Question 1

Creating economic value for shareholders while also creating social value is known as creating _____.

Accepted Answer

Porter argues that executives should not concentrate exclusively on increasing firm profits. Rather, the strategist should focus on creating shared value, a concept that involves creating economic value for shareholders while also creating social value by addressing society's needs and challenges.

Question 2

What best describes transferability of investor ownership in a public stock company?

Accepted Answer

Investors are allowed to trade stocks freely in the stock market on exchanges such as the New York Stock Exchange (NYSE) and NASDAQ.

Question 3

Which of the following perspectives best supports the Shared Value creation framework?

Accepted Answer

The Shared Value creation framework proposes that managers maintain a dual focus on shareholder value creation and value creation for society. It recognizes that markets are defined not only by economic needs but also by societal needs. It also advances the perspective that externalities such as pollution, wasted energy, and costly accidents actually create internal costs, at least in lost reputation if not directly on the bottom line.

Question 4

Which of the following statements best supports the separation of ownership and control in publicly traded companies?

Accepted Answer

In publicly traded companies, the stockholders (the principals, represented by the board of directors) are the legal owners of the company, and they delegate decision-making authority to professional managers (the agents).

Question 5

Hoptin Inc.is a public stock company.Which of the following best exemplifies the legal personality of the company?

Accepted Answer

The continuation of Hoptin Inc. despite Jessi Hoptin's death best exemplifies legal personality. Legal personality allows a firm's continuation beyond the founder or the founder's family.

Question 6

Rehman is a firm believer in Milton Friedman's view of a firm's social obligations.With which of the following statements is Rehman most likely to agree?

Accepted Answer

Rehman is most likely to agree with Milton Friedman's view that a business can use its resources anyhow to create value as long as it does so within the rules of the game. Nobel laureate Milton Friedman stated his view of the firm's social obligations: "There is one and only one social responsibility of business-to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."

Question 7

Leila is a graduate student pursuing a course in international business.Presented with the case of HP's "soap opera," Leila wonders whether it was the right decision to ask the CEO of HP, Mark Hurd, to step down after he was accused of sexual harassment.Having a strong inclination toward Michael Porter's idea of value creation, Leila is most likely to conclude that:

Accepted Answer

Leila is most likely to conclude that HP was right in asking Mark to step down because it has a greater obligation toward society. According to Michael Porter, many public companies have defined value creation too narrowly in terms of financial performance. This implies that a firm's obligations should frequently go beyond the economic responsibility to increase profits, extending to legal, ethical, and philanthropic expectations that society has of the business enterprise.

Question 8

Which of the following statements is true of shareholders in a public stock company?

Accepted Answer

The state (or society) grants a charter of incorporation to the company's shareholders-its owners, who legally own stock in the company. The shareholders appoint a board of directors to govern and oversee the firm's management. The managers in turn hire, supervise, and coordinate employees to manufacture products and provide services.

Question 9

Which of the following real-world events would act as the most likely deterrent against adopting a purely stakeholder strategy approach to business?

Accepted Answer

Some critics argue that too strong a focus on the social dimension contributed to the European debt crisis because sovereign governments such as Greece, Italy, and Spain took on nonsustainable debt levels to fund social programs such as early retirement plans, government-funded healthcare, and so on.

Question 10

Roman owns shares in a company called Copnay Telecom Inc.The company's financial performance has been declining over the past few months, and the value of its stock has been decreasing.Roman wants to proactively cut his losses and therefore sells his shares.Jeremy, a trading enthusiast, buys shares in Copnay Telecom because he believes that the share prices cannot go anywhere but up.Which of the following characteristics of a public stock company does this scenario best exemplify?

Accepted Answer

This scenario best exemplifies transferability of investor ownership. Investors are allowed to trade shares of stock freely in the stock market on exchanges such as the New York Stock Exchange (NYSE) and NASDAQ.

Question 11

According to Michael Porter, which of the following is a problem with many publicly traded companies?

Accepted Answer

The public stock company has been a major contributor to value creation since its inception as a new organizational form over one hundred years ago. Michael Porter and others, however, argue that many public companies have defined value creation too narrowly in terms of financial performance.

Question 12

What does "limited liability for investors" imply in a public stock company?

Accepted Answer

Limited liability for investors means that the shareholders who provide the risk capital are liable only to the capital specifically invested, and not for other investments they may have made or for their personal wealth. Limited liability encourages investments by the wider public and entrepreneurial risk-taking.

Question 13

Which of the following is a characteristic of a public stock company?

Accepted Answer

The law concerning legal personality regards a non-living entity such as a for-profit firm as similar to a person, with legal rights and obligations. Legal personality allows a firm's continuation beyond the founder or the founder's family.

Question 14

Which of the following statements best supports the view that GE's ecomagination strategy is in line with the Shared Value creation framework?

Accepted Answer

Ecomagination solutions and products allow GE to increase the perceived value it creates for its customers while lowering costs to produce and deliver the "green" products and services. This indicates that GE's ecomagination strategy is in line with the Shared Value creation framework.

Question 15

Which of the following occurrences was NOT an event that facilitated HP's sordid "soap opera"?

Accepted Answer

As discussed in Chapter Case 12, Mark Hurd, newly appointed CEO, oversaw large-scale layoffs and a pay cut for all remaining employees as he reorganized the company. Through these significant cost-cutting and streamlining measures, Mr. Hurd turned HP into a lean operation. Wall Street rewarded HP shareholders with an almost 90 percent stock price appreciation during Mr. Hurd's tenure, outperforming the S&P 500 composite index by a wide margin.

Question 16

Mario founded Tapoz Communications Inc.in 1993.Ten years later, the company went public.Despite Mario's death in 2005, the company reported a 75 percent increase in revenue in 2006.Which of the following characteristics of a publicly traded company does this scenario best exemplify?

Accepted Answer

The scenario best exemplifies the law of legal personality. Legal personality regards a non-living entity such as a for-profit firm as similar to a person, with legal rights and obligations. Legal personality allows a firm's continuation beyond the founder or the founder's family.

Question 17

According to the perspective of shareholder capitalism, _____.

Accepted Answer

According to the perspective of shareholder capitalism, shareholders-the providers of the necessary risk capital and the legal owners of public companies-have the most legitimate claim on profits.

Question 18

Jamiro Inc.is a public stock company.Which of the following statements about the company best illustrates the fact that its investors have limited liability?

Accepted Answer

Limited liability means that the shareholders who provide the risk capital are liable only to the capital specifically invested, and not for other investments they may have made or for their personal wealth. Limited liability encourages investments by the wider public and entrepreneurial risk-taking.

Question 19

What was Leo Apotheker's role in the downfall of HP's market value?

Accepted Answer

As discussed in Chapter Case 12, Leo Apotheker, who came to HP after being let go from the German enterprise software company SAP, proposed a new corporate strategy for HP. As part of his new corporate strategy, Mr. Apotheker acquired the British software company Autonomy for $11 billion, which analysts saw as grossly overvalued. Shortly thereafter, HP took an almost $9 billion write-down due to alleged "accounting inaccuracies" at Autonomy.

Question 20

What is the result of managers' pursuit of strategies that define value creation too narrowly in public stock companies?

Accepted Answer

Managers' pursuit of strategies that define value creation too narrowly may have negative consequences for society at large, as evidenced during the global financial crisis. This narrow focus has contributed to the loss of trust in the corporation as a vehicle for value creation, not only for shareholders but also other stakeholders and society.

Quiz 12: Corporate Governance and Business Ethics