Law for Business 12th Edition By A. James Barnes – Test Bank

 

 

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Sample Test

Chapter 03

Business Ethics and Corporate Social Responsibility

 

True / False Questions

1.	Critics of capitalism and Corporate America increasingly argue that corporations should follow socially responsible standards higher than that imposed by law. True    False

 

2.	Under Kantianism, an ethical decision is one that maximizes utility for society as a whole. True    False

 

3.	Under utilitarianism, an action is ethical only if the benefits to society outweigh its costs. True    False

 

4.	The objective of the allocational efficiency theory has been promoted by economists on the grounds that firms that most efficiently use resources generally will be able to undersell their competitors. True    False

 

5.	Corporations sometimes consciously choose to break the law if it poses acceptable risks such as relatively light penalties for violation, if the benefits gained by doing so are great. True    False

 

6.	Market forces serve as a sufficient control on corporate behavior because the market always reveals social and environmental harm. True    False

 

7.	The tendency for bad news not to get to the top is very different from groupthink. True    False

 

8.	For companies transacting business across the globe, the identification of common values may be very daunting because culture may have strong influences on the ethical attitudes of business managers. True    False

 

9.	The Organization for Economic Cooperation and Development is an international institution created for the purpose of promoting harmonized rules where multilateral cooperation is necessary. True    False

 

10.	There is no guaranty that the values of “ethical” shareholders would be representative of society as a whole. True    False

 

11.	Institutional investors are specifically urged to conceal their corporate governance policies. True    False

 

12.	According to the decision-making model that is drawn heavily from the thoughts of Joseph L. Badaracco Jr., the question, “Which course of action does the most good and the least harm?” is utilitarian if the focus is narrowed to the manager’s business organization. True    False

 

13.	According to the decision-making model that is drawn heavily from the thoughts of Joseph L. Badaracco Jr., the question “Which alternative best serves others’ rights?” is teleological in nature in that it draws from Machiavellian thought. True    False

 

14.	According to the decision-making model that is drawn heavily from the thoughts of Joseph L. Badaracco Jr., the question, “What course is consistent with personal morality and the basic values of the company?” draws from Machiavellian thought. True    False

 

15.	According to the decision-making model that is drawn heavily from the thoughts of Joseph L. Badaracco Jr., the question, “Which course of action is feasible?” recognizes that when a particular option is believed to be feasible, the manager’s work is considered done. True    False

 

 

Multiple Choice Questions

16.	Deontological ethical theory focuses on: A. actions.   B. consequences.   C. a just distribution of society’s resources.   D. the maximization of utility for society as a whole.

 

17.

Under Immanuel Kant’s “categorical imperative,” _____. A. individuals should judge an action by applying it universally   B. individuals should manipulate others for their self-interest   C. the teleological ethical theory is dominant   D. the consequences of a decision are focused on deciding if it is ethical

 

18.

Which of the following is true about the modern rights theorists? A. They hold that duties are absolute.   B. They believe that actions like lying and killing can never be morally acceptable.   C. They must determine what fundamental rights are and how they are ranked in importance.   D. They argue for a just distribution of society’s resources.

 

19.	The theory that calls for a fair allocation of society’s benefits and burdens among all members of society is _____. A. profit maximization   B. Kantianism   C. the modern rights theory   D. the justice theory

 

20.

According to the justice theory, _____. A. the decision makers’ choices are to be guided by fairness and impartiality   B. the focus is on the process of decision making, not the outcome   C. society’s benefits and burdens should fall on only certain segments of society   D. the morality of any action is determined by applying the categorical imperative

 

21.	Under “act utilitarianism,” _____. A. an ethical decision is one that minimizes utility for society as a whole   B. each person has an equal right to basic rights and liberties   C. the action is viewed as part of a rule or habit   D. the decision maker considers each action separately

 

22.	Which of the following is a teleological theory based on the laissez-faire theory of capitalism? A. Act utilitarianism   B. Profit maximization   C. Rule utilitarianism   D. Difference principle

 

23.	Under the allocational efficiency theory, the primary objective of a business corporation is to: A. maximize profits.   B. minimize fraudulent activities.   C. maximize corporate social responsibility.   D. minimize criticism.

 

24.

