Over the years, aspects of corruption and bribery have been rampant in most industries operating in the global market. The automobile industry has had its fair share of representation. Volkswagen has been on the forefront with regards to bribery and corruption incidences. The actions of the people involved have left different stakeholders asking various questions regarding what these individuals were thinking while perpetrating the scandals (Mintzberg, 2015).It looks pretty obvious to the public that such actions are likely to come to light at some point as the organization continues with its operations.
The bribery and corruption cases within the organization have been witnessed in different countries where the company operates. This occurrence has resulted in the issue being regarded to as being a syndrome due to its nature of being repetitive and widespread (Mintzberg, 2015). Employees are devising different financial maneuvers to swindle the company and other relevant stakeholders. This is because it is usually easy to escape conviction on corporate crimes. On most occasions, fines are awarded, and this might be a reason that encourages employees and top level executives to defraud people on numerous occasions. It is upon the business laws in different countries to implement stiff consequences for individuals entangled in corporate crimes. Fear of the severe long-term consequences might deter corporate employees from getting involved with unending bribery and corruption incidences in their line of work (Donatella & Vannucci, 2016).
Below are some of the bribery and corruption cases that have been prevalent in Volkswagen.
In 2014, China’s corruption watchdogs were investigating different executives associated with Volkswagen. The investigations were targeting a current and a former executive involved with Volkswagen AG’s Chinese venture. This was on the grounds of “seriously violating the law” (Niculescu, 2015). The former senior executive (Shi Tao) was found guilty of corruption and thus served with a life sentence. Shi Tao was a former deputy general manager and was found guilty of accepting $5.3 million in bribe. These bribes came from car dealers and advertisers who were accorded the ability to attain business orders from FAW-Volkswagen (Niculescu, 2015).
Shi Tao had accepted bribes from 48 companies and individuals since 2006. Suspicions regarding his dealings came in 2013 when he amassed property investments worth millions, from sources that were not clear. The instances were discovered during an audit in 2013 (Niculescu, 2015). Volkswagen has always been strict against any form of illegal conduct. There has been an emphasis on applying anti-corruption laws that are instituted in different jurisdictions that they operate in.
In 2005, Andhra Pradesh had pushed to get Volkswagen to set up a Rs 5,800 crore plant in India. This was a significant achievement given that he defeated the neighboring countries in clinching this deal. Schuster, who was a former Volkswagen’s executive, was involved in brokering the deal. Schuster asked for 2 million Euros, which was part of the 5 million Euros proposed by the Indian government (Menon, 2005). The payment was an installment of the government’s share of equity that was floated in a joint venture; VashishtaWahan. The joint venture was the one expected to set up the car plant.
It became apparent that the state had failed to exercise due diligence regarding VashishtaWahan. This is because it was a fake avatar bearing a similar acronym VW just like Volkswagen. The registered address of the company was an office belonging to a chartered accountant. The State came to realize that it had bitten bribery bait after Schuster resigned from Volkswagen. He had resigned on the grounds of “fraud and breach of trust”. India did not have deposit certificates for the payments it made to the joint venture as an investment. As indicated by Schuster, Volkswagen retained 51% of the equity but had not paid a single euro (Menon, 2005). It is not known who withdrew the money, but the individual that had registered VashishtaWahan could not be traced to his official address.
Schuster was charged with duping Andhra Pradesh and sentenced to 10-month suspended incarceration. He was also required to pay a fine of 15,000 Euros. The management of Volkswagen also sued Schuster, and he was found guilty of breach of trust, corruption and being an accessory to the fraud case, which involved purchasing an expensive sports car using the swindled money.
Schuster was also found in breach of trust by arranging an employment opportunity for the former Gebauer’s girlfriend. Gebauer was a former personnel manager in Volkswagen. The girlfriend was not involved with any work in the company, but she used to receive a monthly salary (Menon, 2005).
In Germany, instances of bribery and corruption in Volkswagen have been there for some time. In 2005, investigations were opened by the state prosecutor regarding allegations of bribery that involved a senior Volkswagen executive (Peter Hartz). The case was referred to as “perks and prostitution scandal” (Odell, 2015). In 2007, Hartz was found guilty and given a two-year suspended sentence. This was due to a breach of trust since he undertook a role in a bribery scheme. The scheme involved payments to members of the company belonging to the powerful works council. The payments were meant to ensure that Volkswagen enjoyed union support for the decisions that they made. The union officials were also provided with lavish expenses on paid foreign trips that included sex parties with various prostitutes (Odell, 2015). All the expenses were paid out of the company’s money. Hartz was responsible for sanctioning the illegal payments.
Some executives including Hartz were also found guilty of accepting bribes from suppliers. The bribes were meant to ensure that these suppliers got preferential treatment when dealing with company affairs. This meant that they would always have room to supply their products to the company and receive favorable payments in return. This was regardless of whether there were other suppliers with the ability to deliver more quality products.
CIMA’s Code of Ethics
The code has established a framework that requires organizations to evaluate, identify and address threats that are likely to hinder compliance with the given fundamental principles. The framework approach aids organizations to comply with ethical requirements embedded in this code. There are five fundamental principles that include objectivity, confidentiality, professional competence and due care, integrity and professional behavior. The code identifies five major threats that include self-review, advocacy, intimidation, familiarity and self-interest.
