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Democratic Business Ethics:
Volkswagen’s Emissions Scandal and The Disruption of Corporate Sovereignty
Carl Rhodes
Abstract
There is an established body of politically informed scholarly work that offers a sustained
critique of how corporate business ethics is a form of organizing that acts as a subterfuge to
facilitate the expansion of corporate sovereignty. This paper contributes to that work by using
its critique as the basis for theorising an alternative form of ethics for corporations. Using the
case of the 2015 Volkswagen emissions scandal as an illustrative example the paper theorises
an ethics that locates corporations in the democratic sphere so as to defy their professed
ability to organize ethics in a self-sufficient and autonomous manner. The Volkswagen
scandal shows how established organizational practices of corporate business ethics are no
barrier to, and can even serve to enable, the rampant pursuit of business self-interest through
a well-orchestrated and large scale conspiracies involving lying, cheating, fraud, and
lawlessness. The case also shows how society, represented by individuals and institutions, is
able to effectively resist such corporate malfeasance. The ‘democratic business ethics’ that
this epitomises is one where civil society holds corporations to account for their actions, and
in so doing disrupts corporate sovereignty. This ethics finds practical purchase in forms of
dissent that redirect power away from centres of organized wealth and capital, returning it to
its democratically rightful place with the people, with society.
Keywords: Business Ethics; Corporate Social Responsibility; Democracy; Ethics; Levinas;
Organizational Ethics; Radical Democracy; Sovereignty.
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Introduction
Everything was going so well for The Volkswagen Group. In mid-2015 it overtook the
Toyota Motor Corporation as the biggest auto manufacturer in the world. This marked the
early achievement of an ambitious ten year goal that had been set in 2007 (Trudell and Horie,
2015). The targets established by former Volkswagen CEO Martin Winkerton, and which
critics at the time had ridiculed as delusional, were that by 2018 they would be ‘the world’s
most profitable, fascinating and sustainable automobile manufacturer’. There was no
ambiguity. Volkswagen would sell ten million vehicles per year, have pre-tax profit margin
of at least 8%, and would have the most satisfied employees and customers in the whole
industry. Winkerton was steadfastly committed to making Volkswagen ‘number one with
justification’ (Muller, 2013: n.p.). As well as phenomenal growth in sales, Volkswagen was
widely lauded for its ethical and sustainable approach to business. At the end of 2012 the
World Forum for Ethics in Business named Volkswagen as an ‘outstanding corporation’ and
granted it an ‘Ethics in Business Award’. The reason? Because of Volkswagen’s admirable
efforts in ‘in the fields of environmental management and corporate social responsibility’.
Volkswagen was a veritable poster-boy for corporate business ethics in the areas of
environmentalism, sustainability and corporate social responsibility. It was a company touted
as setting ‘an example of universal values such as integrity, responsibility and respect for
people and the environment’ (CSR Europe, 2013: n.p.).
All of this came crashing down in the events following 18 September 2015. On that date the
United States Environmental Protection Agency issued Volkswagen with a notice of violation
of The Clean Air Act. The auto manufacturer had been caught having installed ‘defeat
devices’ in 482,000 of its diesel vehicles in the US, a number that was later revealed to be 11
million worldwide. The devices detected when a car was being driven under emissions test
conditions and only at that point turned on emission controls. They switched off during
normal driving, meaning that performance improved while up to 40 times more nitrous oxide
was released (EPA, 2015). A global scandal ensued. The company which once proclaimed
the importance of resource conservation, climate protection and emissions reduction
(Volkswagen, 2014) was publically vilified for lacking the very values that it prided itself in.
Caught red-handed, the future of Volkswagen was cast in a dark shadow of doubt. At best its
reputation was in tatters, at worst its continued existence was in question. Almost a third of
the company’s market value was wiped out in less than a week. Trust in the entire German
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manufacturing sector was questioned. Within days author of the 2018 strategy, Martin
Winterkorn, resigned under threat of a criminal investigation (Boston, 2015).
The story of Volkswagen in the lead up to, and aftermath of, the 2015 emissions scandal is as
a telling example of the relationship between corporations and the ethics they espouse and
organize. Concurrent with increased global dominance of corporations under neoliberalism
has been the ascendancy of corporate business ethics and responsibility as explicit
organizational practices to which corporations are beholden (Matten and Moon, 2008; Hanlon
and Fleming, 2009). These practices include, for example, the development of ethical codes,
the implementation of corporate social responsibility programs, the use of ethical audits,
generous acts of philanthropy, and advocacy for good corporate governance. Corporate
business ethics is positioned as being concerned with how corporations themselves might
internally organize so as to improve their ethical practice, credentials, and/or public image
(Hancock, 2008; Phillips and Margolis, 1999). This is an ethics that has a ‘pro-business
stance’ (Parker, 2004: 198) and that is organized through corporate control and compliance
systems, and instruments of managerial coordination (Stansbury and Barry, 2007; Laufer and
Robertson, 1997).
While positioned as voluntary (Marens, 2012, 2013) the practices of corporate business ethics
have been institutionalised as an expectation of the contemporary corporation (Brammer et al,
2012). Today’s corporations are enjoined to design and implement an ‘organization of ethics’
which claims to regulate ethical behaviour and enact social responsibility while also ‘yielding
significant returns’ in terms of profit maximization (Metzger, Dalton and Hill, 1993: 35) and
strengthening the role of the market relations (Kinderman 2012). This is an explicit strategy
that corporate managers exude pride about. Volkswagen is a paradigm case. As Winkerton
wrote in his essay in Volkswagen’s 2014 Sustainability Report: ‘sustainability, environmental
protection, and social responsibility can be powerful value drivers’ (in Volkswagen, 2014).
