Question 1

The regulations instituted by the United States governmental organization known as the SEC make sure that managers do not misrepresent financial information and require that the accounts be audited by an independent, accredited accounting firm are also instituted in most other developed nations.

Accepted Answer

The regulations instituted by the SEC are also instituted in most other developed nations to ensure that managers do not misrepresent financial information and to require that the accounts be audited by an independent, accredited accounting firm.

Question 2

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

Accepted Answer

Stakeholders, such as customers, employees, shareholders, and suppliers, have a significant impact on a company's success. If a company ignores their concerns and interests when making decisions, these stakeholders can become dissatisfied and withdraw their support, which can ultimately harm the company's bottom line. Therefore, it is essential for companies to consider and address stakeholder claims and concerns when formulating their strategies.

Question 3

When managers cannot find the right balance between profitability and profit growth, they can place too much emphasis on current profitability at the expense of future profitability and profit growth can make an enterprise less attractive to shareholders or they can place too much emphasis on profit growth can reduce the current profitability of the enterprise and have the same effect.

Accepted Answer

This statement accurately describes the potential consequences of focusing too much on either current profitability or profit growth, highlighting the importance of finding a balance between the two.

Question 4

Phil is an employee at Global Tech Inc. He is considered an external stakeholder.

Accepted Answer

Phil is an employee, which makes him an internal stakeholder, not an external one.

Question 5

While the purpose of governance mechanisms is to reduce the scope and frequency of the agency problem, they are not involved in the alignment of the interests of business-unit managers with those of their superiors.

Accepted Answer

Governance mechanisms are indeed involved in aligning the interests of business-unit managers with those of their superiors, as this alignment is a key strategy to mitigate the agency problem by ensuring that managers' decisions are in the best interest of the company and its shareholders.

Question 6

Strategic control systems are the primary governance mechanisms established within a company to reduce the scope of the agency problem between levels of management.

Accepted Answer

Strategic control systems are specifically designed to monitor and evaluate a company's strategic performance and ensure that its operations are aligned with its long-term objectives. By reducing the scope of the agency problem between levels of management, these systems help to ensure that managers operate in the best interests of the company as a whole rather than pursuing their own goals at the expense of other stakeholders. As such, they are a critical component of effective corporate governance.

Question 7

Attaining future profit growth may require investments that reduce the current rate of profitability.

Accepted Answer

In order to achieve future profit growth, companies may need to invest in research and development, new technology, and other initiatives that may reduce current profitability in the short term but have the potential to increase profits in the long term.

Question 8

The stress of not knowing for sure if the agent is acting in his or her best interests or knowing for sure if the agent is using the resources to which he or she has been entrusted as effectively and efficiently as possible is caused by the performance ambiguity between a principal and agent.

Accepted Answer

This statement correctly identifies the source of stress in a principal-agent relationship as performance ambiguity. The principal may not be sure if the agent is acting in their best interests or making the most of the entrusted resources. This can cause stress and uncertainty for the principal.

Question 9

Only external stakeholders, such as customers, suppliers and creditors (including banks and bondholders), have an exchange relationship with a company.

Accepted Answer

External stakeholders are not the only ones who have an exchange relationship with a company. Internal stakeholders, such as employees and shareholders, also have an exchange relationship with the company.

Question 10

Maximizing long-run profitability and profit growth is the best way to satisfy the claims of several key stakeholder groups irrespective of how the company accomplishes this goal.

Accepted Answer

While maximizing long-run profitability and profit growth is important, how a company achieves these goals matters significantly. Ethical practices, environmental sustainability, and social responsibility are crucial for satisfying the broader claims of stakeholders, including employees, customers, communities, and shareholders. Ignoring these aspects can lead to reputational damage, legal issues, and ultimately, financial losses.

Question 11

With recent events, corporate boards have taken a hands-off role in top-management decisions and play a much more
passive role in corporate governance.

Accepted Answer

Recent events have actually led to a more active role for corporate boards in governance and decision-making. There has been increased scrutiny and pressure for boards to be more engaged and accountable in ensuring ethical behavior and risk management within the companies they oversee.

Question 12

An agency relationship continues throughout the hierarchy within a company.

Accepted Answer

The relationship between an agent and principal continues throughout the entire hierarchy of a company, as each level of management is responsible for carrying out the goals and objectives of the company as set by the principal.

Question 13

In a stakeholder impact analysis, after stakeholders' interests and concerns are identified it is necessary to identify the resulting strategic challenges.

Accepted Answer

The answer of In a stakeholder impact analysis, after stakeholders'...

Question 14

Agency theory offers a way of understanding why managers do not always act in the best interests of stakeholders.

Accepted Answer

Agency theory suggests that managers may prioritize their own interests over those of stakeholders due to the inherent conflict of interest between the two groups. This can lead to actions that benefit the manager, such as maximizing their own compensation, at the expense of stakeholders.

Question 15

Stockholders receive a return on their investment in a company's stock from dividend payments and capital appreciation.

Accepted Answer

Stockholders can receive returns in the form of dividends paid out by the company and capital appreciation, which is the increase in the value of the stock over time.

Question 16

One cause of the diverging interests between principals and agents is that managers in the company are motivated by different desires such as power, job security, and income and may use their position to help fulfill those desires rather than invest in ways that increase stockholder returns.

Accepted Answer

This statement is true. The principal-agent problem occurs when the goals of the principal (stockholders) and the agent (managers) diverge. Managers may prioritize their own desires, such as job security or power, over the interests of the stockholders who own the company. This can lead to decisions that benefit managers but do not maximize stockholder returns.

Question 17

Inside directors are not full-time employees of the company.

Accepted Answer

Inside directors are full-time employees of the company who also serve as members of the board of directors.

Question 18

According to an SEC investigation, Computer Associates, one of the world's largest software companies, backdated contracts to boost the company's reported revenues. This is not an ethical business practice.

Accepted Answer

Backdating contracts in order to boost reported revenues is a violation of ethical business practices.

Question 19

When managers consider the efficiency, timeliness and employee satisfaction in a company's scorecard, they are looking at the customer perspective.

Accepted Answer

Managers looking at efficiency, timeliness and employee satisfaction are considering the internal business perspective, not the customer perspective. The customer perspective would focus on things like customer satisfaction and loyalty.

Question 20

A union and the public are examples of internal stakeholders.

Accepted Answer

A union can be considered an internal stakeholder if it represents the organization's employees, but the public is generally classified as an external stakeholder.

Quiz 11: Corporate Governance, Social Responsibility, and Ethics