Moral Issues in Business 12th Edition by William H. Shaw – Test Bank

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Chapter 5—Corporations

 

MULTIPLE CHOICE

 

  1. The statement that accurately describes corporations is
a. corporate shareholders have limited liability for their debts.
b. corporations must be “publicly held” and thus traded on the stock market.
c. corporations are always for-profit.
d. corporate shareholders are immediately entitled to any profits.

 

 

ANS:  A                    PTS:   1                    REF:   p. 200

 

  1. Corporations differ from partnerships and other forms of business association in two ways. One of these is that
a. they are regulated by the Federal Trade Commission.
b. they are formed simply by an agreement entered into among their members.
c. they must be publicly registered or in some way officially acknowledged by the law.
d. their shareholders are entitled to their share of the company’s profits as soon as they are ascertained or determined.

 

 

ANS:  C                    PTS:   1                    REF:   p. 200-201

 

  1. The first corporations
a. were towns, universities, and ecclesiastic orders.
b. emerged in the 19th century.
c. were government owned.
d. were profit-making associations.

 

 

ANS:  A                    PTS:   1                    REF:   p. 201

 

  1. Which of the following contributed to the more relaxed incorporation procedures of modern times?
a. The idea that incorporation is a by-product of the people’s right to associate, not a gift from the state.
b. The move from mercantilist thinking to a belief in Benjamin Franklin’s invisible hand.
c. The idea that incorporation is a gift from the state.
d. The thought that laissez-faire is a losing proposition.

 

 

ANS:  A                    PTS:   1                    REF:   p. 202

 

  1. In Citizens United v. Federal Elections Commission, the U.S. Supreme Court
a. defined the free-speech rights of corporations for the first time.
b. defended the first Amendment right of corporations to spend money to support political candidates they favor.
c. said that banking procedures are to be regulated by the Securities and Exchange Commission.
d. said that states should be permitted to distinguish between the rights of individuals and the rights of corporations.

 

 

ANS:  B                    PTS:   1                    REF:   p. 202-203

 

  1. A common point of contention about corporations is
a. corporate punishment is no different from individual punishment.
b. modern corporations no longer utilize a CID structure.
c. philosophers and business theorists disagree whether corporations are moral agents.
d. if corporations are moral agents, then this relieves individual human beings of any moral responsibility.

 

 

ANS:  C                    PTS:   1                    REF:   p. 203

 

  1. Milton Friedman argues that
a. corporations today should adopt a broader view of their social responsibilities than they have in the past.
b. corporate officials have a social responsibility that goes beyond serving the interests of their stockholders.
c. strict governmental controls are necessary if society is to maximize its overall economic well-being.
d. a business’s only social responsibility is to maximize profits within the rules of the game.

 

 

ANS:  D                    PTS:   1                    REF:   p. 206-207

 

  1. Which of the following do advocates of the broader view of corporate social responsibility believe?
a. Corporations should not internalize their externalities.
b. Moral responsibility arises from social power.
c. Corporations have moral obligations to consumers, to employees, to suppliers and contractors, to the surrounding community, and to society at large.
d. The moral contract between business and society has changed since the 19th century.

 

 

ANS:  C                    PTS:   1                    REF:   p. 208

 

  1. Some argue for the narrow view of corporate social responsibility on the ground that managers have a fiduciary responsibility to maximize the profits of their shareholders. As discussed in Chapter 5, one problem with this argument is that
a. companies do not usually have a clear chain of command.
b. promises don’t override all our other obligations.
c. managers don’t always know how to maximize profits.
d. stockholders don’t expect company managers to make money for them.

 

 

ANS:  B                    PTS:   1                    REF:   p. 210-211

 

  1. Which of the following is one of the three arguments in favor of narrow corporate social responsibility discussed in Chapter 5?
a. business-can-handle-it c. society-lacks-the-expertise
b. let-government-do-it d. visible-hand

 

 

ANS:  B                    PTS:   1                    REF:   p. 214

 

  1. One of the three important “limits to what the law can do” discussed by Christopher Stone is
a. laws are passed before there is any real problem to worry about.
b. consumers don’t want further legal regulation.
c. designing effective regulations is difficult.
d. regulators are often “bought off” by corporations.

 

 

ANS:  C                    PTS:   1                    REF:   p. 218

 

  1. Kenneth Arrow discussed two important situations in which profit maximization can be socially inefficient. One of these occurs when
a. there is an imbalance of knowledge between buyer and seller.
b. business would be an “inept custodian” of public values.
c. firms are unwilling or simply refuse to maximize profits.
d. corporate culture promotes dysfunctional social relations.

 

 

ANS:  A                    PTS:   1                    REF:   p. 219

 

  1. Externalities are
a. always positive, never negative.
b. a blessing in disguise in inflationary times.
c. an inevitable by-product of social responsibility.
d. unintended side-effects.

