FINAL PREP

Question 1

Corporate Governance

Answer 1

the controls put in place to ensure that a corporation acts in an ethical, legal, and transparent manner in the best interests of shareholders

Question 2

Principal Agent Problem

Answer 2

the conflict of interests between the principal (shareholders) and the agents (executives)

Question 3

Corporate Governance, Controlling and Monitoring Mechanisms (solutions - Internal and External)

Answer 3

Internal:
-Board of Directors
-Incentive based executive compensation
-Shareholder activism
External
-The market for executive employment
-Mergers and Acquisitions
-Government oversite and regulation

Question 4

Strengths of Corporations (4)

Answer 4

• Limited Liability
• Greater Access to Capital Markets
• Liquidity in Corporate Ownership
• Independent entity that goes on forever

Question 5

Weaknesses of Corporations

Answer 5

• Cost structure in running a large corp.

- Shareholders may be dbl. taxed

Question 6

Role of Board of Directors (6)

Answer 6

• acting as the shareholder’s agent
• hiring and evaluating management
• approving major operating proposals
• approving major financial decisions
• offering expert advice to management
• ensuring that the firm’s activities and financial condition are accurately reported to its stakeholders

Question 7

Theory of Shareholders

Answer 7

• SH own the corporation
• SH elect a board of directors
• BOD selects corporate officers

Question 8

Practice of Shareholders

Answer 8

• SH own the corporation
• CEO select the BOD
• SH rubber stamp the BOD proposed by mgmt.

Question 9

Corporate Gov. and Stakeholder Theory

Answer 9

-SHT - interconnected of shakholders, should create value for all, not just the shareholders
Corp. Gov. -
-A financial measure ignores the interests of other stakeholders, such as employees, the natural environment, the community, or society
-the German model where employee representation on corporate boards is mandated
-Triple bottom line reporting is an example of the fair consideration of stakeholders

Question 10

Key Features of Accounting

Answer 10

o Professionalism
1. The public interest is their priority
2. Regulation and law are the appropriate constraints u However, the law is only the minimum standard
o Independence
1. Those who stand to gain by the accountant’s declarations should not influence or prejudice the result
2. Independence is necessary for accountants to act ethically and with integrity

Question 11

Regulative Rules vs. Constitutive Rules

Answer 11

o Regulative Rules (external to the practice)
-Increased regulation can exacerbate the problem by shifting the real difficulty onto regulation
-The real difficulty is improving and developing one’s ability to make judgments and wise ethical decisions
-Emphasis on regulation directs the practitioner away from the real problems; it makes it seem as if problems are easy to resolve and fix
o Constitutive Rules (Define the practice)
-rules about the practice itself rather than rules regulating its practitioners
-They determine what the practice amounts to and so promote the practice

Question 12

Ethical issues faced by accounting professionals (9)

Answer 12

1. Client proposals for tax evasion
2. Client proposals to manipulate financial statements
3. Conflicts of interest
4. Presenting financial information so as not to deceive users
5. Failure to maintain technical competence
6. Coping with instructions from superiors to behave unethically
7. Integrity in admitting one’s mistakes
8. Using insider information for personal gain
9. Maintaining confidentiality

Question 13

The harm resulting from conflict of interest

Answer 13

1. They can damage the notion of fiduciary duty in a professional relationship
2. Trust in a particular profession can be damaged by its practitioners
3. They can engender a wider distrust in society

Question 14

The six principles of professional codes of ethics

Answer 14

1. The public interest
2. Integrity
3. Objectivity
4. Independence
5. Diligence
6. Confidentiality

Question 15

Animal Rights

Answer 15

• Anthropocentrism is the view that only humans have positive moral weight
• Humans have intrinsic value – humans have value independently
• Extrinsic value – non-human animals are only valuable relative to the value assigned to them by humans

Question 16

Speciesism

Answer 16

-a prejudice or attitude of bias in favor of the interests of members of one’s own species and against those of members of other species

Question 17

The Precautionary Principle

Answer 17

• The precautionary principle is a broad, philosophical approach to innovations with potential for causing harm when extensive scientific knowledge on the matter is lacking. It emphasizes caution, pausing and review before leaping into new innovations that may prove disastrous.
• taking preventive action in the face of uncertainty.
• shifting the burden of proof to the proponents of an activity.
• exploring a wide range of alternatives to possibly harmful actions.
• increasing public participation in decision making

Question 18

The CERES Principles (10)

Answer 18

1. Protection of the biosphere
2. Sustainable use of natural resources
3. Reduction and disposal of waste
4. Energy conservation
5. Risk reduction
6. Safe products and services
7. Environmental restoration
8. Informing the public
9. Management commitment
10. Audits and reports

