Could a Volkswagen-style Scandal Happen at Your Company?

The stunning news that Volkswagen deliberately undermined emissions tests in an estimated 11 million cars worldwide is a spectacular example of the consequences of dishonesty combined with unbridled ambition. It is also an example of the near-boundless human ability to avoid unpleasant facts.

Volkswagen’s unbridled ambition is suddenly central to what is shaping up as one of the great corporate scandals of the age. On Tuesday, Volkswagen said it had installed software in 11 million diesel cars that cheated on emissions tests, allowing the vehicles to spew far more deadly pollutants than regulations allowed.

— By Danny Hakim, Aaron M. Kessler and Jack Ewing, "As Volkswagen Pushed to Be No. 1, Ambitions Fueled a Scandal," New York Times, September. 26, 2015.

I recognize from my years advising clients about risk in consumer products the "creative problem solving" of some businesses.  The idea of a defeat device is not so far out. It is not unusual for a business to entertain “creative solutions” to compliance problems in mass-marketed products.  However, it is unusual for a project like the defeat device to go into large scale production at a company with the size and visibility of Volkswagen.

Ethics and compliance programs are not in place to curb the business from exploring innovation needed to solve difficult problems.  Ethics and compliance provides safeguards allowing the business to explore all the options it can dream up and at the same time balance these options against risk avoid ethical or compliance calamities. Safeguards allow the business to innovate safely.

The VW scandal is a reminder that human nature can result in smart people making stupid decisions.  It appears VW was willfully blind to the downsides of its decision to produce cars installed with defeat devices.  It was also blind to the high likelihood that the defeat devices would be discovered and result in the scandal that broke last week.

The sheer size of the marketplace for VW cars made it highly likely that every observable aspect of the cars would become known to the public with time.  Given a large enough number of opportunities for a secret to be exposed, it will be exposed. Each of the 11 million cars presents an opportunity for discovery.

Thinking that the kind of disaster at Volkswagen could never happen in our companies is a mistake.   Margret Hefferman in her book Willful Blindness: Why We Ignore the Obvious at Our Peril explains the context around several famous ethical failures and what type of organizational environments allows red-flags about impending disaster to be ignored.  Hefferman beautifully describes the basic elements of human nature that encourage us to blind ourselves to unpleasant facts:

We mostly admit the information that makes us feel great about ourselves while conveniently filtering whatever unsettles our fragile egos . . . An unconscious (and much denied) impulse to obey and conform shields us from confrontations and crowds provide friendly alibis for our inertia. And money has the power to blind us, even to our better selves.
— Hefferman, Margret, Willful Blindness: Why We Ignore the Obvious at Our Peril, (New York, Walker & Company 2012) Introduction.

Volkswagen’s actions are shocking, but many human organizations are capable of the same bad decisions. At the greatest risk are organizations that ignore the possibility of failure because they believe good intentions will keep failure from happening to them. Now is the time to reflect and assess the decision-making safeguards in our own companies.

[i] The information that piqued the interest of the Environmental Protection Agency came from a very straightforward study done by engineers at the West Virginia University’s Center for Alternative Fuels, Engines and Emissions (CAFEE) in 2014.  The engineers rented VW diesel, measured tailpipe emissions on the road and compared the results with lab emissions tests on the same cars. The difference between the measurements made on the road and those made in the lab were up to 35 times over the emission standards set by the EPA.  The study was presented to a public forum in California with people from the California Air Resources Board and the EPA in the audience, and the results were also published online.