Collins, Business Ethics 3e
SAGE Publishing, 2021
Test Bank
CHAPTER 3: CORPORATE GOVERNANCE AND STAKEHOLDER RELATIONSHIPS
Multiple Choice
1.Corporate governance is best defined as a system that ______.
a. holds businesses accountable
b. keeps financial records
c. establishes ethics policies
d. reports to shareholders
2. Fiduciary duty refers to the obligation to act honestly and ______.
a. avoid getting audited
b. in a way that increases profit margins
c. retain promising employees
d. in the company’s best interest
3. A business owned by one person who is responsible for business debts is known as
______.
a. a small corporation
b. a holding company
c. an LLC
d. a sole proprietorship
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SAGE Publishing, 2021
4. A limited liability corporation (LLC) is a business where the company itself is
responsible for ______.
a. employee behaviors
b. business debts
c. sharing data with shareholders
d. reporting any wrongdoing
5. Which business type is the most prevalent in the United States?
a. LLC
b. public corporation
c. cooperative
d. S-corporation
6. One of the defining features of S-corporations is that they have one hundred or less
______.
a. employees
b. shareholders
c. board members
d. products for sale
7. C-corporations differ from S-corporations in that they have ______.
a. public trading options
b. no governing board
c. more than one hundred shareholders
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SAGE Publishing, 2021
d. more than one place of business
8. What is the defining feature of public corporations?
a. They are owned by taxpayers.
b. Their finances can be audited at any time.
c. They have public financial records.
d. Their shares are sold on public exchanges.
9. The best way to function as an ethical board member is to act with ______.
a. clear knowledge and good faith
b. total focus on the needs of shareholders
c. a focus on profit and growth
d. an emphasis on employee satisfaction
10. What are the two conceptions of social responsibility for businesses?
a. short-term and long-term
b. inclusive and exclusive
c. narrow and broad
d. consequentialist and deontological
Collins, Business Ethics 3e
SAGE Publishing, 2021
11. The narrow conception of social responsibility charges owners and partners with
responsibility for ______.
a. communication policies
b. marketing strategies
c. board membership
d. profit sharing and reinvestment
12. Early businesses were almost entirely run by their owners who determined ______
singlehandedly.
a. which regulations to follow
b. the company’s best interests
c. employee compensation
d. the employee benefits
13. The claim that a business primarily exists for the profit of shareholders is known as
______.
a. stakeholder emphasis
b. shareholder primacy
c. community relations
d. compassionate capitalism
14. Economist Milton Friedman claimed that businesses were responsible for obeying
the law and ______.
Collins, Business Ethics 3e
SAGE Publishing, 2021
a. increasing wages
b. maximizing profits
c. reinvesting resources
d. the public good
15. The ______ conception of social responsibility argues that stakeholder interests
must be given more weight.
a. broad
b. narrow
c. deontological
d. utilitarian
16. A business’s local community, the natural environment, employees, and customers
are all referred to as ______.
a. shareholders
b. stakeholders
c. corporate interests
d. revenue streams
17. If you were a board member of a company and urged the company to become more
environmentally conscious in its business practices, you would be operating under the
______ conception of social responsibility.
a. narrow
b. virtuous
c. broad
Collins, Business Ethics 3e
SAGE Publishing, 2021
d. consequentialist
18. ______ is technically legal even though it is unethical in practice.
a. Tax evasion
b. Credit default swap
c. Tax avoidance
d. Moral hazard
19. Maximizing profits can blind managers to ______ costs.
a. long-term board satisfaction
b. short-term employee and resource
c. long-term financial and reputational
d. short-term shareholder satisfaction
20. Customers will often flee a company they assume is acting out of ______ under the
guise of profit maximization.
a. virtue
b. self-preservation
c. altruism
d. greed
Collins, Business Ethics 3e
SAGE Publishing, 2021
21. One of the best ways for a company to address the needs of stakeholders is to
______.
a. increase resource allocation
b. lower wages
c. create value for customers
d. rebrand one’s image
22. The U.S. court system has increasingly sided with the ______ of social
responsibility.
a. consequentialist theory
b. narrow conception
c. legal positivist theory
d. broad conception
23. Due to changes in the way courts are ruling on social responsibility matters, what
has happened to focusing on profit maximization?
a. It is a legal liability.
b. It is more beneficial than ever.
c. It provides long-term growth.
d. It is ethically praiseworthy now.