Which of the following is a reason why large corporations have the ability to influence legislation? A. There are no limits on the law’s ability to control irresponsible corporate behavior.   B. Their size, resources, and sophistication give them the capability to purchase this ability.   C. Corporate managers are always aware of the effects of their products or production processes.   D. The state legislatures cannot enact hostile regulatory legislation.

 

25.

Many corporations initiate legislation in order to: A. head off the risk of unpredictable lawsuits in the future.   B. maximize the risk of more costly regulations for competitors.   C. ensure that all legal rules reflect social interests only.   D. ensure that their business partners are subject to more rigid constraints than is applicable to them.

 

26.	The Sarbanes-Oxley Act: A. raises the penalties for illegal behavior.   B. gives corporations greater freedom from government control.   C. adopts the theory of allocational efficiency.   D. motivates executives to inflate reports of corporate profits.

 

27.

The Sarbanes-Oxley Act: A. broadly defines obstruction of justice and makes obstruction of audit work papers a felony.   B. decreases the penalties for conscious law breaking.   C. decreases the likelihood of detection and prosecution of illegal behavior.   D. adopts the theory of allocational efficiency, under which the primary objective of a business corporation is to maximize profits.

 

28.

Which of the following statements best describes the phenomenon called risky shift? A. Groups do not accept higher risks than individuals.   B. A corporation shifts its risk onto its customers.   C. A group of people who must reach a consensus on an acceptable level of risk often decide on a level of risk higher than the risk they would accept as individuals.   D. The decisions made by a team of managers may have lower levels of risk and may create lesser legal problems than decisions made by an isolated manager.

 

29.	The tendency for members of a group to internalize the group’s values and perceptions and to suppress critical thought is known as _____. A. risky shift   B. social malingering   C. herd behavior   D. groupthink

 

30.

Which of the following scenarios best exemplifies groupthink? A. Ten officers of Jekyll Inc. are planning a business enterprise they know to be highly profitable. Six know the plan to be illegal. Nevertheless, they do not voice their concerns, but go along with the team’s plan.   B. Four officers of Bisk Corp. devise a highly profitable plan. David, a manager, points out to the group that the plan will likely get the company a high amount of negative publicity. David states that he will not sanction the team’s plan.   C. Ned, Oliver, and Phoebe draft plans for a new software company. They have all thoroughly researched their plans and no one has any criticisms or concerns.   D. Barry, Ralph, and Ann are subordinates of a firm who report problems to their top managers without any fear.

 

31.

Corporate social responsibility advocates argue that ethical guidance for corporate managers may come from: A. corporate cultures that hold high concern for leading with fear.   B. corporate or industry codes of conduct.   C. corporations giving preference to their employees over other constituencies.   D. corporations promoting avoidance behavior among employees.

 

32.

The problem with looking at values that find wide acceptance as a guide to ethical corporate behavior is that: A. modern life holds a diversity of conflicting ethical views.   B. most widely-accepted values are uninformed.   C. companies will always look to profit maximization over anything else.   D. culture has no effect on the ethical attitudes of business managers in today’s global world.

 

33.

The Sarbanes-Oxley Act requires that: A. public corporations disclose whether they have adopted a code of ethics for senior financial officers.   B. directors are provided with lower incentives to ensure their corporations are not breaking the law.   C. privately traded corporations have board audit committees comprising only of internal directors.   D. special committees of the board be assigned special areas of concern.

 

34.

Which of the following is true of Organization for Economic Cooperation and Development (OECD) reports? A. They coordinate domestic and international policies of developing countries.   B. They state that most codes of conduct tend to speak in positive terms, such as, a commitment to honesty.   C. They were created to promote rules for the corporations based on the culture of the place.   D. They assert that most enterprises’ codes of conduct expressly publish policies that deal directly with corruption.

 

35.

Corporate codes of ethical conduct: A. effectively deter unethical behavior.   B. are sometimes viewed as thinly disguised attempts to mislead the public into thinking that the company behaves ethically.   C. accurately reflect the values of society.   D. tend to expressly publish policies that deal directly with corruption to avert legal measures that might impose severe constraints.

 

36.

The problem with the view that a corporation should attempt to act in the best interests of all of its various constituencies is that: A. this tactic ignores the corporation’s suppliers.   B. corporate managers often have a better sense of what is right.   C. the values of these constituencies may conflict.   D. local communities will not benefit from these values.

 

37.

