Business Ethics

Question 1

Members of _____________ are increasingly finding themselves facing ethical dilemmas, situations where they are required to define right and wrong conduct.

Answer 1

organizations

Explanation

Should a person follow orders they don’t personally agree with? What constitutes good ethical behavior has never been clearly defined and in recent years, the line differentiating right from wrong has become even more blurred.

Question 2

Under the old social contract, the employer was expected to provide ________ employment, steady promotions and loyalty.

Answer 2

lifetime

Explanation

A major drawback of the old social contract was that it created a sense of entitlement among employees.

Question 3

Global competition, advances in __________ and deregulation have all contributed to the end of the old social contract.

Answer 3

technology

Explanation

Under the new social contract, an employee’s job security, advancement and continued employment are closely tied to what the employee contributes to the company’s mission.

Question 4

The new social contract places more responsibility on _________ for their own prosperity and success in the employment relationship.

Answer 4

employees

Explanation

Adding value to the organization is essential to the new social contract. In exchange for this value added by employees, the company is expected to provide meaningful work, honest communications and training opportunities.

Question 5

Major corporate and accounting scandals affecting WorldCom, Enron, Adelphia, Tyco International, and Peregrine Systems, resulted in the ______________ Act.

Answer 5

Sarbanes-Oxley

Explanation

Named after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH), SarbanesOxley (SOX), is a United States federal law which was enacted in July 2002.

Question 6

The _______-Oxley act requires full disclosure in accounting systems and protects corporate whistleblowers.

Answer 6

Sarbanes

Explanation

During the financial scandals of the early 2000s (Adelphia, Tyco, WorldCom, Enron, etc) investors lost millions and in some cases billions of dollars. As a result, Congress passed the Sarbanes-Oxley Act of 2002 to more closely regulate business financial reporting and accounting to prevent corporate fraud.

Question 7

Critics of Sarbanes-Oxley, claim that it has reduced America’s ability to compete _____________ against foreign financial service providers.

Answer 7

internationally

Explanation

Opponents of SOX have stated that the legislation created an overly complex regulatory environment into U.S. financial markets.

Question 8

____ withdrawal was a proposed rule (Rule 205) under the Sarbanes-Oxley Act that would require an attorney who learns of a client’s wrongdoing to alert the SEC of any ongoing fraud before withdrawing representation.

Answer 8

Noisy

Explanation

The original Rule 205 included a provision that would require an attorney to make a noisy withdrawal (a written notification of withdrawal to the SEC) when the attorney had reported up the ladder and the board of directors had not provided an appropriate response. Critics who opposed the rule claimed that it would violate attorney-client privilege.

Question 9

The ________ scandal of 2002 involved fraud committed by founding family members and resulted in an estimated $60 billion in losses to investors.

Answer 9

Adelphia

Explanation

Adelphia was a cable entertainment company founded by the Rigas family. John Rigas and his three sons used fraudulent bookkeeping methods (similar to Enron) to inflate company earnings and hide liabilities.

Question 10

The Adelphia scandal has been referred to by many as a classic “personal __________” case.

Answer 10

piggy bank

Explanation

The Rigas family routinely used company funds to pay for family expenses. For example, $12.8 million of Adelphia money was used to build a family owned golf course.

Question 11

At its peak, ________ was the sixth largest cable company in the US.

Answer 11

Adelphia

Explanation

By 2002, Adelphia had almost 6 million subscribers and was operating in 32 states.

Question 12

Two members of the Rigas family were ultimately convicted of bank fraud, ____ fraud, and conspiracy.

Answer 12

mail

Explanation

John Rigas was sentenced to 15 years in prison and his son Timothy was sentenced to 20 years. It was found that the Rigas family had defrauded the company of approximately $2.3 billion.

Question 13

Enron’s management used a system called __________ finance to raise billions of dollars without showing the debt on its books.

Answer 13

structured

Explanation

Structured finance was a legal (although controversial) system of partnerships. It was due to the failure of one of these partnerships which caused the system to collapse and suddenly all the hidden debt came due.

Question 14

The CEO for most of _____’s 15 year existence was Kenneth Lay.

Answer 14

Enron

Explanation

In 2006 Lay was convicted on 10 criminal charges including fraud and conspiracy but he died before sentencing.

