Chapter 11-Corporate Governance, Social Responsibility, and Ethics

Question 1

Stakeholders

Answer 1

Individuals or groups with an interest, claim, or stake in the company-in what it does and in how well it performs

Question 2

Internal Stakeholders

Answer 2

Stockholders and employees, including executive officers, other managers, and board members

Question 3

External Stakeholders

Answer 3

All other individuals and groups that have some claim on the company

Question 4

Risk Capital

Answer 4

Capital that cannot be recovered if a company fails and goes bankrupt

Question 5

Information Asymmetry

Answer 5

A situation where an agent has more information about the resources he or she is managing than the principal has

Question 6

On-the-job Consumption

Answer 6

a term used by economists to describe the behavior of senior management’s use of company funds to acquire perks (lavish offices, jets, and the like) that will enhance their status, instead of investing the funds to increase stockholder returns.

Question 7

Inside Directors

Answer 7

Senior employees of the company, such as the CEO.

Question 8

Outside Directors

Answer 8

Directors who are not full-time employees of the company, needed to provide objectivity to the monitoring and evaluation of processes.

Question 9

Stock Options

Answer 9

The right to purchase company stock at a predetermined price at some point in the future, usually within 10 years of the grant date.

Question 10

Takeover Constraint

Answer 10

The risk of being acquired by another company

Question 11

Greenmail

Answer 11

A source of gaining wealth whereby corporate raiders either push companies to change their corporate strategy to one that will benefit stockholders, or charge a premium for stock when the company wants to buy it back.

Question 12

Ethics

Answer 12

Accepted principles of right or wrong that govern the conduct of a person, the members of a profession, or the actions of an organization.

Question 13

Business Ethics

Answer 13

Accepted principles of right or wrong governing the conduct of businesspeople

Question 14

Ethical Dilemmas

Answer 14

Situations where there is no agreement over exactly what the accepted principles of right and wrong are, or where none of the available alternatives seems ethically acceptable.

Question 15

Self-dealing

Answer 15

Managers using company funds for their own personal consumption

Question 16

Information Manipulation

Answer 16

When managers use their control over corporate data to distort or hide information in order to enhance their own financial situation or the competitive position of the firm.

Question 17

Anti-competitive Behavior

Answer 17

A range of actions aimed at harming actual or potential competitors, most often by using monopoly power, and thereby enhancing the long-run prospects of the firm.

Question 18

Opportunistic Exploitation

Answer 18

Unethical behavior sometimes used by managers to unilaterally rewrite the terms of a contract with suppliers, buyers, or complement providers in a way that favors the firm.

Question 19

Substandard Working Conditions

Answer 19

Arise when managers under invest in working conditions, or pay employees below-market rates, in order to reduce their production costs.

Question 20

Environmental Degradation

Answer 20

Occurs when a company’s actions directly or indirectly results in pollution or other forms of environmental harm.

Question 21

Corruption

Answer 21

Can arise in a business context when managers pay bribes to gain access to lucrative business contracts

Question 22

Personal Ethics

Answer 22

Generally accepted principles of right and wrong governing the conduct of individuals.

Question 23

Code of Ethics

Answer 23

Formal statement of the ethical priorities to which a business adheres.