Exam 12: Corporate Governance and Business Ethics

A) managers need to keep economic needs and societal needs disconnected from each other.
B) a firm should expand its internal value chain to include nontraditional partners.
C) businesses should focus on creating regional clusters such as Silicon Valley in the U.S.
D) the largest but poorest socioeconomic group can yield significant business opportunities.

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A) separation of legal ownership and management control
B) legal personality
C) limited liability for investors
D) transferability of investor ownership

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A) Interview new candidates extensively to avoid adverse selection.
B) Expand the plan by allowing teams to make hiring decisions and eventually firing decisions as well.
C) Make sure the plan goes into place only after the company has corrected information asymmetry.
D) Cancel the plan because under it, opportunistic employees will do little or no work.

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A) Forbid managers and executives from having access to private information.
B) Forbid board members from having access to private information.
C) Work with analysts and customer-facing employees to root out information asymmetry.
D) Create a strict code of ethics and explain that inside traders will be fired.

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A) Doing so could yield significant business opportunities that could improve the standard of living of the poor.
B) Doing so is the best way to ensure that shareholders have the most legitimate claim on profits made by the organization.
C) Doing so could be the only way to meet stockholder expectations in a highly competitive market.
D) Doing so will help to prevent the inclusion of more nontraditional partners into internal firm value chains.

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A) It was given a "triple A" rating for Abacus even though Abacus should have gotten a low rating.
B) It made no effort to ascertain the stability of the real estate market, even though it had the resources and time to do so.
C) It knew that Paulson & Co. had bundled high-risk mortgages into the collateralized debt obligation.
D) It lost $100 million in the Abacus fiasco and endured negative treatment in the media.

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A) a board member of a major client.
B) more likely than other board members to take care of the stockholders.
C) also the CEO of other companies.
D) likely to provide the board with valuable inside information.

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A) Observe executives at the company, and see whether they model ethical behavior and demand it of others.
B) Research the results of the ethics violations. If the perpetrators were fired or jailed, then the rest of the company is sound.
C) Check the company's mission statement to make sure that it guarantees respect and integrity.
D) Ignore the alleged ethics violations because there is no one standard of ethical behavior.

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A) conflicts that arise in corporations should be addressed in the legal realm.
B) corporations are more than a set of contracts between parties.
C) companies should focus on generating profits for stockholders.
D) principals and agents have interchangeable roles.

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A) investors
B) outside directors
C) inside directors
D) auditors

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A) limited liability of investors
B) transferability of investor ownership
C) separation of legal ownership and management control
D) legal personality

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A) not synonymous with law.
B) impossible to codify into law.
C) universal and cannot differ between cultures.
D) the minimum acceptable standard in business practice.

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A) The notions are synonymous with law.
B) The notions differ to some degree in different cultures around the globe.
C) The notions are universal norms.
D) The notions are characteristics inherited by each person irrespective of the culture.

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A) cannot serve on the board of any other organization.
B) is more likely than Ernest to take care of stockholder interests.
C) is an inside director of Lopez Electronics.
D) can use information from board meetings to trade stocks of Lopez Electronics.

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A) He should closely monitor the behavior and performance of new employees to be certain that they have the skills they claimed to have in interviews.
B) Gino must increase hiring and develop influential relationships with government officials so that his firm will be considered "too big to fail."
C) He must create a plan in which government agencies or a consortium of other financial services firms will assume any future debts of the company.
D) Gino should define undue risk-taking, institute strict auditing of loans, and make it clear that the company will fire employees who lend recklessly.

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The shared value creation framework prop...

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A) Encourage the CEO to take all of her compensations in stock options, which will motivate her to keep the stock price high.
B) Offer the largest bonus possible to prevent the CEO from leaving to go a rival firm.
C) Link the CEO's pay to her performance, but avoid high-powered incentives that may cause reckless behavior.
D) Encourage her to emulate Warren Buffett and to take a lower salary than she might command elsewhere.

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