recharge chapter 12

The hiring of a job seeker who claims to have extensive computer programming experience when his knowledge of the subject is minimal would be an example of ______. a. adverse selection b. native digitalization c. intuitive recruitment d. moral hazard

a. adverse selection

What do stakeholders want above all else? a. fair treatment b. for all of their demands to be met c. low product prices d. maximum returns on investment

a. fair treatment

The relationship between CEO pay and job performance has been shown to be ______. a. somewhat strong b. very strong c. weak d. moderate

c. weak

Financial statements by public companies must ______. (Check all that apply.) - meet shareholder expectations - adhere to generally accepted accounting principles (GAAP) - divulge insider information and trade secrets - be audited by certified public accountants

- adhere to generally accepted accounting principles (GAAP) - be audited by certified public accountants

Which of the following are critical aspects of maintaining good relationships between a firm and its stakeholders? - fairness - transparency - profitability - a leading market share

- fairness - transparency

What are the two significant issues regarding the CEO pay debate? (Check all that apply.) - the history of CEO pay in the manufacturing industry - the size of the CEO compensation in relation to average employee pay - the relationship between firm performance and CEO pay - the legal and political ramifications of CEO pay

- the size of the CEO compensation in relation to average employee pay - the relationship between firm performance and CEO pay

In ______, a single investor or group of investors buys, with the help of borrowed money, the outstanding shares of a publicly traded company and assumes control of it. a. a leveraged buyout b. information asymmetry c. an initial public offering d. internal corporate governance

a. a leveraged buyout

The interests of inside directors on the board of directors typically align with those of ______. a. senior management b. shareholderrs c. society as a whole d. low level employee

a. senior management

Which type of company is considered a unicorn? a. a public company valued at over $1 billion b. a private start-up company valued at more than $1 billion c. a public company whose share price exceeds $1,000 d. a private company that was once valued at over $100 million but has since lost most or all of its value

b. a private start-up company valued at more than $1 billion

The ratio of CEO to average employee pay in the United States is about ______. a. 10 to 1 b. 50 to 1 c. 300 to 1 d. 100 to 1

c. 300 to 1

The idea that a corporation is simply a collection of legal contracts is known as ______. a. information asymmetry b. the matrix principle c. agency theory d. the principal-agent problem

c. agency theory

One of the key characteristics of a leveraged buyout (LBO) is that it _______. a. ensures job security for all employees b. increases the value of the firm's assets c. changes the ownership structure of a company from public to private d. requires the company to publicly disclose its financial statements for the next 5 years

c. changes the ownership structure of a company from public to private

Corporate governance is a system of ______. a. legal and ethical issues b. inputs and outputs c. checks and balances d. related and unrelated diversification

c. checks and balances

The shared value creation framework encourages managers to focus on which of the following needs? (Check all that apply.) a. spiritual b. emotional c. economic d. social

c. economic d. social

Social consequences of business activities, including pollution, energy loss, and dangerous accidents, are known as ___. a. overruns b. unicorns c. externalities d. output incidences

c. externalities

Which of the following is a federal regulatory agency whose task it is to oversee stock trading and enforce federal securities laws? a. EDGAR b. World Trade Organization c. Consumer Financial Protection Bureau d. Securities and Exchange Commission

d. Securities and Exchange Commission

Narrowly defining public stock companies in terms of financial performance can lead to ______. a. more accurate accounting b. more efficient production c. improved public relations d. black swan

d. black swan

An executive can legally earn a significant profit from stock options if ______. a. he or she commits to purchasing the maximum amount of shares allowed b. the firm falls victim to a hostile takeover c. he or she engages in insider trading d. the firm performs well and the actual price per share exceeds the negotiated strike price

d. the firm performs well and the actual price per share exceeds the negotiated strike price

Which of the following are examples of moral hazard? (Check all that apply.) - A company dumps pollution into a local lake that will be cleaned using taxpayer money. - A processed food manufacturer distributes frozen vegetables tainted with e. coli. - Banks make very risky loans with the knowledge that the government will bail them out if necessary. - A CEO with a multi-million-dollar severance agreement performs poorly knowing he will be well compensated even if he is laid off.

- Banks make very risky loans with the knowledge that the government will bail them out if necessary. - A CEO with a multi-million-dollar severance agreement performs poorly knowing he will be well compensated even if he is laid off. - A company dumps pollution into a local lake that will be cleaned using taxpayer money.

Optics Incorporated, a publicly traded eyewear business, places profits ahead of all other performance metrics. This practice ______. (Check all that apply.) - is a good example of corporate social responsibility - benefits all of society, not just shareholders - conforms to the traditional notion of shareholder capitalism - fails to take into account the idea of corporate social responsibility

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

When facing an ethical dilemma, a manager should ______. (Check all that apply.) - 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 - keep his or her actions hidden under the cover of inside information - consult local laws and municipal codes

- 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

Additional functions of a board of directors beyond general strategic oversight include ______. (Check all that apply.) - assessing and mitigating risk - conducting background checks on all potential employees - ensuring that the firm's accounting practices and reports are accurate - selecting, evaluating, and compensating the CEO - day-to-day operational management

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

In order to reconcile economic and social needs within the shared value creation network, managers need to focus on ______. (Check all that apply.) - making products affordable for the poorest socioeconomic groups in order to improve standards of living - creating new regional clusters and business centers - erecting barriers to entry for new firms in the industry - expanding value chains to include NGOs and other organizations committed to social goals - collapsing the supplier-buyer relationship to maximize profitability

