How Could Volkswagen Be So Dumb? Blame The Unethical Culture Endemic In Business by Edward L Queen, The Conversation
That far too much of the world’s corporate leadership is driven by moral midgets who have been educated far beyond their capacities for good judgment should be obvious after observing the events of the past week.
The financial industry-led economic collapse of 2008 should have taught us this lesson, but the specificity and clarity of it was brought home by news of price-gouging in the pharmaceutical industry and, even more blatantly, by the announcement that Volkswagen intentionally programmed thousands of its diesel automobiles to cheat emissions testing.
We should be outraged by such behavior and demand appropriate punishments and sanctions as well as restitution and correction. But we should not be shocked. As an ethicist who has looked at the behavior of individuals in business and corporations, I can point to a number of troubling trends that help explain these transgressions.
David Einhorn Buys Three New Stocks: These Are The Names And Theses (Q3 Letter)
David Einhorn's Greenlight Capital funds returned 5.9% in the third quarter of 2020, compared to a gain of 8.9% for the S&P 500 in the same period. This year has been particularly challenging for value investors. Growth stocks have surged as value has struggled. For Greenlight, one of Wall Street's most established value-focused investment funds, Read More
Impaired moral imaginations
For the past five to six decades, epigones of Milton Friedman have been emphasizing that the only duty of a corporation is return on investment (regularly ignoring his caveat of doing so within the law and social norms).
This lesson, drilled into generations of business school graduates, now drives tsunamis of corporate malfeasance. Data regularly demonstrate that business school students are more likely to cheat on examinations and assignments than their peers, although – and this is of interest for the Volkswagen case – they are closely followed by engineering students.
Additionally, some evidence suggests that not only are business students more impaired in their moral judgments in a broader sense than are those in other majors and professional schools, but that business schools themselves may be responsible.
More disturbing, observational and anecdotal evidence suggests that business students are not only impaired in their moral judgments but that significant percentages of them have severely impaired moral imaginations. By this I mean not only do they make bad ethical decisions, but they actually are incapable of identifying an ethical situation when they are presented with one.
Numerous interviews with business ethics faculty I have had over the past decade suggest that when business students are presented with an ethics case, that is a case where they have been told that there is an ethical problem, 20% to 30% of the students cannot find or identify the ethical issue. This has been borne out by my personal experience when teaching business students.
With regards to the Volkswagen scandal, let us be clear about the nature of the company’s activities. This was not a mistake, an error, an ethical lapse or poor judgment. This was an intentionally designed and executed violation of the law in both its letter and its spirit. It also was an ethical violation of the highest level.
Volkswagen intentionally deceived those to whom it owed a duty of honesty. It fraudulently misrepresented its automobiles to be other than what they were. Most significantly, it intentionally chose to do so and went out of its way to commit the wrong.
This last fact may make it far more difficult for VW to recover from the reputational hit than it perhaps has been for GM or Toyota. Even though the latter’s product defects cost people their lives, they did not intentionally produce such parts.
The sheer brazenness and conniving that went into Volkswagen’s actions are probably what shocked people the most. This was a highly technical and sophisticated operation that basically taught the emissions system how to distinguish between road travel, typical idling and idling while undergoing an emissions test.
No spin can mitigate that fact. There is and can be no claims of confusion or misunderstanding, no failures to communicate. This will erode people’s trust in Volkswagen as a company to a degree that the failures of other companies may not have experienced. In the Volkswagen scandal, just like the story about price gouging in pharmaceuticals that broke the same week, consumers are confronted with the stark reality of corporate malfeasance.
In both instances, the wrongdoing was exacerbated by the responses of the companies’ CEOs. The now former CEO of Volkswagen, Martin Winterkorn, basically acknowledged his incompetence and failure of leadership by claiming that he was unaware of the actions taken by his employees. Martin Shkreli, the CEO of Turing Pharmaceuticals, in a series of tweets responding to criticisms of its pricing of the drug Daraprim demonstrated a level of knowledge of moral and social norms that can only be described as clueless.
These events – and others – make clear that there is a need to look at the broader cultural realities that drive unethical decisions in business, particularly the perception that the only way of determining value and worth is money.
This situation is not new – as early as 1906 William James wrote in a letter to H G Wells, “The moral flabbiness born of the exclusive worship of the bitch-goddess SUCCESS. That – with the squalid cash interpretation put on the word success — is our national disease.”
When a person’s worth is determined only by money, only by success as it is and can be monetized, when one has no sense of being without the BMW, the Rolex, the Armani suits, the yacht, etc, the moral flabbiness emerges. Indeed, it engulfs entire organizations and perhaps even entire societies.