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Andrew is the president of a technology firm that has recently gone public. What action, if any, should Andrew take to build the confidence of his new shareholders?


A) Andrew needs to focus on the company's earnings because that is what shareholders care about.
B) He should find out whether the majority of his shareholders want long-term steady growth or short-term spikes in the stock price.
C) He should discourage pension funds from investing because they are interested in safety at the expense of growth.
D) He should make the company stock available only to hedge funds so he will have the freedom to take risks as the firm expands.

E) A) and C)
F) C) and D)

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It is up to shareholders to make certain that the financial statements that their firms release are correct and not misleading.

A) True
B) False

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General Electric's board has only one inside director, John Flannery, GE's CEO, who also acts as chairman of the board. This is known as duality. Which of the following statements represents the best argument for this duality in GE?


A) A CEO is likely to be more responsible because he or she is setting his or her own performance targets.
B) The CEO might be able to influence the board through setting the meeting agendas.
C) The CEO possesses invaluable inside information that can help him or her chair the board effectively.
D) Any CEO will suggest board appointees who are friendly toward him or her.

E) B) and C)
F) All of the above

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Which of the following could most likely have prevented the accounting scandals of the early 2000s and the global financial crisis?


A) adopting a narrow shareholder perspective
B) separating economic interests and social needs
C) practicing effective corporate governance
D) adopting the principles of shareholder capitalism

E) A) and B)
F) A) and C)

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One way to foster ethical behavior in employees is to


A) avoid codifying organizational culture.
B) create a control system that encourages desired values.
C) view clients as counter parties to transactions.
D) align the vision statement of the organization with its informal culture.

E) A) and D)
F) B) and C)

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Which of the following perspectives best supports the shared value creation framework?


A) Markets are more often than not defined by societal needs rather than economic needs.
B) Failing to create value for society almost always reflects on the bottom line.
C) A firm's competitive advantage depends on pitting economic and societal needs in a trade-off.
D) Externalities such as pollution, wasted energy, and costly accidents actually create internal costs.

E) None of the above
F) A) and B)

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Ben is a manager at Unique Accessories Inc. and is friends with the company's CEO. This privilege gives Ben the information that Unique Accessories is in the midst of talks to take over a leading rival. Ben buys stocks of Unique Accessories with the expectation that its stocks will appreciate. But the deal falls through, and the stocks of Unique Accessories depreciate in the following months. Are Ben's actions unethical? Why or why not?


A) Yes. It is unethical to trade stocks based on insider information, irrespective of the final outcome.
B) Yes. It is illegal and unethical for Ben to possess any kind of insider information.
C) No. Ben did not ask the CEO to disclose such information to him.
D) No. Ben did not make any profits from trading stocks using this information.

E) B) and D)
F) A) and D)

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Barrett is the ethics officer at Exton Corp., a publicly traded company. She wants to make sure that on-the-job consumption at Exton stays within legal and ethical bounds. Which action should she and the Exton board of directors take?


A) Forbid high-cost items such as executive office decoration, but permit lavish parties and celebrations because they are essential for morale.
B) Set strict limits on what executives can spend on office redecoration or work-related celebrations.
C) Do nothing. On-the-job consumption is a necessary part of hiring and retaining key executives.
D) Permit on-the-job consumption but cancel executive bonuses.

E) All of the above
F) B) and D)

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The MBA oath first developed at Harvard Business School and now signed by students at over 300 business schools is modeled after


A) Level-5 leadership.
B) the Sarbanes-Oxley pledge.
C) the Hippocratic oath in medicine.
D) the Goldman Sachs code.

E) B) and D)
F) B) and C)

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Eyenima Inc. is a public stock company. Which of the following best exemplifies the legal personality of the company?


A) Frieda, a shareholder, can legally sell shares of Eyenima in the stock market.
B) Tabitha is a shareholder of Eyenima but does not have any managerial duties.
C) Edward, an employee at Eyenima, is not responsible for any losses that Eyenima incurs.
D) Bjorn Eyenima, the company's founder, died a few years ago, yet the company is doing well.

