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Crisis Management, CSR, and Crisis Communication in the Volkswagen Emissions Scandal

Bachelor Thesis 2017 60 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Table of Contents

ABSTRACT

ACKNOWLEDGEMENTS

1.INTRODUCTION
1.1 THE BACKGROUND OF UNCERTAINTY AND OCCURRENCE OF CRISES
1.2 VW AND THE EMISSION CRISIS

2.DEFINITION OF CRISES
2.1 CRISES AND CORPORATE CRISES
2.2 DIFFERENT TYPES OF CORPORATE CRISES:

3. CSR, CRISIS MANAGEMENT & CRISIS COMMUNICATION
3.1 CORPORATE SOCIAL RESPONSIBILITY & STAKEHOLDER MANAGEMENT
3.2 THE PROCESS OF CRISIS MANAGEMENT:
3.3 CRISIS COMMUNICATION & CRISIS RESPONSE STRATEGIES

4. METHODOLOGY
4.1 MOTIVATION:
4.2 RESEARCH PHILOSOPHY:
4.3 RESEARCH DESIGN:
4.4 DATA COLLECTION:
4.5 DATA ANALYSIS:
4.6 ETHICS:
4.7 LIMITATIONS:

5. DISCUSSION AND FINDINGS - THE VW CRISIS
5.1. BACKGROUND OF VW’S “EMISSION ISSUE”
5.2 THE EMERGENCE OF THE CRISIS:
5.2.1 May - December 2014:
5.2.2 September 03, 2015
5.2.3 September 18, 2015
5.3 ANALYSIS OF VOLKSWAGEN PRESS RELEASES AFTER THE EMERGENCE OF THE CRISIS
5.4 VW´S CRISIS MANAGEMENT FROM A STAKEHOLDER PERSPECTIVE
5.4.1 Capital Market
5.4.2 Society
5.4.3 Customers
5.4.4 Partners

6. CONCLUSION AND FINAL DISCUSSION

REFERENCES

APPENDICES

Table of Figures

Table 1: Different types of crises

Table 2: Stakeholder categorisation of Wheeler & Sillanpää (1997)

Table 3: Investigated press releases of the Volkswagen Group (Appendix A - I)

Table 4: Identified strategies in Volkswagen´s press releases from September 20, to September 25, 2015

Figure 1: Four-phases crisis model of Krystek (1987)

Figure 2: Suggested Crisis Lifecycle (adapted from (Krystek & Moldenhauer, 2007))

Figure 3: The research process “onion” (Saunders, et al., 2016)

Figure 4: Stakeholder categorization of Volkswagen (2015b) Plate 1: Coombs (2007) SCCT crisis response strategies

Abstract

The purpose of this thesis is to examine the crisis management and crisis communication of the German car company Volkswagen (VW) in its recent emissions scandal. In particular, this study aims to analyse the applied crisis management and communication strategies of Volkswagen by finally evaluating the crisis´ impact for each stakeholder group. To accomplish this, the study adopts a single case study design employing a large amount of qualitative, secondary data.

The research first notes that Volkswagen failed with its preventive crisis management being not able to detect the crisis at an early stage. Moreover, the study reveals that VW implemented several immediate crisis management measures for a quick turnaround management. Instead of concentrating on a specific crisis response theory, it is further evident that VW made use of different Crisis response strategies. On the one hand, VW took full responsibility for the crisis promising to be transparent, but on the other hand shifted the blame on a small group of employees suggesting that the company was also a victim. Finally, the study reveals the huge impact of the crisis on each stakeholder group which reveals that VW struggled to regain stakeholder trust and did not keep its promise of transparency. Thus, the study concludes by presenting future recommendations for Volkswagen in order to rebuild the trust of its stakeholders and avoid the occurrence of similar future crises.