 

 

ANS:  D                    PTS:   1                    REF:   p. 219

 

  1. Milton Snoeyenbos argues that
a. settled economic life requires purely selfish behavior.
b. with ethical codes, there’s no need for taxes, laws, or regulations as a way of controlling corporate behavior.
c. Corporate moral codes can make it more reasonable to expect employees to behave ethically.
d. to be viable, ethical codes need not be widely accepted or part of corporate culture.

 

 

ANS:  C                    PTS:   1                    REF:   p. 219-220

 

  1. The best statement concerning corporations is
a. corporations don’t need moral codes.
b. corporate culture refers to the cultural activities sponsored by the company for its employees.
c. pollution caused by corporations isn’t an externality.
d. corporate culture can be both explicit and implicit.

 

 

ANS:  D                    PTS:   1                    REF:   p. 220-221

 

  1. Momentum for the corporate organization of business really gained momentum after which war?
a. Revolutionary War c. Civil War
b. French and Indian War d. World War I

 

 

ANS:  C                    PTS:   1                    REF:   p. 202

 

  1. The debate over corporate moral agency hinges on which issue?
a. Corporate decision c. Individual responsibility
b. Corporate punishment d. Corporate fit

 

 

ANS:  B                    PTS:   1                    REF:   p. 204

 

  1. The idea that corporations are moral agents
a. is accepted by many people and companies without hesitation.
b. has not been accepted by the courts.
c. has not been accepted by any major corporation.
d. is supported by the fiduciary relationship between management and shareholders.

 

 

ANS:  A                    PTS:   1                    REF:   p. 205

 

  1. The “rules of the game” for corporate work are intended to
a. let the games begin. c. destroy the competition.
b. promote open and free competition. d. make business fun.

 

 

ANS:  B                    PTS:   1                    REF:   p. 207

 

  1. Milton Friedman’s perspective is that the only social responsibility of a business is to
a. provide social benefit for the messes.
b. give jobs to the hard workers.
c. pay taxes to keep the government operating.
d. make money for its owners.

 

 

ANS:  D                    PTS:   1                    REF:   p. 206-207

 

  1. Those with a broader view concerning business obligations believe that with power comes
a. more power. c. too many limits.
b. more money. d. social responsibility.

 

 

ANS:  D                    PTS:   1                    REF:   p. 208

 

  1. Melvin Anshen suggests that there is a relationship between business and society which he termed as
a. “share the wealth.”
b. “the rich get richer and the poor get poorer.”
c. “social contract.”
d. “one for all and all for one.”

 

 

ANS:  C                    PTS:   1                    REF:   p. 209

 

  1. Most Americans believe a corporation’s top obligation is to its
a. nation. b. stockholders. c. community. d. employees.

 

 

ANS:  D                    PTS:   1                    REF:   p. 210

 

  1. In the corporate world, the board of directors will typically
a. rubber stamp the policies and recommendations of the management.
b. write the policies and procedures.
c. be there just for show.
d. hire and fire people for key management positions.

 

 

ANS:  A                    PTS:   1                    REF:   p. 211

 

  1. Adam Smith proposed that in our pursuit of economic interests we are led by
a. our gut instincts.
b. an invisible hand to promote general good.
c. the trends of the economy.
d. the moral compass within each of us.

 

 

ANS:  B                    PTS:   1                    REF:   p. 212

 

TRUE/FALSE

 

  1. Most business observers agree with Berle and Means that, because stock ownership in large corporations is so dispersed, actual control of the corporation has passed to management.

 

ANS:  T                    PTS:   1                    REF:   p. 211

 

  1. Internal or external corporate responsibility audits can help improve a corporation’s “corporate culture.”

 

ANS:  T                    PTS:   1                    REF:   p. 221

 

  1. Corporate internal decision (CID) structures amount to established procedures for accomplishing specific goals.

 

ANS:  T                    PTS:   1                    REF:   p. 203

 

  1. “Limited liability” means that members of a corporation are financially liable for corporate debts only up to the extent of their investments.

 

ANS:  T                    PTS:   1                    REF:   p. 200

 

  1. The invisible-hand argument against broadening corporate responsibility says that business’s appetite for profit should be controlled by the hand of the government.

 

ANS:  F                    PTS:   1                    REF:   p. 207

 

  1. Milton Friedman argues that business has a responsibility to provide employment, refrain from polluting, and eliminate discrimination, even when it’s not profitable to do so.

 

ANS:  F                    PTS:   1                    REF:   p. 207

 

  1. Externalities are the unintended negative (or in some cases positive) consequences that an economic transaction between two parties can have on some third party.

 

ANS:  T                    PTS:   1                    REF:   p. 209

 

  1. The business-can’t-handle-it argument is an argument in favor of a broad view of corporate responsibility.

 

ANS:  F                    PTS:   1                    REF:   p. 215

 

  1. Legally a corporation is a thing that can endure beyond the natural lives of its members and that has incorporators who may sue and be sued as a unit and who are able to consign part of their property to the corporation for ventures of limited liability.

 

ANS:  T                    PTS:   1                    REF:   p. 200

 

  1. The case of Citizens United v. Federal Election Commission ruled that corporations could spend money to support political candidates.

