This case won the Ethics and Social Responsibility category at The Case Centre Awards and Competitions 2022. #CaseAwards2022
View photos and video from the awards presentation on 6 September 2022.
Who – the protagonists
Volkswagen’s Ferdinand Piech (Chairman) and Martin Winterkorn (CEO).
What?
The German automaker VW set out ‘Strategy 2018’ in 2007, a plan to achieve world domination in the passenger car market, with the creation of new models to achieve sales targets, especially in the US, Russia and China.
With the support of Piech, Winterkorn set the sales target at 10 million cars a year – an ambitious increase on the six million VW was then selling.
The key to making the plan work would be to market ‘clean diesel’ engines to the environmentally-conscious segment of the American public. If successful, the company would overtake GM and Toyota to become the world’s biggest carmaker.
Why?
What followed was the greatest emission fraud in history.
Piech and Winterkorn ruled with an iron fist and wouldn’t take ‘no’ far an answer, with employees in fear of being replaced if they didn’t hit their targets.
Unable to overcome problems with the emissions system for the new clean diesel engines, VW engineers turned to a ‘defeat device’ to cheat emissions regulations. Essentially, a few lines of software code were added, among millions of other lines of code, inside the control engine unit. The device was turned on when on rollers to pass emissions tests, but then switched off when on the road, resulting in cars emitting many times the pollution produced in testing situations.
VW went on to admit that the devices had been installed on 11 million diesel vehicles sold worldwide over an eight-year period.
When?
It was in 2006 that the defeat device for the VW diesel engines came about, and late 2008 when the clean diesel campaign was introduced in the US.
Remarkably, in 2013, the defeat device was only discovered when three graduate students from West Virginia University were testing diesel emissions with a homemade device. The data shocked them, as the VWs performed poorly in almost all conditions, but easily met the emissions requirements on rollers.
In 2014, the California Air Resources Board, one of the country’s toughest pollution regulators, heard about the results.
This was the start of a chain of events that would see VW’s fraud revealed for all of the world to see.
Where?
In the US, vehicle owners were given compensation, but European car owners did not have the same protection. VW claimed the technology it installed was not a violation of EU law, which was less stringent about emissions and had many loopholes. VW simply offered free ‘fixes’ to improve the emissions of vehicles already on the road in Europe.
During the first six months of 2017, diesel car sales declined by 10% in Britain, 9% in Germany and 7% in France.
Key quote
“This is a case of deliberate, massive fraud perpetrated by Volkswagen management. We don’t know how far up this goes. We hope the Justice Department will find and prosecute those responsible.”
Judge Sean F. Cox of Federal District Court in Detroit.
What next?
While VW’s excess diesel emissions couldn’t be directly linked to any one death, a team of researchers led by an aeronautics professor from MIT estimated that, in Europe, the excess pollution released by VW diesels skirting the pollution limits would eventually result in 1,200 premature deaths.
Meanwhile, the European Environmental Agency estimated that NOx pollution, much of which came from diesel vehicles, caused 75,000 premature deaths each year.
Furthermore, diesel exhaust was blamed for major smog crises in European cities, and Britain and France vowed to stop allowing new diesels by 2040.
Put simply, is this the end of diesel?
Craig and Erin have an impressive Case Awards CV, winning this category four (2006, 2008, 2019 and 2022) and two times (2019 and 2022) respectively. INSEAD have won an incredible 96 awards in total, and are five-time winners of the Ethics and Social Responsibility category (2009, 2013, 2019, 2021 and 2022).
Winning the award
Craig said: “It is always an honour to win a Case Centre Award. This one is especially gratifying because it speaks to the appeal of the case, with it being used in many other institutions beyond INSEAD.”
Case popularity
Craig continued: “The Volkswagen emissions scandal was really quite shocking. Here was this huge brand in the automotive market that we had hitherto always trusted. It was associated with reliability and quality and the excellence of German engineering, and yet it had engaged in a massive fraud on consumers and other stakeholders. Hence the case subtitle: How could it happen?
“It was inevitable that the exposure of VW’s cheating would lead to cases being written. VW succeeded in supplanting Enron as the poster child for bad ethics. We were not the first to develop a case on the VW emissions scandal, but it seems to be one of the most popular of the cases out there. I’d like to think it reflects the careful research undertaken, albeit of secondary sources only, the way it is written (for which I thank Erin, especially), and the solid guidance in the teaching note. Mostly, however, I think it is because it is a well-told story of the causes and consequences of organisational misconduct.”
