The Volkswagen scandal has put the spotlight firmly on corporates that seek to not just compromise on quality but also lie on crucial specifics. Nestle and tobacco-product manufacturers are other examples
In a week, when all the visiting heads of states were pledging to secure the world against hunger, disease and hopelessness, in a time-bound framework, with free market taking the centre-stage in attacking poverty, a jarring note for the champions of free market came from the most admired economy of the world: Germany. And that too from one of the greatest engineering firm, Volkswagen.
Volkswagen, the famous car manufacturing company, has been found to have been fudging emission data of its diesel powered cars. This grabbed newspaper headlines and the company’s chief executive officer, Martin Winterkorn, had to resign. Also, the company’s shares tanked to its lowest level in its history.
The virus of a corporate fraud, in which the top management of Germany’s highly rated company was found to be deeply involved, has sucked in many other big names too. luxury car makers like Audi and Skoda have admitted that it is the same engine made by Volkswagen, that was fitted into their models too.
Over two million Audi vehicles will have to be recalled, to save the company from consumer rage at being short-changed, with Skoda following with one million car recall.
True, car recall after finding critical components defective, is not new in the auto world. Almost all big names have done this at one time or the other. Japan’s Toyota and Suzuki, Indian car market leader Maruti, and a number of top US car makers — all have had egg on their face, when their cars skidded on the quality roads after their huge advertisements of models that almost promised a heaven on earth, over the four-wheel framework.
Recall what consumer crusader Ralph Nader exposed about the auto industry in the US in his book, Unsafe at any Speed, in 1965, and what the big US car manufacturer General Motors did to vilify him. It was finally General Motors that had to admit its error, its then president, James Roche, was forced to admit before a US Senate sub-committee that Nader was right, and Roche tendered an apology.
It will be interesting for Indian readers to know that it was an Indian, working as an assistant professor at the West Virginia Centre for Alternative Fuels Engines and Emissions, Arvind Thiruvengadam from Chennai, who happened to discover the huge difference between Volkswagen’s claim on its Passat engine’s emission and the on-road performance that led to the exposure and the German company’s fudging of data.
It was an accidental discovery, but the engineer from Chennai did not ignore his findings. He and his associates checked again and again over two years, before submitting the data to the International Council for Clean Transportation. The data finally hooked Volkswagen.
In the Volkswagen scandal, as we will see in a series of corporate frauds, the fault is not so much that the much-advertised products fail the test of authenticity of their claims, but the great crime at corporate headquarters is that the top men, who know the truth about the harm their products will bring to the unsuspecting public, conspired to hide that truth.
We may recall how the flourishing tobacco industry in the US sought to suppress the truth about the after-effects of smoking. That was way back in 1965. The whistleblower was Jeffrey Wigand, vice-president of research and development at Brown & Williamson. He could no longer be a silent witness to what his company was doing: Fudging and suppressing research reports that clearly established conclusively the link between tobacco smoking and lung cancer.
Whether it was Thalidomide in 1962, marketed by its maker, Grunenthal, as a “safe tranquiliser even for pregnant women” that ultimately ended up delivering deformed babies, or the chemical giant Monsanto, whose herbicide glyphosate used in 130 countries turned out to be highly carcinogenic or a host of other pesticides across the world that are daily poisoning the farms, the free market now needs a fortress of laws to protect people from corporate greed.
Perhaps more than such laws, it is the ability of the corporate boards to short-change public good in search of rising profits that will bolster their share value that needs to be in the eye of Governments and public interest bodies keeping a watch. The tobacco industry in our country too is resisting international demand that tobacco products carry a picturesque label of a skull to warn the users of what danger they are likely to face in using them, even though the Government wants to mandate this warning.
An interesting revelation in the Satyam corporate scam that sent the company owner to long-term imprisonment is that its board of directors had a prominent Indian American who was teaching corporate ethics at Harvard University. Was the independent director oblivious of the company manipulating its profits or was he keeping his eyes shut at the board meetings, when such fraud on the stocks of the company was going on for years.
How gullible are our evaluators, who confer golden crowns on corporate honchos year after year for excellence of one kind or the other when later some of these winners are found to have been indulging in manipulation of corporate books!
As I write this, comes a news report that the leading red wines of the world, including that of the US, have high arsenic content. That takes us back to the allegation against, Nestle, known worldwide for its processed food products, that its popular noodle has high content of lead.
With corporate structures and the wealthy and famous corporate honchos on the docks after so many exposes of corporate ill doings in recent days, governments and regulatory bodies need to look afresh at the ‘limited liability’ commercial structures straddling the free market economies. It is being increasingly called into question that corporations are the best equipped to transform economies and generate wealth for the nations, developed or developing.
Critics of the free market economy like Jeffrey Sachs and the top economists like Joseph Stiglitz, Nobel winner for his expose of the widening inequalities within the capitalist system, are getting a closer hearing now than earlier after these scams have hit the news pages.
French Economist Thomas Piketty, whose shocking revelation of corporate excess profit as a danger to national interest in his recent book, Capital in the Twenty-first Century, Reserve Bank of Governor Raghuram Rajan’s warning in his 2002 volume, ‘Saving capitalism from the capitalists’ and several other concerned intellectuals have pushed up their antennae against the pitfalls of corporations.
Recently, addressing the Indian Society of Advertisers, Uniliver’s Global CEO Paul Polman said much in a one-liner: “Capitalism needs to evolve.” Setting new standards of human development for corporate, Mr Polman has said in a new book that even his company is still to meet those standards.