Deck 13: Corporate Governance and Ethics

Question 1

Chang, the founder of a multinational corporation, believes that his business should mainly focus on the benefit of those people who own its stock. In this scenario, he most likely follows ________, a model of business management.

A)stakeholder model
B)shareholder primacy
C)customer value
D)stakeholder value

Answer 1

B

Question 2

Tinos Inc. is a company that manufactures toys. Which of the following would be its primary stakeholder?

A)Other local toy manufacturers
B)Foreign toy manufacturers
C)People who purchase its toys
D)People who purchase toys in foreign countries

Answer 2

C

Question 3

TinyToys Inc. is a company that manufactures toys. Which of the following would be its secondary stakeholder?

A)Other local toy manufacturers
B)Companies that supply its raw materials
C)People who purchase its toys
D)People who work for the company

Answer 3

A

Question 4

Salma owns stocks of an e-commerce business. In exchange for the money she has invested, she has received two property rights from the business. Which of the following is most likely to be one of the property rights given to her?

A)She will get a share of the residual earnings of the business.
B)She will be the only owner of the assets of the business.
C)She will get ownership of the private properties owned by other investors of the business.
D)She will be entitled to a higher percentage of the profits earned by the business.

Question 5

How did the general-purpose corporations formed in the twentieth century grow?

A)By allowing investors to run the corporation
B)By relying on investors to run the corporation
C)By selling products and services to the investors at reduced prices
D)By offering investors a share of ownership in the company, or stock

Question 6

Which of the following statements is true of the intrinsic stakeholder model of business management?

A)It is the belief that stakeholder groups have the right to be considered in decisions that will impact them.
B)It is the belief that giving importance to stakeholders makes it difficult for managers to effectively run their firms.
C)It is the belief that stakeholder interactions have longer-term consequences on a firm's performance and competitive advantage.
D)It is the belief that financial capital is the most important input into making a business successful.

Question 7

Javier is the shareholder of a cellphone manufacturing company. Which of the following statements about him is true?

A)He does not have any claim to the residual earnings of the company.
B)He is the only person entitled to receive the profits of the company.
C)He is protected from being taken advantage of by the management team due to his oversight rights.
D)He is not able to exchange money with the corporation without a clearly specified payment in return.

Question 8

Autumn Inc. is a company that functions on its own. It has the right to enter into contracts, hire employees, and also pay taxes. The shareholders of the company are entitled to its profits. Autumn Inc. is an example of a ________.

A)cooperative
B)limited partnership
C)general partnership
D)corporation

Question 9

Raj, a student of business management, claims that the shareholder primacy model is not a good model of business management. Which of the following statements should he use in order to best support his claim?

A)The shareholders are not the legal owners of the corporation's assets.
B)Financial capital is the most important input into making a business successful.
C)The shareholders cannot not trade or own any stock of the corporation.
D)Managing for shareholder value creates negative consequences for firms.

Question 10

________ is best described as the processes and structures that provide the ultimate decision making authority for a firm.

A)Strategic management
B)Corporate responsibility
C)Corporate governance
D)Corporate management

Question 11

Veltek Development Solutions was a company that existed in the nineteenth century. It was formed after obtaining a charter from the state legislature for the purpose of building a small bridge over a river. In this scenario, Veltek Development Solutions can be considered a ________.

A)cooperative
B)limited partnership
C)general partnership
D)corporation

Question 12

Fatima wants to start a small business. She does not want to share the profits of her business with anyone else. In this scenario, Fatima should most likely opt for which of the following types of business ownership?

A)A joint venture
B)An individual proprietorship
C)A partnership
D)A corporation

Question 13

Which of the following statements is true of an individual proprietorship?

A)It is owned by two or more partners.
B)It is run and owned by the same person.
C)It is considered a distinct and separate entity from its owners.
D)It is a rare form of business ownership in the United States.

Question 14

Anastasia, a student of business management, claims that since most businesses are primarily concerned with acquiring more assets, the shareholder primacy model is better than the stakeholder model of business management. Which of the following facts strengthens her claims?

A)Shareholders can easily trade the stock they own of an organization.
B)Shareholders exchange money with the corporation without a clearly specified payment in return.
C)Shareholder value creates negative consequences for firms.
D)Shareholders are the legal owners of all the material possessions of the corporation.

Question 15

Jiao, a student of business management, claims that the shareholder primacy model is better than the stakeholder model of business management. Which of the following statements best supports her claim?