E) None of the above
F) A) and D)

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How can a manager decide whether a decision is ethical?

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Since business decisions are not made in...

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Adverse selection in a public stock company occurs when


A) information asymmetry increases the likelihood of selecting inferior alternatives.
B) a firm's work tasks, incentives, and employment contracts minimize opportunism by agents.
C) a principal is not aware of the context from which information from an agent is derived.
D) an agent manipulates information to benefit stockholders.

E) All of the above
F) C) and D)

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Angie owns and runs Archana, a private start-up company with a current value of $1.3 billion. Archana is interested in going public to fund future growth. Which action should Angie take before Archana's initial public offering?


A) Angie should come up with a business plan for what Archana will do once it is no longer publicly traded.
B) She and senior managers should write down their code of ethics.
C) Angie should not embark on an IPO until Archana's value is higher.
D) She should investigate Archana's existing or potential problems with ethics or the law, if such problems exist.

E) A) and B)
F) C) and D)

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A bank, CQC, offers a customer a personal loan. In which of the following circumstances will this decision most likely be considered unethical?


A) The bank knows that the customer will be unable to pay the loan if the interest rate rises.
B) The bank is not aware of the investments made by the customer.
C) The bank has the financial statements of the customer, but it is not aware of each source of income.
D) The bank is depending on the customer to pay back the loan before term completion.

E) All of the above
F) B) and C)

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The informational advantage that agents possess over principals is often based on the fact that


A) the information is extremely secure and protected from exposure to anyone outside the company.
B) public stock companies are characterized by information symmetry.
C) insiders are the first to learn about important developments before the information is released to the public.
D) agents are legally permitted to freely trade the information in exchange for benefits, unlike principals.

E) B) and D)
F) B) and C)

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Sorenson LLC, a publicly traded company, has ten members on its board. Of the ten members, six members are employees of the company-including the CEO, who also chairs the board. The board has been failing in its responsibilities toward the shareholders, who now want a new board. Assuming that the total number of board members remains constant, how many outside directors should the shareholders appoint to Sorenson's board to achieve board independence?


A) 1
B) 3
C) 5
D) 7

E) B) and C)
F) B) and D)

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Which of the following is true of the board of directors in a public stock company?


A) Votes at shareholder meetings determine whose representatives are appointed to the board of directors.
B) Because shareholders generally have uniform interests, the composition of the board is generally a unanimous decision.
C) The board of directors acts as a facilitator to convey interests of the stockholders to the management without any real authority.
D) The functions of the board of directors are limited to ensuring the hiring and firing of CEOs.

E) None of the above
F) A) and B)

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Three months ago, Darren became a board member at Runswell, a publicly traded company. Two weeks ago, the board members discovered that Runswell's CEO is facing a lawsuit from a family member who accuses the CEO of theft. Based on what you have read, to what ethical standard should Darren and the other board members hold the CEO?


A) They should hold her to the same ethical standards that they would expect of any Runswell employee-no more, no less.
B) They must hold her to the highest ethical standards because the leaders of publicly traded companies must withstand intense public scrutiny.
C) If the board members are able to determine that the CEO is not a "bad apple," then they should give her their full support.
D) The board members must wait until the lawsuit results in a settlement or a guilty verdict.

E) A) and B)
F) A) and C)

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How does the separation of ownership and control in public stock companies present a problem? Provide an example of this problem from your reading in this class, your reading outside of class, or your own experience.

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Student examples will vary. A sample ans...

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Bellhaven Inc. has a board of directors that consists of seven members. Which of the following is most likely an accurate statement about Bellhaven's board of directors?


A) Bellhaven's board of directors ensures the firm's compliance with laws and regulations but does not conduct risk assessments.
B) Bellhaven's board of directors provides guidance for the firm's CEO but does not monitor the firm's corporate actions.
C) Bellhaven's board of directors oversees the firm's succession plan but does not evaluate the firm's CEO.
D) Bellhaven's board of directors has a minority number of inside directors and it evaluates the firm's strategic initiatives.

E) C) and D)
F) B) and C)

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