• Volkswagen case study: Responding to reputational damage

    Organisations are often judged by their reputational risk management in the face of a crisis, especially when these events involve environmental concerns. 

    Recently, an independent testing organisation discovered that German vehicle manufacturer Volkswagen had cheated on diesel emissions tests. Now, the company has been forced to relay corporate affairs messages that attempt to explain the situation – and eventual recourse – to its customers, shareholders and the general public. 

    The event has attracted significant global attention, illustrating how major corporations react and respond to pressure from the public.

    What did Volkswagen do?

    Modern vehicles need to be designed to meet a range of emissions requirements that often differ by region, fuel type and engine configuration. This event concerns diesel engine emissions, which are monitored by a number of regulatory bodies – in this case the US Environmental Protection Agency (EPA) – to ensure they aren't causing undue harm to the environment. 

    In short, the company allegedly enabled the car to detect when it was being put through an emissions test. When this occurred, the car knew to alter its behaviour so it produced significantly lower emissions at the sacrifice of other performance metrics. As these conditions can't be replicated during normal use, consumers and motoring journalists had no chance of picking up the discrepancies. 

    What are the repercussions?

    At this stage, the incident has effected Volkswagen cars in a number of territories, including Australia. While no formal charges or penalties have been handed out yet, Volkswagen will likely be tasked with repairing the fault at the very least. However, the reaction from the general public through social media suggests that many may demand refunds instead. 

    On top of this, the EPA is able to fine the company a maximum of US$37,500 per affected vehicle. With hundreds of thousands of cars impacted by the discovery, this could cost Volkswagen up to $18 billion. 

    How are Volkswagen managing this reputational risk?

    Of course, not all damage in this situation is financial, and Volkswagen is already attempting to mitigate the effects this will have on its global reputation. 

    So far, Volkswagen's corporate affairs strategies in response to global scrutiny have been focused on transparency. The company has admitted an error in judgement and pledged to remedy the situation for its consumers, promising swift and immediate action. 

    Volkswagen's actions in the wake of the incident have illustrated the way major corporations respond to events that create reputational risk, revealing that transparent communications are a viable option in these circumstances. 

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