Chapter 7
Ethics and
Business Decision Making
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank.
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
1. Business ethics is not more complicated than personal ethics.
2. Ethics is concerned with the fairness or justness of an action.
3. Adhering strictly to all business laws is all that is necessary to fulfill all business
ethics obligations.
4. Business ethics focuses on ethical behavior in the business world.
5. An action may be legal and ethical.
6. Obeying the law does not necessarily fulfill all ethical obligations.
7. Focusing on a firm’s short-term profits without considering the company’s long–
term needs may be acting unethically.
8. The legality of an action is always clear.
9. It is not possible to violate a business regulation without realizing it.
10. A business firm can sometimes predict whether a given action is legal.
11. Acting in good faith gives a business firm a better chance of defending its
actions in court.
12. Ethical codes of conduct can set the ethical tone of a firm.
13. Management’s behavior sets the ethical tone of a firm.
14. Setting realistic workplace goals can increase the probability that employees
will act unethically.
15. Managers should apply the same ethical standards to themselves and to their
employees.
16. An ethics program can clarify what a company considers to be unacceptable
conduct.
17. Few companies provide any kind of support such as ethical training programs
and seminars to make their ethical codes more effective.
18. Some companies set up confidential systems for employees to “raise red flags”
about suspected unethical practices.
19. EthicsPoint is an organization through which employees can report unethical
behavior as long as they are willing to identify themselves.
20. The main individual beneficiaries of stock buybacks are corporate executives.
4 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
21. Stock buybacks are illegal and serve no legitimate purposes.
22. Restricting the bonuses that are paid to executives is unethical.
23. Ethical reasoning is the process through which an individual links his or her
moral convictions or ethical standards to the particular situation at hand.
24. Duty-based ethical standards often come from religious precepts or through
philosophical reasoning.
25. According to German philosopher Immanuel Kant, individuals should evaluate
their actions in light of the consequences that would follow if they were the only
members of society that acted in that way.
26. Absolute mandates such as the commandment “Thou shalt not steal” can be
justifiably broken if there is a benevolent motive.
27. The categorical imperative cannot be applied to many business actions.
28. In ethical terms, a cost-benefit analysis is an assessment of the negative and
positive effects of alternative actions on individuals.
29. According to utilitarianism, it matters how many people suffer a negative effect
from an act.
30. According to utilitarianism, an action that affects the majority adversely is
morally wrong.
31. Corporations can be good citizens by promoting goals that society deems
worthwhile.
32. Corporations can be perceived as owing ethical duties to groups other than
their shareholders.
33. If the interests of different stakeholders conflict, it can be difficult to determine
which group’s interest should receive greater weight.
34. A business firm’s profits may suffer if the firm is not a “good corporate citizen.”
35. Bribery of foreign government officials is both an ethical and a legal issue.
6 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
MULTIPLE-CHOICE QUESTIONS
1. Any decision by the management of Fast-Food Franchise Corporation may
significantly affect its
a. operators only.
b. operators, owners, suppliers, the community, or society as a whole.
c. owners only.
d. suppliers, the community, or society as a whole only.
2. Lia works for Media Marketing Company. Her job includes putting “spin” on the
firm’s successes and failures. In this context, ethics consist of
a. “bad” versus “good” publicity.
b. questions of rightness and wrongness.
c. the firm’s quarterly revenue.
d. whatever is legal.
3. John is sales manager for Kleen ‘N Brite Products, Inc. Compared to John’s
personal activities, his business activities most likely involve
a. more complex ethical issues.
b. no ethical issues.
c. simpler ethical issues.
d. the same ethical issues.
4. Mary works in the public relations department of New Trends Sales Company.
Her job includes portraying New Trends’s activities in their best light. In this
context, ethics consist of
a. a different set of principles from those that apply to other activities.
b. the same moral principles that apply to non-business activities.
CHAPTER 7: ETHICS AND BUSINESS DECISION MAKING 7
c. those principles that produce the most favorable financial outcome.
d. whatever saves New Trends’s “face.”
5. Flexo Trucking Company transports hazardous waste. Garn is a Flexo driver,
whom the company knows drives longer hours than federal regulations permit.
One night, Garn exceeds the limit and has an accident. Spilled chemicals
contaminate Hill City’s water source, forcing the residents to move away. Flexo
acted unethically because
a. Flexo showed reckless disregard for Hill City’s residents and others.
b. Garn exceeded the federal time limit.
c. harm was caused by an unfortunate accident.
d. Hill City should have better protected its water source.
6. In studying the legal environment of business, Professor Dooley’s students also
review ethics in a business context. Ethics includes the study of what
constitutes
a. fair or just behavior.
b. financially rewarding behavior.
c. legal behavior.
d. religious behavior.
7. Peak & Vale Accountants provides other firms with accounting services.
Questions of what is ethical involve the extent to which Peak & Vale has
a. a legal duty beyond those duties mandated by ethics.
b. an ethical duty beyond those duties mandated by law.
c. any duty beyond those mandated by both ethics and the law.
d. any duty when it is uncertain whether a legal duty exists.
