Ethics in Business

Name : Clas s: Dat e: Chapter 03: Ethics in Business True / False 1. Congress enacted the Sarbanes-Oxley Act to help reduce unethical management decisions. a. True b. False ANSWER: True 2. Once a law is passed to codify an ethical requirement, the ethical aspect of the action is no longer important. a. True b. False ANSWER: False 3. Because it may be unclear how a court will interpret and apply a law, companies can ensure decisions are viewed as ethical by documenting their own interpretation of the law. a. True b. False ANSWER: False 4. Conduct that is legal is ethically unquestionable. a. True b. False ANSWER: False 5. Ethics is a branch of philosophy that focuses on morality. a. True b. False ANSWER: True 6. Congress does not pass laws based on ethics. a. True b. False ANSWER: False 7. It can be difficult to predict with certainty how a court will apply a given law to a particular action. a. True b. False ANSWER: True 8. The term moral minimum is best defined as the highest degree of ethical behavior expected of a firm. a. True b. False Page 1 Name : Clas s: Dat e: Chapter 03: Ethics in Business ANSWER: False 9. The study of ethics goes no further than the requirements of the law to evaluate what is right for society. a. True b. False ANSWER: False 10. The effectiveness of an industry code of ethics is partly determined by the commitment of the industry or company leadership to enforce it. a. True b. False ANSWER: True 11. Company codes of conduct set forth company policies and expectations for different issues. a. True b. False ANSWER: True 12. One view of the role of business in society is the perceived duty of a company only to generate revenue for its owners. a. True b. False ANSWER: True 13. When profit maximization is the goal, a company does not benefit from ethical behavior. a. True b. False ANSWER: False 14. Corporate “citizenship” involves making decisions beyond just maximizing profits and dividends. a. True b. False ANSWER: True 15. When making ethical decisions, a business should evaluate the financial implications. a. True b. False ANSWER: True 16. Ethical decision makers should test and reflect on the outcome of their decisions. a. True Page 2 Name : Clas s: Dat e: Chapter 03: Ethics in Business b. False ANSWER: True 17. One of the most important ways to maintain an ethical workplace is for management to set standards and expectations for ethical behavior. a. True b. False ANSWER: True 18. Duty-based ethics is based in the idea that every business has certain duties to others. a. True b. False ANSWER: True 19. Under the categorical imperative, an unethical decision that would have only a small impact is acceptable as long as no one else in society acts the same way. a. True b. False ANSWER: False 20. Outcome-based ethics deals with traditional standards of behavior. a. True b. False ANSWER: False 21. Under the principle of rights theory, the key factor in a decision is how the result may harm the rights of the company to make money. a. True b. False ANSWER: False 22. Outcome-based ethics determines what is ethical by looking at the potential benefits and harms of a given action. a. True b. False ANSWER: True 23. Corporate social responsibility links the responsibility of citizenship with the strategy and key principles of a business. a. True b. False ANSWER: True Page 3 Name : Clas s: Dat e: Chapter 03: Ethics in Business 24. Corporate social responsibility may increase a business’s reputation or goodwill. a. True b. False ANSWER: True 25. Under the “stakeholder view,” no group ever has a greater stake in company decisions than the shareholders do. a. True b. False ANSWER: False 26. An overemphasis on long-run profit maximization is a common reason for ethical problems that occur in business. a. True b. False ANSWER: False 27. Because social media is so widespread, it is legal and ethical for a company to have social media policies limiting employees from criticizing the company. a. True b. False ANSWER: False 28. Judging a job applicant based on what an online search reveals about the applicant’s activities outside the workplace universally is viewed as ethical. a. True b. False ANSWER: False 29. Rationalization is the process of making a logical decision based in evidence and an analysis of the ethical dimensions of the decision. a. True b. False ANSWER: False 30. Making ethical decisions is most often best done by analyzing objective standards (such as profit or number of people fired) instead of subjective impacts on stakeholders. a. True b. False ANSWER: False Page 4 Name : Clas s: Dat e: Chapter 03: Ethics in Business 31. The first step in making an ethical decision is to understand the problem. a. True b. False ANSWER: True 32. Decision makers need to consider what they can and will do before they consider what they should do. a. True b. False ANSWER: False 33. As part of the IDDR approach as described in the text, it is important to list many possible actions and analyze them using several different ethical theories. a. True b. False ANSWER: True 34. Once a company has investigated any foreign suppliers, it is unnecessary to continue to monitor those suppliers. a. True b. False ANSWER: False 35. Global businesses need to be conscious of the impact of different religious principles on ethics. a. True b. False ANSWER: True Multiple Choice 36. Artificial Intelligence Inc. sells to Beta Bots Corporation a promising idea for a technological innovation that is still being developed and that looks very promising. This is a. ethical and legal. b. unethical but