Chapter 2—Integrity and Ethics: Foundations for Success in Small Business
MATCHING
Match the term with its definition.
a.
code of ethics
g.
social responsibilities
b.
environmentalism
h.
skimming
c.
ethical imperialism
i.
stakeholders
d.
ethical relativism
j.
sustainable small business
e.
integrity
k.
underlying values
f.
intellectual property
1. The belief that ethical standards are subject to local interpretation
2. A company’s ethical obligations to the community
3. Beliefs that provide a foundation for ethical behavior in a firm
4. The belief that the ethical standards of one’s own country can be applied universally
5. A general sense of honesty and reliability that is expressed in a strong commitment to doing the right
thing, regardless of the circumstances
6. Individuals or groups who either can affect or are affected by the performance of the company
7. The effort to protect and preserve the environment
8. Original intellectual creations, including inventions, literary creations, and works of art, that are
protected by patents or copyrights
9. A profitable company that responds to customers’ needs while showing reasonable concern for the
environment
10. Official standards of employee behavior formulated by a business owner
MULTIPLE CHOICE
1. Abner sometimes shorts the customer when weighing out bulk merchandise, believing the practice
leads to higher profits so it is acceptable. We could infer that
a.
Abner lacks integrity.
b.
Abner is not an entrepreneur.
c.
Abner cheats on his taxes.
d.
Abner is skimming.
2. While unethical practices do exist, it is good that the great majority of small firms strive to achieve the
highest standards of ____ in their quest for profits.
a.
integrity
b.
relativism
c.
synchronous behavior
d.
congruity
3. Ethical issues
a.
seldom involve legal issues.
b.
are questions of right and wrong.
c.
are always clearly defined.
d.
often resolve themselves.
4. Annabelle often shops for clothing and household goods online while at work. Which of the
following best describes this situation?
a.
Abusive behavior
b.
Lying to employees
c.
Improper use of company resources
d.
Inappropriate Internet use at work
5. A firm’s employees would be considered __________________ in the business.
a.
investors
b.
stakeholders
c.
customers
d.
stockholders
6. The owner of LMN Company has been asked to sponsor a Little League team by donating money to
buy team shirts. In return, the team will print the company name on the shirts. To which stakeholder
group does this team belong?
a.
Owners
b.
Customers
c.
Employees
d.
Community
7. Of all the possible stakeholders, the three primary ones are
a.
the government, the community, and the customers.
b.
the customers, the employees, and the owners.
c.
the creditors, the investors, and the employees.
d.
the suppliers, the customers, and society at large.
8. A small computer retailer makes every effort to satisfy customer needs both before and after the sale.
However, this retailer regards social problems as being beyond the scope of his business. This firm’s
management has recognized
a.
some degree of social responsibility in its commitment to customers.
b.
the existence of social responsibilities but having failed to do anything about them.
c.
ethical obligations to customers but not social responsibilities.
d.
social responsibility as the domain of big business.
9. Milton Friedman argues that businesses
a.
should avoid social responsibility whenever it is possible to do so.
b.
should be required to use their resources meet their social responsibilities.
c.
can only earn profits if they do so in a socially responsible manner.
d.
are justified in being socially responsible only if doing so increases the firm’s value.
10. Because a firm has considerable discretion in reporting performance results, financial reports can
sometimes be _____ without technically being illegal.
a.
inaccurate
b.
misleading
c.
unreliable
d.
bellicose
11. Providing inaccurate or misleading financial information to stakeholders can:
a.
damage critical relationships.
b.
reduce profits.
c.
increase profits.
d.
enhance critical relationships.
12. When a company delivers an excellent product with excellent service, ______________ are likely to
follow.
a.
profits and a good reputation
b.
customer satisfaction and profits
c.
healthy sales and profits
d.
customer satisfaction and healthy sales
13. After issues related to customers and competitors, the second most common category of ethical issues
that challenge small businesses is concerned with
a.
the treatment of employees.
b.
international relations.
c.
public relations.
d.
harmful production processes.
14. Bernard praises his employees as often as he catches someone doing something right. He often hosts
family get-togethers for his few employees. Bernard knows:
a.
a little money spent on his people will be returned many times over in profits.
b.
happy employees make for satisfied customers.
c.
this will lead to his employees being more engaged and productive.
d.
it’s a waste of time and money but he enjoys the camaraderie.