Question 15

At its peak, Enron generated 90 percent of its profits from _______ operations.

Answer 15

trading

Explanation

Enron started in 1985 from the merger of two natural gas pipeline companies, but after the deregulation of energy began trading natural gas futures and later expanded trading other futures including water, electricity, sugar, coffee, etc

Question 16

The bankruptcy of _______, surpassed Enron as the biggest bankruptcy in history.

Answer 16

WorldCom

Explanation

After Arthur Andersen was indicted for Enron, other audits the company performed came under close scrutiny, one of these was WorldCom. When WorldCom filed for bankruptcy in 2002 it was the largest such filing in US history.

Question 17

In 2002, an internal audit of WorldCom revealed $3.8 billion in _____.

Answer 17

fraud

Explanation

WorldCom internal auditors found that revenues had been inflated and costs had been underreported. Accounting firm Arthur Andersen had audited the company’s 2001 financial statements for 2001 and reviewed WorldCom’s books for the 2002 first quarter.

Question 18

In 2002, the accounting firm _______________ LLP was found guilty of criminal charges relating to its auditing of Enron.

Answer 18

Arthur Andersen

Explanation

The firm had shredded two tons of Enron documents prior to receiving notice that it was under investigation by the SEC and in 2002 Arthur Andersen was convicted of one count of obstruction of justice. The Supreme Court overturned the guilty verdict in 2005.

Question 19

One of the chief causes of the WorldCom, Global Crossing and Enron scandals was a built in conflict of interest involving _______________ LLP.

Answer 19

Arthur Andersen

Explanation

Arthur Andersen performed paid consulting work for the same companies they were responsible for auditing, a clear conflict of interest.

Question 20

The term “blood diamond” is associated with the _________ Process.

Answer 20

Kimberley

Explanation

Blood diamonds are produced by slave labor and are also known as conflict diamonds. The diamonds are often used by rebel groups to finance terrorist activities.

Question 21

The Kimberley Process Certification Scheme (2002) is a way for consumers and producers to ensure that they do not trade ________ that indirectly fund wars in Sierra Leone or the Democratic Republic of the Congo.

Answer 21

diamonds

Explanation

The Kimberley Process aims to identify and eliminate the trade in conflict diamonds.

Question 22

In _____ v. Wal-Mart seven women filed a class action lawsuit claiming that Wal-Mart discriminated against women concerning pay and promotions.

Answer 22

Dukes

Explanation

America’s largest ever civil rights lawsuit, Dukes v. Wal-Mart was filed in 2001 and represents an estimated 1.5 million female employees.

Question 23

In 1996 ______ agreed to pay over $170 million to settle a lawsuit accusing the company of racial discrimination against black employees.

Answer 23

Texaco

Explanation

It was the largest lawsuit involving racial discrimination at the time.

Question 24

In 2004 __________ paid $5.5 million after being accused by female and minority employees of discrimination involving pay and promotions at its stores in Colorado.

Answer 24

Home Depot

Explanation

Although Home Depot denied the charges, the company agreed to pay the $5.5 million, after mediation with the Equal Employment Opportunity Commission (EEOC), to avoid a lengthy and expensive lawsuit.

Question 25

In _____, the Coca-Cola Company agreed to pay $192.5 million to settle a racial discrimination suit by minority workers.

Answer 25

2000

Explanation

Black workers claimed Coca-Cola discriminated against salaried black employees in evaluations, promotions and pay. Coca-Cola denied the claims. The settlement covered salaried black employees in the United States who worked for Coca-Cola between April 1995 and June 2000.

Question 26

In 2004, __________ admitted to covering up vehicle defects going back as far as 1977.

Answer 26

Mitsubishi

Explanation

The first defects were revealed in 2000 after some fatalities occurred involving Mitsubishi vehicles. The total number of vehicles that were recalled as a result of the 2004 admission, reached almost one million. The scandal was called “one of the largest corporate scandals in Japanese history”

Question 27

In 2004, __________ was sentenced to 5 months in prison after being convicted of obstruction of justice, lying about a stock sale, and conspiracy.

Answer 27

Martha Stewart

Explanation

Stewart ordered the sale of 4,000 shares of ImClone stock, one day before public information about ImClone caused the stock price to drop. ImClone was a biomedical firm owned by a family friend of Stewarts and the sale caused accusations of insider trading.