Deck 2: The Mission, Governance, and Business Ethics

Question 1

The term principle refers to the person delegating authority to an agent, who acts on the principle's behalf in an agency relationship.

Answer 1

True

Question 2

Stockholders are important external claimants on a company.

Answer 2

False

Question 3

All stakeholders are in an exchange relationship with the company.

Answer 3

True

Question 4

The mission statement is a key indicator of how an organization views the claims of its stakeholders.

Question 5

Information asymmetry is a situation in which both parties have the same information about the exchange.

Question 6

The general public is not a stakeholder for a company.

Question 7

The agency relationship arises whenever one party delegates decision-making authority or control over resources to another.

Question 8

As the agents of stockholders, managers should pursue strategies that maximize short-term returns to stockholders because this increases the value of their shares.

Question 9

Values of a company state how managers and employees should conduct themselves, how they should do business, and what kind of organization they should build to help a company achieve its mission.

Question 10

Different stakeholders supply different resources to the company, and in exchange they expect their interests to be satisfied.

Question 11

A goal is a precise and measurable desired future state that a company attempts to realize.

Question 12

Organizational culture is the set of values, norms, and standards that control how employees work to achieve an organization's mission and goals.

Question 13

The goals of all stakeholder groups are generally aligned.

Question 14

The agency problem occurs when managers pursue strategies that are not in the interests of stockholders.

Question 15

Examples of external stakeholders are the members of the board of directors.

Question 16

Equity capital for which there is a guarantee that stockholders will recoup their investment and earn a decent return is called risk capital.

Question 17

A national union is an example of an external stakeholder.

Question 18

The mission describes what it is that the company does.

Question 19

If a company fails to take stakeholder claims into account, stakeholders may withdraw their support.

Question 20

The vision of a company lays out some desired future state and articulates what the company would like to achieve.

Question 21

Critics of the existing governance system charge that inside directors often dominate the outsiders on the board.

Question 22

Ethical Dilemmas are situations where there is no agreement over exactly what the accepted principles of right and wrong are, or where none of the available alternatives seems ethically acceptable.

Question 23

Information manipulation occurs when managers use their control over corporate data to distort or hide information in order to enhance their own financial situation of the competitive position of the firm.

Question 24

The typical inside director is subordinate to the CEO in the company's hierarchy and therefore unlikely to criticize the boss.

Question 25

Self-dealing occurs when managers find a way to feather their own nests with corporate monies.

Question 26

Publicly traded companies in the United States are required to file quarterly and semi-annual reports with the SEC that are prepared according to GAAP.

Question 27

Outside directors are full-time employees of the company.

Question 28

The risk of being acquired by another company is known as the takeover constraint.

Question 29

Environmental degradation occurs when a firm takes actions that directly or indirectly result in pollution or other forms of environmental harm.

Question 30

In reality, there is a clear and distinct line between business ethics and personal ethics.

Question 31

The typical board of directors is composed of a mix of inside and outside directors.

Question 32

Despite the existence of governance mechanisms and comprehensive measurement and control systems, a degree of information asymmetry will always remain between principles and agents.

Question 33

The most common pay-for-performance system has been to give managers stock options: the right to buy the company's shares at a predetermined (strike) price at some point in the future, usually within ten years of the grant date.

Question 34

Business ethics are the accepted principles of right or wrong governing the conduct of businesspeople.

Question 35

To foster ethical behavior, businesses need to build an organizational culture that places a high value on ethical behavior,

Question 36

In 1980, the average CEO in Business Week's survey of CEO's of the largest 500 American companies earned 42 times what the average blue-collar worker earned.

Question 37

In 2005, the average CEO in the Business Week survey earned more than 350 times the pay of the average blue-collar worker.

Question 38

Governance mechanisms help align the incentives between principals and agents, and monitor and control agents.

Question 39

Critics of U.S. industry claim that extraordinary pay has now become an endemic problem and that senior managers are enriching themselves at the expense of stockholders and other employees.

Question 40

The board of directors is the centerpiece of the corporate governance system in the United States and the Federal Republic of Germany.

Question 41

Which of the following is not a type of governance mechanism?

A) Business ethics
B) The takeover constraint
C) The board of directors
D) Stock-based compensation
E) Financial statements

Question 42

The ___________ of a company lay(s) out some desired future state.

A) vision
B) values
C) goals
D) mission statement
E) stakeholders

Question 43

The _________________ statement describes what it is that the company does.