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SAGE Publishing, 2021
24. What is a benefit corporation?
a. a business that operates for public benefit
b. a public/private partnership
c. a non-profit organization
d. a company designed to develop employee benefits
25. One of the advantages of becoming a certified B Corp is that it informs the public
that the company ______.
a. has good employee benefits
b. cares about community and environment
c. will remain small
d. values customer feedback
26. A company can communicate that it has high ethical standards by achieving
______.
a. ethical business awards
b. high profit margins
c. B Corp certification
d. approval by the local chamber of commerce
27. A benefit plan where employees are provided with ownership shares of a company
is known as ______.
a. the people’s benefits plan
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SAGE Publishing, 2021
b. nationalized industry
c. cooperative
d. employee stock ownership (ESOP)
28. With an ESOP, employees receiving an equity stake in the company must meet
what requirement?
a. over 21 years of age
b. naturalized citizen
c. employed for 5 or more years
d. no absences within the last year
29. A cooperative is a company where a ______ of people meet their common
economic needs through a jointly owned and democratically controlled business.
a. federally mandated group
b. voluntary association
c. family
d. geographically connected group
30. In a cooperative, the board of directors is elected by the ______.
a. members
b. executives
c. family of the owners
d. general public
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SAGE Publishing, 2021
31. ESOPs provide employees with more benefits and also increase ______.
a. ethical standards
b. production timelines
c. company profits
d. staff longevity
32. ______ is one of the benefits that comes from companies using an ESOP.
a. Shorter contract negotiations
b. A quicker training period
c. Greater employee loyalty
d. Union membership
33. Solidarity Coffee Company is a café owned and operated by its employees. What is
its governance structure?
a. cooperative
b. ESOP
c. B Corporation
d. Benefit Corporation
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SAGE Publishing, 2021
34. Cheese Incorporated is a company with high ethical standards and a number of
significant environmental regulations related to its production and supply chain. What
kind of alternate governance structure does the company likely have?
a. Cooperative
b. certified B Corp
c. S-corporation
d. ESOP
35. If a CEO wants to make their company more environmentally-oriented and increase
accountability for business practices, what action should be taken?
a. make a donation to the World Wildlife Fund
b. provide employees with free Sierra Club membership
c. sponsor Earth Day events
d. seek B Corp certification
36. If a number of coffee growers decided to join together to seek mutual benefit for
people in their industry, what kind of partnership will they likely form?
a. B Corporation
b. limited liability corporation
c. producer’s cooperative
d. sole proprietorship
37. Corporate governance structures are expected to maintain ______.
a. high rates of growth
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b. employee satisfaction levels
c. high levels of ethics and integrity
d. transparent financial records
38. Corporate governance structures rely on the transparency, accountability, and
honesty of ______ in order to maintain ethical standards.
a. stakeholders
b. customers
c. shareholders
d. board members
39. Communicating honestly with shareholders helps corporate boards avoid what
action?
a. lawsuits about ethical behaviors
b. loss of customer base
c. employee defection
d. government regulation of the industry
40. The Sarbanes-Oxley act of 2002 requires that ______ sign off on financial
statements.
a. all employees
b. CEOs and CFOs
c. board members
d. customers
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SAGE Publishing, 2021
41. Increasing the independence of corporate finance auditing was one of the goals of
the ______.
a. Sarbanes-Oxley Act
b. Better Businesses Act
c. Dodd-Frank Financial Transparency Act
d. Tax Cuts and Jobs Act
42. Which regulatory body was created to monitor the auditing profession?
a. Securities and Exchange Committee
b. Public Company Accounting Oversight Board
c. Consumer Protection Agency
d. Department of the Treasury
43. Why was the Public Company Accounting Oversight Board created?
a. increase the ethical standards of corporations
b. regulate the previously self-regulating auditing profession
c. examine auditing best practices
d. implement federal auditing policies
44. Which actions led to the passage of the Sarbanes-Oxley Act of 2002?
a. Companies were going bankrupt at an alarming rate.
b. Corporate boards were violating financial best practices.
c. Savings and loan companies were operating unregulated.
d. Banks couldn’t guarantee they had their customer’s money.
Collins, Business Ethics 3e
SAGE Publishing, 2021
45. In the auditing process, a conflict of interest could be created if which party is
allowed to oversee it?
a. CEO
b. federal government
c. general public
d. stakeholders
46. One of the best practices developed in Singapore for corporate boards is to make
sure that board members were ______.
a. diverse
b. focused
c. from the same industry
d. in constant communication with employees
47. Widespread violations of corporate best practices often lead to ______.
a. conflicts of interest
b. employee defection
c. customer loss
d. government regulation
48. When board members are overwhelmed by demands on their time, they can act
______.
Collins, Business Ethics 3e
SAGE Publishing, 2021
a. negligently
b. disinterested
c. unethically
d. focused
49. When board members are negligent, it is often due to ______ rather than unethical
intentions.
a. bad upbringings
b. lack of qualifications
c. substance abuse
d. involvement in other areas and organizations
50. Board bias can occur when board members have ______.
a. shared industry contacts
b. similar upbringings
c. prior relationships
d. previous employment with the company
51. When a board suffers from board bias, it can favor ______.
a. supporting unqualified employees
b. decisions that need more scrutiny
c. marketing campaigns that target their demographics
d. quick solutions to long-term problems