Keywords: Crisis Management, Crisis Communication, Corporate crises, Corporate Social Responsibility, Stakeholder Engagement, Volkswagen, Emission Issue, defeat device

1.Introduction

Refugee crisis, Ukraine crisis, Greek crisis, Euro crisis, Terror crisis, BP crisis, VW crisis - since the term Financial crisis has become the word of the year 2008 in Germany, crises are on everyone's lips. While some researchers are sure that the number of crises has risen significantly in the last couple of years (Merten, 2014, pp. 166-167), others do think that this is a human error created by the media (Thießen, 2014, pp. 5-6).

1.1 The background of uncertainty and occurrence of crises

Today´s business environment is characterised by a significant number of uncertainties and changes (Burke & Cooper, 2000). The list of influential factors encompasses everything from political to environmental or technological concerns (Senior & Swailes, 2016). Recent examples of this are UK´s Brexit debate or the result of the US election with their potential impact on existing free trade agreements (Mastel, 2016; Holmes, et al., 2016; Smith, 2016). Other important threats are the ongoing danger of terrorism, rising expectations of the society towards organisations, and an increasing pressure of the media (Raupp, 2014; Seeger, et al., 2003; Merten, 2014). However, companies, to be competitive need to handle these threats. This leads to the fact that organisations nowadays are faced with the ever-increasing risk of falling into a crisis (Coombs, 2014), as the recent example of the German carmaker Volkswagen (VW) has shown:

1.2 VW and the emissions crisis

On September 20, 2015, VW came out with the truth:

It confessed the manipulation of emission values in its diesel engines (Appendix A). The pressure on VW was too high after the Environmental Protection Agency (EPA) published the manipulation of the Group’s diesel engines, four days before (EPA, 2015). The affected cars were fitted with a “ defeat device ”, a special software which recognises when the car was under test conditions by changing the engine´s performance to improve its emission values (EPA, 2015).

Worldwide, around 11 million vehicles were equipped with this software manipulation, counting about 8.5 million vehicles in Europe, and 608,000 in the USA and Canada (Volkswagen AG, 2016c). However, the Volkswagen Group is not just any German company but the largest one with around 610,000 employees and sales of over 10 million vehicles in 2015 (Volkswagen AG, 2016c). Since the company was founded in 1937, it has shaped Germany´s economy like no other company did (Pries, 1999; Schmidt, 2016), and has also made a decisive contribution to what the label “Made in Germany” still stands for today: Quality, efficiency, and German engineering skills (Head, 1992).

The Volkswagen Group currently consists of the two business areas “Finance” and “Automotive”, whereas the auto business compromises the eleven brands Volkswagen, Audi, Seat, Skoda, Bentley, Bugatti, Ducati, Lamborghini, Volkswagen commercial vehicles, Scania and MAN (Volkswagen AG, 2016c). Following this, VW is currently regarded as the world’s largest automobile manufacturer and has thus overtaken General Motors and Toyota as the worldwide number one (Schmitt, 2017), which was part of its “Strategy 2018”:

“ Our pursuit of innovation and perfection and our responsible approach will help to make us the world leading automaker by 2018 - both economically and ecologically ” , Martin Winterkorn - CEO 2007- 2015 (Volkswagen, 2015d).

To achieve this, Volkswagen has strongly increased its Research and Development (R&D) investment, becoming the top R&D spender among all global companies in the last five years (PwC, 2016). Although Volkswagen has achieved its aim of becoming the largest automaker before 2018 (Schmitt, 2017), the recent emissions scandal casts a shadow on this success. On the one hand, the company managed to achieve its economic goals, but on the other hand it failed to meet the environmental goals, betraying millions of customers and environmental authorities by using illegal software to manipulate the diesel’s emission values.

Since then, this scandal has spread out into one of the biggest corporate crises, where more and more facts were leaked every week (Kollewe, 2015). It is therefore not surprisingly that the crisis management of Volkswagen has come under a global and public criticism (Hemus, 2015; Hakim, 2016).

Nonetheless, the issue of crisis management is nothing entirely novel in business administration. Googling the term crisis management, one will receive not less than 11 million results. This leads people and organisations to see a crisis as something which is commonplace in our daily lives (Kraus & Haghani, 2004, p. 13). However, there is mounting evidence that lots of companies still underestimate the importance of crisis prevention and its management (Krystek & Moldenhauer, 2007, pp. 24-25). They believe they cannot prepare for every crisis scenario, but in fact, they can be prepared for most of them (Carmeli & Schaubroeck, 2008).