8. Housemate, Inc., makes and sells a variety of household products. With a fair
amount of certainty, Housemate’s decision makers can predict whether a given
business action would be legal in
a. all situations.
b. many situations.
c. no situations.
d. practically no situations.
9. Sharon, the human resources director for Tempo Corporation, attempts to
comply with the law in dealing with applicants and employees. One of the
challenges Sharon faces is that the legality of an action is
a. always clear.
b. never clear.
c. sometimes clear.
d. usually clear.
10. David, the chief accounting officer of Tension Fencing Corporation, wants to be
sure that all the company’s accounts are legal and ethical. Sometimes,
however, he is unsure exactly what is legal and what is illegal. David should
a. not worry about what is legal or illegal as long as the corporate
executives benefit in the short run.
b. try his best to not do anything illegal and keep documentation showing
that he always acts in good faith.
c. not worry about what is legal or illegal as long as it benefits the
shareholders.
d. not worry about what is legal or illegal as long as it benefits the chief
executive of the corporation.
11. Eden, the chief executive officer of Flo-Thru Piping Corporation, wants to en–
sure that Flo–Thru’s activities are legal and ethical. The best course for Eden
and Flo-Thru is to act in
a. good faith.
b. ignorance of the law.
c. regard for the firm’s shareholders only.
d. their own self interest.
12. Margaret is the top manager of Pecans, Inc. She sets strict ethical standards
for all employees. Margaret, however, often takes some of the company’s best
nuts and sells them from her house. The ethical tone at Pecans, Inc. is
10 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
a. likely to be good because Margaret has set such strict standards for her
employees.
b. not likely to be good because although Margaret sets strict ethical
standards for the other employees, she does not follow them.
c. not related to either Margaret’s ethical standards or her own unethical
behavior.
d. not likely to be good because employees tend to resent strict ethical
standards.
13. Straitway Company encourages its managers to behave ethically, reasoning
that the employees will take their cues from management. One of the most
important ways to create and maintain an ethical behavior workplace is for
management to
a. demonstrate a commitment to ethical decision making.
b. discreetly engage in unethical or illegal acts.
c. look the other way when an employee engages in an unethical act.
d. direct employees to “do as we say, not as we do.”
14. Ergonomic Corporation convenes its employees for its managers to announce
(1) a new company-wide ethical code of conduct, (2) an ad campaign to
publicize the new code, and (3) the discharge of employees who do not adhere
to the code. One of the most effective ways to set a tone of ethical behavior
within a business organization is
a. to create an ethical code of conduct.
b. to discharge employees who create the appearance of impropriety.
c. to post a marketing campaign online touting the firm’s ethical tone.
d. for management to direct employees to “do as we say, not as we do.”
15. Megan is the ethics officer for Nature’s Eggs, Inc., an organic egg raising
company. In overseeing the application of the company’s ethical code of
conduct, Megan is most likely not in charge of
a. an ethics committee.
b. ethical training programs.
CHAPTER 7: ETHICS AND BUSINESS DECISION MAKING 11
c. internal ethical audits.
d. ethical reviews of employees’ family members.
16. Richard suspects his supervisor of unethical accounting practices. However, he
does not want to lose his job if he reports the supervisor and the supervisor
finds out who reported him. An important feature of online reporting systems
like EthicsPoint is
a. the employee reporting the unethical behavior can do so anonymously.
b. the employee reporting the unethical behavior is financially compensated
if he loses his job as a result of the report.
c. the employee reporting the unethical behavior must give his full name
when making the report.
d. the employee reporting the unethical behavior must have another
employee supporting him.
17. Whirlwind Financial Corporation sends its executives to a resort in Mexico—at
taxpayers’ expense—to consider using the firm’s cash to buy back its stock and
thereby prop up the value. Many of its competitors are doing the same thing.
One of the best ways to learn about the ethical responsibilities inherent in
operating a business is to look at
a. the mistakes made by other companies.
b. the benefits of pursuing profit despite the appearance of impropriety.
c. the prevalence of a practice among other corporations.
d. who is footing the bill for a particular action.
18. In business deals, Fiona, the chief executive officer of Snacks n’ Bites, Inc.,
follows duty-based ethical standards. These are most likely derived from
a. a corporate ethics code.
b. a cost-benefit analysis.
c. philosophical reasoning.
d. the law.
19. Lyle, vice-president of sales for Mi-T Electric, Inc., adheres to Judeo-Christian
religious ethical standards. With respect to their application, these standards
are
a. absolute.
b. analytical.
c. discretionary.
d. utilitarian.
20. Julia, the head executive of Fine Woolen Sweaters, Inc., is a committed
Christian who strongly adheres to the Ten Commandments. One of Julia’s
employees is found to be stealing sweaters and giving them to a local
homeless shelter. Julia is likely to
a. punish the employee for stealing even though the employee’s motive
was benevolent.
b. view the employee’s actions as justified because the employee was
clothing the poor.
c. contribute more sweaters to the homeless shelter.
d. gently reprimand the employee without suggesting that the employee’s
actions were unethical.