A)The customers are the legal owners of the corporation's assets.
B)The most important input into making a business successful is wealth.
C)The shareholders own stock of a corporation that they can easily trade.
D)The shareholders have different objectives for investing in a firm.

Question 16

________ is a model of the corporation suggesting that a firm is the sum total of its contracts with different stakeholders.

A)Nexus of contracts
B)Shareholder primacy
C)Stakeholder model
D)Supplier contracts

Question 17

Kate, a business owner, is a proponent of the stakeholder model of business management. Which of the following is a reason she supports this model?

A)The stakeholders are the legal owners of the corporation's assets.
B)Managers spend most of their time interacting with and managing the demands and needs of different stakeholder groups.
C)The stakeholders own stock of a corporation that they can easily trade.
D)Managers have no way to efficiently and effectively run their firms as they have no way to decide whose claims have priority.

Question 18

A(n)________ is a legal structure for organizing a business where the organization is a distinct and separate entity from its owners.

A)general partnership
B)proprietorship
C)corporation
D)limited partnership

Question 19

Ria and Maria start an investment firm together that is not a separate legal entity. They have an equal share of the profits and the liabilities of the business. This type of business ownership can be best categorized as a(n)________.

A)cooperative
B)partnership
C)corporation
D)individual proprietorship

Question 20

Antonia owns and runs a bakery in her neighborhood. She is the only person responsible for the liabilities of her bakery. Her bakery is an example of a(n)________.

A)individual proprietorship
B)corporation
C)partnership
D)joint venture

Question 21

Which of the following statements is true of the agency problem facing the modern public corporation?

A)It arises when a corporation hires a private agency to conduct audits of its business practices.
B)It arises when a government agency is assigned with the task of identifying corrupt practices by a corporation.
C)It arises as a consequence of the separation of ownership and control in the corporation.
D)It arises as a consequence of the managers of the corporation focusing on enhancing shareholder value.

Question 22

HMR Inc. is a company that manufactures household chemicals and fertilizers used in farming. Its customers consist of farmers and other people who purchase its products. Its suppliers will be most affected by the business through the ________.

A)working conditions of the company
B)reputation of the company
C)earnings it generates for its investors
D)chemicals and other products sold by it

Question 23

Pick N Shop Inc. operates a chain of supermarkets. The company offers a bonus of $500 to its sales representatives if they can sell products worth $5,000 per month. It also offers bonuses and other benefits to its employees and managers. By offering such bonuses, Pick N Shop Inc. is primarily trying to avoid a(n)________.

A)hostile takeover
B)proxy fight
C)agency problem
D)accountability problem

Question 24

YCL Inc. operates a retail chain. The managers and employees of the company have been on strike for months due to their differences with its owners. As a result, the share price of the company has fallen to a historic low. UltraPlus Investments decides to purchase a majority of the shares of YCL, confident that it can manage the company better. The board of directors of YCL refuses to sell the shares of the company to UltraPlus Investments. As a result, UltraPlus tries to place its own people on the YCL's board of directors to change their decision. In this scenario, UltraPlus is involved in a(n)________.

A)agency problem
B)proxy fight
C)employee buyout
D)friendly acquisition

Question 25

Peach Corp. operates a chain of supermarkets. The managers and employees of the company have been on strike for months due to their differences with its owners. As a result, the share price of the company has fallen to historic low. Globe Investments decides to purchase a majority of the shares of Peach Corp., confident that it can manage the company better. Globe Investments makes a public offer to purchase the shares of the investors who are dissatisfied with the performance of Peach Corp. The offer made by Globe Investments can be termed as a(n)________.

A)proxy offer
B)tender offer
C)discount offer
D)private offer

Question 26

The ________ of a corporation have a legal fiduciary duty to act in the best interests of the corporation's owners.

A)customers
B)suppliers
C)directors
D)distributors

Question 27

RedMart Corp. operates a chain of supermarkets. The managers and other employees of the company have been on strike for months due to their differences with its owners. As a result, the share price of the company has fallen drastically. Pro Investments Inc. purchases a majority of the shares of RedMart, confident that it can manage the company better. The problem faced by RedMart Corp. as result of the separation of ownership and control can be termed as a(n)_________.

A)hostile takeover
B)proxy fight
C)agency problem
D)accountability problem

Question 28

Zygaton Corp. is a firm that offers its customers financial services. Which of the following members of its board of directors should ideally bring vast knowledge and a new perspective in order to ensure that the firm's strategy will serve the financial interests of the shareholders?