Advocates for socially responsible corporations sometimes recommend that corporations can sensitize themselves to outside concerns by restructuring their corporate decision-making processes by: A. giving shareholders lesser power.   B. changing the composition of the corporate board.   C. promoting lesser transparency within corporate structures.   D. giving greater immunity to corporates.

 

38.

It is unlikely that greater control by shareholders will lead to greater corporate social responsibility because: A. many shareholders are motivated by profit maximization and are unlikely to approve corporate actions contrary to that end.   B. many shareholders have access to the information necessary to closely monitor the noneconomic performance of a company.   C. there is a definite chance that the values of “ethical” shareholders would be representative of society as a whole.   D. shareholders will have the power to adopt resolutions binding the corporate managers.

 

39.

The revised version of “Principles of Corporate Governance” of the Organization for Economic Cooperation and Development insists on: A. lesser incentives for directors to ensure their corporations are not breaking the law.   B. lesser transparency within corporate structures.   C. greater concealment of corporate governance policies to avoid conflicts of interest.   D. greater protection for whistleblowers.

 

40.

The new federal sentencing guidelines implemented as part of Sarbanes-Oxley: A. apply sanctions to both individual board members as well as the corporation itself.   B. assign specific oversight responsibilities to directors.   C. are designed to give the management immunity.   D. call for special committees of the board to be assigned similar functions.

 

41.

Some of the problems raised by corporate reward structures include: A. focusing on long-term rather than short-term profitability.   B. the interests of managers always being aligned with the long-range interests of the company.   C. managers being inclined sometimes to act irresponsibly without an eye to legal trouble that may occur in the future.   D. firms sacrificing the present for the future and thereby promoting long-term allocational inefficiency.

 

42.

Which of the following statements is true of conscious capitalists? A. Conscious capitalists distinguish making profits from ethical behavior.   B. Conscious capitalists do not fail to meet an important shareholder demand even if they fail to deliver strong financial results.   C. Conscious capitalists do not have a profit motivation.   D. Conscious capitalists believe that business is good because it creates economic value.

 

43.

Law may not be up to the task of forcing corporations to engage in ethical behavior for a number of reasons, including that: A. it is not certain that all corporations will respond to the threat of financial penalties imposed by law.   B. judges are likely to be sympathetic to corporations.   C. Sarbanes-Oxley decreases the likelihood that illegal behavior will be detected.   D. corporations voluntarily elect to pursue ethical ends.

 

44.	A corporate manager looking for ethical guidance that neither the law nor social norms accounts for must rely on: A. a strategy that will maximize profits.   B. his or her individual conscience.   C. the advice of other managers.   D. his or her system of delegation to subordinates.

 

45.

In the context of the decision-making model drawn heavily from the thoughts of Joseph L. Badaracco Jr., identify the correct statement regarding the question, “Which course of action is feasible?” A. This question borrows from both the modern rights theories and justice theory and it identifies which particular rights are at stake.   B. This question is teleological in nature in that it focuses on the morality of the consequences of the decision.   C. This question recognizes that ethics and morality must be practical.   D. This question draws from the decision maker’s personal philosophy as well as the commitments he or she owes to the corporation and its shareholders.

 

 

Short Answer Questions

46.	Explain the difference between deontological and teleological ethical theories. Give an example of each.

 

47.

Suppose you work for an apparel manufacturing company that has a factory in a small rural town in Michigan. The apparel manufacturing factory is the town’s primary source of income. The company has placed you in charge of investigating the firm’s decision to move the factory to El Salvador. If the company moves its manufacturing to El Salvador, it can produce apparel at a much lower cost. Explain what a modern rights theorist would consider under these circumstances.

 

48.	Explain the theory of utilitarianism.

 

49.	Explain the theory of allocational efficiency. Describe some of its some of the criticisms levied against the theory.

 

50.	“Which course of action does the most good and the least harm?” This is one of the questions to be asked by managers while making an ethical decision according to the decision-making model drawn heavily from the thoughts of Joseph L. Badaracco Jr. Discuss the nature and purpose of this question.