Especially, in the time of the Web 2.0 and an increasing use of social media, crisis management should be a fixed component in every organisation as the message of a crisis will spread all over the world within some hours (Nunes & Park, 2016, p. 290; Hofmann, 2014). Thus, it is indispensable that a company whether it is small, mediumsized or big, is well prepared and able to act immediately when a crisis occurs.

With this in mind, the overall aim of this dissertation is to find out how VW behaved in solving its recent emissions crisis by comparing theories of crisis as well as stakeholder management and communication with VW’s practice in its contemporary emissions scandal.

To accomplish this aim, the study will highlight the following research objectives:

1. Clarify the term (corporate) crisis and underline the importance of crisis management in the 21st century
2. Critically reflect the literature on different theories of CSR, stakeholder management, crisis management & communication
3. Compare VW´s way of crisis management & communication with the outlined theories by analysing the emergence of the crisis and VW´s first press releases
4. Critically evaluate VW´s stakeholder engagement by underlining the impact of the crisis for each stakeholder group and reflect on VW´s keeping of promises After the aims and objectives of this thesis have been specified, the following part will start with a definition of the terms crisis and corporate crisis.

2.Definition of Crises

2.1 Crises and Corporate Crises

Before starting to explain how to do crisis management, it is important to understand what a crisis is and when something can be referred to as a crisis.

“ When written in Chinese, the word crisis is composed of two characters - one represents danger and one represents opportunity ” (Kennedy, 1959).

This quote from the former American President John F. Kennedy shows, that there is not a general meaning of the word crisis. In recent years, there has been an increasing amount of literature that has underlined the importance of crisis management and crisis communication (Coombs, 2014). Nevertheless, scholars could not agree on a universal definition of the word crisis (Krystek & Lentz, 2014). This has been early discovered by Luneburg: “ Crisis has become one of the most overworked words in the language ” (Krystek, 1987, p. 3). This might depend above all on the fact that the word crisis is used in lots of different areas such as politics, medicine, law, sociology or even business management. In addition to that, it is hard to find identical crises, as every crisis has its specific character (Krystek & Moldenhauer, 2007, p. 26 ff.).

Initially, the word crisis (from the Greek ´ Krisis ´ , ´ opinion ´ , ´ decision ´) can be broadly defined as an entirely difficult time, which represents the climax or turning point to a threatening development (Sartory, et al., 2013). In contrast to this, Strätling (2007, p. 34) describes a crisis as the increase of dilemmas or failures that have been created in the past, but can also lead to benefit as it is possible to attain a better outcome (Merten, 2014, pp. 155-156).

However, this can especially be criticised when talking about corporate crises. As the past has shown, almost every corporate crisis will lead, at least, to a temporal reputational damage for the organisation (Nunes & Park, 2016, pp. 289-90).

However, as every definition of the term crisis has its strengths as well as its limitations, the following list is intended to summarise the different semantic meanings.

Hence, a corporate crisis:

“ ( … ) is unpredictable but not unexpected ” (Coombs, 2012, p. 3)

is characterised by a pressure of time and the need for action (Merten, 2014) is a danger to the survival of a company (Müller-Merbach, 1977, p. 420) “ can generate negative outcomes ” (Coombs, 2012, p. 2)

To conclude, it is important to add that the type of adverse outcome in every crisis can be different (Krystek & Lentz, 2014). Thus, the negative outcome can either influence the image, or brand reputation of a company or even the whole financial situation of a company (Fearn-Banks, 2007, p. 8). Focusing on that, the following part will differentiate between diverse types of corporate crises.

2.2 Different types of corporate crises:

Before proceeding to examine how to do crisis management, it is necessary to make a distinction between different types of corporate crises. Different theories exist regarding the types of corporate crises. As some scholars distinguish among various crises by their level of seriousness (Krystek, 1987), others differentiate them by their origin (Coombs, 2012; Seeger, et al., 2003). The following table compares three wellknown classifications of crises.

