October 9, 2015

Hit to VW Stock Price Linked with Cheating

Volkswagen stock price plunged 30% in the wake of news of allegations that the organization has been manipulating the results of carbon emissions testing. Stock price is the value that investors put on the firm’s ability to earn cash in the future.

Eleven million Volkswagen vehicles could be affected. Major fines, estimated to potentially be into the billions of dollars, are expected to follow as the legal processes crank up from the efforts of more than one national government and from consumers. Volkswagen operates more than sixty manufacturing plants worldwide. Some plants manufacture components while others assemble vehicles.

The Volkswagen ethical misconduct scandal deepened just days after news that General Motors was slapped with hundreds of millions in fines for its ethical misconduct relating to faulty ignition switches. The faulty switches are implicated in the deaths of hundreds of people who lost control of their vehicle and crashed when the ignition switch shut off. Decision makers at General Motors knew about the problem for several years before a recall was issued.

In Volkswagen’s case, Chief Executive Officer Martin Winterkorn resigned after apologizing to the public for the firm’s misconduct. Volkswagen officials admitted that since 2009 some Volkswagen vehicles with diesel engines were equipped with something that could switch off emissions controls. With emission controls defeated, engine performance can be improved.

The allegation is that software used in the vehicle’s engine computer was able to detect whether or not the vehicle was being tested for emissions. When the software determined that a test was in progress, engine emissions were then controlled to meet emissions standards and then switched off to allow for better performance.vw

Many of the consumers at Volkswagen were attracted to the claim of “clean” diesel powered vehicles. They were willing to pay a premium price for a car that contributed less to environmental pollution. Perhaps it will be these consumers who will be the most miffed at the alleged fraud–computer software which prevented them from achieving their goals of environmental friendliness.

On a weekly basis the Wall Street Journal reports news of an ethical, social, or legal issue important to investors. Every so often a national or international scandal bursts through the media about one or more high-profile firms that experienced significant ethical misconduct. The crisis at Enron of several years ago has become eclipsed by crises in the retirement investment industry (Bernie Madoff), the mortgage banking industry, and more recently, the auto industry.

National news media coverage is one thing. Yet, in many organizations, both for-profit and nonprofit, employees observe ethical misconduct that never sees the light of day in terms of media exposure to the public. But, misconduct, whether visible or invisible to the public, makes a difference to employees, customers and suppliers.

Strangely, during the last few decades, though stakeholders including media, law-makers, and the general public have called for improvements in the ethical conduct of businesses, the ethical misconduct continues.

The Ethics Research Center in the United States reported in a 2013 national survey of ethics in the workplace showed that observed ethical misconduct has declined.[1] Survey respondents say that pressure to compromise ethical standards also has declined. One reason for this may be that employees are less willing to take risks.

When the ability of a corporation to generate future cash flow declines, executives are fired. If high-level executives do not maintain discipline among managers to achieve profit targets, when leaders are unable to manage change required by the market, and when the executives are perceived as being out of touch with the market, their future is freed up to pursue employment elsewhere. In spite of the growing public displeasure at corporate ethical misconduct, unless ethical lapses garner national attention because of harm done, seldom do you hear in the media about an executive who is fired for ethical misconduct.

Many issues are worth raising in the public square regarding the recent ethical misconduct reported in the news. For example, if we assume as do some that shared values and beliefs “flow downhill” from top-level leaders to front-line employees, then, overall, the unethical behavior that is allowed has an enormous influence on the whole company. In ancient times, King Solomon observed this trickle-down effect: “If a ruler pays attention to falsehood, all his ministers become wicked” (Proverbs 29:12 New American Standard Version). Moses may have had this in view when he admonished the people that the king has the responsibility to personally copy the covenant and keep it in his possession: “Now it shall come about when he sits on the throne of his kingdom, he shall write for himself a copy of this law on a scroll in the presence of the Levitical priests. And it shall be with him, and he shall read it all the days of his life, that he may learn to fear the LORD his God, by carefully observing all the words of this law and these statutes, that his heart may not be lifted up above his countrymen and that he may not turn aside from the commandment, to the right or the left; in order that he and his sons may continue long in his kingdom in the midst of Israel (Deuteronomy 17:18-20).

We can reasonably ask: What the boards of directors are doing in their oversight function to require chief executive officers to study the moral principles designed to foster flourishing life? If boards of directors are willing to allow chief executives to continue in their role without spending time considering the moral foundation of their organization, we will continue to see more ethical misconduct reported in the news.

The Bible doesn’t mention cheating on emissions testing product recalls or many other contemporary ethical issues that get debated in the public square. However, it’s hard to miss in the Bible the straight-forward declarations regarding cheating that are mentioned more than once. Here are two examples of statements made by top-level leaders in the Bible:

You shall not steal, nor deal falsely, nor lie to one another (Moses: Leviticus 19:11).

Differing weights are an abomination to the LORD, and a false scale is not good (Solomon: Proverbs 20:23 NAS).

When the standards that are used to foster trust in an economy are themselves untrustworthy, then the viability of the whole economy becomes threatened. And, speaking in terms of the scriptural idea of shalom, cheating undermines the fulfillment of God’s promises of flourishing life in all dimensions.

  • Another issue worth raising here is this one: “Where are the Christians who work in the corporations of the world where ethical misconduct is occurring?”
  • King David, another top-level leader who wrote in the Bible, plainly calls us to pursue shalom (flourishing life in all dimensions). “Depart from evil, and do good; seek peace (shalom), and pursue it (Psalm 34:14). Given the human condition, flourishing life in all dimensions does not come to us automatically. It is difficult to find. Once we find it, it can easily get away from us. Because of this, leadership is required in a community setting to pursue it and keep it. King Solomon encourages us to hoard faithfulness. “Buy truth (faithfulness), and do not sell it, get wisdom and instruction and understanding” (Proverbs 23:23). Apparently, the more faithfulness we have in keeping promises and the longer we have it, the more valuable this becomes for community well-being.
  • Fostering a flourishing life is one of the character traits of God. Jesus Christ is called the “Prince of Shalom (peace)” (Isaiah 9:7; See also Romans 5:1; Ephesians 2:14). Faithfulness is another character trait. “Righteousness and justice are the foundation of Thy throne; loving kindness and truth (faithfulness) go before Thee (Psalm 89:14). “For the Law was given through Moses; grace and truth (faithfulness) were realized through Jesus Christ (John 1:17; See also John 1:14; John 14:6).

In many secular business situations, Christians cannot speak openly about their faith in Jesus. Many organizational cultures forcefully push back against religious talk. But, Christians can still be positive influences to hold back the influences that undermine trust in the market. When we in the corporate world promote the fundamental principles of faithfulness and actions that foster flourishing life in all dimensions, when we advocate on behalf of these principles in the organizations we serve and when we integrate these into our personal habits at work, we are telling about the character of Jesus Christ just as surely as when we mention Him by name.

  1. Ethics Research Center (2013). National business ethics survey of the U. S. workforce. Arlington, VA: Ethics Research Center. http://www.ethics.org/downloads/2013NBESFinalWeb.pdf

By Michael E. Cafferky, Ruth McKee Chair for Entrepreneurship and Business Ethics, Southern Adventist University and author of Business Ethics in Biblical Perspective (InterVarsity Press, 2015).