Business Ethics Ch4

The method by which a finn is being governed, directed, administered, or controlled is a. corporate governance. b. management. c. management by objectives. d. management by decree.

a. corporate governance.

One of the main ways in which shareholder activists communicate their concerns to management is through a. the Internet. b. blogging. c. advertisements in mass media outlets. d. shareholder resolutions.

d. shareholder resolutions.

Which of the following is a step to board repair? a. Seeking outside help in identifying potential risks b. Increasing executive compensation c. Using dependent compensation consultants d. Reducing involvement in corporate strategy

a. Seeking outside help in identifying potential risks

Directors who have no ties to the frrrn other than membership on the board are called a. dependent directors. b. free agent directors. c. inside directors. d. outside directors.

d. outside directors.

The primary purpose of the Sarbanes-Oxley Act is to a. provide rules regulating the relationship between CEOs and boards. b. limit the power of corporate boards. c. restrict the flow of corporate money into politics. d. provide better protection for investors in public companies by improving the financial reporting of those companies.

d. provide better protection for investors in public companies by improving the financial reporting of those companies.

Which of the following is not an argument against the use of golden parachutes? a. The covered executives are already being well paid for their work. b. The covered executives are given an incentive to run the company poorly. c. The covered executives are being rewarded for failure. d. The covered executives are giving themselves the golden parachutes.

b. The covered executives are given an incentive to run the company poorly.

The group that is elected by shareholders to govern and oversee management is the a. investment council. b. board of directors. c. board of trustees. d. governing council.

b. board of directors.

The macro level of legitimacy refers to the achievement and maintenance of legitimacy by a. goverrnnent. b. private/public partnerships. c. business as a whole. d. individual businesses.

c. business as a whole.

The dynamic process by which business seeks to perpetuate its acceptance is called a. advertising. b. marketing. c. legitimation. d. embedding.

c. legitimation.

Companies that elected to provide meaningful information to shareholders and securities professionals without also informing small investors were practicing a. insider trading. b. programmed trading. c. selective disclosure. d. stair-stepping.

c. selective disclosure.

The method by which shareholders elect boards of directors is known as a. distributive voting. b. cumulative voting. c. the proxy process. d. direct balloting.

c. the proxy process.

Which of the following is not on the ranking of red flags that signal board problems? a. Company has to restate earnings b. Poor employee morale c. Poor customer satisfaction track record d. Stock price increases

d. Stock price increases

Sarbanes-Oxley attempts to ensure auditor independence is by a. limiting the nonauditing services an auditor can provide. b. requiring auditing fmns to rotate the auditors who work with a specific client. c. making it unlawful for accounting fmns to provide auditing services where conflicts of interest exist. d. all of these.

d. all of these.

The board committee responsible for assessing the adequacy of internal control systems and the integrity offmancial statements is the a. fmance committee. b. monetary po!icy committee. c. arbitrage committee. d. audit committee.

d. audit committee.

Compensation recovery mechanisms that enable a company to recoup compensation funds is called a. proxy process. b. risk arbitrage. c. golden parachutes. d. clawback provisions.

d. clawback provisions.

The micro level of legitimacy refers to achieving and maintaining legitimacy by conforming to societal expectations for a. the business system as a whole. b. public policy partnerships. c. non-government organizations. d. individual businesses.

d. individual businesses.

Boards have recently improved in all of the following ways except a. more directors are independent. b. reducing executive pay. c. more directors own stock in the company. d. more boards are likely to demand change.

b. reducing executive pay.

The board's compensation committee has responsibility for a. setting directors' pay scales. b. making sure that all employees are paid a fair wage. c. evaluating executive performance and recommending terms and conditions of employment. d. determining what bonuses should be paid and to whom.

c. evaluating executive performance and recommending terms and conditions of employment.

Directors who have some sort of ties to the firm are termed a. dependent directors. b. independent directors. c. inside directors. d. outside directors.

c. inside directors.

The practice of obtaining critical information from within a company and then using that information for one's own fmancial gain is a. arbitrage. b. programmed trading. c. insider trading. d. hedging.

c. insider trading.

Employees are the people hired by the company to a. oversee management. b. work with the board to keep management in line. c. do the actual work of operating the company. d. set the course for the company to follow.

c. do the actual work of operating the company.

The principal responsibilities of the audit committee are to a. interview auditing fmns to do the company audit. b. negotiate with the Internal Revenue Service in the event of a tax audit. c. ensure that published fmancial statements are not misleading. d. hire the Chief Financial Officer (CFO) and monitor that person's work.

c. ensure that published fmancial statements are not misleading.

Much of the blame for corporate scandals like Enron and WorldCom can be placed on the audit committees of the boards of directors. F a. True b. False

b. False

Shareholders' control is manifested primarily in the right to select the CEO of the company. F a. True b. False

b. False

The Say on Pay movement evolved from concerns over low executive compensation. F a. True b. False

b. False

The issue at the heart of the Sarbanes-Oxley Act is protection for whistle-blowers. F a. True b. False

b. False

There is some early evidence that the Sarbanes-Oxley Act has made little difference in the attention fmancial executives pay to shareholder reports. F a. True b. False

b. False

Wages have grown faster than CEO salaries over the past decade. F a. True b. False

b. False

A new trend in board recruiting focuses more on a. networking skills. b. experience than title. c. business school professors. d. foreign investors.

b. experience than title.

