The Volkswagen saga: Character is bigger than success

VW claims one more victim. Success must be smaller than the virtues of character, which rides taller at all times and ages.

VW was trading at €230 per share in July, it touched €95 for a brief moment today. That's what happens to success when character falters.

Diesel engines are more efficient in cars as they consume less fuel per kilometer and therefore emit less CO2 to atmosphere. However they emit far greater NOx, something that the new Obama emission legislations in U.S. makes it harder for diesel engines purporting a “clean diesel” tag to penetrate the U.S. market. The entire U.S. market in diesel cars is roughly 3% of the total pie, such is the scope for expansion, provided the norms are maintained.

For Volkswagen, this was a market up for grabs, provided of course it could fulfill the fuel emission norms; VW however took the path of working around, thus cheating the emission tests by fitting software that could detect an emission test and only exercise the controls during the test, while in normal driving these controls never worked as it would have other implications in wear and tear of the parts for which additional investments were required.

The more expensive variety in diesel cars never has a problem, as any diesel BMW or Mercedes, meets the norms at all times, something they can hardly risk given that 80% of BMW and 70% of Mercedes in Europe are in diesel.

Volkswagen has roughly 500,000 diesel cars in U.S. and 11 Million cars around the world which flouts the U.S. emission standards on NOx (clean diesel car), the question is does it take responsibility for all the 11 Million cars as well? Perhaps not, but no one was remotely aware that a car company could actually have such perverse but organized means of flouting norms; if it could flout norms in a country like U.S. who knows what it can do in other countries.

Some questions are broader and they involve the quest for over-reach in new markets, where the underlying design would ordain changes and costs, which would make such penetration a ‘no-go’. For entry into the largest market like U.S. it needs to understand the nuances of entry especially when the new norms were being enforced.

Do the values of a company not provide basic safeguards for any tendency to flout norms on a scale as big as this? Could a company of the global reputation as VW create “designs” and planned arrangements for flouting norms that would require people several notches above the designer level to be actively involved? Could this be openly known within the rank and file of the company and still not raise ethical questions within the company? What kind of values did this company inculcate that prevented people from questioning a dishonest action? How could financial results come before basic honesty and ethics?

These broader questions are what that puzzles the shareholders of VW, who have shunned them at the earliest opportunity. These are mostly Europeans, ordinary folks, who believe in the virtues of ethics and morals far more than the virtues of wealth and its pervasive influence.

VW claims one more victim. Success must be smaller than the virtues of character, which rides taller at all times and ages.

Our search for ethics in the world of business stumbles when such iconic names crumble in the quest for growth, market share, shareholder return, you name it. But the shareholders themselves would shun such reach for yield, beyond what is within the standards defined by norms of governance.

Taking chances, in such an overly connected and technologically superior world, is far too much risky that one could be confronted with.

For such a short term claim to fame, see what the outcome could be, far reaching and absolute.