BUS 100 Midterm Review
Why Should Businesses Should be Ethical
- Enhance business performance - Comply with legal requirements - Prevent or minimize harm - Meet demands of business stakeholders - Promote personal morality
Why Ethical Problems Occur in Business
- Personal gain and selfish interest - Competitive pressure on profits - Conflicts of interest - Cross Cultural contradictions
Legal Rights of Shareholders
- Receive dividends if declared - Vote on members of board directors, major mergers and acquisition, charter and bylaw changes, proposals by stockholders (Voting) - Receival of annual reports on the company's financial condition (Informational) - To bring shareholder suits against the company and officers (Legal) - To sell their own shares of stock to others (Economic)
Regulation
Action of government to establish rules of conduct for citizens and organizations Primary way of accomplishing public policy Economic (Antitrust) Social
Positive reputation can be valued as an intangible corporate: - Expense - Asset - Charity - Liability
Asset
Corporate Culture
Blend of ideas, customs, traditional practices, company values, and shared meanings
Which statement is not correct about the business-society interdependence - Actions by governments rarely affect business - Business is separated from the rest of society by clear boundaries - Business activities impact other activities in society - Business is a part of society
Business is a part of society
Past decisions of the courts, the original basis for the U.S. legal system, are called: - Common laws - Legitimate actions - Torts - Amendments
Common laws
Stakeholder Theory of a Firm
Corporations serve a broad public purpose which is to create value for society Profit is necessary but not the only purpose Corporations have multiple obligations and need to consider all stakeholders
Gravity Payments Case
Dan Price, founder of Gravity Payments raised all of his employee's salaries to $70,000 by cutting his own salary. Some employees were happy while others believed it as just a publicity stunt but either way addressed the wage inequality between executives and employees and administering good corporate social responsibility
Cross-cultural contradictions arise due to: - Differences between home and host countries' ethical standards - The emergence of a developing country's economic power - Religious differences practiced by business executives - All of the above
Differences between home and host countries' ethical standards
Social Entrepreneur
Driven by core mission to create and sustain social rather than economic value
The most significant motivator of corporate social reporting is: - Government reporting requirements - Ethical concerns - Financial concerns - Employee demand
Ethical Concerns
Over time, the nature of business's relationship with its stakeholders often: - Evolves through a series of stages - Remains static - Becomes more hostile - None of the above
Evolves through a series of stages
Economic Public Policy
Fiscal (stimulus packages/infrastructure programs, patterns of government collecting and spending funds to stimulate or support the economy) Monetary (interest rate changes, policies that affect the supply, demand, and value of nations currency) Taxation (corporate and individual) Industrial (focused on specific industries) Trade (tariffs/duties or free trade)
When a company puts its commitment to social and environmental responsibility into practice worldwide, not only locally or regionally it is called: - Global Sustainability - Corporate Social Responsibility - Global Corporate Citizenship - Community Investing
Global Corporate Citizenship
Google Case
Google facing backlash for keeping silent about sexual harassment allegations and even paying an executive 90 million to exit. This highlights public issues such as gender equality and sexual harassment. This involves the community, government, employees, and customers. They expected Google to care about all genders and assault and to be open.
