29/09/2015 by David Gibbens, Director, Poole Waterfield
When Volkswagen were exposed last week for using software to manipulate their diesel engines’ performance during testing, it understandably sent shockwaves through the commercial world, a fact reflected in the tumbling value of VW shares.
It also presented us with yet another opportunity to question the ethics of a major corporation caught out in breaking the rules. It is fair to say that there have been a few!
We are encouraged to accept at face value that big is beautiful in the world of business. Household names, established brands and financial muscle are trusted by consumers and investors alike, with the assumption seeming to be that all will be well behind the scenes. The question though is why this level of trust exists when you consider the countless examples of fraud, recklessness, dishonesty and scandal which emerges from big business on such a regular basis; surely we should no-longer be surprised at the skulduggery that goes on at the top.
The question now is if VW can weather this storm. There will surely be fines, sanctions, litigation and a devastating loss of face that even the most slick of marketing campaigns will not be able to smooth over.
It is very early days but it is hard to overstate what this will mean for VW’s business in the short term. The longer term is hard to call – even the worst of publicity does fade from the collective memory and consumers can be forgiving; after all we seem to accept LIBOR fixing without too much fuss.
However, we may be much less accommodating of those who deliberately deceive their customers, and those with long memories will recall the catastrophic damage that an ill-advised speech from Gerald Ratner did to his business – his mistake was to mock his merchandise and by implication his customers’ taste.
However the cards fall
So will VW pay the ultimate price for (excuse the pun) taking us for a ride? As damaging as this publicity is, and whatever the cost of the penalties that arise, an organisation of the scale and might of VW would be expected to survive – but this is by no means a certainty. There are so many ways this story could unfold it is impossible to tell what the outcome might be.
However the cards fall over the coming weeks, those in charge of VW can hardly complain at their fate; those far more deserving of sympathy are the countless businesses and employees who rely on VW for their livelihoods and who were unaware of the testing deception. The impact on them could be just as damaging.
So the cost of breaking the rules, in this case, could be incalculable. The actions of a few senior executes will harm many innocent people and it does beg the question of whether big really is beautiful in business. The world needs big business but it needs them to be run honestly as the cost of shady practice on this scale is just too high.
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Category: David Gibbens Blog Author: David Gibbens, Director, Poole Waterfield