MGT 301 Ch. 12

Ethics is A) not synonymous with law. B) impossible to codify into law. C) universal and cannot differ between cultures. D) the minimum acceptable standard in business practice.

A

________ are the board members who are part of the company's senior management team appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance. A) Outside directors B) Inside directors C) Stockholders D) Philanthropists

B

A company scientist at a biotechnology company decides to work on his own research project, hoping to eventually start his own firm, rather than on the project he was assigned. However, the company's stockholders are unaware of this situation. This is an example of a(n) ________ in the context of a principal-agent problem. A) adverse selection B) stakeholder strategy C) moral hazard D) shared value creation

C

Janet hires Vanessa to perform a critical task in her organization. However, Vanessa has misrepresented her knowledge, skills and abilities and Janet has no way of knowing whether Vanessa can indeed perform well. This is an example of A) agency theory. B) disparate treatment. C) adverse selection. D) ineffective corporate governance.

C

The informational advantage that agents possess over principals is often based on the fact that A) the information is extremely secure and protected from exposure to anyone outside the company. B) public stock companies are characterized by information symmetry. C) insiders are the first to learn about important developments before the information is released to the public. D) agents are legally permitted to freely trade the information in exchange for benefits, unlike principals.

C

What do we call the board members who are part of a company's senior management team appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance? A) investors B) outside directors C) inside directors D) auditors

C

What are poison pills? A) Shareholders use them to prevent the founder of a company from taking the company private through a leveraged buyout. B) They are unspecified conditions in the contract between stakeholders in an organization. C) Companies use them in a bid to perform a hostile takeover of competing firms. D) They are defensive provisions that kick in should a buyer reach a certain level of share ownership.

D

A detergent manufacturer decides to clean up the waterways it uses even though no federal, state, or local laws require the firm to do this. The firm's managers believe that the cleanup will improve the company's image and benefit the environment. This scenario is an example of shareholder capitalism.

false

It is up to shareholders to make certain that the financial statements that their firms release are correct and not misleading.

false

Corporate codes of conduct go beyond what the law requires, imposing higher standards of honesty and fairness.

true

Gary is a senior manager at a large, publicly traded corporation. He has access to insider information about the company profits, losses, mergers, and acquisitions. It is legally and ethically acceptable for him to have this information as long as he does not use it to buy or sell stocks and does not tell others to buy or sell stocks.

true

According to the agency theory, A) conflicts that arise in corporations should be addressed in the legal realm. B) corporations are more than a set of contracts between parties. C) companies should focus on generating profits for stockholders. D) principals and agents have interchangeable roles.

A

All of the following are examples of external-governance mechanisms except A) industry analysts. B) shareholders. C) auditors. D) government regulators.

B

In a public stock company, senior executives, such as the CEO, face agency problems when A) they delegate authority of strategic business units to general managers. B) they decide to get involved in the day-to-day operations of a company. C) the board of directors possesses more information about the company than they do. D) the firm designs work tasks, incentives, and employments that minimize opportunism.

A

Jack is a board member of firm A but is not an employee of firm A; Jack is a senior executive from firm B. Jack can best be described as a(n) A) outside director. B) inside director. C) shareholder. D) philanthropists.

A

Josie wants to invest in the stock market but is afraid of losing more money than what she invests. Josie need not worry because of A) limited liability for investors .B) transferability of investor ownership. C) legal personality. D) separation of legal ownership and management control.

A

Martha received a tip from a close friend who is an executive manager of a publicly traded company called TelAmeriCorp Inc. The manager received some inside information about how to trade TelAmeriCorp stock to get a huge profit. He shared this information with Martha. This scenario is an example of A) information asymmetry. B) adverse selection. C) stakeholder strategy. D) shared value creation.

A

Shareholders of public companies need to appoint a board of directors to represent their interests because A) of the separation of ownership and control. B) employees of a company cannot be shareholders. C) the board of directors itself is made up of shareholders. D) the shareholders want tighter control over day-to-day operations of a company.

A

Which of the following could be used as an example of why a stakeholder strategy approach to business has shortcomings? A) the nonsustainable debt levels incurred by sovereign governments to fund social programs B) the financial crisis in Europe brought about by money lenders seeking to make quick money C) the collapse of the economy in the United States brought about by the housing crisis D) the rise of GDP in countries that do not believe in Milton Friedman's philosophy

A

Which of the following descriptions best exemplifies adverse selection? A) A manager cannot ascertain the contributions of individual team members in team production. B) A research scientist uses the organization's resources to conduct personal research. C) An employee spends time on social networking sites during work hours. D) An interview candidate lists his qualifications in chronological order.

