Large Market Share, Even Larger Csr; Volkswagen Ag

Volkswagen leads the European continent, as it’s most predominant car manufacturer. Volkswagen AG is the holding company for VW group that comprises of Automotive and Financial Services. VW also owns a garage full of luxury carmakers like AUDI, Lamborghini, Bentley, and Bugatti. Other brands include SEAT and Škoda and in 2009 VW acquired a 49.9% stake in Porsche as the first step in combining the two into an integrated car company.

(Hoover’s Inc. 2011). These 10 brands under Volkswagen AG’s umbrella make up a global market share of more than 11%. In recent years, engagement with the community and ensuring sustainable development has become very necessary for VW to survive as a corporate entity in the 11 European countries and an additional seven countries in the Americas, Asia and Africa in which 47 plants operate (Datamonitor 2006).

Corporate Social Responsibility and Corporate Public Policy has become gradually more evident in day-to-day life due to a growing convenience of affluence and education, rising expectations and increased awareness on the public’s behalf, because of these changing aspects of the social environment, businesses are constantly being scrutinized by the public, the government, special interest groups and employees and are now expected to go well beyond the scope of minimum statutory requirements. Community Involvement and social development has become increasingly important to the Volkswagen AG as seen in its reports as well as assurances made by KPMG (2002) and PwC.

The social contract and the Iron Law of responsibility allows businesses such as VW to operate within in society with a great level of success but with Volkswagen’s significant market share in the automotive industry and substantial capital resources there also comes well-defined expectations and responsibilities. Because “economic progress without social development in not sustainable” (world economic forum), Volkswagen AG’s Corporate Public Policy clearly shapes the company as a good corporate citizen and indicates that social development, culture and education are key aspects of their entrepreneurial activities in their ‘host’ communities (VW 2011).

The following paper will evaluate Volkswagen’s community engagement and social development efforts and whether or not it has been effective in holding up the company’s end of the social contract in terms of the impact on its stakeholder’s, in particular the communities in which the company operates in as well as it’s shareholders.

As the social environment evolves so too do the roles of businesses in conforming to changing expectations and criticisms of stakeholders. Major opportunities, threats and challenges brought about by an evolving social contract has forced the Volkswagen group to actively become more involved in regional infrastructure development, health promotion, education and environmental conservation to improve the living conditions and protect the interests of the regions in which their production facilities are situated.

Projects supporting these actions include H1N1 vaccinations to schoolchildren in villages surrounding the Chakan plant in Pune and fair trade initiatives created to help producers in developing countries to earn an independent and dignified living as suggested by the General Works Council (VW 2010-11). Thanks to Corporate Social Responsibility, Volkswagen of South Africa is the biggest private sector employer in the Eastern Cape.

As a market leader, the company is able to invest approximately R30 million in projects such as the “Uitenhage Despatch Development Initiative” (UDDI) that are designed to improve education, social and creative skills, youth development, the environment, sustainable economic development, health and community wellbeing in order to empower the South African family both economically and socially (Claremont Volkswagen 2010).

Another initiative implemented by VW was The “Neue Schule Wolfsburg” project, which was designed to set up a new school in Wolfsburg in Lower Saxony, Germany, in partnership with the town and local businesses, this new development, was successfully completed by August 2009(Volkswagen AG 2008).

Even with VW’s focus on cost cutting and innovation in developing markets and its plan to become the largest car company in the world by 2018 (Free Invest 2011), VW hasn’t deserted the US. In fact, the company invested about $4 billion in US operations in its greatest time of need, including a new manufacturing facility in Tennessee with the confidence of creating job opportunities and stimulating the economy (Hoover’s Inc, 2011). As well as these examples, the most effective of which has been the “Allianz für die Region” or Regional Alliance, which is a partnership between the company and the City of Wolfsburg, set up in 1999 and more recently involving another organization.

This alliance was designed to promote business and contributes towards education, health and leisure. Volkswagen believes that by improving facilities the company has made the area a more attractive business location and in turn promotes further investment in the region (VW 2011). These are indications that Volkswagen’s concerted efforts in social improvement have been aimed at focusing skills and resources effectively and developing communities with the end result of creating employment, safeguarding jobs and improving the quality of life.

