Business Ethics Ch 12

The Securities and Exchange Commission outlaws: a. Any manipulative or deceptive device used to trade stocks. b. Compensating company executives with stock options. c. Trading in stocks by institutions. d. Buying stock in a company for which you work.

a. Any manipulative or deceptive device used to trade stocks.

Which of the following is true about corporate boards? a. Corporate boards average 12 members. b. About half of the directors are "outside" directors. c. Only one-third of all companies have at least one woman on their board. d. Ethnic minority board members make up about one out of three directors.

a. Corporate boards average 12 members.

The directors of a company are a central factor in corporate governance because they: a. Exercise formal legal authority over company policy. b. Have the highest stake in the performance of the company. c. Have a moral responsibility to fulfill the needs of both the company's employees and customers. d. Inherited the business from their predecessors.

a. Exercise formal legal authority over company policy.

The main reason that American executives are paid so much is: a. Pay is set by the compensation committees of the board, largely comprised of other CEOs who have an interest in pushing compensation up. b. Qualified individuals are scarce, because most current CEOs were born during the "baby bust" years of the Great Depression. c. High executive compensation in other nations puts upward pressure on the salaries of U.S. executives. d. Most executives are paid based on their performance, and rising compensation reflects the excellent performance of their firms.

a. Pay is set by the compensation committees of the board, largely comprised of other CEOs who have an interest in pushing compensation up.

The mission of the Securities and Exchange Commission (SEC) is to: a. Protect shareholders' rights by making sure that stock markets are run fairly. b. Protect companies from hostile takeovers. c. Ensuring that institutional investors do not take control of company management. d. Ensuring that the federal treasury receives its share of the revenues from stock trading.

a. Protect shareholders' rights by making sure that stock markets are run fairly.

Which of the following is not an instance of "insider trading"? a. An auditor using nonpublic information about the company to invest in its stock. b. A marketing executive briefing stock analysts on the company's sales performance. c. The CEO's cousin buying stock after the CEO mentioned a pending offer to buy the company. d. A stock broker passing an "inside tip" to a client, but not trading for his or her own account.

b. A marketing executive briefing stock analysts on the company's sales performance.

Corporate governance involves the exercise of control over a company's: a. Finance and accounting departments. b. Entire operations. c. Manufacturing facilities. d. Marketing and human resources departments.

b. Entire operations.

The "agency problem" arises when: a. Owners manage the company on their own behalf. b. There is no separation of ownership and control in a company. c. Managers act in their own interest, rather than in the interest of shareholders. d. Shareholders act in their own interest, rather than in the interest of the board.

c. Managers act in their own interest, rather than in the interest of shareholders.

In response to concerns about the lack of transparency in financial accounting, Congress passed a new law called the: a U.S. Corporate Sentencing Guidelines. b. McCain-Feingold Act. c. Sarbanes-Oxley Act. d. Securities and Exchange Act.

c. Sarbanes-Oxley Act.