Volkswagen's Recent Shareholder Theory (VW)

Volkswagen (VW), founded back in 1937 by German Labor Front, aimed to expand the car market beyond luxury models created for rich people, to a mainstream “people's car” (as the name translates into English) that would partly shape the industry as we know it today. In 2007, amidst economic uncertainty and changing industry dynamics, VW set the goal of reaching record high annual sales, aiming to become the # 1 car manufacturer in the world. A false adaptation strategy, principal-agent problems, pressure of shareholders, and not trusting their own core competences made VW dive to a path of unprecedented unethical decisions. How could a solid company like VW end up committing a deliberate and calculated fraud that would ultimately lead to a massive

Running a business with this philosophy seems to make CSR and customer focus less of a priority, as taking such a stance serves a broader purpose than just making profit and widens the business scope beyond stakeholders, to include social and financial benefits for society at large. As VW is a publicly traded company, shareholders own the corporation, but at the same time they have limited liability for whichever path taken to achieve continued growth and generated profits, namely VW’s raison d'être. Shareholders are known as risk seeking people, mainly looking to grow their fortune and move on if they see signals of a venture not being profitable. Seeking to achieve shareholder value as top priority embeds in it a great risk of management failure and in this case it is exactly what happened. Having this organizational division between employees carrying out the operations, being morally and legally responsible for the company’s course of action, while being influenced by shareholders’ requirements for short term profit gains, drove the employees of VW to a point where they seem to have lost perspective of the consequences of making this tremendously risky move for the sake of growth and increased revenues. As VW have experienced massive financial losses and even more importantly, lost some of its stellar brand reputation and trust, in hindsight the focus of gaining unethically more market share proved to be a strategy that led to short sighted growth destruction instead of other way around. As Roger Martin argues in the article “The Age of Customer Capitalism”, if customers become top priority, even beyond the owners of the company, namely the shareholders, the strategic prioritization will eventually lead to greater gains for the shareholders themselves. In