15. Clark, the owner of DEF LLC, bragged about hiding company income from the IRS but was surprised
when he learned his sales manager was accepting kickbacks from customers. Clark should have
remembered:
a.
kickbacks are common in his industry.
b.
lapses in integrity can easily be passed down from superiors to subordinates.
c.
his sales manager could alert the IRS and Clark could be prosecuted for tax evasion.
d.
bragging nearly always leads to trouble.
16. An example of an employee acting unethically towards employer is:
a.
Taking a vacation
b.
Taking unjustified sick leave
c.
Working overtime
d.
Taking a 15 minute break
17. The term for when an employee steals money from a firm is
a.
cheating.
b.
fraud.
c.
embezzlement.
d.
promotion.
18. An ethical business not only treats customers and employees honestly, but also acts as a good citizen
in the community. These broader obligations of citizenship are called
a.
community commitment.
b.
philanthropy.
c.
environmentalism.
d.
social responsibilities.
19. Entrepreneurs should think carefully about their community commitments because “doing good” may
add to a small company’s
a.
bottom line.
b.
financial burden.
c.
payroll.
d.
local profile.
20. Candace sells the muffins in her bakery at a higher price than the big-box grocery but she has a steady
stream of customers willing to pay what she asks. Candace also supports local charities. What
would likely happen if she lowered her prices and stopped her charitable contributions?
a.
Nothing
b.
Customers would go elsewhere.
c.
Business would increase.
d.
Income taxes would decrease.
21. Entrepreneurs must reconcile their social obligations with _____.
a.
their family commitments.
b.
their personal schedule.
c.
the need to earn profits.
d.
their religious beliefs.
22. Many types of socially responsible actions can be consistent with a firm’s long-term profit resulting in
some degree of _____ being earned by such behavior.
a.
money
b.
respect
c.
goodwill
d.
management expertise
23. A band who fails to record the cash they collected for admission to their shows could be charged with
what illegal practice?
a.
cash diversion
b.
tax evasion
c.
skimming
d.
payroll tax avoidance
24. A person understating income or claiming personal expenses as business expenses is guilty of _____.
a.
bait and switch
b.
skimming
c.
scaling
d.
relativism
25. Skimming is an unethical business practice involving
a.
failure to report all income on tax returns.
b.
employees taking cash from the cash register.
c.
sales associates offering gifts and inducements to purchasers.
d.
managers of competing firms agreeing to charge high prices.
26. Entrepreneurs often come up short on their tax commitments because of a single-minded focus on their
product or service and/or _____.
a.
casual accounting systems
b.
low-cost accounting software
c.
incompetent in-house accountant
d.
cash-basis accounting systems
27. The type of tax most likely to be a problem for entrepreneurs is:
a.
federal income tax.
b.
employee payroll taxes.
c.
state withholding tax.
d.
state sales tax.
28. Damon landed his first contract as an entrepreneur then submitted to the local newspaper a news
release that gave the impression this was just one of a series of contracts and that business was
booming. Damon has:
a.
told a legitimacy lie.
b.
inflated his income.
c.
evaded taxes.
d.
violated the law.
29. Giving the impression a business is something it is not
a.
is ingenious and resourceful.
b.
is illegal.
c.
is acceptable so long as no one is hurt by the transactions.
d.
is a way to manipulate customers.
30. PRO factors include
a.
products, resources, and ouptuts.
b.
products, representatives, and organizations
c.
people, resources, and outputs.
d.
performance, relationships, and options.
31. When Evelyn hired a new sales manager, she issued a press release emphasizing the new hire’s
education and industry experience because:
a.
she wanted to introduce the sales manager to the community.
b.
this was her first new hire and she wanted everyone to know her business was expanding.
c.
She had stolen the sales manager from a competitor and wanted to gloat publicly.
d.
she wanted to bolster the sales manager’s credibility.
32. An effective way for an entrepreneur to establish legitimacy is:
a.
to hire experienced employees from competitors.
b.
to insist on professional behavior from all customer-contact employees.
c.
to communicate the company’s mission clearly and frequently.
d.
to out-perform the competition by underbidding and over-promising.
33. Of all the concerns regarding Internet use, the greatest is:
a.
how users’ personal information is being protected.
b.
whether the content of a website is truthful.
c.
how soon a Web customer will receive an order.
d.
hacking.
34. A digital ID tag that is electronically sent to the customer’s computer when other requested materials
are downloaded from a Web site is known as
a.
a cookie.
b.
a saucer.
c.
an inverted collector.
d.
a contact signature.
