Chapter 12: Corporate Governance and Business Ethics

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

-300 to 1

True or false: The shared value creation framework aims to reconcile the concept of gaining and sustaining a competitive advantage with corporate social responsibility. -True -False

-True

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. -internal corporate governance -a leveraged buyout -information asymmetry -an initial public offering

-a leveraged buyout

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

-become rarer

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

-board of directors

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

-externalities

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

-fair treatment

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. -financial performance -sales volume -social initiatives -environmental protection

-financial performance

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

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

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

-incentives

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

-minimize the threat of a hostile takeover

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

-organization -control

The subprime mortgage crisis of the early 2000s is an example of ______. -poor corporate governance -blue ocean strategy -shared value creation -effective corporate governance

-poor corporate governance

What are the four characteristics of a public stock company that make it an attractive corporate form? (Check all that apply.) -separation of ownership and control -private ownership -legal personality -limited liability for investors -funded mostly by friends and family -transferability of investor interests

-separation of ownership and control -legal personality -limited liability for investors -transferability of investor interests

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

-transparency -fairness

Svanhildur's company is committed to corporate social responsibility but also understands that growth and profit are imperative for survival. What should Svanhildur's company do to achieve this balance? -It should apply agency theory. -It should use the shared value creation framework. -It should manipulate corporate-governance mechanisms. -It should adopt a functional corporate structure.

-It should use the shared value creation framework.

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

-Securities and Exchange Commission

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

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

Which of the following is a major drawback of public stock companies, according to Michael Porter and others? -They prioritize financial performance over all else. -They suffer too easily from inertia. -They get caught up in sustainability and overlook financial issues. -They focus too heavily on the greater good.

-They prioritize financial performance over all else.

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

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

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

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

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

-changes the ownership structure of a company from public to private

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

-checks and balances

Which of the following is an example of an application of agency theory? -personal time -employment contracts -new employee orientation -company holidays

-employment contracts

In regard to the public stock company, limited liability means that ______. -investors are not responsible for any debts incurred by the company and are only at risk of losing the invested capital -employees are free to pursue any initiative that interests them -the company does not have any responsible to earn a profit on invested capital -the business cannot be held legally responsible for any damage or injury caused to customers, the environment, or society at large

-investors are not responsible for any debts incurred by the company and are only at risk of losing the invested capital

According to agency theory, conflicts such as the principal-agent problem are considered ______ issues. -moral -social -legal -ethical

-legal

A board of directors is elected to represent the interests of ______. -shareholders -low-level employees -society as a whole -company founders

-shareholders

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

-social -economic

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

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

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

Private start-up companies valued at over $1 billion, such as some of those in the tech sector, are called ______. -unicorns -butterflies -piranhas -dragons

-unicorns

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

-weak