What is reflected here is the dominant corporate view that ‘social values and capitalism can
be combined in a seamless and complementary manner’ (Cederström and Michael Marinetto,
2013: 417).
There is an established body of politically informed scholarly work that offers a sustained
critique of the approach to corporate business ethics that Winkerton exuded. This work
highlights the fundamental incompatibility of responsibility and ethics with corporate strategy
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and self-interest (e.g. Banerjee, 2008; Shamir, 2008; Marens, 2012; Fleming and Jones,
2013), as well as calling for the politicization business ethics (Parker, 2004; Pullen and
Rhodes, 2013). Drawing on the Volkswagen emissions scandal as an illustrative example,
this paper builds on this existing critique as the basis for theorising an alternative form of
ethics for corporations; one based not on corporate moral agency and self-regulation but on
the democratic process through which a society can hold corporations to account for their
actions. The paper uses the Volkswagen scandal to exemplify the argument that corporate
business ethics are no barrier to the rampant pursuit of business self-interest through a well-
orchestrated and large scale conspiracies involving lying, cheating, fraud, and lawlessness. It
also shows that society, represented by individuals and institutions, is able to effectively
resist these forms of malfeasance.
In presenting what is dubbed ‘democratic business ethics’ the paper argues that considering
the ethics of corporations as being a matter that can and should be organized and controlled
internally fails to account for the possibility of an ethics for business that does not place the
corporation itself as the putative moral agent who can manage its own ethics as if it was an
‘isolated, ethically self-sufficient individual’ (Lozano, 2000: 2) that is beholden unto itself to
ensure its righteousness. Democratic business ethics places corporations subservient to the
democratic sphere so as to defy their assumed ethical self-sufficiency and invulnerability. It
manifests in political acts that render corporations vulnerable through a politics that contests
both their putative morality and the deleterious effects of the exercise of their increasingly
sovereign power. This ethics finds practical purchase as a form of radical democratic dissent
and resistance that redirects power away from centres of organized wealth and capital,
returning it to its democratically rightful place with the people, with society.
The paper begins by exploring the social, economic and political dominance of the
corporation under neoliberalism, and its relation to corporate business ethics. This is a
relationship where corporations engage in nominally ethical practices to legitimate their
operation by mounting an image of a solid, unassailable, independent and morally righteous
corporate self (Hanlon, 2007). It is argued that this process of legitimation uses ethics to
serve the primary purpose of building ‘corporate sovereignty’ (Barkan, 2013). Second,
Levinas’ (1996, 1998, 2003) ethical philosophy is deployed to show how the very meaning of
ethics originates as a challenge to sovereignty. This leads to the idea of an ethics enacted by
the disruption of corporate sovereignty and its attendant corporate business ethics. Third,
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drawing on theories of radical democracy (Mouffe, 1996; Robbins, 2011, Ziarek, 2001) the
contestation between ethics and sovereignty is developed into the idea of ‘democratic
business ethics’. This is an ethics that contests corporate sovereignty through forms of dissent
and resistance originating in civil society. The paper concludes by asserting the need to
rescue business ethics from corporate sovereignty, and to reimagine it on democratic terms.
Corporate Sovereignty and Corporate Business Ethics
Ours is an age where unprecedented levels of political power have been ceded to corporations
(Barley, 2007) and where ‘global capitalism is now internal to all communities on the planet’
(Robinson, 2014: 223). Escalating since the 1980s, globalized neoliberalism has heralded
changes to the political and economic landscape that have seen corporations grow in size,
reach and sheer might. Present here is a shift in the ‘cultural logic of capitalism’ where the
role of the state is increasingly one of supporting corporations’ freedom and legitimacy
(Hanlon and Fleming, 2009: 942). In practical terms, the share of the economy taken by large
inter-connected networks of corporations has burgeoned (Carroll, 2010) resulting in then
being powerful political actors (Scherer and Palazzo, 2007) subject to diminishing levels of
state control (Hassan, 2013; Veldman, 2013). Corporations are the prime movers of global
commerce whose unabashed purpose is to pursue private rather than public good through
their own increasing economic and political dominance; a situation where a major role of the
state has become to serve the market (Hanlon and Fleming, 2009; Veldman, 2013). This
‘service’ is informed by the neoliberal ideology that maintains that ‘society’s resources are
best allocated by self-regulating markets’ (Pacewitz, 2013: 434) and where public
intervention into business affairs is ‘legitimated when it tries to restore the conditions of fair
competition’ (Amable, 2011: 5).
With neoliberalism the state is beholden to implement policies and laws that facilitate rather
than restrict the expansion of corporate activity through the marketization of more and more
dimensions of social and economic life. This is not laissez-faire liberalism, but rather a
political doctrine where the state has a very specifically redefined role: to construct the
conditions for the expansion of markets (Mirowski, 2013). By ‘decentralizing, deregulating
and liberalizing’ on a global level, nation states have used their power to provide ‘more
attractive economic environments for financial capital’ (Lipchultz and Fogel, 2002: 118). The
central and powerful position of corporations in the neoliberal global economy has thus been