Case Study: Crisis Communications (30 minutes)

Scenario

In February 2014 in the heat of the Australian summer, savage bushfires swept through the
Latrobe Valley in the southern Australian state of Victoria, causing substantial damage to houses,
livestock, wildlife, and the environment. A bushfire ignited the Hazelwood coal mine in the
Latrobe Valley 150 kilometers (95 miles) east of Melbourne and burned for 45 days sending toxic
smoke and ash over the adjoining town of Morwell. In addition to constituting a crisis by
themselves, the bushfires sparked a much longer lasting and potentially disastrous crisis when
they ignited the Hazelwood open cut coal mine. Brown coal in the mine caught alight and burned
for 45 days before being extinguished. In the process, the coal mine fire spread thick smoke and
ash containing potentially dangerous chemicals and particles over the adjoining town of Morwell.

Burning brown coal emits carbon monoxide, methane, sulphur and nitrogen oxides, volatile
organic compounds, particulate matter, and potentially toxic trace elements such as arsenic and
mercury (Carey, 2014; Castleden, Shearman, Crisp, & Finch, 2011), making it potentially very
hazardous to human health and the environment when emissions reach high levels or occur over
an extended period of time, as occurred at Hazelwood.

Not surprisingly, the 14,000 residents of Morwell, many living within a few kilometers of the
mine, became concerned and soon were reporting respiratory problems, sickness caused by
alleged carbon monoxide poisoning, as well as substantial damage to their homes and rainwater
tanks caused by the smoke and falling ash.

As the fire burned out of control, the Department of Health ordered the evacuation of the elderly
and those with respiratory ailments. The local school was closed and students moved to a nearby
town. By the second week, even the local courthouse closed and hearings were adjourned to
another location. After several weeks, with the fire still burning, residents became angry and
rallied in protest at community meetings organized by emergency agencies as well as the locally-
established Voices of the Valley community action group. Subsequently, in March 2014 the State
Government of Victoria appointed a Board of Inquiry into management of the crisis with terms
of reference including independent review of the effectiveness of public communication.

Task Requirement:

Identify the critical communication failures in the above crisis. Discuss how the coal-mining
company could have exercised its duty of care in the interest of its neighbourhood community
and boosted its corporate social responsibility. Give your views on the company’s state of
preparedness of the company.
Case Study: The Volkswagen Emissions Scandal (30 minutes)

In September 2015, the US Environmental Protection Agency accused Volkswagen of

manipulating its engine controls to be able to pass laboratory emissions tests. Not only was the
company violating the Clean Air Act by selling vehicles that didn’t meet environmental
requirements, but it was also violating its customers’ trust by making its cars seem more
environmentally friendly.

Unfortunately, the way the company handled the scandal made things even worse. As the story
continued to evolve, the company’s response was seen as inconsistent and, at times,
contradictory to previous statements. Executives claimed they didn’t know about the cheating,
only to reveal they did just a few days later. Meanwhile, the company’s PR and social media
teams struggled to keep up. As the company set out to recall millions of vehicles, officials
promised to reimburse some, but not all, customers for their troubles.

All the while, consumers reported that the company seemed to be handling the crisis in a
dishonest way by not fully “owning” its role in the scandal.

Facts of the case

1. Scandal Event: It has been alleged that VW had used undisclosed engine management
software to circumvent Nitrogen Oxide (NOx) emissions testing regulations in the United
States of America from 2009 to 2015.
2. Facts of the Case: On September 18, 2015, the U.S. Environmental Protection Agency
(EPA) publicly announced in a “Notice of Violation” that irregularities in relation to
(NOx) emissions had been discovered in emissions tests on certain vehicles with
Volkswagen Group diesel engines. It is a legal contravention to compliance to certification
requirements.
 3. Contributory Factors to the Unethical Act: VW wanted to remain as No. 1 auto
manufacturer in the world. Greed for high profit and capitalization of affluent markets by
taking advantage of globalization.
4. Legal Action: The U.S. Environmental Protection Agency (EPA) filed a case against VW for
violation of environmental regulations. VW admitted to cheating in the emission test
process and was meted out with heavy financial punishment.
5. Remedy: VW was made to recall back all the cars sold to US between 2009 and 2015. A
fine of USD 18 b was imposed as redemption.

Task Requirement:

Make your observations on the above case. What are the CSR implications consequent to the
above scandal? The brand likely would have fared better through this crisis if it had taken a few
key steps. Identify and discuss the appropriate steps taken at the strategic level that would have
mitigated the crisis situation well
 Case Example: Volkswagen (VW) Emission Scandal – 2015

6. Scandal Event: It has been alleged that VW had used undisclosed engine management
software to circumvent Nitrogen Oxide (NOx) emissions testing regulations in the United
States of America from 2009 to 2015.
7. Facts of the Case: On September 18, 2015, the U.S. Environmental Protection Agency
(EPA) publicly announced in a “Notice of Violation” that irregularities in relation to
(NOx) emissions had been discovered in emissions tests on certain vehicles with
Volkswagen Group diesel engines. It is a legal contravention to compliance to certification
requirements.
8. Contributory Factors to the Unethical Act: VW wanted to remain as No. 1 auto
manufacturer in the world. Greed for high profit and capitalization of affluent markets by
taking advantage of globalization.
9. Implications: In terms of CSR, highly an unethical and an irresponsible act in the context
of social and environmental responsibility. Serious impact to stakeholders’ health and
environmental condition.
10. Legal Action: The U.S. Environmental Protection Agency (EPA) filed a case against VW
for violation of environmental regulations. VW admitted to cheating in the emission test
process and was meted out with heavy financial punishment.
11. Remedy: VW was made to recall back all the cars sold to US between 2009 and 2015. A
fine of USD 18 b was imposed as redemption.
12. Observation: A comprehensive CSR initiative program was in place within VW. Despite,
VW behaviour is highly questionable. There had been an absolute ethical disregard to
exemplary leadership and responsibility as leading auto maker
(Brow, Treviño, & Harrison, 2005). It was a moral disaster, where VW was consciously
criminal by putting all the stakeholders and the environmental wellbeing at stake. It was
predisposed and prepared with the idea of mitigating should things go wrong. As a result,
VW lost the trust and loyalty of its stakeholders as well as most of its profit earnings, which
resulted in tainted global reputation and eventually lost the US market. The short-term
economic gain never made any sense at all.
 Source: Bachmann, Ehrlich, Ruzic, 2017

 Been up front and honest as soon as the story broke

 Kept its response consistent, with an empathetic and apologetic tone
 Reimbursed all affected customers the same amount
 Demonstrated a commitment to change in some way (e.g., by setting new emissions
goals or partnering with an environmental organization to help combat air pollution