Chapter 11
A manager of a financial institution is the director of mergers and acquisitions. Over time, he has hired employees who work hard, think creatively, and are motivated by compensation. While hiring, he also analyzes personal ethics. Why are personal ethics a concern of the manager's hiring process? a. The manager is analyzing the decision-making process of potential new hires to avoid exposing his company to unethical behavior in the future. b. The manager only wants to hire those who he sees can become his friend. c. Personal ethics are not a concern to companies because they are not correlated to business ethics. d. It is illegal to hire individuals who fail an analysis of their personal ethics.
A
Andrew is a small restaurant owner in a town that has a manufacturing plant for a large corporation. He has heard rumors that the plant may be laying off half of its employees because of an upcoming decision to outsource its manufacturing capabilities to another country. Most of his customers are workers at the large company. What is Andrew considered to be? a. External Stakeholder b. Outsider Stakeholder c. Internal Stakeholder d. Stockholder
A
Bruce's organization uses a decision tree before making a business choice. This tree asks questions that take into consideration all stakeholders of the organization. If the tree leads decision-makers to the conclusion that a decision may be unethical, Bruce must take the scenario to his supervisor for clarification. Which principle is being adhered to in order to consider the ethics of the situation? a. Decision-making process b. Hiring people with good personal ethics c. Moral courage d. Ethics officer
A
What is on-the-job consumption? a. Senior management's use of company funds to acquire perks that enhance status. b. Money earned by working for a company, often at an hourly rate. c. The amount of resources used by each employee such as energy and food as well as trash generated. d. Money earned by an employee for increasing sales which increases profits.
A
What is the definition of an ethical dilemma? a. Situations where there is no agreement over exactly what the accepted principles of right and wrong are, or where none of the available alternatives seem ethically acceptable. b. A black and white scenario where there is a clear right and a clear wrong answer. c. A situation where there is an agreement over exactly what the accepted principles of right and wrong are, but the available alternatives all seem ethically acceptable. d. Scenarios where two executives are at opposite sides of a decision and cannot come to a clear consensus.
A
What is the motivation behind companies focusing on stockholders as a special classification of stakeholder? a. Stockholders are investors of the company. If the company proves to be viable, investors could potentially invest more. b. Stockholders share certain legal rights and can take legal action on the grounds of the stock price declining. c. At the end of the day, stockholders are the only stakeholders that a business should care about. d. Stockholders have votes of ownership, and they will vote how executives want them to if they are receiving dividends from the stock.
A
Which is an alternative way to define greenmail? a. A strategy by corporate raiders to buy shares to facilitate a takeover or a shift in management. b. A strategy that delivers mail to employees and customers that is more environmentally friendly, typically using electronic alternatives. c. A tactic that delivers personalized messages to prospective customers. d. A tactic where an executive demands favors from another executive in exchange for not releasing information about a sensitive personal issue.
A
Which of these is a description of a company's responsibility to stakeholders? a. To make business decisions that will benefit the interests of most or all stakeholders b. To ensure all stakeholders are compensated for their investment c. To ensure that working conditions are safe and enjoyable d. To make/sell products that are safe, high quality, and of value
A
How likely is it that companies will be able to satisfy all of their stakeholders' interests at the same time? a. Very likely if the company evaluates the stakeholders' interests thoroughly. b. Unlikely because of the diverse set of stakeholders and motives behind their interests. c. Unlikely because every decision affects a stakeholder negatively. d. Impossible due to companies' inability to identify all stakeholders.
B
If a company has only inside directors, and does not create a structure for outside directors, what might the consequences be? a. Increase of profits from not having to pay outside directors' salaries. b. Stockholders' interests could be ignored due to lack of oversight of executives and a potential compromised representation of stockholders. c. A more streamlined decision-making process from inside directors who know the company and industry intimately. d. A larger focus on stockholders, as inside directors and executives only focus on stockholders' interests.
B
Melissa, the CEO of a company, recently developed a compensation program where every employee of the company is offered stock options or ESOPs. Her intention is to have every associate focused on profitably and that the collective force of the whole company, not just executives, will drive her company to maximize its stock price. Which strategy has Melissa implemented? a. Employee satisfaction b. Employee incentives c. Employee recruitment d. Turnover rate
B
What is the definition of a stakeholder? a. Legal owners and the providers of risk capital, a major source of the capital resources that allow a company to operate its business b. Individuals or groups with an interest, claim, or stake in the company—in what it does and in how well it performs c. Individuals buying a competitor company's products or services d. A former employee who does not have a retirement plan or pension with the company
B
What is the definition of stockholder? a. An executive who holds financial interest in the company due to his or her annual salary b. The legal owners of a company who are providers of risk capital, a major source of the capital resources that allow a company to operate its business c. A supplier who sells its products to the company d. An employee who cannot afford to become unemployed
B
What is the takeover constraint? a. The probability of an employee being appointed as CEO. b. The risk of being acquired by another company. c. The risk of a company filing for bankruptcy. d. The decision to limit actions of managers through procedural controls.
B
Why do several academic studies suggest that stock-based compensation schemes best represent stockholders interest? a. Executives compensated this way are now more risk-oriented to maximize stock in the short term. b. This plan aligns stockholders' interests with executives' interests because they are now themselves stockholders. c. It enables insider trading because executives have company knowledge that enables them to know when the stock will be at its highest. d. The structure demands 14- hour and 6-day workweeks to maximize efficiency of the executive.