A)Javier, an employee
B)Maria, an outside director
C)Cataleya, a senior executive
D)Esposito, a senior manager

Question 29

Chemica Corp. is a company that manufactures household chemicals and fertilizers used in farming. The government of the state in which it operates will be affected by the business through the _________.

A)effect its products have on environmental pollution
B)reputation of the company
C)earnings generated by the company
D)employment opportunities that the company generates

Question 30

Which of the following statements is true of corporate culture?

A)An organization's culture, by itself, can be regarded as good.
B)Culture proves to be very weak because it cannot inform action without the need for supervision.
C)Put simply, culture is just how things are done in any organization.
D)It consists of behavioral assumptions that are considered inappropriate for organizational members.

Question 31

Abdul, a student of business management, claims that the stakeholder model is not a good model of business management. Which of the following would he most likely cite as a reason for his claim?

A)The shareholders are not the legal owners of the corporation's assets.
B)Managers need to focus on the only objective of increasing shareholder value.
C)The stakeholder groups should be considered in decisions that will impact them.
D)Managers spend most of their time interacting with stakeholders.

Question 32

Newe Chemicals Inc. is a company that manufactures household chemicals. Its customers consist of people who purchase its products. They will be affected by the business through the ___________.

A)wages it pays to its employees
B)payment it makes to its suppliers
C)earnings it generates for its investors
D)advertising campaigns it uses to promote its products

Question 33

Anastasia is one of the managers of Geller Technology Inc., an information technology firm. She will be considered the agent of the _________.

A)people who own stocks of the firm
B)people who purchase the software created by the firm
C)software engineers who work for the firm
D)businesses that use the software created by the firm

Question 34

Agrolus Corp. is a company that manufactures fertilizers used in farming. Its customers consist of farmers who purchase its products. Its employees will be affected by the business through the _________.

A)working conditions of the company
B)payment it makes to its suppliers
C)earnings it generates for its investors
D)fertilizers sold by the company

Question 35

Which of the following individuals has a legal fiduciary duty to act in the best interests of the owners of the corporation where he or she works?

A)Neehara, a nurse at a private hospital
B)Ivana, a senior executive at a financial corporation
C)Steve, a salesperson at an electronic store
D)Jamal, a technical support engineer at an IT firm

Question 36

Yellow Moon Inc. is a company that manufactures consumer electronics. Its investors will be primarily affected by the business through the _________.

A)training and development provided to its employees
B)employees living in its community
C)earnings generated by the company
D)order consistency of the company

Question 37

________ is the right to buy a certain number of the corporation's shares at a specified future date for a specified price.

A)Pay for performance
B)Stock-based compensation
C)A stock grant
D)A stock option

Question 38

DigiGo Inc. is a multinational corporation that manufactures and sells home appliances. Who among the following are its principals?

A)The people who own stocks of the company
B)The people who purchase the home appliances it manufactures
C)The electronics engineers who work for the company
D)The retailers that sell the home appliances it manufactures

Question 39

ShopEazy Inc. operates a chain of supermarkets. The managers and employees of the company have been on strike for months due to their differences with its owners. As a result, the share price of the company has fallen to a historic low. Zeltro Investments decides to purchase a majority of ShopEazy's shares, confident that it can manage the company better. In this scenario, Zeltro Investments can be best categorized as a(n)________.

A)corporate raider
B)venture capitalist
C)secondary stakeholder
D)angel investor

Question 40

Monica is a senior interior designer who works at 360 Marks Inc. As part of her compensation package, she is entitled to 2,000 shares of the company at $30 each. In this scenario, the type of compensation offered can be termed as a(n)________.

A)stock option
B)stock grant
C)tender offer
D)initial grant

Question 41

Which of the following statements is true about compensations and incentives?

A)Bonuses are paid when employees meet certain performance objectives.
B)Bonuses are always discretionary in nature.
C)Salary usually includes stock-based compensation.
D)Nondiscretionary compensations are given for any reason a principal desires.

Question 42

Identify a feature of corporations.

A)They allow entities to grow the larger economy.
B)They prohibit entities from industrializing.
C)They have sole ownership.
D)They have unlimited personal liability.

Question 43

Identify a feature of takeover artists.

A)They help implement shareholder strategies once they convince other investors to sell their shares.
B)They make public offers called petition offers to purchase shares of dissatisfied investors.
C)They are investors who are attracted to the high share prices of firms.
D)They believe they can manage a corporation's assets better than the current management team.