The iron law of responsibility says that: - In the long run, those who do not use power responsibly will lose it - In the short run, sacrifice social goals for economic goals - Law is most important, more than social or economic responsibility - In the long run, economic responsibility leads to social responsibility
In the long run, those who do not use power responsibly will lose it
Contemporary issue management: - Is a linear process - Was useful in the 1970s, but not today - Is an interactive, forward-thinking process - Is used by all government agencies
Is an interactive, forward thinking process
Securities and Exchange Commission (SEC)
Major government agency responsible for protecting shareholders' interests - Make sure stock markets are run fairly
Proactive companies are: - Just as likely to be blindsided by crises and negative surprises - Much more likely to be forced to defend itself in a lawsuit brought by a stakeholder - Much more likely to be blindsided by crises and negative surprises - Much less likely to be blindsided by crises and negative surprises
Much less likely to be blindsided by crises and negative surprises
Business
Organizations engaged in making a product or service for profit
Social Ventures
Organizations founded by social entrepreneurs
A Firm and Its Stakeholders
Other stakeholders: - Communities - Business trade associations - The general public - Retailers, wholesalers
Nonmarket Stakeholders
People or groups who do not engage in direct economic exchange with firm but still affected by or can affect its actions - Community - NGO - Competitors - Trade associations
Public Policy
Plan of action undertaken by government officials to achieve some broad purpose affecting a substantial segment of nation's citizens Sets goals, plans, and actions that each national government follows in achieving its purposes
Stakeholder are salient when
Power Legitimacy - Extent to which stakeholder's actions are seen as proper and appropriate by the broader society Urgency - Time sensitivity to stakeholder's claim, which need immediate action
Corporate Governance
Process by which a company is controlled or governed, usually by Board of Directors Inside (in the company) Outside (experience in industry or former executive)
Most ethics or compliance officers are generally entrusted to: - Act as a liaison between the company and the Securities and Exchange Commission - Annually distribute copies of the company's code of ethics to all interested stakeholder - Arrange for ethics training for employees at a nearby university - Reduce the risks to the company of employee misconduct
Reduce the risks to the company of employee misconduct
Which of the following is an argument against corporate social responsibility? - Improves business value and reputation - Requires skills businesses may lack - A majority of stockholders are against it - Creates an imbalance between corporate power and its economic responsibility
Requires skills businesses may lack
How are directors (members of corporate boards) selected? - The company's CEO appoints the directors - The nominating committee elects the directors - Shareholders with the greatest proportional ownership in the company become directors - Shareholders elect the directors from a list of candidates
Shareholders elect the directors from a list of candidates
Capital Dividends
Stockholders make money when receive their share of company's earnings
Which of the following statements is not true about the interactive social system? - The boundary between business and society is clear and distinct - Business and society need, as well as influence, each other - Business and society are both separate and connected - Business is a part of society, and society penetrates far and often into the business
The boundary between business and society is clear and distinct
Corporate Power
The capability of corporations to influence government, economy, and society based on their organizational resources
Cooperation between business and government often occurs when: - Businesses can afford it - They encounter a common problem or enemy - Business operates at arm's length from the government - Government has the support of the people
They encounter a common problem or enemy
3M-N95 Respirators
Trump Administration ordered FEMA to acquire from 3M, a leading mask manufacturer, and its subsidiaries as many as N95 respirators, suspend exports of N95's and divert masks made in China to the US, which may provoke China to retaliate but 3M said they would work with Trump. This is not consistent with their value statement as they agree to make ethical choices as it harms other customers, not in the US. This may increase stock and demand for them form US customers, but decrease the rest of the world's business and does not align with principles of human rights as they do not include all humans nor is it fair and just to the rest of the world
Ethical Climate
Unspoken understanding among employees of what is and is not acceptable behavior - Based on expected standards and norms - Multiple climates (or sublimates) can exist within one organization
Benefits of Business-Stakeholder Engagement
- Alerts companies to emerging issues - Give firms access to information via networking - Technical or scientific expertise in specific areas - Better result in eyes of public - Meet society's expectations and generate good solutions - Improve company's reputation
Board of Directors
- Elected group of individuals - Vary in size and composition - Inside and outside directors - Establish corporate objectives - Develop broad policies - Select top-level personnel to carry out these objectives and policies
Which of the following is not an instance of "insider trading"? - An auditor using nonpublic information about the company to invest in its stock - The CEO's cousin buying stock after the CEO mentioned a pending offer to buy the company - A marketing executive briefing stock analysts on the company's sales performance - A stock broker passing an "inside tip" to a client, but not trading for his or her own account
A marketing executive briefing stock analysts on the company's sales performance.
