Chapter Nineteen:
Corporate Social Responsibility
True/False Questions:
1) Successful performance for firms requires only respect for the laws of the country
and effective responses to the needs of the customers.
2) The stance a company takes on social responsibility is voted on by its
shareholders.
3) An individual firm may have earned a reputation for operating in a manner
consistent with society’s interests, but reputations can be fragile.
4) Public trust in large firms is typically high.
5) Because of the trust gap, one criticism can negate several positive
accomplishments by a firm
6) Economic theory identifies the maximization of stakeholder value as the objective
that provides the strongest incentives.
7) Milton Friedman argued that the social responsibility of business is to maximize
profits.
8) Any conception of the social responsibility of business must include compliance
with just laws.
9) Corporate social activities may not be costly
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10) In principle, managerial capitalism could be more efficient than market
capitalism.
11) A firm interacts with a number of constituencies, including employees, suppliers,
customers, the communities in which it operates, and with the public in general.
12) Market capitalism is typically less efficient than managerial capitalism.
13) Stakeholders are those constituents who have a “stake” in their relationship with
the firm.
14) In principle, managerial capitalism could be more profitable than market
capitalism.
15) To summarize Milton Friedman: the business of business is business, within the
laws and with the maximization of profits.
16) To Friedman, a corporation is a voluntary association of groups to maximize the
value of their property and to further the economic well being of society as a
17) The Business Roundtable is made up of social responsibility vice presidents of the
major corporations employing about 10 million in the US.
18) From the viewpoint of the Business Roundtable, shareholders such as employees
have primary claim on corporate attention and customers have a secondary claim.
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19) For most corporations, input from shareholders concerning social responsibility is
part of the decision process and, in fact, several boards have a variety of
shareholders on their boards of directors.
20) Some business leaders argue that there are societal objectives that can be achieved
only through corporate action.
21) Many businesses do not support a notion of corporate social responsibility as
voluntary self-regulation.
22) Corporate social responsibility focuses on the responsibility of a firm for social
performance.
23) Just like corporate social responsibility, corporate social performance is always
motivated by moral considerations.
24) There seems to be a slightly negative correlation between corporate social
performance (CSP) and corporate financial performance (CFP), proving Friedman
right in his views.
25) Individuals as employees could reward a firm through higher productivity
motivated by the social activities of the firm.
26) Accountability is not an issue for firms that adopt social responsibilities.
27) Many firms now conduct their own assessments of social performance.
28) It is impossible to perform a social audit of a firm’s social responsibility efforts.
29) Boards of Directors cannot be held personally liable for the mistakes the
corporation makes as the court ruled in Smith v. van Gorkom (1985).
30) A number of investment funds, led by CalPers, have brought pressure to bear on
firms for improved financial performance by filing shareholder resolutions,
threatening to sell their shares, and directly pressuring management.
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Multiple Choice Questions:
31) Successful performance requires firms to give serious consideration to all of the
following factors, except:
a) Respect and abiding by the laws.
b) Responsiveness to their customers demands.
c) Protecting shareholders interests.
d) Accepting all interest groups demands.
32) The public trust in large firms is
a) high
b) steady
c) low
d) increasing
33) From the efficiency perspective, Adam Smith concluded what?
a) The surest way to achieve well-being is to place resources in the hands of a
responsible government
b) Markets are the best means of directing scarce resources to society’s needs
c) It is better to rely on the good will of individuals
d) The corporate form is not important to achieve economic efficiency
34) According to Adam Smith, when markets are competitive, the pursuit of market
value maximization results in which of the following?
a) Economic efficiency
b) No trade deficit
c) A level competitive field
d) High valuation on money
35) Which of the following best describes the relationship of market capitalism with
managerial capitalism?
a) They coexist
b) They are in constant conflict
c) They are contrary to each other
d) They are the same
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36) Managerial capitalism may be more efficient than market capitalism. Why is
this?
a) It allows the accumulation of resources by not distributing the earnings to
shareholders
b) It allows for the allocation of retained earnings without borrowing from the
capital markets
c) Managers may keep information within the company, the divulgence of which
may hurt the corporation
d) Each one of the above arguments favors managerial capitalism as being more
efficient
37) The reliance on managers for the allocation of resources is called
a) market capitalism
b) corporate social responsibility
c) managerial capitalism
d) managerial altruism
38) The reliance on markets to direct the allocation of resources is called
a) market capitalism
b) corporate social responsibility
c) managerial capitalism
d) managerial altruism
39) Milton Friedman argues that the responsibility of business is to:
a) Conduct the business in accordance with the owners’ desires.
b) Make as much money as possible.
c) Conform to the basic rules of society both embodied in law and in ethical
customs.
d) All the above are considered as business responsibilities according to
Friedman.
