Deck 6: Who Owns the Firm

Question 1

Which case lays the legal foundation for the belief in the primacy of shareholder interests?

A)Miller v.Magline, Inc.
B)SEC v.Transamerica Corporation
C)Dodge v.Ford Motor Company
D)Levin v.Mississippi River Corporation

Answer 1

C

Question 2

The fact that shareholders have the right to vote at the company's annual general meeting demonstrates that ______.

A)shareholders can influence day-to-day operations of the firm
B)shareholder democracy is neither strong nor broad
C)shareholders have direct input on all interests of shareholders
D)boards of directors will respond to shareholder concerns

Answer 2

B

Question 3

The regular issuance of quarterly earnings reports to shareholders illustrates which of the following?

A)the long-term nature of investing for retirement
B)the importance of stakeholder interests over shareholder interests
C)the growing importance of CSR in business decisions
D)the short-term focus of the economic system

Answer 3

D

Question 4

An advantage of the limited liability company (LLC) is that the organization is ______.

A)recognized as an independent entity in the eyes of the law
B)not recognized as a legal person and therefore cannot be sued
C)provided tax-exempt status
D)not liable for its own debts

Question 5

The great value of ______ is that it enabled corporations to raise the capital that was needed to finance the infrastructure that fueled the Industrial Revolution.

A)limited liability
B)the stock market
C)centralized management
D)high-frequency stock trades

Question 6

How did the introduction of limited liability for firms change the focus of firms?

A)profit became the primary purpose
B)social good became the primary purpose
C)innovation became the primary purpose
D)the introduction of limited liability did not change firms' focus

Question 7

Because many stock trades are governed by third-party transactions, this drives a wedge between shareholders and ______.

A)regulators
B)managers
C)employees
D)markets

Question 8

During the early 20th century, which type of stakeholder become more and more favored in terms of legal decisions?

A)employees
B)owners
C)communities
D)investors

Question 9

As the CEO of a publicly traded company, you decide your firm will no longer issue quarterly earnings reports to shareholders.A legitimate reason for your decision is ______.

A)to emphasize the importance of medium- to long-term value creation
B)to emphasize the importance of short-term financial strategies
C)to encourage investors to buy stock in your company
D)to discourage investors from buying stock in your company

Question 10

Which of the following is true about shareholders?

A)Shareholders fully own a corporation.
B)Shareholders have a right of possession of a corporation.
C)Shareholder ownership is a social construction.
D)Shareholders have the right of control over a corporation.

Question 11

The Dodge brothers sued Henry Ford because of his decision to ______.

A)pay factory workers a living wage
B)distribute surplus profit to shareholders in the form of a dividend
C)reinvest profits in research and development rather than in shareholder dividends
D)distribute surplus profit to customers in the form of lower prices for cars

Question 12

Which of the following does strategic CSR emphasize?

A)short-term value creation
B)meeting the needs of all stakeholders
C)medium- to long-term value creation
D)meeting the needs of primary stakeholders

Question 13

The ______ is the notion that shareholders cannot second-guess management decisions.

A)management responsibility doctrine
B)business judgment rule
C)board of directors supremacy
D)limited liability corporation

Question 14

An analysis of the history of the corporation, a review of existing legislation, and legal precedent all support to the conclusion that ______.

A)shareholders do not own the firm
B)shareholders are the owners of the firm
C)shareholders have the same power as managers of the firm
D)shareholders must respect the rights of all stakeholders

Question 15

To encourage long-term thinking across all aspects of operations, firms like Unilever ______.

A)began issuing quarterly earnings guidance
B)stopped issuing quarterly earnings guidance
C)began issuing monthly earnings reports
D)stopped issuing annual earnings reports

Question 16

The combination of high-frequency trading and massive investment funds holding large, but passive, positions is redefining what it means to be a ______.

A)stockbroker
B)manager
C)director
D)shareholder

Question 17

There is ______ legal precedent for the idea that managers and directors have a fiduciary responsibility to place shareholder interests over the interests of other stakeholders.

A)no
B)weak
C)strong
D)irrefutable

Question 18

According to the textbook, the statement, "Shareholders are the owners of corporations" is a ______, not a ______.

A)legal fact; belief
B)belief; legal fact
C)legal fact; principle
D)principle; theory

Question 19

In the early history of corporations, what was the primary purpose of shares?

A)to raise capital and provide a return on that investment
B)to encourage innovation
C)to allow outsiders to control a corporation's major decisions
D)to implement social good by a corporation

Question 20

For which of the following events would a court intervene in a firm's activities?

A)A management decision to not insure a company's largest warehouse.
B)A management decision to deceive customers about the negative effects of the company's products.
C)A management decision to not invest in eco-friendly materials because they are less profitable.
D)A management decision to not give raise to employees who have been at the company for more than 15 years.

Question 21

A share is a legal contract between the investor and the firm.

Question 22

U.S.courts often intervene in the business decisions of a firm to ensure that the firm is both maximizing profits and doing social good.

Question 23

A limited liability company is, in the eyes of the law, a person.

Question 24

The business judgment rule is important because it reflects the principle that ______, not ______, have the greatest latitude to run companies.

A)shareholders; company directors
B)company directors; shareholders
C)managers; company directors
D)shareholders; managers

Question 25

What are the implications of the principle in U.S.corporate law that "no one owns the corporation?"

Question 26

Since their inception in the United States, corporations have all been limited liability.

Question 27

Why is the question of ownership central to the CSR debate? In your answer, provide specific examples of how ownership impacts CSR issues.

Question 28

Analyze the following statement: "Shareholder ownership of firms is a social construction." What does this statement mean, and what are the implications for CSR?

Question 29

The 1880 New Hampshire Supreme Court decision in Charlestown Boot & Shoe Co.vs.Dunsmore sets a legal precedent for ______.

A)stakeholder theory
B)the business judgment rule
C)shareholder autonomy
D)limited liability

Question 30

Existing securities are traded on the primary market.

Question 31

Firms such as Unilever and Amazon are now changing their approach to business thinking by focusing on ______.

A)societal outcomes
B)climate change
C)long-term focus
D)globalization

Question 32

In Delaware, the part of the firm that is given preeminence is ______.

A)the investor
B)the board of directors
C)the employees
D)the chief executive officer

Question 33

Shareholders definitively own the corporation in which they invest.

Question 34

Between 1870 and 1910, corporations were protected from legislation such as child labor laws by the ______.

A)First Amendment
B)Fifth Amendment
C)Fourteenth Amendment
D)Eighteenth Amendment

Question 35

In the event that a shareholder resolution is passed by a majority at a company's annual general meeting (AGM), in most cases the company is obliged to ______.

A)take action immediately
B)create a plan for implementation of the idea and present it to shareholders
C)consider the proposal at its next board meeting
D)do nothing

Question 36

How has the definition of what it means to be a shareholder changed over the history of the corporation?

Question 37

The Dodge v.Ford case has often been used as the legal foundation for the belief that ______.

A)the firm must place the interests of its shareholders over all other interests
B)the firm must operate in the interests of all stakeholders
C)the firm must place the interests of its managers over all other interests
D)management has very little responsibility to shareholders in day-to-day operations