35. Floyd would like to be able to monitor his employees’ Internet activity because:
a.
his customers cannot view his company website if his employees are surfing the Web.
b.
employees have to share Internet access and he wants to be fair to everyone.
c.
such activity hinders workplace productivity.
d.
his data plan allows only 5 gigabytes of access every month and overage charges are
expensive.
36. If Floyd elects to monitor the personal email accounts of his employees at work, he should:
a.
install screening software to avoid hiring another IT employee.
b.
first develop a carefully worded and legally sound policy and make sure all employees are
aware of it.
c.
consult an attorney before terminating an employee for viewing personal email at work.
d.
block access to all personal email servers from company computers.
37. An eBay retailer selling counterfeit Gucci and Louis Vuitton handbags is a violation of laws related to
a.
Internet fraud.
b.
intellectual property.
c.
bait-and-switch marketing.
d.
ethical imperialism.
38. If a student copies a favorite CD and gives it away to a friend to use, the student is engaged in the theft
of _____ property.
a.
collective
b.
intangible
c.
intellectual
d.
real
39. The saying “When in Rome, do as the Romans do” reflects a philosophy of _____.
a.
ethical insensitivity
b.
ethical elitism
c.
ethical imperialism
d.
ethical relativism
40. A U.S. manager is upset with the company’s overseas representative for paying a small “access fee” to
a local customs official to ensure the expedited release of a customer order. The manager’s belief such
payments are wrong reflects a sense of _____.
a.
cultural insensitivity
b.
ethical elitism
c.
ethical imperialism
d.
cultural integrity
41. The application of U.S. standards to ethical issues that are clouded by cultural differences abroad is
sometimes categorized as _____.
a.
overly idealistic.
b.
ethical imperialism.
c.
USA arrogance.
d.
situation ethics.
42. The price of integrity is high, but the potential payoff is incalculable because it is impossible to
compute
a.
the price of a clear conscience.
b.
the cost of environmental destruction.
c.
the value of ethical imperialism.
d.
the profit margin on good deeds.
43. Karl Eller reports in his book, Integrity Is All You’ve Got, which of the following characterizes
entrepreneurial businesses with integrity?
a.
The entrepreneur with integrity gives the company a competitive edge.
b.
The management of these companies understand the bottom line so that is still their
singular focus.
c.
For the most part, founders with integrity are stressed to balance growing the business and
following their principles.
d.
A solid financial performance needs to be achieved so that customers will know about the
company’s integrity.
44. Members of a community will react _____ to a business they trust.
a.
negatively
b.
positively
c.
indifferently
d.
indecisively
45. Perhaps the greatest benefit of integrity in business is the _____ it generates.
a.
trust
b.
profit
c.
reputation
d.
sales
46. The ethical influence of a leader of a small business is
a.
relatively minor.
b.
overpowered by profit concerns of stockholders.
c.
less important than the views of others within the firm.
d.
more pronounced than that of a leader of a large corporation.
47. In a small business, the most important key to ethical performance is
a.
a code of ethics.
b.
the personal integrity of the founder or owner.
c.
a training program based on the code of ethics.
d.
the amount of legislation affecting the organization.
48. The most important influence on ethics in a small business is
a.
the accountant or bookkeeper who keeps honest financial records.
b.
the salesperson who quotes a fair price to customers.
c.
the founder or owner whose values are put into practice.
d.
the existence of a written code of ethics.
49. A code of ethics becomes increasingly appropriate and necessary as a small business
a.
expands its credit sales and acquires more customers who buy on credit.
b.
begins to market products in other countries.
c.
grows larger, with a consequent lessening of the owner‘s personal influence.
d.
increases borrowing to the extent that one-third of its assets are financed by borrowing.
50. Garner developed a code of ethics for his growing business because:
a.
he wanted to define the ethical expectations for all his employees.
b.
he wanted to have a legal defense should any of his people violate the law.
c.
he wanted to create an informal channel of communication for discussions about ethical
issues.
d.
he wanted to give his suppliers a formal document dictating how they should behave.
51. In drawing up a code of ethics, a small business owner should adopt a code
a.
provided by the Ethics Resource Center of Washington, D.C.
b.
that outlines ethical principles and gives examples.
c.
that outlines ethical principles but avoids examples.
d.
suggested by the Better Business Bureau.
52. The purpose of the Better Business Bureau is:
a.
to provide an outlet for customer complaints about a business.
b.
to promote ethical conduct on the part of all businesses in a region.