Volkswagen AG defined Corporate Social Responsibility as “the ability of a company to incorporate its responsibility into society to develop solutions for economic and social problems” (VW 2011). This definition makes it clear to stakeholders the company shares a collective interest in their care and well being, well beyond the factory gates.

Even though Volkswagen has had a reputation for providing its ‘workholders’ with the necessary infrastructure, education, health care and initiatives to improve former community organizations, stakeholders are still suspicious of the company’s overriding objective which is to make profit. Where Volkswagen AG falls short, is it’s reporting of CSR initiatives due to the fact that the contributions made to society by big business are often insufficiently communicated, acknowledged or understood.

As well as the businesses responsibility to provide stakeholders with something that will capture the potential significance of social issues in corporate strategy, the assurances made by accounting firms provide the readers of the reports with decisions as to whether or not VW’s environmental, social and sustainability reporting is a true and accurate view of the company’s performance. KPMG proposes that the increased occurrences of verification reports resulting from “… the demand for reliable and credible information from management, for managing the company’s environmental and social risks, and from stakeholders who want assurance that the report truly represents the company’s efforts and achievements” (Owen, D., O’Dwyer, B. 2002. p: 18).

Because the automotive industry is capital intensive, Volkswagen is making a determined effort in cost saving and bringing its labour costs more in line with its competitors, recognizing that its auto workers are one of the highest paid in the industry and not necessarily the most productive, VW has had to eliminated jobs at its German plant and instead outsourced some of its production to Eastern Europe and Asia (Hoover’s Inc. 2011).

On top of the reduction of labour costs, the recent merger between Man and Scania is anticipated to produce annual cost savings of around €200m ( 2011). A transparent environment is essential in effective shareholder management and Corporate Social Responsibility tends to be area of business activities that stakeholders are the most critical about.

Volkswagen AG has been successful in creating increasing shareholder value over the last three years, the company have posted both the highest increase in shareholder value on the stock market as well as the highest total shareholder return and have achieved the highest increase in shareholder value of all stock market listed competitors in the global automotive industry and received the 2007 Global Automotive Shareholder Value Award to Europe’s largest automaker in Detroit from the auditing company PricewaterhouseCoopers (Wolfsburg, 2008-01-29).

Although only a short time ago, shareholder value was not a particularly valued aspect in the Volkswagen AG’s business structure but since 1998, the German business culture has progressed towards favouring financing operations and investments through equity rather than through debt and businesses had to more actively recognize shareholders as a key constituency of VW and plan future business operations with the their interests in mind as well as recognize the importance of ensuring increased long-term shareholder value. The Volkswagen Group has repeatedly emphasized its success in terms of achieving top scores in sustainability indices, such as the Dow Jones Sustainability Index (DJSI), STOXX and the Footsie (FTSE4) Good Europe 50.

These scores further highlight the resolve of VW to offer ‘value oriented investors attractive long-term prospects based on sound structures and manageable risk’ (VW 2002: 15). Volkswagen AG provides continuous support to the stakeholders in the communities the company’s factory’s are located in without disregarding their duties as a market leader in the passenger vehicle industry and their responsibility to their shareholders.

Nevertheless, these German business systems and entrepreneurial activities should be treated with skepticism at the very least as transparency has been an issue in the past. In recent years however, the implementation of international accounting standards, the compliance with the German Code of Corporate Governance, the use of performance measurement tools, and the implementation of an active investor relations department has eased the process for stakeholders in comparing annual reports, coming to a conclusion as to whether or not Volkswagen AG is compliant with the social contract and to what degree. In which case I would agree that VW have complied with all that society had asked and expected of them as a big business, but with restraint.

I agree with the notion that Volkswagen AG has been effective in establishing a business that is able to effectively capture the triple bottom line concept, meaning Volkswagen has been able to simultaneously serve social and environmental goals as well as earn profits. Volkswagen has surpassed all expectations in that they have developed a number of social and environmental initiatives in order to engage in the well being of the residents that reside close to the production plants.

The question is not so much whether or not the company has carried out the initiatives they developed? But more the level of success they were able to achieve in both carrying out said initiatives and fulfilling the needs within society and at what cost to shareholder value? Volkswagen AG embraces the position that it is fundamental to an economically and socially stable business to build both shareholder value and worker value in order to provide sustainable future growth.

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