Writing the case
Craig added: “This was never going to be an in-company case. Companies are reluctant to participate in the development of cases about their wrongdoing and it is often precluded by legal considerations. Nonetheless, there was excellent material available to draw on, such as the work of New York Times’ investigative journalist, Jack Ewing.
“One of the challenges was explaining how the cheat was perpetrated without becoming too technical and to show the egregiousness of VW’s actions, especially relative to other vehicle manufacturers. Another challenge was to convey the culture of VW in the absence of detailed inside accounts of what had happened. VW was remarkably secretive and, surprisingly perhaps, whistle-blowers were not coming forward.”
Case writing advice
He commented: “Tell it how it is. My approach is to treat case development as a form of research. Inevitably, a case is a simplified account, but it should be possible to capture accurately the key elements of the story.”
Teaching the case
Craig concluded: “It’s certainly a case that works well in the classroom with both MBA students and executives. It’s an excellent vehicle for exploring the causes of organisational misconduct, differentiating between ‘bad apples’ (bad individuals) and ‘bad barrels’ (bad organisation) explanations.
“More positively, one can go on to explore how VW might have avoided the scandal - and its €30 billion+ plus price tag - in the first place, and what it should do moving forward in a way that addresses the damage done and reduces the likelihood of misconduct happening again in the future.”
Discover how this case works in the classroom.
“The VW Emissions Scandal case asks, ‘How could it happen?’ and so offers students a great look at topics like leadership, culture and ethical behaviour. These are incredibly important in business, but there are not many good cases that offer insights beyond the headlines.
“The case includes and recommends great sources that make teaching more multi-media such as the ‘old wives’ tales’ advertising mentioned in the case, and sources from CNN and Netflix.
“Concepts introduced such as the fraud triangle and bad apples/bad barrels/bad orchard are a bit different from those familiar concepts used in many cases.
“As interesting as the case currently is, there’s a great ‘what happened next?’ discussion as VW has reset its purpose, restored its performance and seized the opportunities offered by the electrification of transport. While it’s good to have cases that don’t just consider how wonderful a company is, there’s the opportunity to add discussion of how the company has achieved an impressive recovery.”
The case
Who – the protagonists
Volkswagen’s Ferdinand Piech (Chairman) and Martin Winterkorn (CEO).
What?
The German automaker VW set out ‘Strategy 2018’ in 2007, a plan to achieve world domination in the passenger car market, with the creation of new models to achieve sales targets, especially in the US, Russia and China.
With the support of Piech, Winterkorn set the sales target at 10 million cars a year – an ambitious increase on the six million VW was then selling.
The key to making the plan work would be to market ‘clean diesel’ engines to the environmentally-conscious segment of the American public. If successful, the company would overtake GM and Toyota to become the world’s biggest carmaker.
Why?
What followed was the greatest emission fraud in history.
Piech and Winterkorn ruled with an iron fist and wouldn’t take ‘no’ far an answer, with employees in fear of being replaced if they didn’t hit their targets.
Unable to overcome problems with the emissions system for the new clean diesel engines, VW engineers turned to a ‘defeat device’ to cheat emissions regulations. Essentially, a few lines of software code were added, among millions of other lines of code, inside the control engine unit. The device was turned on when on rollers to pass emissions tests, but then switched off when on the road, resulting in cars emitting many times the pollution produced in testing situations.
VW went on to admit that the devices had been installed on 11 million diesel vehicles sold worldwide over an eight-year period.
When?
It was in 2006 that the defeat device for the VW diesel engines came about, and late 2008 when the clean diesel campaign was introduced in the US.
Remarkably, in 2013, the defeat device was only discovered when three graduate students from West Virginia University were testing diesel emissions with a homemade device. The data shocked them, as the VWs performed poorly in almost all conditions, but easily met the emissions requirements on rollers.
In 2014, the California Air Resources Board, one of the country’s toughest pollution regulators, heard about the results.
This was the start of a chain of events that would see VW’s fraud revealed for all of the world to see.
Where?
In the US, vehicle owners were given compensation, but European car owners did not have the same protection. VW claimed the technology it installed was not a violation of EU law, which was less stringent about emissions and had many loopholes. VW simply offered free ‘fixes’ to improve the emissions of vehicles already on the road in Europe.