Table 1 : Different types of crises

As illustrated by Coombs (2010) and Seeger et al. (2003) crises can arise from a variety of causes such as from natural, technical or human nature. Although both distinctions share some similarities, Seeger et al. (2003) deliver a more societal view on crises, including recent threats of terrorism, and rumours through an increasing pressure of the media (Hofmann, 2014). Nonetheless, Nunes and Park (2016) point out that most of today´s corporate crises arise out of morally reprehensible environmental practices and disasters, bad working conditions or slave labour.

However, Krystek´s (1987) approach is more rational and strategically focussing on the seriousness and probability to manage crises successfully. As the potential company crisis focuses on the time of crisis origin where the company is still in a normal situation, the latent corporate crisis is shaped by a hidden crisis which will probably approach soon. In contrast to this, the acute manageable crisis is characterised by public perception and a pressure of time that demands the taking of immediate actions. Finally, the acute unmanageable crisis underlines rather a catastrophe or disaster with business dissolution as consequence (Krystek & Moldenhauer, 2007).

Figure 1: Four-phases crisis model of Krystek (1987)

Abbildung in dieser Leseprobe nicht enthalten

Overall, Krystek´s (1987) approach seems to be more useful for crisis managers as it is capable to serve as foundation for their crisis management strategy and enables to calculate the likelihood of a successful recovery. Consequently, the following part will outline different theories on crisis management and crisis communication starting to introduce the approach of Corporate Social Responsibility (CSR).

3. CSR, Crisis Management & Crisis Communication

3.1 Corporate Social Responsibility & stakeholder management

Before explaining how to do crisis management and communication, it is important to address the approaches of Corporate Social Responsibility and Stakeholder management.

Expectations towards global acting companies are steadily increasing today (Carroll & Buchholtz, 2003), especially within or after the appearance of a crisis (Lintemeier, 2014).

Looking back to past decades, a company´s sole task was to increase its profit and fulfil the needs of shareholders (Friedman, 1962). Within the context of increasing environmental pollution, global markets, developing technologies, and growing competition, these demands changed. Companies have come under public pressure to operate more and more in a social, moral, ethical, and sustainable manner (Carroll & Buchholtz, 2003).

Particularly in the context of a crisis, where companies try to rebuild a long-term relationship, they should focus on a responsible social acting by successfully managing the needs of their stakeholders (Lintemeier, 2014).

To meet these growing demands, the concept of CSR has emerged over the past decades. According to Archie Carroll (2010, p. 6), one of the primary authors of CSR, and designer of the CSR pyramid: “The concept of corporate social responsibility (CSR) refers to the general belief held by growing numbers of citizens that modern businesses have responsibilities to society that extend beyond their obligations to the stockholders or investors in the firm.”

Thus, companies need to change and implement CSR as a core point in their strategy to meet the growing demands of their business environment, instead of just concentrating on fulfilling the demands of shareholders.

In contrast to other researchers, who define CSR as a process to meet the needs of the society, Hopkins specifies this further claiming that CSR must address all stakeholders of a company. Hence, he believes that “CSR is concerned with treating the stakeholders of the firm ethically or in a responsible manner” (Hopkins, 2003, p. 10). Focusing on that, Hopkins (2003) introduces Stakeholder management as one part of responsible social acting for organisations.

The idea of stakeholder engagement as a management process was first coined by the Stanford Research Institute in 1963 which described stakeholders „as the only group to whom management need be responsive“ (Freeman, et al., 2010, p. 31).

The concept was then further developed in his work “Strategic Management: A Stakeholder Approach” in 1984. Therein, he described a stakeholder as any person or association that either affects or can be affected by the company (Freeman, 1984, p. 46). He completed this by saying: “Stakeholders include employees, customers, suppliers, stockholders, banks, environmentalists, government and other groups who can help or hurt the corporation” (Freeman, 1984, p. vi). Moreover, Freeman and Parmar (2010, p. 372 ff.) pointed out that the key feature of stakeholder management is that managers need to connect their business practices with ethical principles.