 

Chapter 03 Business Ethics and Corporate Social Responsibility Answer Key

 

True / False Questions

1. (p. 50)

Critics of capitalism and Corporate America increasingly argue that corporations should follow socially responsible standards higher than that imposed by law. TRUE

 

AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-01 Read an ethical argument and identify which of the four predominant ethical theories it characterizes. Topic: Introduction

 

2. (p. 53)

Under Kantianism, an ethical decision is one that maximizes utility for society as a whole. FALSE

 

AACSB: Ethics Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Read an ethical argument and identify which of the four predominant ethical theories it characterizes. Topic: Predominant Ethical Theories

 

3. (p. 53)

Under utilitarianism, an action is ethical only if the benefits to society outweigh its costs. TRUE

 

AACSB: Ethics Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Read an ethical argument and identify which of the four predominant ethical theories it characterizes. Topic: Predominant Ethical Theories

 

4. (p. 55)

The objective of the allocational efficiency theory has been promoted by economists on the grounds that firms that most efficiently use resources generally will be able to undersell their competitors. TRUE

 

AACSB: Ethics Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-01 Read an ethical argument and identify which of the four predominant ethical theories it characterizes. Topic: Predominant Ethical Theories

 

5. (p. 58)

Corporations sometimes consciously choose to break the law if it poses acceptable risks such as relatively light penalties for violation, if the benefits gained by doing so are great. TRUE

 

AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-03 Clearly explain the four major limits on the ability of law to control corporate behavior. Topic: The Law as a Corporate Control Device

 

6. (p. 58)

Market forces serve as a sufficient control on corporate behavior because the market always reveals social and environmental harm. FALSE

 

AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-03 Clearly explain the four major limits on the ability of law to control corporate behavior. Topic: The Law as a Corporate Control Device

 

7. (p. 61)

The tendency for bad news not to get to the top is very different from groupthink. FALSE

 

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-03 Clearly explain the four major limits on the ability of law to control corporate behavior. Topic: The Law as a Corporate Control Device

 

8. (p. 62)

For companies transacting business across the globe, the identification of common values may be very daunting because culture may have strong influences on the ethical attitudes of business managers. TRUE

 

AACSB: Ethics Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-04 Describe the weaknesses of each of the suggested ways in which one might define ethical behavior. Topic: Defining Ethical Corporate Behavior

 

9. (p. 63)

The Organization for Economic Cooperation and Development is an international institution created for the purpose of promoting harmonized rules where multilateral cooperation is necessary. TRUE

 

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-04 Describe the weaknesses of each of the suggested ways in which one might define ethical behavior. Topic: Defining Ethical Corporate Behavior

 

10. (p. 65)

There is no guaranty that the values of “ethical” shareholders would be representative of society as a whole. TRUE

 

AACSB: Ethics Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 List three recommendations for making corporations more sensitive to outside concerns and explain the arguments against each reform. Topic: The Corporate Governance Agenda

 

11. (p. 66)

Institutional investors are specifically urged to conceal their corporate governance policies. FALSE

 

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 List three recommendations for making corporations more sensitive to outside concerns and explain the arguments against each reform. Topic: The Corporate Governance Agenda

 

12. (p. 69)

According to the decision-making model that is drawn heavily from the thoughts of Joseph L. Badaracco Jr., the question, “Which course of action does the most good and the least harm?” is utilitarian if the focus is narrowed to the manager’s business organization. FALSE

 

AACSB: Ethics Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-06 Make an ethical decision by employing the four-step model for ethical decision making. Topic: Guidelines for Ethical Decision Making

 

13. (p. 70)

According to the decision-making model that is drawn heavily from the thoughts of Joseph L. Badaracco Jr., the question “Which alternative best serves others’ rights?” is teleological in nature in that it draws from Machiavellian thought. FALSE

 

AACSB: Ethics Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-06 Make an ethical decision by employing the four-step model for ethical decision making. Topic: Guidelines for Ethical Decision Making

 

14. (p. 70)

According to the decision-making model that is drawn heavily from the thoughts of Joseph L. Badaracco Jr., the question, “What course is consistent with personal morality and the basic values of the company?” draws from Machiavellian thought. FALSE

 

AACSB: Ethics Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-06 Make an ethical decision by employing the four-step model for ethical decision making. Topic: Guidelines for Ethical Decision Making

 

15. (p. 70)

According to the decision-making model that is drawn heavily from the thoughts of Joseph L. Badaracco Jr., the question, “Which course of action is feasible?” recognizes that when a particular option is believed to be feasible, the manager’s work is considered done. FALSE

 

AACSB: Ethics Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-06 Make an ethical decision by employing the four-step model for ethical decision making. Topic: Guidelines for Ethical Decision Making

 

Multiple Choice Questions

16. (p. 51)

Deontological ethical theory focuses on: A. actions.   B. consequences.   C. a just distribution of society’s resources.   D. the maximization of utility for society as a whole. Deontological ethical theory is an approach to ethics that focuses on the actions or process, rather than the consequences.