B
Without this, a company cannot be listed on the New York Stock Exchange and NASDAQ. a. Marketing department b. Code of ethics c. 100 employees d. U.S. Headquarters
B
A company has recently fallen into financial trouble and the annual reporting to the SEC is due. The CFO, who has stock options and is compensated based on the performance of the company, chooses to misrepresent the company's performance in the report. What might be his motivation behind falsifying records? a. To enhance his performance evaluation b. Personal pride of leading a company to economic prosperity c. Concern about his own financial interests as stock prices will be affected by a negative report d. Giving the company time to recover from the financial misstep before reporting the results to the stockholders
C
A toy manufacturer discovered that many of its toys manufactured in China were painted in a lead-based paint that is toxic. Which of these is the most ethically sound decision for the company to make? a. Ignore the problem because taking action would cause a hit to its profit margin, which is not in the interest of stockholders. b. Print a "Do not put in mouth" label on the tops to remove legal liability to the consumer and not the company. c. Recall the toys and implement a more rigorous process for detecting dangerous products. d. Launch a recall while shifting the blame from company to the manufacturing supplier in China.
C
Consider the story of Washington Mutual, a large Seattle-based bank and home lender that faced the potential for risk capital losses. Could a similar scenario of risk capital loss occur in other industries? Choose the best answer. a. No, because the banking industry is the only industry that directly affects peoples assets. b. No, because banking is the only risky industry. c. Yes, because all businesses spend the risk capital invested in them and put it in danger of being lost to stockholders. d. Yes, because the losses at Washington Mutual were due to the risky actions of the executives, not the banking industry as a whole.
C
If a manager is making a decision that could impact many stakeholders, what is a step that they can take to help uncover unethical situations that may not be obvious? a. Check legal documents as all unethical behavior is also illegal. b. Ask a co-worker who has a financial gain associated with the passing of this decision. c. Ask as many questions as possible to investigate possible scenarios for ethical ambiguity. d. Go with their initial instinct as people always have strong ethical compasses.
C
Katrina is the go-to person for ethical dilemmas at her company. Her supervisor recognized her ethical consideration in the business decision-making process, and she is now charged with taking responsibility to ensure her department is adhering to the company's ethical code. What is Katrina? a. Ethical leader b. Whistleblower c. Ethics Officer d. Inside Director
C
Which of these represents an example of compensation based on the performance of the company? a. An hourly worker for a retail company who is paid for time spent working. b. A salesperson for a manufacturer who is paid a commission based on her individual sales. c. A major league baseball manager who is paid based on his team's winning percentage. d. A program director for an event company who is compensated by the number of participants in individual events he organizes.
C
A chemical company recently developed a new process that causes manufacturing of a chemical product to be quicker and cheaper. However, there is chemical waste that is toxic created as a byproduct. The company decides to deposit the waste in a private pond on its property that is not in use for tourism. What is this an instance of? a. Corruption b. Spamming c. Repurposing d. Environmental degradation
D
A company is concerned with the decreasing revenue and is contemplating lay-offs. Which groups of stakeholders must the company consider as it makes this decision? a. Employees, suppliers, and communities b. Employees, stockholders, and suppliers c. Stockholders, communities, customers d. Stockholders, communities, employees
D
Can a decision be unethical, but legal according to our current justice system? a. Yes. There are laws in place that purposefully allow loop-holes in the system for clever organizations to exploit. b. No, all laws are written thoroughly enough so that business cannot act both legally and unethical. c. No. Unethical acts, by definition, are illegal acts. d. Yes. Managers may take advantage of ambiguities and gray areas in the law, of which there are many in our common law system, to pursue actions that are at best legally suspect and, in any event, clearly unethical.
D
Daniel is the CEO of a small, publicly traded company. He finds that his executives have trended toward more short-term projects and lost their focus on innovation and diversification. Which strategy should Daniel implement to continue a longevity focus? a. Change from a system of hourly pay for executives to a yearly salary so that they are not concerned with short-term performances. b. Fire an executive because his or her focus has been on short-term projects to set an example to the rest of the executives. c. Hire a new executive whose responsibility is to focus on long-term profitability. d. Convert to a stock-based or other performance-based compensation system.
D
How would you rephrase the meaning of risk capital? a. An investment that is guaranteed to deliver a return b. A company building or facility that has a high probability of collapsing c. A group of employees that is threatening to leave the company d. Assets that will be lost if an organization does not perform as expected or promised
D
Jarod is the CFO of his company and is reviewing the financial report before sending it to the SEC. Jarod wants to maximize the stock price of his company so that he can sell his stock in the company and retire. He has hired a friend's consulting firm to act as the financial auditor. He's asked the friend to put the firm in a favorable light, reclassifying some of the items on the company's books to maximize profitability in the report. Which Act makes Jarod's actions illegal? a. Sherman Antitrust Act b. Freedom of Information Act c. McCain-Feingold Act d. Sarbanes-Oxley Act
D
What is the motive for a company that focuses on ensuring they abide by just and ethical codes of conduct? a. Maximizing profit to benefit all stockholders b. Increasing employee morale to increase their efficiency c. Enhancing public image d. To take into account all stakeholders in a decision making process
D
What is the purpose of a board of directors? a. To ensure all decisions are in the interest of increasing revenue b. To police and discipline the company for corruption and other unethical acts c. To tell the CEO of a company what his duties entail on a daily basis d. To represent the stockholders' interest in the company
D