A) vision
B) values
C) mission
D) cultural
E) major goals

Question 44

Typically, the third step in the stakeholder impact analysis is________________________.

A) Identify the resulting strategic challenges.
B) Identify the stakeholders.
C) Identify what claims stakeholders are likely to make on the organization.
D) Identify stakeholders' interests and concerns.
E) None of the above

Question 45

Equity capital for which there is no guarantee that stockholders will ever recoup their investment or earn a decent return is called __________________________.

A) capital
B) investments
C) risk capital
D) stock options
E) none of the above

Question 46

Internal stakeholders of a company include

A) the board of directors
B) customers.
C) unions
D) suppliers.
E) local communities.

Question 47

_______________________ is the set of values, norms, and standards that control how employees work to achieve an organization's mission and goals

A) The vision
B) The mission
C) The organizational culture
D) The goals
E) The corporate governance

Question 48

Publicly trading companies in the United States are required to file quarterly and __________ reports with the SEC that are prepared according to GAAP

A) semi-annual
B) monthly
C) annual
D) by-monthly
E) detailed

Question 49

Which of the following is not a responsibility of the board of directors?

A) Monitor corporate strategy decisions and ensure that they are consistent with stockholder interests
B) Develop the company's competitive strategy
C) Hire, fire, and compensate the CEO
D) Apply sanctions on management when appropriate
E) Make sure the audited financial statements present a true picture of the company's financial situation

Question 50

The capital that stockholders provide to a company is seen as

A) play money.
B) risk capital
C) contractual capital.
D) guaranteed capital.
E) agency capital

Question 51

When managers pursue strategies that are not in the interests of stockholders, this is call __________________.

A) empire building
B) agency problem
C) unauthorized acquisitions
D) strategic incoherence
E) a corporate scandal

Question 52

Which of the following is not a characteristic of well-constructed goals?

A) They are precise and measurable.
B) They are challenging but realistic
C) They specify a time period.
D) They are the result of a group decision process.
E) They address crucial issues.

Question 53

Dennis Kozlowski was the CEO of _______________.

A) Red Hat
B) IBM
C) Tyco
D) Microsoft
E) Netscape

Question 54

Which of the following would not be considered a company stakeholder?

A) Employee
B) Customer
C) Supplier
D) Competitor
E) Shareholder

Question 55

___________________ are senior employees of the company, such as the CEO.

A) Stockholders
B) Outside directors
C) Inside directors
D) Business-level managers
E) None of the above

Question 56

Why are managers thought to engage in empire building?

A) Companies that do not grow stagnate
B) The pursuit of growth represents the best way of maximizing the long-run profitability of the company.
C) Growth is designed to increase market share, which in turn increases company profits.
D) Growth results in large company size, and large size satisfies managers' needs for power, status, income, and job security.
E) Stockholders would rather invest in large companies than in small ones.

Question 57

The most common pay-for-performance system have been to give managers ________________.

A) semi-annual bonuses
B) annual pay increases
C) capital increases
D) stock options.
E) none of the above

Question 58

External stakeholders of a company include

A) stockholders
B) the board of directors.
C) executive officers.
D) unions
E) employees.

Question 59

The centerpiece of the corporate governance system in the United States and the United Kingdom is___________________.

A) stock-based compensation
B) the takeover constraint
C) financial statements
D) cultural leadership
E) the board of directors

Question 60

Which of the following groups is not among the external claimants on a company?

A) Customers
B) General public
C) Unions
D) Governments
E) Stockholders

Question 61

When managers pay bribes to gain access to lucrative business contracts they are engaging in

A) opportunistic exploitation.
B) corruption
C) self-dealing.
D) information manipulation.
E) utilitarian ethics

Question 62

Which of the following statements about the Sarbanes-Oxley bill is false?

A) It represents the biggest overhaul of accounting rules.
B) It represents the biggest overhaul of corporate governance since the 1930s
C) It set-up a new oversight board for accounting firms.
D) It requires CEOs and CFOs to endorse their company's financial statements.
E) It outlines acceptable principles of right and wrong.

Question 63

______________________ covers a range of actions aimed at harming actual or potential competitors, most often by using monopoly power, thereby enhancing the long-run prospects of the firm.

A) Self-dealing
B) Information manipulation
C) Anti-competitive behavior
D) Opportunistic exploitation
E) Corruption

Question 64

A takeover constraint

A) uses the threat of a takeover to cause the CEO to fear the loss of his or her job.
B) prevents a company from being taken over.
C) limits the extent to which managers can pursue strategies that are inconsistent with shareholder interest.
D) is reduced by corporate raiders.
E) is greatest when a company's stock price is significantly higher than book value.

