Chapter 5

Question 1

Stakeholders
Mission
Goals
Objective

Answer 1

Stakeholders—individuals or groups who are affected by or can influence an organization’s operations
Mission—the reason for the firm’s existence
Goals—desired ends toward which efforts are directed
Objectives—specific, often quantified, versions of goals

Question 2

Stakeholders differences

Answer 2

Different stakeholders have different ideas about organizational goals and most attempt to influence them to some degree.
As owners, shareholders traditionally represent the dominant group of stakeholders, but conflicts with other stakeholder goals can be substantial.

Question 3

CSR

Answer 3

corporate social responsibility

Question 4

The Agency Problem, moral hazard, adverse selection

Answer 4

A situation in which a firm’s managers—the “agents” of the owners—fail to act in the best interest of the shareholders. The extent to which this problem occurs is widely debated.
The problem is rooted in moral hazard, when the parties in an arrangement—such as owners and managers—do not share equally in the risks and benefits.
It is complicated by adverse selection, the inability of shareholders to identify the precise competencies and personal attributes of top managers when they are hired.

Question 5

Management serves its own interests

Answer 5

Executives seek to grow the firm because compensation tends to increase with firm size.
Executives diversify the firm to increase prospects for survival at the expense of profitability.
Executives pursuing their own interests tend to avoid risks—even calculated ones—because failure can have severe negative career implications. They may also pursue diversification, the process of increasing the size of their firms by acquiring other companies that may or may not be related to the firm’s core business.

Question 6

Management and stockholders share the same interests

Answer 6

Since managers’ livelihoods are directly tied to the success of the firm, they tend to manage it in the best interest of the shareholders.
Stock options can support this perspective by “turning the managers into owners.”

Question 7

Managerial ethics

Answer 7

Managerial Ethics refers individual responsibility to make business decisions that are legal, honest, moral, and fair. Managerial ethics pertains to individual, not corporate behavior
Agreeing on what is “legal” and “honest” may not be difficult.
Agreeing on what is “moral” and “fair” can be a difficult task!
The temptation to engage in unethical activities is often tied to the notion that compromising one’s ethics can be good for an individual’s—and a firm’s—bottom line.

Question 8

Perspectives on Managerial Ethics (6)

Answer 8

The Utilitarian view: Anticipated outcomes and consequences should be the only considerations when evaluating an ethical dilemma.
The Self-Interest view: Benefits of the decision-maker(s) should be the primary considerations.
The Rights view: Evaluate organizational decisions on the extent to which they protect basic individual rights.
The Justice view: All decisions will be made in accordance with pre-established rules or guidelines.
The Integrative Social Contracts view: Decisions should be based on existing norms of behavior, including cultural, community, or industry factors.
The Religious view: Decisions should be based on personal or religious convictions.

Question 9

Ethical Relativism

Answer 9

The idea that ethics is based on accepted norms in a culture, meaning that what is ethical in one nation or culture might be unethical in another. Strict opponents of ethical relativism argue that actions are either ethical or unethical without consideration to cultural acceptance.

Question 10

E.T.H.I.C.S. for making ethical decisions

Answer 10

Experience
Training
Hindsight
Intuition
Company
Self-Esteem

Question 11

6 Explanations for Unethical Behavior

Answer 11

1. Individuals deny responsibility, rationalizing that they have no other choice but to participate in unethical behavior.
2. Individuals deny injury, suggesting that the unethical behavior did not really hurt anyone.
3. Individuals deny rights of the victims, rationalizing that “they deserve what they got anyway.”
4. Individuals engage in social weighting by making carefully controlled comparisons.
5. Individuals can appeal to higher values by suggesting that justification of the unethical behavior is due to a higher order value.
6. Individuals may invoke the metaphor of the ledger, arguing that they have the right to engage in certain unethical practices because of other good things they have done.

Question 12

Social Responsibility

Answer 12

Social Responsibility refers to the expectation that business firms should serve both society and the financial interests of the shareholders.
Ethics is about the individual; social responsibility is about the firm.
Because profits are necessary for survival and growth over the long term, a socially responsible firm must be able to generate both profits and societal benefits.

Question 13

Triple bottom line

Answer 13

the notion that firms must maintain and improve social and ecological performance in addition to economic performance.

Question 14

Corporate Social Responsibility (CSR)- PRO & CON

Answer 14

Whether a firm has a social responsibility (and if so, to what degree) is widely debated.
ARGUMENTS FOR A CSR focus on the need for firms to “give back” to the community. They highlight both the influence and resources available to firms in terms of advertising, product development, and community involvement.
ARGUMENTS AGAINST A CSR emphasize that firms should be active socially only when doing so enhances profits. Managers don’t know what’s in the best interest of society and they shouldn’t spend shareholder resources on such endeavors. Firms don’t need to “give back” because they already serve society by providing needed products, jobs, and tax revenues.
Either way, considering stakeholder perspectives—at least to some extent—is generally good business and can stave off government regulation.

Question 15

Sustainable Strategic Management

Answer 15

Sustainable strategic management (SSM) is a broader notion of social responsibility refers to the strategies and related processes that promote superior performance from both market and environmental perspectives.
The SSM perspective seeks to integrate the needs to earn profits and to serve society.

Question 16

Takeovers

Answer 16

Takeover: A purchase of a controlling quantity of shares of a firm by an individual, a group of investors, or another organization.
Leveraged Buyout (LBO): Takeovers that rely heavily on borrowed funds.

Question 17

Pros and Cons of Takeovers

Answer 17

Pro: Takeovers provide a needed system of checks and balances.
Pro: The threat of a takeover can pressure managers to operate their firms more efficiently.
Con: The need to pay back large loans can cause management to overemphasize the short term.
Con: Extra debt required for an LBO can lead to bankruptcy.

Question 18

Outsourcing

Answer 18

Contracting out a firm’s non-core, non-revenue-producing activities to other organizations primarily to reduce costs.
When implemented properly, outsourcing can cut costs, improve performance, and refocus the core business. Many outsourcing efforts fail, however, due to unforeseen hidden costs, loss of control of the outsourced activity, or simply outsourcing activities that should not be outsourced.
When an organization no longer performs key activities, it loses expertise and can find itself at the mercy of suppliers.

Question 19

Offshoring

Answer 19

Relocating some or all of a firm’s manufacturing or other business processes to another country to reduce costs—is similar to outsourcing, but enables the firm to retain control of the operations abroad instead of relinquishing them to other firms.

Question 20

Current events with outsourcing and offshoring

Answer 20

U.S. trade deficit was $635 billion in 2010, $273 of which was with China. India and Mexico are also prominent.
Some “white collar” jobs are now being outsourced, including attorneys and accountants.
Cost-cutting is the incentive for both outsourcing and offshoring.
These steps may not be taken without political or buyer repercussions in the home market, however, as recent developments in the United States illustrate.

Question 21

Managerial ethics and CSR

Answer 21

The line between social responsibility and managerial ethics can be difficult to draw, as what may be considered by some to be socially irresponsible firm behavior may be a direct result of unethical managerial decision making.
Sometimes the distinction between issues associated with social responsibility and those associated with ethics is clear—but not for all companies involved.