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Product, Service & Design Innovation
VW Scandal a Jolt to 'CSR' That Reaches Far Beyond the Auto Industry

What started as a sordid tale of Volkswagen rigging half a million cars with “defeat device” software has snowballed into a global scandal as the German automaker later admitted 11 million of its cars were involved in the deception.

What started as a sordid tale of Volkswagen rigging half a million cars with “defeat device” software has snowballed into a global scandal as the German automaker later admitted 11 million of its cars were involved in the deception. Less than a week after the deceit first blazed across the newswires (and VW was ironically ranked #11 on Reputation Institute's 2015 list of best CSR reputations), Volkswagen’s chief executive Martin Winterkorn resigned yesterday, taking responsibility for the “irregularities” found in its VW- and Audi-branded diesel power cars — while insisting he knew nothing about how automobiles were rigged to dodge Environmental Protection Agency and California Air Resources Board (CARB) emissions standards. Tales of corporate social responsibility are now buried under stories describing how “clean diesel” cars were emitting pollutants as high as 40 times over amounts allowed by the EPA and drivers misled into believing their cars were driving efficiently and more responsibly.

This week’s events launched a stunning fall of Volkswagen, which only earlier this year pulled ahead of Toyota as the world’s largest automobile manufacturer. Despite the company’s success — about one in 10 cars worldwide are sold by the Volkswagen Group — storm clouds were already emerging on the horizon. The company was struggling with sales in the U.S., the world’s largest automobile market. In fact, the total number of cars VW sells here is on par with its German competitors Mercedes-Benz and BMW, which target the far smaller luxury market. Rumors were already underway that Martinkorn would not continue with the company after his contract was to expire in 2016 as U.S. sales were already declining this year. VW’s market share in the U.S. was less than two percent, a discouraging result for a mass-market automobile brand.

With more brands and models flooding dealerships, more consumer choice means heightened stakes in this cutthroat business. So as with the case of many of its competitors, Volkswagen had to find a way to differentiate itself in the marketplace. And one way it did so was to trumpet its sustainability credentials, with Audi, of course, following suit. At a time when consumers were gravitating towards more fuel-efficient vehicles, it only made sense for VW to follow this trend. The automotive industry, which had long resisted reforms from seatbelts to higher mileage standards, had to change its ways with a consumer base that was becoming more environmentally conscious and was now considering hybrids, electric cars, and yes, even the clean diesel models that VW and Audi were promoting here in the U.S. In turn, websites for many automotive companies appear indistinguishable from portals such as National Geographic, as these companies regale consumers with talk about wetlands restoration and zero-waste initiatives. Statements defining future goals and targets, now commonplace chatter in all industries, are providing us a vision of a clean, low-carbon, waste-free and kinder decade after 2020.

The progress Volkswagen, and the automobile sector overall, had made in recent years, however, now comes across to many consumers and pundits to be a farce. The saga took an especially cruel turn over the weekend, as viewers of the annual Emmy Awards were treated to Audi advertisements featuring Kermit the Frog singing, “It Isn’t Easy Being Green.” Commercials broadcast during NFL games, long the perfect target for automobile advertisements, repeatedly showcased additional Audi adds boasting of “truth in engineering.” Any talk about corporate responsibility within the automobile industry will, at a minimum, receive raised eyebrows for the foreseeable future.

This loss of trust will long have consequences. Copious amounts of chatter have already dominated news sites and blogs, with one NGO mocking Winterkorn’s claim that he knew nothing about some executives’ and engineers’ manipulative tactics, describing as him “living on Pluto.” But to score the Volkswagen affair as simply another story of corporate lying and greed oversimplifies the conduct and ethics of multinational companies. While overeager managers and blind competitiveness are part of the story, those involved in the CSR movement need to take a step back and evaluate what has occurred within this industry the past few years. The odds are high that VW’s problems will not stop with Winterkorn’s resignation. When a Pandora’s Box such as this is opened, investigators and journalists will continue to dig. Do not be surprised if more questionable behavior is revealed over the next several weeks.

For too long now, CSR has focused far more on theatrics and less on tangible results. Talk amongst CSR advocates, whether by thought pieces or in social media banter, centers on storytelling instead of substance. This space has become competitive, not because companies are truly trying to demonstrate how they are becoming more “sustainable” or “responsible,” but who can tell the best tale of a one-off project or an ambitious goal set for 2020 or 2025 — and the reality of a follow-up five or 10 years from now is likely not going to happen. Beverage companies with the reputation for consuming municipal water supplies and using high-fructose corn syrup get a pass because they are funding a clean water project in a developing country. Retailers that do not pay their workers a liveable wage or offer health insurance can receive praise for having a “diverse” or “sustainable” supply chain.

Rather than taking a look at global corporations’ accomplishments, the CSR lens tends to focus on accolades and congratulate each other for stories well told than ensuring they are conducting themselves in a truly ethical, and sustainable, way. Part of this problem is that corporate responsibility is often told through the conduit of corporate communications — and public relations professionals are often loathe to let company officials speak about their companies in an unvarnished tone — even if, as VW demonstrates, the truth often comes out anyway. Sustainability reporting is another hurdle: Despite standards issued by organizations such as Global Reporting Initiative, data in annual reports is often audited with little rigor and most are self-congratulatory. No company issues reports negative in tone, content or data.

Volkwagen’s struggles send a signal to the CSR and sustainability crowd that it must start changing its tone and set its sights on what it does best — helping organizations operate more sustainability, ethically and therefore, efficiently, as that is what stakeholders, especially customers, are demanding. Instead of cajoling each other to showcase the best possible narrative that gives an example of “doing good,” these advocates and professionals must challenge each other and prove they are making a collective material, measurable and genuine difference. Otherwise, this small but growing movement risks irrelevance. A business culture that continues to emphasize token community projects or far-off environmental goals only encourages episodes akin to what occurred at Volkswagen — because everyone is looking the other way and is banking that stakeholders, and the public, are only seeing layers and layers of “good.”