Ch 02 - Ethics and Law

Which of the following is true regarding shareholder primacy? a. It is never legally mandated. b. It is always legally mandated. c. It is legally mandated only in very narrow circumstances. d. There is no such thing.

c. It is legally mandated only in very narrow circumstances.

Which of the following allows rights-based moral theories to be compared to other theories such as a utilitarian framework? a. Deontology b. Teleological theory c. Comparative justice d. Rawlsian moral theory

C. Comparative Justice

All fifty states have constituency statutes.

False

Rawlsian moral theory seeks to develop principles behind a "veil of ignorance."

True

The two main schools of ethical thought are teleological and deontological

True

In 2015, the average total compensation for a CEO of a company in the Standard and Poor's 500 Index was more than _____ times as much as the average worker. a. 50 b. 150 c. 335 d. 500

c. 335

35. __________ justice focuses on how the burden and benefits of a particular system are distributed. a. Compensatory b. Retributive c. Distributive d. Rawlsian

c. Distributive

According to __________, social policies developed behind the veil of ignorance would create a system benefiting the __________. a. Rawls; majority b. Rawls; minority c. Rawls; least well off d. Kant; most well off

c. Rawls; least well off

The three main theories under the comparative justice framework are: a. retributive, Kantian, and Rawlsian. b. compensatory, comparative, and retributive. c. distributive, compensatory, and retributive. d. utilitarian, teleological, and compensatory.

c. distributive, compensatory, and retributive.

According to St. Thomas Aquinas, only laws that followed __________ were true and just. a. reasoned law b. customary law c. eternal law d. localized law

c. eternal law

A CEO's role of instilling high standards among employees is best exemplified by which of the following statements? a. "You can't judge a book by its cover." b. "Do as I say, not as I do." c. "Early to bed, early to rise, makes a man healthy, wealthy, and wise." d. "Character is doing the right thing when nobody's looking."

d. "Character is doing the right thing when nobody's looking."

Ethics and law are unrelated.

False

Kantian theory examines the concepts of universalizability and reversibility.

True

Milton Friedman argued that a company with an action plan for social responsibility is essentially acting in a fundamentally subversive way.

True

Nobel Prize winner in economics Milton Friedman asserts that the only guiding criterion for the corporation should be profitability within the confines of the law.

True

Rawlsian moral theory seeks to maximize the condition of the worst off person in society.

True

Which of the following statements about socially responsible funds is NOT true? a. Few large mutual fund companies or 401(k) retirement plans offer socially responsible options for investment. b. Investment in socially responsible funds has grown in the United States. c. Investment in socially responsible funds has grown in Europe. d. The Coalition for Environmentally Responsible Economics promotes investor guidelines focused on environmental awareness in the context of corporate activities.

a. Few large mutual fund companies or 401(k) retirement plans offer socially responsible options for investment.

In 1997, the U.S. passed legislation to curb the payment of bribes to government officials by U.S. companies. This legislation is the: a. Foreign Corrupt Practices Act. b. Dodd-Frank Wall Street Reform and Consumer Protection Act. c. Sarbanes-Oxley Act. d. Bribery Act.

a. Foreign Corrupt Practices Act.

Which one of the following is NOT a manner in which a company can promote ethical behavior? a. Lobby legislators for more ethical guidelines b. Craft an ethical mission statement c. Provide ethics training d. Adopt a Code of Ethics

a. Lobby legislators for more ethical guidelines

According to the Delaware Supreme Court, when does the role of a director shift from being a "protector of the corporate bastion" to being an "auctioneer" charged with obtaining the highest realizable short-term value for the shareholders? a. Only when the breakup of the corporation or a change of control has become inevitable b. Whenever a yearly loss is reflected c. At the point that a yearly loss has been reflected for three straight years d. When the CEO and the board of directors are in disagreement, and there has also been a yearly loss reflected for three straight years

a. Only when the breakup of the corporation or a change of control has become inevitable

Which of the following is the group given the ultimate legal authority to change management? a. Shareholders b. Human resource managers c. The mayor in the applicable jurisdiction d. The city council in the applicable jurisdiction

a. Shareholders

Court rulings and legislation have clearly affirmed that the obligation of a company's directors is to manage the corporation for the best interest of the: a. corporation. b. officers. c. employees. d. community.

a. corporation.

According to St. Thomas Aquinas, an unjust law a. Could not properly be considered law at all. b. is defective and morally objectionable. c. must be obeyed even if it is morally objectionable. d. must be overturned by a supermajority of the legislature.

a. could not properly be considered law at all.