Question 65

When are the interests of stockholders and senior managers likely to be most closely aligned?

A) When the board of directors is dominated by insiders
B) When managers receive most of their compensation in the form of a regular salary
C) When managers receive most of their compensation in the form of stock options
D) When stockholders are weak
E) When corporate raiders are unable to mount a takeover bid

Question 66

Members of the board of directors are supposed to be agents for

A) executive officers
B) employees.
C) stockholders
D) customers.
E) suppliers.

Question 67

Which of the following statements about opportunistic exploitation is true?

A) When managers find a way to feather their own nests with corporate monies.
B) When managers use their control over corporate data to distort or hide information.
C) When managers aim at harming actual or potential competitors.
D) Managers unilaterally rewrite the terms of a contract with suppliers, buyers, or complement providers in a way that is more favorable to the firm.
E) None of the above

Question 68

Which of the following statements about the takeover constraint is false?

A) Limits the extent to which managers can pursue strategies.
B) Limits the actions that put the managers own interests above those of the stockholders.
C) Limits situations where there is no agreement about acceptable principles.
D) Managers could lose their independence and probably their jobs.
E) Limits the worst excesses of the agency problem.

Question 69

Which of the following statements about the board of directors is false?

A) Board members are elected by stockholders.
B) All directors are full-time employees of the company.
C) The board has the legal authority to hire, fire, and compensate the CEO.
D) The board can be held legally accountable for a company's actions.
E) Outside directors help perform the monitoring function of the board.

Question 70

_______________ are individuals who are responsible for making sure that all employees are trained to be ethically aware, that ethical considerations enter the business decision-making process, and that the company code of ethics is adhered to.

A) CEOs
B) Corporate attorneys
C) The board of directors
D) Ethics officers
E) Stakeholders

Question 71

In the business arena the laws that govern product liability are called __________________.

A) contract laws
B) intellectual laws
C) tort laws.
D) securities laws
E) none of the above

Question 72

Identify and discuss the governance mechanisms that help align the incentives of stockholders and managers and monitor and control management.

Question 73

When managers of a firm seek to unilaterally rewrite the terms of a contract with suppliers, buyers, or complement providers in a way that is more favorable to their firm they are engaging in

A) corruption
B) ethical behavior.
C) opportunistic exploitation.
D) philosophical ethics.
E) self-dealing.

Question 74

To make sure that ethical issues are considered in business decisions

A) a company should use a bottom-up approach.
B) top managers should articulate and model ethical behaviors.
C) a company should have a no-layoff policy
D) a company should spend the majority of its operating budget to teach people what is legal and not legal.
E) a company should hire and promote employees that do whatever it takes to achieve organizational objectives.

Question 75

The most common examples of unethical behavior include all of the following except______________.

A) information manipulation
B) self-dealing
C) annual reports
D) anti-competitive behavior
E) the maintenance of substandard working conditions

Question 76

Discuss the best ways for managers to make sure that the ethical considerations are taken into account when making business decisions.

Question 77

Which one of the following about business ethics is true?

A) Business ethics are the accepted principles of right or wrong governing the conduct of business people.
B) Business ethics are accepted principles of right or wrong that govern a person.
C) Business ethics govern the behavior of members of a profession.
D) Business ethics is selecting the correct alternative to solve a problem.
E) Business ethics govern the actions of an organization.

Question 78

Which of the following statements about moral courage is false?

A) It enables managers to walk away from a decision that is profitable.
B) It gives the employee the strength to say no to a superior that instructs her to pursue actions that are unethical.
C) Moral courage is important to maximize long-term profits in order to maximize returns to stockholders.
D) It gives employees the integrity to go public to the media and blow the whistle on persistent unethical behavior in a company.
E) Moral courage does not come easily.

Question 79

Which of the following is not a potential cause of unethical behavior in organizations?

A) Failure to examine the ethical dimensions of a decision
B) An organizational culture that de-emphasizes ethical behavior
C) Dynamic competitive environment
D) Management pressure to meet organizational objectives by "cutting corners"
E) Weak ethical leadership

Question 80

Business ethics is primarily concerned with

A) teaching people the difference between right and wrong.
B) replacing economics with social responsibility in the decision-making process
C) ensuring that employees are experts in laws related to business ethics.
D) ensuring managers weigh the ethical implications of their decisions.
E) increasing profits.