Question 44

Identify a primary characteristic of the inside directors of corporations.

A)They comprise people who are not employed by a corporation in any other role.
B)They should ideally bring independence to the board.
C)They should bring deep knowledge and a fresh perspective.
D)They have the working knowledge of a firm's operations and strategies.

Question 45

A ___ is a formal declaration of a company's core values, business objectives, and ethical aspirations.

Question 46

Which of the following is a feature of the outside directors of a corporation?

A)They bring their skills and working knowledge of the firm's operations and strategies to the board.
B)They do not have to worry about losing their jobs if they offer opinions that the firm's executives might not want to hear.
C)They are usually the executives or managers of a firm.
D)They ensure that a firm's strategy serves the financial interests of all stakeholders.

Question 47

In a company, who are called agents?

Question 48

Identify a way in which principals usually salvage their businesses from agency problems that destroy value.

A)They make investments in blue ocean strategies.
B)They get greenfield investments in equipment or knowledge.
C)They monitor their manager-agents through the board of directors.
D)They reduce the compensation and incentives of their manager-agents.

Question 49

Identify a feature of the stakeholder model.

A)It holds that the executive team should be legally and morally obligated to work for the owners of a corporation.
B)It holds that financial capital is the most important input into making a business successful.
C)It holds that no group should enjoy primacy in decision making.
D)It was advocated by Professor Adolf Berle.

Question 50

Identify a true statement about fiduciary duties.

A)A fiduciary is obligated to work for the greatest advantage for stakeholders.
B)The executives of a corporation cannot be legally bound by fiducial obligations.
C)A fiduciary is obligated to maximize profits for managers.
D)Fiduciary duties include the duty of care.

Question 51

Which of the following is an issue pointed out by critics of the shareholder primacy school as evidence against this model?

A)The absence of a financial capital makes it hard to hire employees, buy inventory or other needed inputs, and produce products for customers to buy.
B)Managers make difficult trade-offs to satisfy one shareholder group at the expense of others.
C)Corporations that run for other stakeholder groups often cause real damage to economies, communities, and the natural environment.
D)Shareholders actually own their corporation.

Question 52

Identify an accurate statement about agency problems.

A)They are mostly faced by sole proprietorships.
B)The managers of a corporation are also called the principals.
C)They occur when the goals of principals differ from those of agents.
D)The shareholders of a corporation act as the agents of the principals.

Question 53

What do most businesses do when the principal's investments are difficult to recover?

A)They get sunk-cost investments in equipment or knowledge.
B)They monitor their manager-agents through the board of directors.
C)They increase the compensation and incentives of their manager-agents.
D)They make investments in blue ocean strategies.

Question 54

Who is a stakeholder of a business organization?

Question 55

Identify an accurate statement about corporate ethics and culture.

A)Cultures that promote ethical behavior allow people to deny the ethical dimension of their actions.
B)Culture pilots an organization by helping each individual manager decide what to do.
C)An organization's culture, by itself, is either good or bad.
D)The way people perceive and react to the ethical challenges they face as they do their jobs is rarely influenced by culture.

Question 56

___ are those values that define for an individual, group, or society things that are morally right or wrong.

Question 57

Define ethical behavior.

Question 58

Which of the following is a characteristic of the shareholder primacy model?

A)It was advocated by Professor Merrick Dodd.
B)It holds that shareholders have a special type of contract with a corporation.
C)It holds that no group should enjoy primacy in decision making.
D)It is based on the belief that a corporation should be run for the benefit of the entire community.

Question 59

Which of the following statements is true of the aspects of ownership and control in corporations?

A)Principals and agents have different goals.
B)Managers always want a corporation managed in a way that maximizes revenue and minimizes cost.
C)Shareholders usually want to maximize their own utility.
D)Shareholders have no right to monitor the performance of the managers of a corporation.

Question 60

Which of the following statements is true about the first 100 years of the history of the United States?

A)Many businesses operated as corporations.
B)General partnerships were very rare.
C)Most economic activity was carried out by partnerships.
D)Individual proprietorships were very common.

Question 61

Briefly describe agency problems. How can they destroy value in an organization?

Question 62

Explain with examples how the engagement of a company with its key stakeholders can affect its overall performance and competitive advantage.

Question 63

Describe two of the arguments used by participants of debates about ethics.

Question 64

Explain the difference between the shareholder primacy model and the stakeholder model.

Question 65

Describe how style can help a company create a climate where ethical behavior becomes the expected norm.