The Organization of Economic Cooperation and Development (OECD) comprises: a. nations from North America, Europe, and Asia-Pacific. b. a subsidiary of the European Union. c. nations who entered into the North American Free Trade Agreement. d. states inside the United States.

a. nations from North America, Europe, and Asia-Pacific.

Kant's categorical imperative states that: a. the form of an action rather than the intended result determines the ethical worth. b. no one person's interest is given more weight than another. c. distribution favors the person getting the worst share. d. morally objectionable actions can never be in the best interests of society.

a. the form of an action rather than the intended result determines the ethical worth.

The __________ Act illustrates that corporate conduct violating society's expectations can result in new forms of regulation without regard for feasibility or cost. a. White-Rush Dow Jones Conciliatory b. Dodd-Frank Wall Street Reform and Consumer Protection c. Corporate and Securities Reform and Retribution Consumer Protection d. Securities and Oversight

b. Dodd-Frank Wall Street Reform and Consumer Protection

Immanuel Kant argued that spending money in ways that are not consistent with shareholder wishes is tantamount to imposing a tax and unilaterally deciding where the money will be spent.

False

In 2015, the average worker's salary was $36,875, or 35 times less than the average total compensation of CEOs of a company on the Standard and Poor's Index.

False

Maximization of shareholder value is considered shareholder primacy and is mandated by law.

False

Teleological theory focuses on the motivation and principle behind an action rather than its consequences.

False

The Tylenol example shows that no matter how many economic resources a company puts behind restoring its reputation, public image is not generally regained.

False

The deontological theory focuses on the consequences of an action rather than on the motivation of the individual.

False

The subprime mortgage crisis, accounting scandals, and payment of bribes in international business of the past 40 years all indicate that government regulation is a good substitute for knowledgeable self-restraint.

False

Utilitarianism is a major deontological system that operates under the proposition that the ideal is to focus on motivation rather than on consequences

False

Utilitarianism seeks to equalize the benefit to everyone.

False

Customers can vote with their feet by boycotting unethical practices, such as clothing made in sweatshops.

True

A company's CEO does not play a significant role in instilling a sense of ethics throughout the organization.

False

All business leaders and academics agree that the primary ethical and legal duty of corporations is to maximize shareholder value

False

If a company employee chooses to follow orders (and breaks the law), the fact that a supervisor ordered those actions is a complete defense at a criminal trial.

False

Compliance with the law is just the baseline for effective and responsible managerial action.

True

Wally and Jamie are both managers in a small corporation set up to manufacture sporting goods. They both receive bonuses for any ideas that benefit the company, although Jamie's bonus is computed at a lower rate than Wally's because Jamie has been at the company a shorter amount of time. Jamie has a great marketing idea that would result in a bonus of $1,000. The details are all worked out on Jamie's computer. Unknown to Jamie, one evening after business hours, Wally obtains the information from Jamie's computer and submits it and takes credit for it the next day. Wally is immediately awarded a bonus of $2,000 for the information. Fortunately for Jamie, Sammy, a custodian, saw Wally in Jamie's office and heard Wally calling someone while there to brag about these misdoings. Sammy informed Blake, the CEO, of Wally's actions. Refer to Fact Pattern 2-2. Which of the following types of justice is involved if Blake requires that Wally give Jamie the entire $2,000 bonus? a. Compensatory b. Retributive c. Fair d. Justifiable

b. Retributive

Which of the following is a term for the maximization of shareholder value? a. Shareholder importance b. Shareholder primacy c. Value of shares maximization d. Corporate allocation

b. Shareholder primacy

Jackie, the owner of a restaurant, decides to donate leftover food to a homeless shelter. Blair, an employee who was angry with Jackie over not getting a raise, claimed that Jackie decided to donate the food only for publicity and that Jackie did not really care about homeless people. Pat, another employee, disagreed, contending that regardless of motivation, Jackie was acting ethically because of the consequences involved and the number of people helped. Refer to Fact Pattern 2-1. Upon which of the following would Pat most likely rely to support the contention that Jackie was acting ethically? a. Rawlsian moral theory b. Teleological theory c. Artificial person application d. Deontological theory

b. Teleological theory

Overly generous compensation packages for CEOs can lead to greedy and unethical behavior and reinforces: a. empathic tendencies. b. narcissistic tendencies. c. a shrinking of social distance between CEO and workers. d. exemplary conduct.

b. narcissistic tendencies.

According to Kant's theory of universalizability, the ethical worth of an act is determined by whether a person: a. would want such a rule applied to minority members of society. b. would want everyone to perform in this manner. c. could get away with such an action. d. could live with the results of such an action.

b. would want everyone to perform in this manner.