Although stakeholders can be categorised into primary, secondary, social and non-social stakeholders (Table 2), it is important to pay attention to each of them and treat everyone as equals (Wheeler & Sillanpää, 1997).

Table 2: Stakeholder categorisation of Wheeler & Sillanp ää (1997)

Abbildung in dieser Leseprobe nicht enthalten

This complexity and difficulty must be particularly considered during a crisis where stakeholders often feel neglected and formulate higher expectations. This especially counts for secondary stakeholders such as the media, social pressure groups or environmental protection groups who publicly criticise companies and have the power to exacerbate the crisis. In this manner, companies need more than usual to concentrate on trustworthy and honest stakeholder management and communication during a crisis to not jeopardise longstanding cooperation (Lintemeier, 2014, p. 56).

Therefore, CSR and stakeholder management should serve as an essential foundation of every crisis management and communication process, which are finally discussed in the following section.

3.2 The process of crisis management:

As every crisis is individual, one can find lots of different theories on crisis management. Steven Fink (1986) argues that the process of crisis management consists of three significant stages: (1) identifying, (2) isolating and (3) managing the crisis. He further adds that these steps must be carried out quickly (Fink, 1986).

Although Fink (1986) delivers a general guideline for crisis management, the fundamental problem of his model is that it describes crisis management in a very broad and therefore limited way. Transferring his approach to managers in a crisis, it gets obvious that Fink’s model is unconvertible as detailed guidelines are missing. Nevertheless, it must be considered that Fink’s three stage model was one of the first models ever that presented the process of crisis management. Thus, it is still useful to get a rough and straightforward overview of crisis management.

Norman Augustine provides another well-known crisis management model. Augustine (1995) distinguishes the crisis management process into six different stages, by presenting the idea of preventive crisis management as a first step:

1. Avoiding the crisis
2. Preparing to manage the crisis
3. Recognising the crisis
4. Containing the crisis
5. Resolving the crisis
6. Profiting from the crisis

Compared to Fink’s three stage model, Augustine delivers a more detailed and advanced model of crisis management. Especially the idea of (1.) avoiding, and (6.) profiting from the crisis ensures that negative consequences of a crisis can be either reduced or stopped before the crisis occurs (Augustine, 1995).

Nevertheless, it can be argued that a crisis is a complex and critical process that cannot be handled by just “resolving” it. Although it may sound logical in theory, the practical implementation and coping with a crisis requires much more than just resolving it (Heath & O´Hair, 2010, pp. 5-6).

To change this, Krystek and Moldenhauer (2007, p. 142 ff.) generated a more sophisticated concept, which gives crisis managers a step-by-step guide for successful crisis management:

1. Crisis detection

2. Initiation of crisis management

3. Rough analysis

4. Immediate measures

5. Restructuring concept

5.1 Detailed analysis

5.2 Remediation strategies

5.3 Operational measures

6. Implementation/ realisation

7. Control

Before a crisis can be managed and controlled, it must be discovered first.

However, several academics note that an early crisis detection is often not realised in organisations (Fink, 2013, p.35; Krystek & Moldenhauer, 2007, p. 142; Scherer, 1989, p. 17), as the management consciously try to conceal the crisis (Müller, 1986, p. 321 ff.). Hence, crises often emerge through the pressure or publication of external stakeholder groups instead of from the company itself (Krystek, 2002, p. 114).

Although Krystek and Moldenhauer’s model delivers a more detailed perspective on crisis management practice, one can criticise that it neglects two central processes: Learning from the crisis (Augustine, 1995), and doing preventive crisis management as well as scenario planning (Moats, et al., 2008).

To restore the confidence of stakeholders, the company´s primary task should be to clarify that it has learned from its mistakes by guaranteeing that a similar crisis will never be done again. To make this possible, it is advisable to extend Krystek & Moldenhauer´s (2007) model into a lifecycle model, with the daily task of doing preventive crisis management as well as scenario planning to avoid the emergence of future crises. The following figure illustrates a suggestion for this crisis lifecycle model.