- 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 - creating new regional clusters and business centers

According to agency theory, which of the following managerial functions can be used to avoid adverse selection and moral hazard? (Check all that apply.) - discipline - inspiration - organization - control

- organization - control

Which of the following are important components of fostering ethical behavior in employees? - board members setting clear ethical expectations - a value system that prioritizes profits above all else - strategic goals that are achievable with legal means - executive behavior that is in sync with the organization's vision and values

- strategic goals that are achievable with legal means - executive behavior that is in sync with the organization's vision and values - board members setting clear ethical expectations

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

False

Under the shared value creation framework, which of the following strategic actions would fail to connect economic and societal needs? a. Focusing exclusively on maximizing returns for shareholders. b. Include non-traditional partners into the value chain such as NGOs. c. Focus on creating regional clusters. d. Expand the customer base to bring in non-consumers such as those at the bottom of the pyramid.

a. Focusing exclusively on maximizing returns for shareholders.

Pavel works for a successful pharmaceutical company. Despite several years of unprecedented growth, the company wants to boost profits even more. It has taken steps to drastically raise the prices of its most widely distributed medications, which are difficult to imitate. Research into employee ethical decision-making capacity indicates that Pavel will ______. a. act in a manner that reflects his company's organizational culture b. speak out against his company's unethical activities c. immediately quit his job and file for unemployment d. report his discomfort about drastically raising prices to his manager

a. act in a manner that reflects his company's organizational culture

Employees who work in organizations that emphasize ethical behavior are ______. a. more likely to act ethically. b. no more or less likely to act ethically. c. less likely to act ethically. d. more likely to engage in moral hazard.

a. more likely to act ethically.

Which of the following statements about stock options is true? a. The recipient has the right to set the price of the stock. b. The recipient is given the right to purchase stock at a predetermined price sometime in the future. c. Companies save money by offering stock options, but employees always lose money with stock options. d. If the recipient agrees to stock options as part of a compensation package, the recipient is obligated to buy stock in the future.

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

Following the rise of institutional investors, the use of poison pills to avoid hostile takeover has ______. a. become mandatory b. become rarer c. been eliminated entirely d. grown steadily

b. become rarer

In a public stock company, the centerpiece of corporate governance is the ______. a. largest union associated with the company b. board of directors c. human resources department d. hierarchy of management

b. board of directors

Which of the following is an example of an application of agency theory? a. company holidays b. employment contracts c. new employee orientation d. personal time

b. employment contracts

The idea of corporate social responsibility (CSR) suggests that a firm's obligations should ______. a. never include any other performance indicator other than increasing profits b. exceed the traditional imperative to increase profits c. not extend to ethical and philanthropic expectations d. always be focused on increasing the price of the firm's shares by selling higher volume

b. exceed the traditional imperative to increase profits

Economist Michael Porter and many others argue that the value of public stock companies is too narrowly defined in terms of ______, leading to scandals and economic crises. a. social initiatives b. financial performance c. environmental protection d. sales volume

b. financial performance

Under agency theory, a manager should seek to align ______ between principals and agents to minimize opportunism. a. educational backgrounds b. incentives c. disciplinary actions d. work schedules

b. incentives

Who sets the tone for the ethical climate within an organization? a. low-level employees b. strategic leaders c. external shareholders d. customers

b. strategic leaders

An external governance mechanism that makes a poorly managed company vulnerable to takeover by outside investors is known as ______. a. industry analysis b. the market for corporate control c. corporate social responsibility d. regulatory audit

b. the market for corporate control

Incentives that are too high-powered, such as an outsized bonus, may cause individuals to ______. a. have lower job stress and higher job performance b. worry too much about the discrepancy and report it to human resources c. focus too much attention on the incentive and not enough on strategic activities d. recognize that law and ethics are not synonymous

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

If a company is poorly managed, its stock price may fall low enough for the firm to become a target for a(n) ______. a. internal corporate-governance mechanism b. principal-agent problem c. hostile takeover d. shared value creation framework

c. hostile takeover

A situation in which one party has an incentive to shirk their responsibility because the costs will fall to the other party is known as ______. a. unbalanced burden b. a debt pendulum c. moral hazard d. adverse selection

c. moral hazard

The primary difference between outside and inside members of the board of directors is that ______. a. inside directors have a fiduciary duty to act in the interest of shareholders, whereas outside directors are not b. outside directors do not have voting rights on major company decisions, whereas inside directors do c. outside directors are not employees of the firms, whereas inside directors are d. outside directors manage employees outside of the United States, whereas inside directors handle US-based operations only

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

In team-based environments, the principal may have difficulty determining individual contributions by members. This can create a situation in which an opportunistic employee does little work but takes credit. This is known as ______. a. corporate governance b. shared value creation c. independent contracting d. adverse selection

d. adverse selection

The mechanism used to guide a company toward meeting its strategic goals within the bounds of the law is known as ______. a. stakeholder impact analysis b. corporate social responsibility c. strategic intent d. corporate governance

d. corporate governance

The main goal of a poison pill is to ______. a. enter a new market b. fire the top management team c. overcome moral hazard d. minimize the threat of a hostile takeover

d. minimize the threat of a hostile takeover