Companies perceived to act unethically often suffer financial setbacks. What type of company is especially sensitive to public perception based on where its income comes from? a. Oil refineries b. Investment banks c. Consumer products companies d. Commodities processors

c. Consumer products companies

Wally and Jamie are both managers in a small corporation set up to manufacture sporting goods. They both receive bonuses for any ideas that benefit the company, although Jamie's bonus is computed at a lower rate than Wally's because Jamie has been at the company a shorter amount of time. Jamie has a great marketing idea that would result in a bonus of $1,000. The details are all worked out on Jamie's computer. Unknown to Jamie, one evening after business hours, Wally obtains the information from Jamie's computer and submits it and takes credit for it the next day. Wally is immediately awarded a bonus of $2,000 for the information. Fortunately for Jamie, Sammy, a custodian, saw Wally in Jamie's office and heard Wally calling someone while there to brag about these misdoings. Sammy informed Blake, the CEO, of Wally's actions. Refer to Fact Pattern 2-2. Which of the following types of justice is involved if Blake requires that Wally give Jamie $1,000? a. Compensatory b. Retributive c. Fair d. Justifiable

c. Fair

Which of the following statements regarding the teleological theory is NOT true? a. Teleological theory is concerned with consequences. b. Teleological theory judges the ethical good of an action by the effect of the action on others. c. Teleological theory focuses more on the motivation and principle behind an action. d. Teleological theory is concerned with consequences and judges the ethical good of an action by the effect of the action on others.

c. Teleological theory focuses more on the motivation and principle behind an action.

As manager, Merce tells all employees the expectation is for them to treat others as they would like to be treated. Which of following is a descriptive term for Merce's requirement? a. The Required Rule b. The Accepted Rule c. The Golden Rule d. The Advanced Rule

c. The Golden Rule

Which of the following is NOT an example of St. Thomas Aquinas' requirements for a law to be just? a. The law must be within the power of individuals to fulfill it. b. The law must be consonant with a reasoned determination of the universal good. c. The law must be formed to promote a private benefit to the majority. d. The law must be widely promulgated.

c. The law must be formed to promote a private benefit to the majority.

The main issue in CASE 2.1 Meinhard v. Salmon (1928) was whether: a. the parties equitably adhered to the proper morals of the marketplace. b. Salmon purposely sought to defraud Meinhard. c. a relationship of trust with fiduciary-like obligations was created under the parties' joint venture. d. a buyer's unsavory reputation must be disclosed to a seller.

c. a relationship of trust with fiduciary-like obligations was created under the parties' joint venture.

A __________ statute is a state statute authorizing boards of corporations to take into account all stakeholders and constituencies even when a change in control or breakup of the corporation has become inevitable. a. corporate control b. break-up c. constituency d. protection

c. constituency

Managers who create ethical solutions while maximizing shareholder value are said to find: a. the universalizability principle. b. distributive justice. c. the sweet spot. d. shareholder primacy.

c. the sweet spot.

Yoshi believes firmly in the positive view. Which of the following statements best sums up Yoshi's legal philosophy? a. The law attempts to prohibit all "bad" behavior. b. An action that is unethical is also considered illegal in the U.S. c. Valid laws prohibit all "morally objectionable" behavior. d. Any law is real and enforceable if it has been created in accordance with recognized procedures.

d. Any law is real and enforceable if it has been created in accordance with recognized procedures.

Jackie, the owner of a restaurant, decides to donate leftover food to a homeless shelter. Blair, an employee who was angry with Jackie over not getting a raise, claimed that Jackie decided to donate the food only for publicity and that Jackie did not really care about homeless people. Pat, another employee, disagreed, contending that regardless of motivation, Jackie was acting ethically because of the consequences involved and the number of people helped. Refer to Fact Pattern 2-1. Upon which of the following would Jackie most likely rely in contending that a motivation to help the poor was the underlying reason for donating the food? a. Rawlsian moral theory b. Teleological theory c. Artificial person application d. Deontological theory

d. Deontological theory

In the decision tree used by ethical business leaders, which of the following is the first question managers should ask when determining whether a proposed action is ethical? a. Will it result in a loss of profits? b. Will stockholders approve? c. Will the CEO approve? d. Is it legal?

d. Is it legal?

According to economist Michael C. Jensen, long-term market value of an organization cannot be maximized if: a. outperforming competition has both a long-term and short-term focus. b. companies chose social responsibility over shareholders. c. management focuses on long-term value creation over short-term profits. d. management ignores or mistreats any important constituency.

d. management ignores or mistreats any important constituency.

Nobel prize winner Milton Friedman asserts that "social responsibility" is a fundamentally __________ doctrine. a. positive b. risky c. good d. subversive

d. subversive