Figure 2: Suggested Crisis Lifecycle (adapted from (Krystek & Moldenhauer, 2007))

Abbildung in dieser Leseprobe nicht enthalten

So far, this chapter has reviewed the key aspects of crisis management, describing the process of crisis management as a very complex system of combined management strategies, that put high demands on managers due to a lack of time and an urgent need for reactions. Because of that, a careful preparation of crisis has nowadays become indispensable (Carroll & Buchholtz, 2003, p. 149).

However, the best crisis management is worthless if the management is not capable of communicating right (Raupp, 2014, p. 177). Thus, the following part will finally concentrate on crisis communication as well as crisis response strategies.

3.3 Crisis Communication & Crisis Response Strategies

As the American communication scientist Paul Watzlawick1 has stated in the first of his five axioms: “One cannot not communicate” (Watzlawick, et al., 1969). Transferring this to a corporate crisis, it means that even if a company does not communicate with its stakeholders, rumours will start to develop (Coombs, 2012, p. 127). Thus, above all, a sophisticated crisis communication plan should serve to minimise the negative message of the crisis, showing the company´s vigorous efforts for mastering the crisis as well as winning back the trust of their stakeholders (Merten, 2014, p. 167).

Over the last 20 years, various approaches of Crisis Communication and Crisis Response Strategies have emerged (Benoit, 1997; Coombs, 2007; Sellnow & Seeger, 2013). However, one can argue that the Situational Crisis Communication Strategy (SCCT) of Coombs (2007) is one of the most precise approaches produced so far.

SCCT can be broadly defined as an approach that helps organisations to prepare for stakeholder reactions during the crisis as well as formulate their crisis statements. The general belief of SCCT is, therefore, that: “Stakeholders will make attributions about the cause of a crisis” (Coombs, 2010, p. 110), whereas these attributions are of vital importance for minimising the reputational risk of a crisis. Thus, managers who use SCCT must determine the exact type of the crisis, its history and consider previous reputations as a first step to derive immediate actions. Based on the detection of the exact crisis type and the guilt of the company it is then possible to identify the level of responsibility stakeholders attribute to the organisation. Following that, Coombs (2010) differentiates between four different Crisis Response Strategies by Posture:

Plate 1: Coombs (2007) SCCT crisis response strategies To sum it up, one can argue that Coombs (2010) SCCT provides a useful framework on how organisations can communicate during a crisis. However, it can be criticised that some of Coombs (2010) strategies, such as the deny crisis response strategy, have the potential to exacerbate the crisis as they serve to cover up the firm´s responsibility. Hence, their use should be restricted to the case where the company can prove its innocence.

It is therefore important that crisis communication must fulfil further characteristics to rebuild the trust of stakeholders. Hence, Coombs (2007) points out that the highest priority of an organisation in a crisis should be to provide ethical responsibilities. In agreement with that, Zittelmann (2014, p. 77) argues that a communication strategy is often not necessary, as “ the truth is often the best trick ”. Hence, the real strength of a company is outlined by telling the truth.

So far, this dissertation has discussed corporate crises, the importance of CSR and stakeholder management, different theories of crisis management, and finally outlined Coombs SCCT response strategies as well as general crisis communication guidelines.

[...]


1 Paul Watzlawick was a communication scientist who developed five axioms that explain the complexity of human communication and its paradoxes. The first and most popular of his five axioms states “One cannot not communicate“, which underlines that humans even communicate or send a message with their behaviour if they do not communicate (Watzlawick, et al., 1969).

Details

Pages
60
Year
2017
ISBN (eBook)
9783668675360
ISBN (Book)
9783668675377
File size
1.1 MB
Language
English
Catalog Number
v417476
Institution / College
University of Cumbria
Grade
1,3
Tags
Crisis Management VW CSR Corporate Social Responsibility Crisis Communication Volkswagen Diesel Emissions Scandal Abgasskandal Krisenmanagement Krisenkommunikatio Sustainability Nachhaltigkeit

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Title: Crisis Management, CSR, and Crisis Communication in the Volkswagen Emissions Scandal