In a generation where consumers align themselves to the values of the brands they purchase, companies must share their values and beliefs in order to stay competitive in the market. This is true across all markets, from clothing and apparel to the automotive industry. In incidences where companies do not maintain integrity while operating, backlash from shareholders and society can be felt.
In 2015, the United States Environmental Protection Agency unveiled the Volkswagen emissions scandal. It was discovered that Volkswagen tampered with emission detecting technology while testing their line of diesel fueled vehicles. This allowed Volkswagen to comply with the Clean Air Act on paper, while in reality, vehicles were releasing upwards of 40 times more airborne emissions than what was originally allowed.
Consequently, because Volkswagen operated with unethical practices, the company’s market value plummeted $20 million. An 11 million car recall occurred and the company’s stock lost more than one third of its original value.
The globe and mail assessed this situation and asked the question “Is honesty for suckers?”, which they answered, “No, honesty is for those who want to maximize value over the long term.”. This statement accurately illustrates how business ethics preserves the popularity and longevity of a company and brands.
Because Volkswagen tampered with the emissions detection technology, the company was able to release their new line of diesel powered vehicles to the market in a timely manner. This early release culminated an increase in short term profits, but as the scandal unfolded, Volkswagen’s brand as a car manufacturer was tarnished, putting them in a deficit in the fiscal quarter.
More and more, we see incidences where business ethics dictate the successes of companies. Companies that align themselves with society’s views and ethics such as Microsoft and Google triumph over companies that do not. The truth is, major companies that compete against one another have very similar products. Price aside, the only incentive I have as a consumer to buy into a company’s product over its competitors is buying into the Brand and the ethics that follow after it. Tesla for example, no longer protects its own technologies with patents, and encourages competitors to reinvent the automotive industry, from an industry known for pollution emissions, to an environmentally friendly and sustainable transportation industry. Even with the uplifting of patents, Tesla’s company value still continues to grow as Tesla solidifies their leadership in green transportation.
The Volkswagen scandal has illustrated that if companies do not follow ethical practices, they do not only risk financial losses, but loss of brand power and market popularity. It looks like Volkswagen can learn a thing or two from Tesla.
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