 

AACSB: Ethics Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Read an ethical argument and identify which of the four predominant ethical theories it characterizes. Topic: Predominant Ethical Theories

 

17. (p. 51)

Under Immanuel Kant’s “categorical imperative,” _____. A. individuals should judge an action by applying it universally   B. individuals should manipulate others for their self-interest   C. the teleological ethical theory is dominant   D. the consequences of a decision are focused on deciding if it is ethical Under Immanuel Kant’s approach to rights theory, the morality of any action was determined by applying his categorical imperative. His first formulation of the categorical imperative was to judge an action by applying it universally.

 

AACSB: Ethics Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-01 Read an ethical argument and identify which of the four predominant ethical theories it characterizes. Topic: Predominant Ethical Theories

 

18. (p. 52)

Which of the following is true about the modern rights theorists? A. They hold that duties are absolute.   B. They believe that actions like lying and killing can never be morally acceptable.   C. They must determine what fundamental rights are and how they are ranked in importance.   D. They argue for a just distribution of society’s resources. The modern rights theorists respond to the perceived weaknesses in Kantianism. They believe that there may be circumstances when actions like lying and killing could be morally acceptable (i.e., self-defense). Of course, the modern rights theorists have choices to make. They must determine what the fundamental rights are and how they are ranked in importance.

 

AACSB: Ethics Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-01 Read an ethical argument and identify which of the four predominant ethical theories it characterizes. Topic: Predominant Ethical Theories

 

19. (p. 53)

The theory that calls for a fair allocation of society’s benefits and burdens among all members of society is _____. A. profit maximization   B. Kantianism   C. the modern rights theory   D. the justice theory Justice theory is derived from John Rawls’s book “A Theory of Justice,” which argued for a just distribution of society’s resources. This called for a fair allocation of society’s benefits and burdens among all members of society.

 

AACSB: Ethics Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Read an ethical argument and identify which of the four predominant ethical theories it characterizes. Topic: Predominant Ethical Theories

 

20. (p. 53)

According to the justice theory, _____. A. the decision makers’ choices are to be guided by fairness and impartiality   B. the focus is on the process of decision making, not the outcome   C. society’s benefits and burdens should fall on only certain segments of society   D. the morality of any action is determined by applying the categorical imperative Justice theory is derived from John Rawls’s book “A Theory of Justice,” which argued for a just distribution of society’s resources. Under this theory, the decision maker’s choices are to be guided by fairness and impartiality; however, the focus is on the outcome of the decision.

 

AACSB: Ethics Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Read an ethical argument and identify which of the four predominant ethical theories it characterizes. Topic: Predominant Ethical Theories

 

21. (p. 54)

Under “act utilitarianism,” _____. A. an ethical decision is one that minimizes utility for society as a whole   B. each person has an equal right to basic rights and liberties   C. the action is viewed as part of a rule or habit   D. the decision maker considers each action separately Under “act utilitarianism,” the decision maker considers each action separately, assessing its costs and benefits to society.

 

AACSB: Ethics Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Read an ethical argument and identify which of the four predominant ethical theories it characterizes. Topic: Predominant Ethical Theories

 

22. (p. 54)

Which of the following is a teleological theory based on the laissez-faire theory of capitalism? A. Act utilitarianism   B. Profit maximization   C. Rule utilitarianism   D. Difference principle Profit maximization is a teleological theory that is based on the laissez-faire theory of capitalism first espoused by Adam Smith in the 18th century. It contends that business managers should maximize a business’s long-run profits within the limits of the law.

 

AACSB: Ethics Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-01 Read an ethical argument and identify which of the four predominant ethical theories it characterizes. Topic: Predominant Ethical Theories

 

23. (p. 55)

Under the allocational efficiency theory, the primary objective of a business corporation is to: A. maximize profits.   B. minimize fraudulent activities.   C. maximize corporate social responsibility.   D. minimize criticism. Under the allocational efficiency theory, the primary objective of a business corporation is to maximize profits.

