally friendly results and high competitiveness. Finally, companies should take into account the diversity of employees and competencies, as the work environment with a diverse cultural background is better a place to achieve greater productivity and competitiveness.