During the first six months of 2017, diesel car sales declined by 10% in Britain, 9% in Germany and 7% in France.
Key quote
“This is a case of deliberate, massive fraud perpetrated by Volkswagen management. We don’t know how far up this goes. We hope the Justice Department will find and prosecute those responsible.”
Judge Sean F. Cox of Federal District Court in Detroit.
What next?
While VW’s excess diesel emissions couldn’t be directly linked to any one death, a team of researchers led by an aeronautics professor from MIT estimated that, in Europe, the excess pollution released by VW diesels skirting the pollution limits would eventually result in 1,200 premature deaths.
Meanwhile, the European Environmental Agency estimated that NOx pollution, much of which came from diesel vehicles, caused 75,000 premature deaths each year.
Furthermore, diesel exhaust was blamed for major smog crises in European cities, and Britain and France vowed to stop allowing new diesels by 2040.
Put simply, is this the end of diesel?
Author perspective
Craig and Erin have an impressive Case Awards CV, winning this category four (2006, 2008, 2019 and 2022) and two times (2019 and 2022) respectively. INSEAD have won an incredible 96 awards in total, and are five-time winners of the Ethics and Social Responsibility category (2009, 2013, 2019, 2021 and 2022).
Winning the award
Craig said: “It is always an honour to win a Case Centre Award. This one is especially gratifying because it speaks to the appeal of the case, with it being used in many other institutions beyond INSEAD.”
Case popularity
Craig continued: “The Volkswagen emissions scandal was really quite shocking. Here was this huge brand in the automotive market that we had hitherto always trusted. It was associated with reliability and quality and the excellence of German engineering, and yet it had engaged in a massive fraud on consumers and other stakeholders. Hence the case subtitle: How could it happen?
“It was inevitable that the exposure of VW’s cheating would lead to cases being written. VW succeeded in supplanting Enron as the poster child for bad ethics. We were not the first to develop a case on the VW emissions scandal, but it seems to be one of the most popular of the cases out there. I’d like to think it reflects the careful research undertaken, albeit of secondary sources only, the way it is written (for which I thank Erin, especially), and the solid guidance in the teaching note. Mostly, however, I think it is because it is a well-told story of the causes and consequences of organisational misconduct.”
Writing the case
Craig added: “This was never going to be an in-company case. Companies are reluctant to participate in the development of cases about their wrongdoing and it is often precluded by legal considerations. Nonetheless, there was excellent material available to draw on, such as the work of New York Times’ investigative journalist, Jack Ewing.
“One of the challenges was explaining how the cheat was perpetrated without becoming too technical and to show the egregiousness of VW’s actions, especially relative to other vehicle manufacturers. Another challenge was to convey the culture of VW in the absence of detailed inside accounts of what had happened. VW was remarkably secretive and, surprisingly perhaps, whistle-blowers were not coming forward.”
Case writing advice
He commented: “Tell it how it is. My approach is to treat case development as a form of research. Inevitably, a case is a simplified account, but it should be possible to capture accurately the key elements of the story.”
Teaching the case
Craig concluded: “It’s certainly a case that works well in the classroom with both MBA students and executives. It’s an excellent vehicle for exploring the causes of organisational misconduct, differentiating between ‘bad apples’ (bad individuals) and ‘bad barrels’ (bad organisation) explanations.
“More positively, one can go on to explore how VW might have avoided the scandal - and its €30 billion+ plus price tag - in the first place, and what it should do moving forward in a way that addresses the damage done and reduces the likelihood of misconduct happening again in the future.”
Instructor viewpoint
Discover how this case works in the classroom.
“The VW Emissions Scandal case asks, ‘How could it happen?’ and so offers students a great look at topics like leadership, culture and ethical behaviour. These are incredibly important in business, but there are not many good cases that offer insights beyond the headlines.
“The case includes and recommends great sources that make teaching more multi-media such as the ‘old wives’ tales’ advertising mentioned in the case, and sources from CNN and Netflix.
“Concepts introduced such as the fraud triangle and bad apples/bad barrels/bad orchard are a bit different from those familiar concepts used in many cases.
“As interesting as the case currently is, there’s a great ‘what happened next?’ discussion as VW has reset its purpose, restored its performance and seized the opportunities offered by the electrification of transport. While it’s good to have cases that don’t just consider how wonderful a company is, there’s the opportunity to add discussion of how the company has achieved an impressive recovery.”