Shareholder activism a. was started by the counter culture during the 1960s. b. has been around for more than sixty years. c. is lead by the Roman Catholic church. d. relies on large institutional investors to introduce most of the shareholder resolutions.

b. has been around for more than sixty years.

Congruence between the organization's activities and society's expectations is called a. aligrunent. b. legitimacy. c. social norms. d. acceptability.

b. legitimacy.

The people hired by the board to run the company and operate it on a daily basis is a. the employee council. b. management. c. administration. d. headquarters.

b. management.

The board committee that is responsible for responding to social issues is the a. ethics committee. b. public policy committee. c. community interface committee. d. rapid response committee.

b. public policy committee.

The state-issned docnment that grants the corporation's right to exist and stipulating the basic terms of its existence is a(n) a. certificate of legitimacy. b. occupancy permit. c. charter. d. article of incorporation.

c. charter.

Personal liability for a corporate board member means that a. directors have a legal obligation to pay all debts of the corporation. b. directors have a legal obligation to pay all debts of the corporation if the company cannot. c. directors may be sued for breach of fiduciary duty. d. directors have a personal responsibility to the shareholders.

c. directors may be sued for breach of fiduciary duty.

The Say on Pay movement: a. First began with regulations including a requirement to put a remuneration report to a shareholder vote b. Began in the United States c. Evolved from concerns over low executive compensation d. Is supported by the SEC

a. First began with regulations including a requirement to put a remuneration report to a shareholder vote

Audit committees arguably have the most responsibility of all board committees. T a. True b. False

a. True

Because of its theoretical role of authority over the CEO, it has always been the board's responsibility to get tough with the senior manager when needed. T a. True b. False

a. True

During the past forty years, corporate boards have become more diverse. T a. True b. False

a. True

In the grand scheme of things, the interests of the investing public are more important than those of the management team. T a. True b. False

a. True

Penalties under the Sarbanes-Oxley Act can include fines and prison terms. T a. True b. False

a. True

Practically speaking the corporate CEO often does the work the nominating committee should do. T a. True b. False

a. True

Research has shown that golden parachutes have had no effect on senior managers' resistance to takeover attempts. T a. True b. False

a. True

Some analysts believe that business's social legitimacy is fragile. T a. True b. False

a. True

The corporate system as a whole rarely addresses the idea of social legitimacy. T a. True b. False

a. True

The major condition of modern corporations that contributes to the corporate governance problem is the separation of ownership from control. T a. True b. False

a. True

The purpose of corporate governance is a direct outgrowth of the question of legitimacy. T a. True b. False

a. True

A contract in which a corporation agrees to make payments to key officers in the event of a change in the control of the corporation is called a. a golden parachute. b. golden handcuffs. c. greenmail. d. the silver rule.

a. a golden parachute.

A shareholder rights plan aimed at discouraging or preventing a hostile takeover is known as a. a poison pill. b. golden handcuffs. c. a golden parachute. d. insider trading.

a. a poison pill.

When the interests of management and owners are not aligned, there will likely be a(n) a. agency problem. b. free agency dilemma. c. shareholder rebellion. d. shareholder resolution.

a. agency problem.

Boards are now being tougher on CEOs for all of the following reasons except a. increasing diversity on boards. b. competitive economic conditions. c. rising vigilance of outside directors. d. increasing power oflarge institutional investors.

a. increasing diversity on boards.

Shareholders are a. owners of the corporation. b. creditors of the corporation. c. anyone who is affected by the corporation. d. also employees of the corporation.

a. owners of the corporation.

Executive Excess reports that in 2011 the ratio of CEO pay to average workers' pay was: a. 531 to 1. b. 209 to 1. c. 1,063 to 1. d. 18 to 1.

b. 209 to 1.

Which of the following is not a method of obtaining the micro level of legitimacy? a. A company adapts its operations to conform to prevailing standards. b. A company may seek to avoid detection that it is operating contrary to social norms. c. A company may attempt to changes the public's values and norms. d. A company may identity itself with other organization, people, or values.

b. A company may seek to avoid detection that it is operating contrary to social norms.

Although initially, companies did not object to the compliance costs of Sarbanes-Oxley, after 10 years experience with the law, they now object strenuously. F a. True b. False

b. False

Business, by virtue of its place in society, has an inherent right to exist. F a. True b. False

b. False

Managers have successfully lobbied Congress to make shareholder lawsuits very difficult to file. F a. True b. False

b. False

Most shareholder resolutions concern some aspect of executive compensation. F a. True b. False

b. False

A major criticism of CEOs and boards during the 1980s, when corporate takeovers were regular occurrences, was a. not trying to get the best price they could for shareholders. b. focusing on "making deals" instead of running the business. c. trying to run up the price of their company's stock in preparation for the sale. d. being obsessed with self-preservation instead of making optimal decisions on behalf of shareholders.

d. being obsessed with self-preservation instead of making optimal decisions on behalf of shareholders.

The fact that company information should be made at regular and frequent intervals and should contain information that might affect the investment decisions of shareholders is contained in the concept of a. full disclosure. b. transparency. c. open door reporting. d. both full disclosure and transparency.

d. both full disclosure and transparency.

The Securities and Exchange Commission's Regulation FD is desigued to a. streamline the trading process. b. change stock trading prices to the decimal system. c. allow small investors to benefit from insider trading. d. limit the common practice of selective disclosure.

d. limit the common practice of selective disclosure.

The board committee that has the primary responsibility of ensuring that competent, objective directors are selected is the a. qualifications committee. b. personnel standards committee. c. compensation committee. d. nominating committee.

d. nominating committee.