 

ANS:  T                    PTS:   1                    REF:   p. 202-203

 

  1. Manuel Velasquez claims that the corporate internal decision structure of a corporation shows that a corporation can have both intentions and intentionality.

 

ANS:  F                    PTS:   1                    REF:   p. 204

 

  1. According to Milton Friedman, business has no social responsibilities other than to maximize profits so long as it follows the rules of the game.

 

ANS:  T                    PTS:   1                    REF:   p. 206-207

 

  1. Adherents of the broader view of corporate responsibility claim that modern business is intimately integrated with the rest of society and that, as a result, although society expects business to pursue its economic interests, business has other responsibilities as well.

 

ANS:  T                    PTS:   1                    REF:   p. 208-210

 

  1. According to Melvin Anshen, the case for a broad view of corporate responsibility can be defended on the basis of there always being a kind of social contract existing between business and society.

 

ANS:  T                    PTS:   1                    REF:   p. 209

 

  1. Externalities give us a reason to support the narrow view of corporate responsibility.

 

ANS:  F                    PTS:   1                    REF:   p. 209

 

  1. According to Keith Davis, in addition to considering potential profitability, a business must weigh the long-range social costs of its activities as well. A business should act only if the overall benefit to society is positive.

 

ANS:  T                    PTS:   1                    REF:   p. 210

 

  1. According to law professor Christopher D. Stone, the relationship between corporate management and its shareholders is identical with the relationship between you and an investment adviser.

 

ANS:  F                    PTS:   1                    REF:   p. 218

 

  1. John Kenneth Galbraith rejects the assumption that Smith’s invisible hand will solve all social and economic problems.

 

ANS:  T                    PTS:   1                    REF:   p. 214

 

  1. The idea that corporations will impose their values on us supports one of the arguments for the narrow view of corporate social responsibility.

 

ANS:  T                    PTS:   1                    REF:   p. 216

 

  1. In his essay “Social Responsibility and Economic Efficiency,” Kenneth Arrow has argued that corporations only have a responsibility to maximize shareholder profits.

 

ANS:  F                    PTS:   1                    REF:   p. 219

 

  1. An effective professional or business moral code¾as well as the public’s awareness of this code¾is never good for business.

 

ANS:  F                    PTS:   1                    REF:   p. 219

 

  1. It is never profitable for corporations to acknowledge that business should be conducted to make a positive contribution to society rather than just make a profit.

 

ANS:  F                    PTS:   1                    REF:   p. 213

 

  1. According to proponents of broadening corporate responsibility, corporations should welcome the outside opinions of society as a whole, local communities, customers, suppliers, employees, managers, and stockholders.

 

ANS:  T                    PTS:   1                    REF:   p. 217

 

  1. According to Kenneth Arrow, trust and confidence are highly overrated in business.

 

ANS:  F                    PTS:   1                    REF:   p. 219

 

  1. A corporate moral code should set reasonable goals and subgoals, with an eye on blunting unethical pressures on subordinates.

 

ANS:  T                    PTS:   1                    REF:   p. 220

 

SHORT ANSWER

 

  1. What is a corporation (or limited-liability company) and how does it differ from partnerships and other forms of business association? What are the different kinds of corporations?

 

ANS:

See referenced page.

 

PTS:   1                    REF:   p. 220

 

  1. Briefly sketch the evolution of corporations.

 

ANS:

See referenced pages.

 

PTS:   1                    REF:   p. 201-202

 

  1. What is the problem of “vanishing individual responsibility?”

 

ANS:

See referenced page.

 

PTS:   1                    REF:   p. 205

 

  1. Briefly explain Milton Friedman’s view of social responsibility.

 

ANS:

See referenced pages.

 

PTS:   1                    REF:   p. 206-208

 

  1. Explain the relevance of the concept of a fiduciary relationship to the debate over corporate social responsibility.

 

ANS:

See referenced page.

 

PTS:   1                    REF:   p. 210

 

ESSAY

 

  1. Describe the ethical challenges that Yahoo faces in the China market.

 

ANS:

See referenced pages.

 

PTS:   1                    REF:   Case 5.1

 

  1. What is a moral issue raised by how drug companies are testing drugs? Apply a normative theory of ethics to this moral issue to explain why some people would think the drug companies are doing something immoral.

 

ANS:

See referenced pages.

 

PTS:   1                    REF:   Case 5.2

 

  1. What has Yahoo done that could help countries violate human rights? Apply a normative theory of ethics to this moral issue to explain why Yahoo did something immoral.

 

ANS:

See referenced pages.

 

PTS:   1                    REF:   Case 5.2

 

  1. Is Levi Strauss really hurting the people of Costa Rica by opening the operation there? List the pros and cons.

 

ANS:

See referenced pages.

 

PTS:   1                    REF:   Case 5.3

 

  1. Does a company like Levi Strauss have an obligation to keep a plant open in the United States if it can be more profitable going to a foreign country? Share your reasoning.

 

If you were the owner of a company, would your perspective be any different?

 

ANS:

See referenced pages.

 

PTS:   1                    REF:   Case 5.3

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