Stakeholder Expectations
A mixture of people's opinions, attitudes, and beliefs about what constitutes reasonable business behavior
Deregulation is often: - Found in European countries but not in the United States - A politically popular idea - A politically unpopular idea - Seen during a Democratic federal administration
A politically popular idea
When attempting to build ethical safeguards into the company, businesses can take the following specific approaches: - Legal and Practical - Institutional and Legal - Value-based and Consequentialism - Compliance and Integrity
Compliance and Integrity
Investors may receive an economic benefit from the ownership of stock by receiving: - Interest - Dividends - Capital gains
Dividends & Capital Gains
External Stakeholders
Not on payroll - Suppliers - Society - Government - Creditors - Shareholders - Customers
Deregulation
Removal or scaling down of regulatory activities of government
Capital Gains
Stockholders make money when price of stock rises
Four Methods of Ethical Reasoning
Virtues Utilitarian Rights Justice
Insider Trading
When a person gains access to confidential information about a company's financial condition and uses that information before it becomes public knowledge, to buy or sell the company's stock for profit Illegal to - Steal nonpublic information and use it to trade stock - Trade a stock based on a tip from someone who had an obligation to keep quiet - Pass information to others with expectation of gain
Succesful Firm
finds ways to meet each of its critical social, economic, and legal responsibilities and develops strategies to enable the obligations to help each other
Stake
interest in or claim on a business
Which of the following statements is true about corporate social responsibility? - Businesses should monitor and prevent social problems in advance of their becoming major issues - A company should seek maximum profits from its operations in order to provide the best for society - Corporations should be accountable for any actions that affect people, their communities, and the environment - Both of these answers are correct: Businesses should monitor and prevent social problems in advance of their becoming major issues; and corporations should be accountable for any actions that affect people, their communities, and the environment
Both of these answers are correct: Businesses should monitor and prevent social problems in advance of their becoming major issues; and corporations should be accountable for any actions that affect people, their communities, and the environment
Predatory Pricing
Practice of selling below cost to drive rivals out of business
Integrity-based ethics programs: - Seeks to avoid legal sanctions - Threatens employees with punishment for noncompliance with the ethics program - Combines concern for the law with an emphasis on employee responsibility - Are predominately implemented within the European Union
Combines concern for the law with an emphasis on employee responsibility
Ethics Programs and Policies
Ethics and Compliance Officers Ethics Reporting Mechanisms: - Helpline or hotline Ethics Training Programs - Expensive and time consuming
Reregulation
Expansion of government regulation
The main drawback to utilitarian reasoning is that: - Managers using this reasoning process often fail to consider the means taken to reach the end - The majority may override the rights of those in the minority - It is difficult to accurately measure both costs and benefits - Cost-benefit calculations can only be provided by accountants
It is difficult to accurately measure both costs and benefits
The information strategy tool most used by business is: - Contributions - Direct communication - Legal challenges - Lobbying
Lobbying
The mission of the Securities and Exchange Commission (SEC) is to: - Protect companies from hostile takeovers - Ensure that institutional investors do not take control of company management - Ensure that the federal treasury receives its share of the revenues from stock trading - Protect shareholders' rights by making sure that stock markets are run fairly
Protect shareholders' rights by making sure that stock markets are run fairly
Stakeholder engagement is: - Competitive intelligence being collected ethically and systematically - Any issue that is of mutual concern to an organization and one or more of its stakeholders - The acquisition of information gained from analyzing the multiple environments - The process of ongoing relationship building between a business and its stakeholders
The process of ongoing relationship building between a business and its stakeholders
Which of the following is not a legal right of shareholders? - To vote on major mergers and acquisitions - To vote on changes in the corporate charter and proposals - To vote on members for the board of directors - To vote on who will become chief executive officer (CEO)
To vote on who will become CEO
Union Square Hospitality Group Case
Took away tipping for servers before COVID because of back of house to front of house equality in pay, to return to tipping after COVID. Stakeholders: employees (front and back of house)- unequal pay and racial reasons customers- don't like the "blocked gratitude" and raised menu prices Government- created laws to not allow tip sharing
When undertaking social initiatives, a company: - Must take out social responsibility insurance - Will always receive long-term profits - May sacrifice short-term profits - Risks going bankrupt in nearly all cases
May sacrifice short-term profits
Social Public Policy
Social Assistance (healthcare and education)
Principles of Good Governance
- Select outside directors to fill most positions - Hold open elections for members of the board - Hold elections for all directors annually - Appoint an independent lead director - Diversify board membership