 

AACSB: Ethics Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-02 Make an ethical argument according to each of the predominant ethical theories. Topic: Predominant Ethical Theories

 

24. (p. 57)

Which of the following is a reason why large corporations have the ability to influence legislation? A. There are no limits on the law’s ability to control irresponsible corporate behavior.   B. Their size, resources, and sophistication give them the capability to purchase this ability.   C. Corporate managers are always aware of the effects of their products or production processes.   D. The state legislatures cannot enact hostile regulatory legislation. Large corporations, because of their size, resources, and sophistication, have the ability to influence legislation. Even if Congress or the state legislatures enact hostile regulatory legislation, corporations sometimes can blunt its impact.

 

AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-03 Clearly explain the four major limits on the ability of law to control corporate behavior. Topic: The Law as a Corporate Control Device

 

25. (p. 57)

Many corporations initiate legislation in order to: A. head off the risk of unpredictable lawsuits in the future.   B. maximize the risk of more costly regulations for competitors.   C. ensure that all legal rules reflect social interests only.   D. ensure that their business partners are subject to more rigid constraints than is applicable to them. More and more businesses are taking an active approach to government regulation. They have discovered that by initiating legislation they can (1) head off the risk of later unpredictable lawsuits, (2) influence the nature of the legislation—by minimizing the risk of more extensive and costly regulations, and (3) ensure that all of their competitors are subject to the same constraints.

 

AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-03 Clearly explain the four major limits on the ability of law to control corporate behavior. Topic: The Law as a Corporate Control Device

 

26. (p. 58)

The Sarbanes-Oxley Act: A. raises the penalties for illegal behavior.   B. gives corporations greater freedom from government control.   C. adopts the theory of allocational efficiency.   D. motivates executives to inflate reports of corporate profits. As rational actors with a desire to maximize profits, corporations may conclude that breaking the law poses acceptable risks if the benefits gained by doing so are great, the penalties for violation are relatively light, and/or the chances of being sued or prosecuted are low. The Sarbanes-Oxley Act attempts to increase the likelihood of detection and prosecution and raises the penalties for illegal behavior.

 

AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-03 Clearly explain the four major limits on the ability of law to control corporate behavior. Topic: The Law as a Corporate Control Device

 

27. (p. 58)

The Sarbanes-Oxley Act: A. broadly defines obstruction of justice and makes obstruction of audit work papers a felony.   B. decreases the penalties for conscious law breaking.   C. decreases the likelihood of detection and prosecution of illegal behavior.   D. adopts the theory of allocational efficiency, under which the primary objective of a business corporation is to maximize profits. The Sarbanes-Oxley Act creates a five-member Public Company Accounting Oversight Board with the authority to regulate CPA firms that audit publicly traded corporations. (Two members of the board are certified public accountants.) The law also broadly defines obstruction of justice and makes obstruction of audit work papers a felony.

 

AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-03 Clearly explain the four major limits on the ability of law to control corporate behavior. Topic: The Law as a Corporate Control Device

 

28. (p. 59)

Which of the following statements best describes the phenomenon called risky shift? A. Groups do not accept higher risks than individuals.   B. A corporation shifts its risk onto its customers.   C. A group of people who must reach a consensus on an acceptable level of risk often decide on a level of risk higher than the risk they would accept as individuals.   D. The decisions made by a team of managers may have lower levels of risk and may create lesser legal problems than decisions made by an isolated manager. Risky shift means that a group of people who must reach a consensus on an acceptable level of risk often decide on a level of risk higher than the risk they would accept as individuals. Thus, the decisions made by a team of managers may create greater legal problems than decisions made by an isolated manager.

 

AACSB: Analytic Blooms: Understand Difficulty: 2 Medium Learning Objective: 03-03 Clearly explain the four major limits on the ability of law to control corporate behavior. Topic: The Law as a Corporate Control Device

 

29. (p. 59-60)

The tendency for members of a group to internalize the group’s values and perceptions and to suppress critical thought is known as _____. A. risky shift   B. social malingering   C. herd behavior   D. groupthink Groupthink is the tendency for members of a group to internalize the group’s values and perceptions and to suppress critical thought.

 

AACSB: Analytic Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-03 Clearly explain the four major limits on the ability of law to control corporate behavior. Topic: The Law as a Corporate Control Device