Volkswagen outrage shows limits of corporate power

As far as Volkswagen Group is concerned, bearing its social responsibility has long been at the heart of our corporate culture.

So says the company’s official statement of sustainability and responsibility. “Resource conservation” and “climate protection” are touted as values that VW has integrated into its business.

But those values have turned out to be a sham, after Volkswagen was caught out rigging 11 million VW, Audi, Skoda and other vehicles with software to meet US fuel emission standards under test conditions, only to release up to 4,000% of the nitrogen oxide allowed by the US Environmental Protection Agency (EPA) in normal driving.

Within days of the EPA releasing its report on September 18, the media went into overdrive about VW’s transgressions. “Volkswagen in meltdown after faked diesel tests” declared the Times in the UK. “Cheating and outrage” led the New York Times.

Central to the media coverage has been a sense of moral outrage and indignation. Business ethics experts have suggested the behaviour of VW’s engineers is “shocking”, while VW has been criticised for its “unethical culture”.

But from the perspective of the true corporate logic that is veiled by business ethics, VW only did one thing wrong. It got caught. And by getting caught it has shattered the fragile illusion that powerful corporations can have any real concern with ethics or responsibility.

Other major corporate scandals

Despite the outrage at VW, it is just the most recent in a long line of corporate scandals ranging from conniving fraud, to environmental devastation, to abuse of workers' rights. Some companies, such as Enron and Lehman Brothers, did not survive. Others, like BP and Dow Chemicals, live on.

Dead or alive, the scandalised corporation is rebuked for its lack of ethics and its failure to take responsibility. The proposed solution is to re-inject a healthy dose of ethics into the heart of a company’s culture. But is this simple diagnosis really tenable?

The question that fails to be asked is why would anyone accept that corporations could possibly be responsible and ethical in the first place? Is expecting corporations to take responsibility for social outcomes akin to asking the cat to guard the cream?

What we can learn from the goings-on at VW is not that corporations can or should be more ethical, but that ethics is not something that can reasonably be expected to come from the inside corporations. How many corporate scandals do we need before even the potential for ethical legitimacy in a corporation is hollowed out to its core?

The increasing popularity of business ethics and corporate social responsibility over the past 30 years has happened at the same time as the colossal growth of global corporate power. Ours is a time where the share of world trade accounted for by transnational corporations has swelled to 80%, and where more than half of the world’s biggest economies are corporations rather than countries.

This has also been an era of massive deregulation of the global markets in which corporations play, as well as the privatisation (that is corporatisation) of previously public enterprises. Business ethics is central to this. It is heralded as a form of corporate self-regulation that replaces the need for state interference into business activities.

If there was ever a doctrine of “might is right” it is contemporary business ethics. Volkswagen, as the world’s largest auto manufacturer, is no exception.

The trick is simple. First, you proclaim your own ethical credentials with a slick corporate social responsibility program propped up by a range of awards in CSR, sustainability etc. Second, you work to shield yourself from external interference on the basis of your self-stated ethical credibility. Third, cloaked in ethics, you carry on with any ruthless, unscrupulous, damaging and deceitful activities that will further your own pursuit of power.

The fallout

Caught red-handed, the future of VW has been rendered unclear. At best its reputation is in tatters, and worst its continued existence is in question. The stakes are high. The livelihood of the almost 600,000 people employed by VW across the world could be in jeopardy. A third of the company’s market value was wiped out in less than a week. Trust in the entire German manufacturing sector has been brought into question. CEO Martin Winterkorn resigned, and is now facing criminal investigation.

But the news is not all bad. The public outcry over Volkswagen’s highly organised and technically proficient approach to deceiving both its customers and regulators at the expense of the environment is a welcome sign that corporate power does have limits. These limits are not found in any leather upholstered corporate social responsibility office or the self-congratulatory idolatry of the business ethics awards ceremony. Instead, they are located in the realm of a democratic society where power can be questioned, protested and held to account.

At these limits we find a very different form of ethics for business. It is an ethics that is appalled by the excessive abuse of corporate power for the purpose of self-interest. It is an ethics that arises in the democratic sphere as people and the institutions that represent them contest corporate power. It is an ethics that seeks to disturb and resist the power, privilege, arrogance, and the wanton disregard for people’s lives that time and time again characterises corporate behaviour.

In the last weeks of September, VW has experienced the true potential of ethics in business. The potential for society to hold the powerful to account for their actions. What the VW scandal shows is that business ethics is far too important to be left in the hands of powerful self-interested corporations.

Carl Rhodes does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.