Governance failure and firm-level crises: the case of the Volkswagen emissions scandal

We use a micro-level perspective to analyze the antecedents, enablers, and consequences of a firm-level crisis: the Volkswagen emissions crisis, which reflects a failure of governance to meet commonly accepted standards of corporate social responsibility (CSR). Based on a qualitative analysis of reliable, publicly available data, we identify situational context variables at the macro, firm, and micro levels that facilitated severe information and commitment problems, which culminated in the crisis. We also discuss how the lack of safeguards at the firm level enabled the breakdowns in Volkswagen’s governance routines, leading to the crisis. We show the impact of a variety of facets of bounded rationality and unreliability, and we argue that governance failure can occur due to a variety of microfoundational factors, including but not limited to opportunism. Proper governance must therefore include a range of safeguards that target multiple expressions of bounded rationality and bounded reliability. For managers, we propose a set of specific safeguards to be included in a multinational enterprise’s governance system. These safeguards should help to avoid and mitigate future crises and permit the firm to meet commonly accepted CSR standards.