The cases revolving around Volkswagen about bribery and corruption show various instances of breach of the CIMA Code of Ethics. Among the fundamental principles that have been breached is that of integrity. This is well outlined in the case of Schuster when he swindled the government of India 2 million Euros. Schuster was not straightforward with the government and made them believe that they had won the race of having a car plant established in the country. Andhra Pradesh was keen on this initiative since he understood the benefits that it would bring to the country. There were several countries interested with the deal; something that works to emphasis its significance. Schuster was not honest and truthful to the government of India. He was involved with information that he knew was misleading and materially false. He was well aware that VashishtaWahan was a sham company that did not have an actual physical address. The individual that registered the company was involved with the scheme since he knew when to take off, and could not be traced.
The fundamental principle of objectivity is also breached in these cases. A good example is the case of Peter Hartz’s “perks and prostitution scandal”. He authorized payments to influential union members in order to influence their decisions on issues affecting the organization. Hartz breached the principle of objectivity in that he allowed bias and conflict of interest to influence his decisions. Bias is showed on the way that Hartz allowed the position of these members to influence him in bribing them with funds from the organization operations. Conflict of interest on its part is manifested in the way that he analyzed the benefits that the company could accrue from the bribes despite the action being unethical. Shi Tao case in China also shows a breach of the principle of objectivity. Shi accepted bribes from car dealers and advertisers in exchange for favors in future business operations. The conflict of interest emerges since Shi stood the chance of benefiting when these unethical actions took place.
Breach of professional competence and due care is also prevalent in the Volkswagen’s cases of bribery and corruption. Any individual holding an office within an organization is required by the code of ethics to exercise due care. Any action taken should not leave the organization vulnerable in any way. The individuals employed should have appropriate training and supervision. They ought to be competent with the activities related to the organization. This was not the case when Schuster arranged an employment opportunity or Gebauer’s girlfriend. There are no indications that the girlfriend was qualified in any way to be involved in the affairs of the company. She used to receive a monthly salary without participating in any organizational activity. This begs the question of how many other employees were in the organization under such circumstances. It was a classic example of how Schuster failed to adhere to the ethics of professional competence and due care.
The principle of professional behavior is also breached through-out these cases. It is required of the organizations to comply with laws and regulations enacted in different geographical jurisdictions. There is a need to avoid actions that might result to tarnishing the name of the relevant industry. The bribery and corruption cases have breached this fundamental principle. Volkswagen being involved in these scandals gives the automobile industry a negative publicity. It would make various stakeholders doubt any operation that they have with companies in this industry. Failing to operate professionally also leaves some questions about products and companies coming from Germany. Consumers from the global market might be skeptical about these companies due to the reputation that Volkswagen has put out there. This might result to Germany losing substantially in the global market if such behaviors continue to persist.
In conclusion, aspects of corruption and bribery have been imminent in Volkswagen over the years. This has been experienced in different global markets that the company operates. Most of the cases are executed by top level executives that have an influence on various activities taking place in the organization. There have been legal punishments for the individuals that were found guilty of corruption and bribery in different cases. However, the punishments accorded did not seem as being sufficient. This might be the reason why people perpetrate these acts since they know they can get away with it by getting less severe punishments. The cases of corruption and bribery have shown breaches of the CIMA Code of Ethics’ fundamental principles. People have to be held accountable for breaching various codes of ethics. Acting in an unethical manner usually results in losses for the aggrieved parties. There should be laws protecting the rights of all the stakeholders in different industries to ensure that people operating unethically are held accountable (Donatella & Vannucci, 2016). Such practices will help to reduce aspects of corruption and bribery like the ones experienced in Volkswagen.
Donatella, D., & Vannucci, A. (2016). The Hidden Order of Corruption: An Institutional Approach. New York: Routledge.
Menon, A. K. (2005, July 25). Discredited Volkswagen India representative cons Andhra Pradesh govt into investment scam. Retrieved September 09, 2016, from http://indiatoday.intoday.in/story/discredited-volkswagen-india-representative-cons-andhra-pradesh-govt-into-investment-scam/1/193685.html
Mintzberg, H. (2015, September 22). Don’t call it a scandal: Volkswagen corruption is a syndrome. Retrieved September 09, 2016, from http://www.theglobeandmail.com/report-on-business/rob-commentary/volkswagen-corruption-crisis-isnt-a-scandal-its-a-syndrome/article26479332/
Niculescu, A. (2015, April 10). Inautonews – China: Past FAW-Volkswagen executive to serve life term for corruption. Retrieved September 09, 2016, from http://www.inautonews.com/china-past-faw-volkswagen-executive-to-serve-life-term-for-corruption
Odell, M. (2015, September 23). Volkswagen: A history of scandals – FT.com. Retrieved September 09, 2016, from http://www.ft.com/cms/s/0/22ca0e9a-6159-11e5-9846-de406ccb37f2.html#axzz4JlskD4vc
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