Question 19

The Tragedy of the Commons

Answer 19

o The tragedy occurs when a resource is scarce, rivalrous in consumption, and non-excludable
o Individuals are not concerned with the sustainability of the fish stocks, and therefore, will engage in unsustainable fishing
 There isn’t an endless supply of fish and there is a lot of competition among fishers
 Over-consumption and ultimately depletion of the common resource, to everybody’s detriment

Question 20

Humanist arguments

Answer 20

o Without a clean environment, human health will be harmed
o without a natural world with a diversity of species, human life will be diminished
o Without a stock of renewable resources for future generations, the lives of future generations will be of a poorer quality than our own
o If everyone has a right to a livable environment, then others have an obligation to allow the free enjoyment of this right
 This right trumps the right to property because we cannot live or flourish without a clean environment

Question 21

Naturalistic argument

Answer 21

o Nature has intrinsic value
Humans have no dominion over nature
o Environmental ethicists want respect for the natural world, and so a naturalistic ethic
-The idea that “Good environmental ethics is good business” is irrelevant
-The environment must be respected for the right reason, that is, as having intrinsic worth
- Ecocentrism: The objects of primary moral concern are ecosystems 
- Deep ecology: Emphasizes self-realization through identification with nature, green consumerism, voluntary simplicity, bioregionalism or “living in place,” and the protection and restoration of wild spaces
-Not limited to the self,
-I can see myself in someone else, when they are suffering, then they can suffer.

Question 22

Positive rights and Negative rights

Answer 22

o Negative rights- “liberties” they are basic human and civil rights stating that no one can interfere with our right to obtain something through trade or bartering. Freedom of speech etc.

o Positive rights- “entitlements” they are things that someone must provide to us, whether we’ve earned them or not, they are granted to us
 Right to Housing, public education, national security, health care, social security, and certain standards of living are all positive rights. The government is required to provide you with these, even if you’re unable to provide them for yourself.

Question 23

Ethical Problems in international dealings

Answer 23

1. large scale bribery
2. cultural differences
3. involvement in political affairs
4. pricing practices
5. illegal or immoral activities in a host country
6. questionable commissions
7. gifts or favours
8. tax evasion
9. inappropriate use of products
10. traditional small-scale bribery

Question 24

De George’s Guidelines (6)

Answer 24

• Do no intentionally direct harm
• Benefit the host country and contribute to its development
• Respect the human rights of its workers
• Respect the values, culture, and laws of the host country
• Pay their taxes
• Assist in the building of just background institutions

Question 25

Donaldson’s Guiding principles (3)

Answer 25

o Respect for core human values, which determine the absolute moral threshold for all business activities
 First, individuals must not treat others simply as tools; in other words, they must recognize a person’s value as a human being.
 Next, individuals and communities must treat people in ways that respect people’s basic rights.
 Finally, members of a community must work together to support and improve the institutions on which the community depends.

Question 26

The goal and origin of the Global Sullivan Principles

Answer 26

o Goal: Ssupport economic, social and political justice by companies where they do business; to support human rights and to encourage equal opportunity at all levels of employment, including racial and gender diversity on decision making committees and boards; to train and advance disadvantaged workers for technical, supervisory and management opportunities; and to assist with greater tolerance and understanding among peoples; thereby, helping to improve the quality of life for communities, workers and children with dignity and equality
o Origin: .Sullivan Code was to get corporations operating in South Africa to defy apartheid
o these principal support justice, advocate recognition of human rights, and encourage corporate social responsibility

Question 27

Code of Ethics vs. Code of Conduct

Answer 27

 Code of Ethics – formal statement of and organizations’ ethical values and principals
 Code of Conduct - An established set of specific and enforceable ethical prescriptions, which eliminate the uncertainty, variability and the necessity of judgment and discretion of a code of ethics

Question 28

de facto vs. de Jure value systems

Answer 28

o de facto: a value system that exits in actual fact; it is in place and acted upon in good faith, even if not officially codified
o de Jure value : a value system that is formally codified
o A code of ethics brings the de facto and de jure value systems into alignment
 it states where people stand in relation to each other and to entities outside the organization
 it sets a level playing field for all practitioners
 it is an instrument for accountability and responsibility

Question 29

Accountability vs. Responsibility

Answer 29

Accountability: the requirement to justify decisions in terms of the delegated powers and authority of one’s role
- the duty to give account of tasks after the job is completed
-Happens after the situation occures
-Assigned to one person
-imposes costs and constriants
-“signing off” on a project.
-limited
Responsibility : the requirement to justify decisions in terms of the delegated powers and authority of one’s role
- the duty to complete tasks
-engage in deliberative dcision making and exercise of judgement and discretion.
- Ongoing while the final goal is being worked towards
- Cannot be assigned to someone