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40) The role of government, according to Milton Friedman, is what?
a) To impose taxes and determine expenditure
b) The judiciary is to mediate disputes
c) To equate social and private costs when private bargaining does not result in
economic efficiency
d) Friedman considers all the above as appropriate role of the government from
his perspective
41) According to Milton Friedman, the objective of a corporation is the maximization
of its
a) taxes
b) profits
c) trust
d) capital
42) The following represents the Business Roundtable Statement on social
responsibility with one exception. The exception is what?
a) Business is to serve public interest as well as private profit
b) The corporation is both an economically and socially viable entity
c) Shareholders are principals, not only the providers of risk capital
d) The corporation is an entity whose existence depends on society’s support
43) CFP is the acronym for
a) Corporate Functional Performance
b) Chairman of Finance Policy
c) Corporate Financial Performance
d) Corporate Functional Policy
44) _______ continues to be an issue for firms that adopt social responsibilities.
a) Profit
b) Management
c) Morality
d) Accountability
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45) An approach for dealing with social accountability is demonstrated through which
of the following?
a) Polling of customers
b) Placing shareholders on the board of directors
c) Conducting independent social audits
d) Opening company trade secrets to shareholders
46) The common law standard used by the courts to judge the discharge of obligations
of the board of directors is called what?
a) Business assessment evaluation
b) Business judgment rule
c) Business common sense ethical standards
d) Business rights and rules
47) The Business Roundtable has recommended a number of changes to corporate
governance on boards of directors. Which of the following is not recommended?
a) Focus on strategic decisions and the social impacts of these decisions
b) Severely limit the numbers of outside board members
c) Place more women and minorities on boards
d) Select, regularly evaluate, and if necessary, replace the chief executive officer
48) Increasingly, ________ investors are an important force in the market for control.
a) Individual
b) Investment clubs
c) Institutional
d) Union
49) The market for control supervises the actions of management and directors
through all but which of the following mechanisms?
a) Mergers
b) Acquisitions
c) Lawsuits
d) Hostile takeovers
50) CalPERS is an example of a(n)
a) institutional investor
b) Business Roundtable member
c) corporate social responsibility auditor
d) all of the above
Essay and Review Questions:
1) Review and explain the classical view of the role of business in society. What are
the premises of this school of thought? What are the good aspects and flaws of
this approach?
2) What is the role of business in the society according to the social responsibility
perspective? What is the role of government according to this approach? What is
the individual’s role?
3) Milton Friedman has his own school of thought concerning the role of business in
society. Discuss and analyze his premises and the implications for corporations.
What is the role of government according to Friedman? Outline the inherent
contradictions in his arguments.
4) Discuss, giving examples, the Business Roundtable statement on social
responsibility and its stakeholders’ cornerstone. Which concept do you advocate:
the classical, Friedman’s or the stakeholders? Explain your reasons.
5) FOR A TERM PAPER OR CLASS PROJECT:
The topic is corporate governance.
First, review some of the views concerning the functions and responsibilities of
board members and directors.
Second, select a corporation in your area. Write a detailed report on its structure,
the composition of its Board, and the specific duties of the board members
according to the corporate charter, the discretionary power of top management,
the social responsibilities of the corporations and how the board has assumed
them.
Third, state and discuss your recommendations for this corporation to improve
their performance regarding their assumed social responsibilities.
6) The Board of Directors of VTB has selected your consulting firm to prepare an
independent social audit of its company and to explain the concept of social
responsibility and how you go about preparing a social audit to a group of
Japanese and German business representatives. Using what you know of these
two countries, develop a contrast and compare presentation for the Board and
your visitors.
7) Using the concepts presented in the chapter, discuss, analyze and evaluate the
case of The Collapse of Enron: Governance and Social Responsibility.
8) The newspapers and business magazines are full of stories of corporate fraud,
misuse of corporate power, boards of directors not doing there jobs and a host of
other issues addressed in this chapter. Using what you know about the Enron’s,
WorldCom’s, and other indicted companies, analyze and discuss the social
responsibility concerns here from the perspective of Friedman and the Business
Roundtable. Be specific in your response.
9) What are the most important issues in this chapter? Describe, analyze and critique
the most important issues and take a stance from your own perspective on what
our nation needs to do about corporate social responsibility.
10) Analyze the case of Playing by the Rules?.