Which of the following is not an example of stakeholders' economic power? - A supplier halts shipments to a business customer that demanded very low prices - A social group protests a government's decision to raise taxes - A local community boycotts a grocery store suspected of inaccurate weight scales - An equal rights group refuses to do business with a company that has a discriminatory hiring policy
A social group protests a government's decision to raise taxes
Corporate Social Responsibility
Act in a way that enhances society and its inhabitants and be held accountable Acknowledge any harm to people and society and correct it if possible May forgo some profits if its social impacts hurt its stakeholders or if its funds are usable for a positive social impact
Corporate Citizenship
Actions businesses take to put commitments to corporate social responsibility to practice Global is putting into practice worldwide - Proactively building stakeholder partnerships - Discovering business opportunities in serving society - Transforming a concern for financial performance into a vision of integrated financial and social performance
The core components upon which a company's ethical performance depends include: - The personal character of the managers and employees - The values and virtues of the managers - The traditions, attitudes, and business practices built into a company's culture -All of the above
All of the Above
Businesses promote an information strategy by inviting government leaders to: - Attend company award ceremonies - Give speeches to employees - Visit local plant facilities - All of the above
All of the above
Corporations that run their operations according to the stakeholder theory of a firm create value by: - Increasing their stock prices - Developing their employee's professional skills - Innovating new products - All of the above
All of the above
Social investors seek to eliminate from their investment portfolios companies that: - Make dangerous products like tobacco or weapons - Pollute the environment - Discriminate against employees
All of the above
What kind of power might a local community use to influence a company's decisions? - Publicizing an issue - Challenging whether a business activity should continue to operate - Lobbying government policymakers for regulations - All of the above
All of the above
Corporations that run their operations according to the stakeholder theory of the firm create value by: - Innovating new products - Increasing their stock price - Developing their employees' professional skills - All of these answers are correct.
All of these answers are correct
Antitrust Enforcement Agencies
Antitrust Division of US Department of Justice Federal Trade Commission
Public Issue
Any issue that is of mutual concern to an organization and one or more stakeholders
Business Ethics
Application of general ethical ideas to business behavior
By law, the financial records of publicly held companies are required to be: - Reviewed quarterly by the IRS - Audited by a certified professional accounting firm - Managed by an accounting department of at least five CPAs - Summarized in the employee manual for new hires
Audited by a certified professional accounting firm
An emerging business model that attempts to strategically balance the interests of all stakeholders to solve social and environmental problems is called: - Balanced Corporation - B Lab - B Corporation - CSR Corporation
B Corporation
All of the following values are present in most ethical decisions except: - Be honest - Act responsibly - Be fair and just - Be cruel
Be cruel
Which of the following statements is true about corporate social responsibility? - Businesses should monitor and prevent social problems in advance of their becoming major issues - A company should seek maximum profits from its operations in order to provide the best for society - Corporations should be accountable for any actions that affect people, their communities, and the environment - Both A and C are correct
Both A and C are correct
Customers can exercise economic stakeholder power by: - Boycotting products if they believe the goods are too expensive - Voting on a proposed merger for the company and a competitor - Applying for a job with the company - Attending the company's annual meeting
Boycotting products if they believe the goods are too expensive
To influence government policymakers' actions, an information strategy involves: - Government policymakers hiring special interest groups for fact-finding projects - Businesses listening to government policymakers in order to develop a corporate strategy - Business leaders speaking before government policymakers - Gaining support from other affected organizations
Business leaders speaking before government policymakers
When the market fails to adjust for the full costs of a firm's behavior, this is called: - Deregulation - Negative externalities - Market failure - Re-regulation
Business leaders speaking before government policymakers
The board committee that administers and approves salaries and benefits of high-level managers in a company is called the: - Compensation committee - Human resources committee - Nominating committee - Executive committee
Compensation Committee
The costs of corporate social responsibility may ultimately be passed on to the: - Taxpayers by the government - Supplier through discounts - Investor through stock splits - Consumer through high price
Consumer through high prices
When a government orders companies not to conduct business in another country because of a war, human rights violations, or lack of a legitimate government; these orders are called: - Economic Sanctions. - Government bailouts - Political sanctions. - Government stop-orders.