A

Which of the following is a common result of a hostile takeover of a company? A) The new owner sells the company in pieces. B) The new owner keeps the company intact. C) The new owner keeps the board of directors of the company the same. D) The new owner enhances the reputations of the company's management.

A

Which of the following is true of business ethics? A) Certain notions such as fairness, honesty, and reciprocity are universal norms. B) Business ethics is an agreed-upon code of conduct in business, based on laws. C) The perception of what is ethical and what is not is similar across different cultures. D) Business ethics needs to be codified into law in order to be followed.

A

Which of the following scenarios best exemplifies a leveraged buyout of a microchip manufacturer, Sirius Cybernetics Corp.? A) The owner of another company buys all the outstanding shares of Sirius Cybernetics Corp.in order to take it private. B) A private equity firm, AllThings Inc., buys a large number of shares of Sirius Cybernetics Corp.in order to publicly trade it under a new name. C) Sirius Cybernetics Corp. sells all its shares and declares bankruptcy. D) Sirius Cybernetics Corp. buys back a large amount of its own shares from the stock market.

A

he root cause of the principal-agent problem between senior executives and lower-level employees can be explained by the A) informational advantage of the lower-level employees. B) higher number of lower-level employees than senior executives. C) knowledge of employees regarding day-to-day tasks. D) operational expertise of lower-level employees in concentrated areas of a particular field.

A

According to the perspective of shareholder capitalism, shareholders in public stock companies A) are restricted from buying shares of two competing companies. B) have the most legitimate claim on profits. C) have significant decision-making power. D) have unlimited financial liability.

B

Mary owns Kind Corporation and wants to maintain a dual focus on creating shareholder value while at the same time increasing value for society as a whole. Mary is following the A) balanced scorecard framework. B) shared value creation framework. C) shareholder capitalism framework. D) philosophy of Milton Friedman.

B

One way to foster ethical behavior in employees is to A) avoid codifying organizational culture. B) create a control system that encourages desired values. C) view clients as counter parties to transactions. D) align the vision statement of the organization with its informal culture.

B

PolyCon Inc. is a public stock company that provides natural gas for businesses. Although this company generates a large profit, management's focus on reducing costs caused the maintenance budget to be trimmed. Its pipelines have at times leaked, which created significant environmental problems. As a result, the company's value creation has suffered. This scenario supports Michael Porter's warning that public companies A) often do not keep economic needs and societal needs separate from each other, thereby contributing to low value creation. B) have defined value creation too narrowly in terms of financial performance, thereby contributing to black swan events. C) do not focus enough on increasing firm profits, thereby contributing to low value creation. D) have defined value creation too narrowly and as a result have ignored political lobbying, thereby contributing to black swan events.

B

Tommy is the CEO of a private start-up firm that is valued at just over $1.2 billion dollars. His firm can be classified as being a A) highly differentiated firm. B) unicorn. C) conglomerate. D) dominate firm.

B

Which of the following is an implication for the strategist in the context of corporate governance and a company's success? A) Very few corporate-governance mechanisms can be effective in addressing the principal-agent problem. B) Effective corporate governance and solid business ethics are critical to gaining and sustaining competitive advantage. C) Leading by ethical example often has a lesser effect on employee behavior than words do. D) A firm that restricts its responsiveness to stockholders (and no other stakeholders) and keeps them committed to its vision will be successful.

B

Which of the following statements is true of shareholders in a public stock company? A) They directly supervise and coordinate the manufacture of products and delivery of services. B) They are granted a charter of incorporation by the state and legally own company stock. C) They are the centerpiece of corporate governance. D) They are appointed by a board of directors to oversee the company's management.

B

William founded Iron Bank of Braavos in 1993. Ten years later, the company went public. Despite William'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? A) transferability of investor ownership B) legal personality C) limited liability for investors D) separation of legal ownership and management control

B

Jonathan is interested in building the centerpiece of his firm's corporate governance, and so hires a ________ that is made up of individuals from both inside and outside the firm. A) strategy consultant B) C-level suite team C) board of directors D) shareholders

C

Maritza is trying to understand the relationship between what is legal and what is ethical. Tiffany explains that both of these terms are often synonymous in business. Your response is A) Tiffany is correct; law and ethics are synonymous and should be used interchangeably in business. B) Tiffany is correct; whatever is legal is always ethical in business .C) Tiffany is incorrect; a manager's actions can be legal but ethically questionable .D) Tiffany is incorrect; there is no relationship between laws and ethics except when the board of directors approve an action.