21. Carrie Ann works at Paper Products, Inc. She considers taking home a few
sheets of stationery so she can write letters to her ailing grandmother. Since
Paper Products produces thousands of sheets of stationery every day no one
will miss the few sheets she takes and company profits will not be affected.
Carrie Ann then considers what would happen if every employee took some
stationery home and decides not to take any. Carrie Ann is being influenced by
a. the categorical imperative.
b. the principle of rights.
c. a cost-benefit analysis.
d. outcome-based ethics.
22. In making business decisions, Glenda, personnel manager for HVAC
Maintenance, Inc., applies her belief that all persons have fundamental rights.
This is
a. a religious rule.
b. the categorical imperative.
c. the principle of rights.
d. utilitarianism.
23. Ryan, the owner of SuperMart Stores, Inc., adheres to the “principle of rights”
theory. Under this theory, a key factor in determining whether a business
decision is ethical is how that decision affects
a. the right determination under a cost-benefit analysis.
b. the rights of others.
c. the “right” thing to do.
d. the right to make a profit.
24. In making decisions for Smartt Investments, Rita uses a cost-benefit analysis.
This is a part of
a. duty-based ethics.
b. Kantian ethics.
c. rights-based ethics.
d. utilitarian ethics.
25. Hailey, a lawyer on the staff of International Group, always considers the
consequences of an action rather than the nature of the action itself when
making ethical decisions in a business context. Hailey is applying
a. the utilitarian theory of ethics in business contexts.
b. religious beliefs in business contexts.
c. Kantian ethics in business contexts.
d. the principle of rights theory of ethics in business contexts.
26. Bob, research manager for CornAgri Products, Inc., applies utilitarian ethics to
determine that an action is morally correct when it produces the greatest good
for
a. Bob.
b. CornAgri.
c. the fewest people.
d. the most people.
27. In deciding questions of corporate social responsibility, Valley Disposal &
Recycling, Inc., is concerned with
a. how the corporation can best fulfill any ethical duty to society.
b. the effect on corporate profits of ignoring any ethical duty to society.
c. whether the corporation owes any ethical duty to society.
d. all of the choices.
28. MeatMen, Inc. spends a great deal of money and effort to ensure that all
employees are safe on the job, that all products are safe for consumers, and
that the environmental impact of the corporation is minimal. MeatMen appears
to strongly believe in the concept of
a. the moral minimum.
b. corporate social responsibility.
c. “grey areas” in the law.
d. government oversight.
29. Applied Business Corporation makes and markets its products nationwide.
Under the stakeholder approach, to be considered socially responsible when
making a business decision, Applied must take into account the needs of
a. its consumers, the community, and society only.
b. its employees and owners only.
c. its employees, owners, consumers, the community, and society.
d. no one.
30. A common ethical dilemma faced by the management of Spencer Hydraulics
Corporation involves the effect that its decision will have on
a. one group as opposed to another.
b. the firm’s competitors.
c. the government.
d. the U.S. Chamber of Commerce.
31. Fealty Credit Corporation asks its employees to evaluate their actions and get
on the ethical business decision–making “bandwagon.” Guidelines for judging
individual actions most likely include all of the following except
a. an individual’s conscience.
b. business rules and procedures.
c. loopholes in the law or company policies.
d. promises to others.
32. In making a decision as chief executive officer of Straightarrow Archery
Supplies, Robin always considers whether he would feel any guilt about a
particular action. As a guide, Robin is using
a. the categorical imperative.
b. internal company policies.
c. the law.
d. his conscience.
33. In judging her action as a corporate employee of Music Notes Corporation,
Brooke always lets her conscience be her guide. As an effective alternative,
Brooke could
a. ask herself whether she would be happy to be interviewed by the
national media about the action.
b. consider only the benefits that would accrue to her personally.
c. look only at the result, regardless of the means to attain it.
d. consider how she would like to have others treat her in a similar
situation.
34. Bilt-Well Construction Corporation makes a side payment to a government
official in Nigeria to obtain a contract. In the United States, this is
a. illegal and unethical.
b. illegal but not unethical.
c. unethical but not illegal.
d. legal and ethical.
35. Rio Business Corporation pays potential clients, including private foreign
companies and the representatives of foreign labor organizations to facilitate
business. If Rio knows that the payments will be passed on to a foreign
government, this practice is
a. illegal if the payments violate the Foreign Corrupt Practices Act.
b. legal because a third party acts as a “go–between.”
c. legal because private parties are involved on both sides of the deal.
d. legal because the payments are intended to facilitate business.
18 UNIT ONE: THE LEGAL ENVIRONMENT OF BUSINESS
ESSAY QUESTIONS
1. Olaf, an executive with Pharma Product Distribution, Inc., has to decide
whether to market a product that might have undesirable side effects for a
small percentage of users. How should Olaf decide whether to sell the product?
How does the standard of ethics that is applied affect this answer?
2. Recreation & Sports Equipment Corporation sells a product that is capable of
seriously injuring consumers who misuse it in a foreseeable way. Does the firm
owe an ethical duty to take this product off the market? What conflicts might
arise if the firm stops selling this product?