Chandler, Strategic Corporate Social Responsibility, 5e
SAGE Publishing, 2020
Chapter 6: Who Owns the Firm?
Test Bank
Multiple Choice
1. How did the introduction of limited liability for firms change the focus of firms?
A. profit became the primary purpose
B. social good became the primary purpose
C. innovation became the primary purpose
D. the introduction of limited liability did not change firms’ focus
2. Which of the following is true about shareholders?
A. Shareholders fully own a corporation.
B. Shareholders have a right of possession of a corporation.
C. Shareholder ownership is a social construction.
D. Shareholders have the right of control over a corporation.
3. In the early history of corporations, what was the primary purpose of shares?
A. to raise capital and provide a return on that investment
B. to encourage innovation
C. to allow outsiders to control a corporation’s major decisions
D. to implement social good by a corporation
4. During the early 20th century, which type of stakeholder become more and more
favored in terms of legal decisions?
A. employees
B. owners
C. communities
D. investors
5. The ______ is the notion that shareholders cannot second-guess management
decisions.
A. management responsibility doctrine
B. business judgment rule
C. board of directors supremacy
D. limited liability corporation
6. Which case lays the legal foundation for the belief in the primacy of shareholder
interests?
A. Miller v. Magline, Inc.
B. SEC v. Transamerica Corporation
C. Dodge v. Ford Motor Company
D. Levin v. Mississippi River Corporation
7. For which of the following events would a court intervene in a firm’s activities?
A. A management decision to not insure a company’s largest warehouse.
B. A management decision to deceive customers about the negative effects of the
company’s products.
C. A management decision to not invest in eco-friendly materials because they are less
profitable.
D. A management decision to not give raise to employees who have been at the
company for more than 15 years.
8. The great value of ______ is that it enabled corporations to raise the capital that was
needed to finance the infrastructure that fueled the Industrial Revolution.
A. limited liability
B. the stock market
C. centralized management
D. high-frequency stock trades
9. According to the textbook, the statement, “Shareholders are the owners of
corporations” is a ______, not a ______.
A. legal fact; belief
B. belief; legal fact
C. legal fact; principle
D. principle; theory
10. Because many stock trades are governed by third-party transactions, this drives a
wedge between shareholders and ______.
A. regulators
B. managers
C. employees
D. markets
11. The combination of high-frequency trading and massive investment funds holding
large, but passive, positions is redefining what it means to be a ______.
A. stockbroker
B. manager
C. director
D. shareholder
12. The fact that shareholders have the right to vote at the company’s annual general
meeting demonstrates that ______.
A. shareholders can influence day–to–day operations of the firm
B. shareholder democracy is neither strong nor broad
C. shareholders have direct input on all interests of shareholders
D. boards of directors will respond to shareholder concerns
13. An analysis of the history of the corporation, a review of existing legislation, and
legal precedent all support to the conclusion that ______.
A. shareholders do not own the firm
B. shareholders are the owners of the firm
C. shareholders have the same power as managers of the firm
D. shareholders must respect the rights of all stakeholders
14. To encourage long-term thinking across all aspects of operations, firms like Unilever
______.
A. began issuing quarterly earnings guidance
B. stopped issuing quarterly earnings guidance
C. began issuing monthly earnings reports
D. stopped issuing annual earnings reports
15. The regular issuance of quarterly earnings reports to shareholders illustrates which
of the following?
A. the long-term nature of investing for retirement
B. the importance of stakeholder interests over shareholder interests
C. the growing importance of CSR in business decisions
D. the short-term focus of the economic system
16. As the CEO of a publicly traded company, you decide your firm will no longer issue
quarterly earnings reports to shareholders. A legitimate reason for your decision is
______.
A. to emphasize the importance of medium– to long-term value creation
B. to emphasize the importance of short-term financial strategies
C. to encourage investors to buy stock in your company
D. to discourage investors from buying stock in your company
17. Which of the following does strategic CSR emphasize?
A. short-term value creation
B. meeting the needs of all stakeholders
C. medium- to long-term value creation
D. meeting the needs of primary stakeholders
18. An advantage of the limited liability company (LLC) is that the organization is
______.
A. recognized as an independent entity in the eyes of the law
B. not recognized as a legal person and therefore cannot be sued
C. provided tax-exempt status
D. not liable for its own debts
19. The largest passive investor in corporations across the world is ______.
A. BlackRock
B. Vanguard
C. State Street
D. E.F. Hutton
20. There is ______ legal precedent for the idea that managers and directors have a
fiduciary responsibility to place shareholder interests over the interests of other
stakeholders.
A. no
B. weak
C. strong
D. irrefutable
21. The Dodge brothers sued Henry Ford because of his decision to ______.
A. pay factory workers a living wage
B. distribute surplus profit to shareholders in the form of a dividend
Chandler, Strategic Corporate Social Responsibility, 5e
SAGE Publishing, 2020
C. reinvest profits in research and development rather than in shareholder dividends
D. distribute surplus profit to customers in the form of lower prices for cars
22. The Dodge v. Ford case has often been used as the legal foundation for the belief
that ______.
A. the firm must place the interests of its shareholders over all other interests
B. the firm must operate in the interests of all stakeholders
C. the firm must place the interests of its managers over all other interests
D. management has very little responsibility to shareholders in day–to-day operations
23. The business judgment rule is important because it reflects the principle that
______, not ______, have the greatest latitude to run companies.
A. shareholders; company directors
B. company directors; shareholders
C. managers; company directors
D. shareholders; managers
24. The 1880 New Hampshire Supreme Court decision in Charlestown Boot & Shoe Co.
vs. Dunsmore sets a legal precedent for ______.
A. stakeholder theory
B. the business judgment rule
C. shareholder autonomy
D. limited liability
25. Between 1870 and 1910, corporations were protected from legislation such as child
labor laws by the ______.
A. First Amendment
B. Fifth Amendment
C. Fourteenth Amendment
D. Eighteenth Amendment
Chandler, Strategic Corporate Social Responsibility, 5e
SAGE Publishing, 2020
26. In the event that a shareholder resolution is passed by a majority at a company’s
annual general meeting (AGM), in most cases the company is obliged to ______.
A. take action immediately
B. create a plan for implementation of the idea and present it to shareholders
C. consider the proposal at its next board meeting
D. do nothing
27. In Delaware, the part of the firm that is given preeminence is ______.
A. the investor
B. the board of directors
C. the employees
D. the chief executive officer
28. Firms such as Unilever and Amazon are now changing their approach to business
thinking by focusing on ______.
A. societal outcomes
B. climate change
C. long-term focus
D. globalization
1. Since their inception in the United States, corporations have all been limited liability.
2. Existing securities are traded on the primary market.
Chandler, Strategic Corporate Social Responsibility, 5e
SAGE Publishing, 2020
3. A share is a legal contract between the investor and the firm.
4. A limited liability company is, in the eyes of the law, a person.
5. U.S. courts often intervene in the business decisions of a firm to ensure that the firm
is both maximizing profits and doing social good.
6. Shareholders definitively own the corporation in which they invest.
1. Analyze the following statement: “Shareholder ownership of firms is a social
construction.” What does this statement mean, and what are the implications for CSR?
2. Why is the question of ownership central to the CSR debate? In your answer, provide
specific examples of how ownership impacts CSR issues.
3. How has the definition of what it means to be a shareholder changed over the history
of the corporation?
4. What are the implications of the principle in U.S. corporate law that “no one owns the
corporation?”