Economic Sanctions
Internal Stakeholders
Employed by the firm - Employees - Managers
Market Stakeholders
Engage in economic transactions with the company as it carries out its primary purpose of providing society with goods and services - Shareholders - Suppliers - Employees - Customers - Creditors - Retailers
Enron Case
Enron executives caught lying about accounting numbers in a hyper competitive climate that used a rank and yank system and conflict of interest practices using analysts to recommend their stock, that ignored ethical employees like Sharon who tried to bring light to bad unethical accounting practices, ultimately creating their demise, sending the CEO Andrew Fastow to prison and creating the biggest accounting scandal and securing whistleblower protection in the Sarbanes Oxley Act
Which of the following is not a constituency-building strategy tool? - Advocacy advertising - Expert witness testimony - Public relations - Legal challenges
Expert witness testimony
Under the Sarbanes-Oxley Act, corporations are required to: - Have their audit committee comprised of only executives employed by the firm - Have executives vouch for the accuracy of a firm's financial reports - Collect reimbursements from the U.S. government if financial restatements occur - All of the above
Have executives vouch for the accuracy of a firm's financial reports
Which of the following arguments supports the concept of high executive compensation? - There is currently a surplus of qualified executive candidates - High executive pay drives away talented middle managers who feel unfairly compensated - High salaries provide an incentive for innovation and risk-taking - Inflated executive pay helps U.S. firms compete with foreign rivals
High salaries provide an incentive for innovation and risk-taking
Stakeholder Analysis
Identification of relevance stakeholder and analysis of their interests and power - Who are they - What are their interests - What are their powers & how much power - How are coalitions likely to form - Market or Nonmarket - Internal or External
Types of Corporate Political Strategy
Information - Businesses seek to provide government policymakers with information to influence actions Financial-Incentives - Businesses provide incentives to influence government policymakers to act in a certain way Constituency-building - Businesses seek to gain support from other affected organizations to better influence government policymakers to act in a way that helps them
Elements of Public Policy
Inputs - External pressures that shape a government's policy decisions and strategies to address problems Goals - Can be broad or high minded or narrow and self-serving Tools - Incentives and penalties that government uses to achieve policy goals Effects - Outcomes arising from government regulation
Shareholders
Legal owners of business corporations Stockholders/ Investors Individual shareholders - people who directly own shares of stock issues by companies Institutions - pension funds, mutual funds, insurance companies, university endowments
Which of the following examples best illustrate an ethics issue based on cross-cultural contradictions? - Hiring child workers in violation of civil law - False and misleading advertising claims - Circumventing government regulations to ensure company profits - Legally marketing a pesticide abroad that has been banned in the U.S.
Legally marketing a pesticide abroad that has been banned in the U.S.
The "agency problem" arises when: - There is no separation of ownership and control in a company - Shareholders act in their own interest, rather than in the interest of the board - Owners manage the company on their own behalf - Managers act in their own interest, rather than in the interest of shareholders
Managers act in their own interest, rather than in the interest of shareholders.
B Corporation
Meet rigorous independent social and environmental performance standards, focus on social responsibility and citizenship by blending their social objectives with financial goals, seek to balance interests of multiple stakeholders Must prove its socially responsible by meeting B Lab standards (nonprofit organization that asseses corporation's social and environmental performance standards)
Stages in Business-Stakeholder Relations
Nature of businesses' relationship with its stakeholders evolve through a series of stages Inactive - companies ignore stakeholder concerns Reactive - Companies only act when forced to do so in a defensive manner Proactive - Companies try to anticipate stakeholder concerns Interactive - Companies actively engage stakeholders in an ongoing relationship of mutual respect, openness, and trust Walmart (CEO wage gap, inactive?) Google (Reactive) Chipotle (
Stakeholders stand out to managers when they exhibit: - Integrity, power, and legitimacy. - Power, legitimacy, and urgency. - Integrity, loyalty, and power. - Legitimacy, loyalty, and urgency.
