434-Chapter 12-MC

The ideas of corporate social repsonsibility and stakeholder strategy are particularly prevalent in

Europe

In __________, a single investor or group of investors buys, with the help of borrowed money, the outstanding shares of a publicly traded co. and assumes control of it

a leveraged buyout

Example of an application of agency theory?

employement contracts

Additional functions of a board of directors beyond general strategic oversight include:

-selecting, evaluating, and compensating the CEO -ensuring that the firm's accounting practices and reports are accurate -assessing and mitigating risk

True statement about stock options:

The recipient is given the right to purchase stock at a predetermined price sometime in the future

the idea of corporate social responsibility(CSR) suggests that a firm's obligations should:

exceed the traditional imperative to increase profits

The subprime mortgage crisis of the early 2000s is an ex. of:

poor corporate governance

An external governance mechanism that makes a poorly managed co. vulnerable to takeover by outside investors is known as:

the market for corporate control

Any action taken by a manager that is within the bounds of the law is, by definition, an ethical action .

FALSE

The shared value creation framework aims to reconcile the concept of gaining and sustaining a compt. advtg. with corporate social responsibility

TRUE

Corporate governance addresses the _______ prob, which underscores the risks of delegating responsibility and control to invidividuals who may not have the firm's best interests in mind.

principal-agent

In line w stakeholder theory, which strategic action would NOT, according to Michael Porter, connect economic and societal needs?

-Offer financial support to local politicians

Uber's unethical behavior resulted in?

-The company's CEO was forced to resign

Examples of moral hazard:

-a company dumps pollution into a local take that will be cleaned using taxpayer money -a copywriter secretly works on her novel while at work -banks make very risky loans w/ the knowledge that the govt. will ball them out if necessary

Financial statements by public companies must

-adhere to GAAP -by audited by certified public accountants

Correct regarding the interests of principals and agents:

-agents may be more interested in personal growth, such as maximizing their compensation or gaining power. -principals want to maximize shareholder returns

Financial statements by public companies must :

-be audited by certified public accountants -adhere to GAAP

According to agency theory, which managerial functions can be used to avoid adverse selection and moral hazard?

-control -organization

In order to reconcile economic and social needs, managers should focus on:

-creating new regional clusters and business centers -expanding value chains to include NGOS and other organizations committed to social goals -making products affordable for the poorest socioeconomic groups in order to improve standards of living

In order to reconcile economic and social needs, managers should focus on ___________

-creating new regional clusters and business centers -expanding value chains to include NGOs and other organizations committed to social goals -making products affordable for the poorest socioeconomic groups in order to improve standards of living

When facing an ethical dilemma, a manager should:

-determine whether he or she could comfortably defend the action to the public -consider whether the action in question conforms to the firm's code of conduct and industry practices

Optics Incorp, a publicly traded eyewear business, places profits ahead of all other performance metrics. This practice:

-fails to take into account the idea of corporate social responsibility -conforms to the traditional notion of shareholder capitalism

Incentives that are too high-powered, such as an outsized bonus, may cause individuals to:

-focus too much attention on the incentive and not enough on strategic activities

These have been found to be ethical norms in business:

-honesty -reciprocity -fairness

A public stock co. is considered by law to be an entity with legal rights and obligations. This is known as:

-legal personality

A situation in which one party has an incentive to shirk their responsibility because the costs will fail to the other party is known as:

-moral hazard

Four characteristics of a public stock co. that make it an attractive corporate form?

-separation of ownership and control -limited liability for investors -legal personality -transferability of investor interests

The shared value creation framework encourages managers to focus on:

-social needs -economic needs

What are the 2 significant issues regarding the CEO pay debate?

-the size of the CEO compensation in relation to avg. employee pay -the relationship b/w firm performance and CEO pay

The ratio of CEO to avg. employee pay in the US is about:

300 to 1

Federal regulatory agency whose task it is to oversee stock trading and enforce federal securities laws:

Securities and Exchange Commission

A major drawback of public stock companies, according to Michael Porter & others:

They prioritize financial performance over all else.

In team-based environments, the principal may have difficulty determining individual contributions by membrs. This can create a situation in which an opportunistic employee does little work but takes credit. This is known as:

adverse selection

Following the rise of institutional investors, the use of poison pills to avoid hostile takeover has:

become rare

The code of professional conduct based on societal norms and expectations is known as:

business ethics

One of the key characteristics of a leveraged buyout(LBO) is that it

changes the ownership structure of a co. from public to private

Under agency theory, a manager should seek to align _______ b/w principals and agents to minimize opportunism

incentives

____________ is when agents are better informed than principals.

information asymmetry

Managers who act upon secret co. info for personal gain, such as by trading stock based on knowledge of future incentives, are guilty of:

insider trading

In regard to the public stock co, limited liability means that:

investors are not responsible for any debts incurred by the co. and are only at risk of losing the invested capital

A fiduciary responsibility is a:

legal duty to act in another party's interest

Main goal of a poison pill is to:

minimize the threat of a hostile takeover

The primary diffce b/w outside and inside members of the board of directors is:

outside directors are not employees of the firms, whereas inside directors are

The interests of inside directions on the board of directors typically align w/ those of:

senior management

The SEC argued that by NOT disclosing the risky nature of mortgages in the Abacus CDO, Goldman Sachs

violated its fiduciary duty