C

Stark Industries is a public stock company. Which of the following statements about the company best illustrates the fact that its investors have limited liability? A) Employees of Stark Industries are legally permitted to invest their capital in the company's stock. B) Employees of Stark Industries are also the owners of the company. C) Shareholders of Stark Industries are responsible to the company only to the capital they have invested. D) Shareholders of Stark Industries are not permitted to trade their company stock at the New York Stock Exchange (NYSE).

C

Which of the following characteristics of a public stock company deals with principals and agents? A) limited liability of investors B) transferability of investor ownership C) separation of legal ownership and management control D) legal personality

C

Which of the following could most likely have prevented the accounting scandals of the early 2000s and the global financial crisis? A) adopting a narrow shareholder perspective B) separating economic interests and social needs C) practicing effective corporate governance D) adopting the principles of shareholder capitalism

C

Amanda, the CEO of Weyland YutaniInc., reports to the board of directors appointed by the shareholders of Weyland Yutani. Based on shareholder suggestions, the board ties Amanda's compensation to the performance of Weyland Yutani. Due to this pressure, Amanda begins devoting extra time to projects and undertakes other activities to ensure that she has job security and that she receives adequate compensation. The reasons why the board ties Amanda's compensation to firm performance is to overcome A) shareholder capitalism scenario. B) inside director-outside director conflict. C) fiduciary responsibility oversight. D) principal-agent problem.

D

Frank is a newly elected board member of XYZ Inc., a publicly traded stock. As a newly elected board member, Frank has a(n) ________, which is a legal duty to act solely in another party's interests. A) moral code B) ethical obligation C) competitive advantage D) fiduciary responsibility

D

In public stock companies, which of the following expectations of principals is most likely to lead to principal-agent problems? A) the expectation that the agent will follow the country's laws and regulations B) the expectation that the agent will go above and beyond the call of duty C) the expectation that the agent will reconnect economic and social needs D) the expectation that the agent will act in the principal's best interest

D

Jerry is a senior manager for the Paper Street Soap Company. Because of his experience, he has been appointed to the board of Clean Inc., even though he doesn't work for this firm. He also serves on the boards of several other companies. Jerry is a(n)________ for Paper Street Soap Company and a(n) ________ for Clean Inc. A) CEO; COO B) COO; CEO C) outside director; inside director D) inside director; outside director

D

Laura owns and runs Cyberdyne Systems Corp., a private start-up company with a current value of $1.3 billion. Cyberdyne Systems Corp.is interested in going public to fund future growth. Which action should Laura take before Cyberdyne Systems Corp.'s initial public offering? A) Laura should come up with a business plan for what Cyberdyne Systems Corp. will do once it is no longer publicly traded. B) She and senior managers should write down their code of ethics. C) Laura should not embark on an IPO until Cyberdyne Systems Corp.'s value is higher. D) She should investigate Cyberdyne Systems Corp.'s existing or potential problems with ethics or the law, if such problems exist.

D

The name for an agreed-upon code of conduct in business, based on societal norms, is A) fiduciary responsibilities. B) poison pills. C) strategic business points. D) business ethics.

D

Which of the following perspectives best supports the shared value creation framework? A) Markets are more often than not defined by societal needs rather than economic needs. B) Failing to create value for society almost always reflects on the bottom line. C) A firm's competitive advantage depends on pitting economic and societal needs in a trade-off. D) Externalities such as pollution, wasted energy, and costly accidents actually create internal costs.

D

________ is the term that describes the difficulty of the principal to ascertain whether the agent has really put forth a best effort. A) Disparate treatment B) Adverse selection C) The agent issue D) Moral hazard

D

Alexi was a manager at Inquiry Inc. Instead of working full-time on Inquiry's projects, she used Inquiry's tools, employees, computers, and other resources to work on a research project that she hopes might help her start her own firm. This is an example of adverse selection.

false

Corporate governance needs to address the issue of adverse selection, which describes the difficult for the principal to know whether the agent has really put forth his/her best efforts.

false

Executive compensation is an important element of corporate governance. Research has found that the rate of executive pay to average employee pay has been relatively stable over the last couple of decades.

false

It can be difficult for shareholders of publicly traded companies to determine how much money those companies are making or losing because these companies use different accounting firms, and each accounting firm follows different rules.

false

One of the most challenging aspects of principal—agent problems is that firms have almost no defenses against them.

false

Research indicates that most corporate ethics problems are caused by a few "bad apples" rather than an unethical culture.

false

If a privately held company has a history of legal and ethical problems, those problems can prevent a successful initial public offering (IPO) from taking place.

true

Ruth owns and runs her own firm. She also serves on the boards of several companies. Although she does not work for these companies, she attends board meetings, analyzes information, and tries to act in the best interests of their shareholders. Ruth is an example of an outside director.

true