Power, legitimacy, and urgency
Social Entrepreneurship
Process of identifying a social need and using their entrepreneurial skills to address this need
Objective of Stock Ownership
Produce greater return over the long run than other investments such as bonds or cash or social investment
Shareholder Primacy/Theory of a Firm
Profit maximization for stockholders and investors
Antitrust Laws
Prohibits unfair, anticompetitive practices by business AT&T - Time Warner Merger of 2018 Loss of Options and Competition
Bribery
Questionable or injust payment often to a government official to ensure or facilitate a business transaction
Robinhood Case
Robinhood's inability of customer service and app updates to fix bugs caused user, Nick, to assume he had a large amount of debt and unable to get help from the app he committed suicide. Customer's need more information on how to use the app App needs fixing that never came about and lack of customer service Government should mandate regulations to ensure apps that could lead to this type of severity should be controlled
How Business and Government Relate
Seek collaborative partnership Work in opposition to government Legitimacy issues (companies in other countries may find osme governments to be questioned)
Corporate Social Responsibility Question
Support - Balance corporate power with responsibility - Discourages government regulation - Promotes long-term profits for business - Improves stakeholder relationships - Enhances business reputation Concerns - Lowers economic efficiency and profit - Imposes unequal costs among competitors - Imposes hidden costs passed on stakeholders - Requires skills businesses may lack - Places responsibility on businesses rather than individuals
The issue management process is a: - Beneficial tool used only to maximize the positive effects of a public issue for the organization's advantage - Beneficial tool used only to minimize the negative effects of a public issue for the organization's advantage - Systematic process companies use when responding to public issues that are of greatest importance to the business - Confusing process that is rarely used to help top management within an organization.
Systematic process companies use when responding to public issues that are of greatest importance to the business
The issues management process is a - Confusing process that is rarely used to help top management within an organization - Beneficial tool used only to minimize the negative effects of a public issue for the organization's advantage - Systematic process companies use when responding to public issues that are of greatest importance to the business - Beneficial tool used only to maximize the positive effects of a public issue for the organization's advantage
Systematic process companies use when responding to public issues that are of greatest importance to the business
Government's response to the Pandemic
The US government used public policy as fiscal policy to introduce stimulus package as "COVID relief" that benefited citizens and businesses, and essential health care businesses got financial support and provided essential research into vaccines and overall government public money was extended while also mandating masks as social policies, and trade
Corporate power refers to: - The capability of CEOs to influence product development, employee morale, and currency indices, based on their organizational resources - The capability of corporations to influence government, the economy, and society, based on their organizational resources - The capability of politicians to influence corporations, employees, and unions, based on their organizational resources - The capability of competitors to influence legislation, trade, and the stock market, based on their organizational resources
The capability of corporations to influence government, the economy, and society, based on their organizational resources
Which of the following statements is not true about shareholders? - They are investors in the company - They own equal shares of company assets - They are the legal owners of business corporations - Managers pay close attention to their needs and interests
They own equal shares of company assets.
Steel Mill Case
US steel industry demand dropped when foreign produced steel was being used as it was cheaper. Production in the US dropped and so they used a political strategy to get the US to instill a tariff on exported steel to boost use of US steel by providing "white papers" of short briefs to educate members of congress, funded politicians to get influence, and went to the American Iron and Steel institute trade association to increase their PAC campaign contributions, and formed coalitions, and publicly informed Americans about the crisis displaying information, financial incentive, and constituency-building strategies. The tarriff was instilled but customers felt the effects through higher prices, the industries inability to compete in the global marketplace, and drop in stocks
Dark money refers to: - Undisclosed contributions to tax-exempt organizations - Money collected illegally by PACs - Anonymous contributions to for-profit organizations - Soft money
Undisclosed contributions to tax-exempt organizations
Stakeholder map
Visual representation of the relationships among stakeholder interests, power, and coalitions with respect to a particular issue Enables managers to quickly see how stakeholders feel about an issue, coalitions forming, how powerful they are, and outcomes likely
Stakeholder Power
Voting - Legal right to cast a shareholder vote Economic - Ability to grant or withhold transactions with the focal company - Boycotting Political - Actions taken through legislation, regulation, or lawsuits - Vote for a candidate Legal - Lawsuits filed against the focal company for harm caused by the firm Informational - Having access to valuable data, facts, or details
The five types of stakeholders' power recognized by most experts are: - Social, regulatory, voting, governance, and information power - Social, legal, environmental, economic, and political power - Voting, economic, political, legal, and informational power - Economic, informational, legal, shareholder, and political power
Voting, economic, political, legal, and informational power
Performance Expectations Gap
What the expected corporate performance vs what the corporate performance actually is
Economic Leverage
When a business uses its economic power to threaten to leave a city, state, or country unless a desired political action is taken it persuades a government body to act in a certain way that would favor the business
Stakeholders
person or groups that affect, or affected by a firm's decisions, policies, and operations