legal. c. illegal and unethical. d. unethical and illegal. ANSWER: a 37. Business ethics looks at whether business decisions a. are right or wrong. b. derive from well-known business principles. c. follow legal doctrine. Page 5 Name : Clas s: Dat e: Chapter 03: Ethics in Business d. align with corporate policy. ANSWER: a 38. The Fraud Reduction and Data Analytics Act to prevent, detect, and respond to fraud in federal programs institutionalizes a. fraud. b. ethical rights and duties. c. federal programs. d. corporate policy. ANSWER: b 39. Ethics has to do with how a businessperson making business decisions applies a. legal doctrine. b. moral principles. c. corporate policy. d. financial priorities. ANSWER: b 40. With respect to what society will tolerate, a company’s compliance with the law, and no more, is a. the highest ethical level. b. the lowest ethical level. c. the only ethical level. d. irrelevant. ANSWER: b 41. Viaduct Corporation used untested and risky construction techniques to build a bridge under budget. The techniques were legal but the bridge collapsed, killing several people. Viaduct’s actions were a. unethical and may result in legislation to ensure it does not happen again. b. ethical because they were legal and so Viaduct owes no one. c. dangerous and so inherently illegal. d. legal under Sarbanes-Oxley and so Viaduct will face no penalties. ANSWER: a 42. An ethical code of conduct is not a. law. b. a set of rules that the company can enforce. c. an outline of the company’s policies. d. a guide for decision makers facing ethical questions. ANSWER: a 43. The National Restaurant Association announces a new industry code of ethics. The effectiveness of this Page 6 Name : Clas s: Dat e: Chapter 03: Ethics in Business code will be determined by a. the commitment of management to enforcing the code. b. the similarity of the code to the employees’ personal values. c. the success of the campaign publicizing the code. d. the relationship between the code and the law. ANSWER: a 44. Product Sales Inc. adheres strictly to the goal of maximizing profits. Even so, Product Sales will benefit from ethical behavior a. if customer service is good. b. if its owners are happy with the revenue. c. under no circumstances. d. if it efficiently allocates its scarce resources. ANSWER: a 45. The triple bottom line looks at all of the following except a. how decisions impact profits and revenue. b. how decisions impact sustainability and the planet. c. how decisions impact employees and consumers. d. how decisions impact the relationship between the U.S. and other nations. ANSWER: d 46. When making decisions that are ethical under either profit maximization or corporate citizenship theories, a business should include all of the following steps except a. recognize that there is an ethical issue in the decision. b. apply ethical theories to reasonable alternatives. c. publicize the options you rejected with your reasons. d. reflect on the outcome of the decision once it is made. ANSWER: c 47. Lucy is a business manager for Manufacturing Company. Ethical issues that Lucy is not likely to encounter include determining a. protocols for company meetings. b. questions of workplace diversity. c. compliance with environmental regulations. d. application of safety standards. ANSWER: a 48. “Be honest and treat people fairly.” With respect to business ethics, implementing this motto is a. not important. b. only important in democratic societies. Page 7 Name : Clas s: Dat e: Chapter 03: Ethics in Business c. very important. d. only important with large customers. ANSWER: c 49. Owen and other managers employed by Pastry Bakeries are most likely to find that unethical behavior in the workplace can be deterred by a. taking immediate action in response to unethical conduct. b. imposing sanctions disproportionate to misconduct. c. distributing rewards without regard to ethics. d. ignoring small breaches of company rules. ANSWER: a 50. Ethics is important because laws may not always be easy to interpret or apply. This is because a. laws are very organized and structured and so are complicated to read. b. laws represent the will of the people and that will is often changing. c. laws are created by the political process and are the result of compromise. d. laws often have definition provisions to explain the meaning of terms. ANSWER: b 51. Cynthia is the chief financial officer of Digital Corporation. In that capacity, when she is unsure whether a certain business action is legal, she should act a. in her own best interest. b. honestly and responsibly. c. in the short-run interest of Digital. d. to maximize profit. ANSWER: b 52. Compliance with the law is not always sufficient to determine “right” behavior because a. the law does not codify all ethical requirements. b. company codes are also sources of law. c. business decisions can have negative impacts. d. ethical problems occur in business. ANSWER: a 53. Questions of what is ethical involve the extent to which a company has a. a legal duty beyond those duties mandated by ethics. b. an ethical duty beyond those duties mandated by law. c. any duty beyond those mandated by both ethics and the law. d. any duty when it is uncertain whether a legal duty exists. ANSWER: b Page 8 Name : Clas s: Dat e: Chapter 03: Ethics in Business 54. If a company strictly complies with existing laws, the firm will a. fulfill all business ethics obligations. b. fulfill no business ethics obligations. c. fulfill some business ethics obligations. d. not need to fulfill any business ethics obligations. ANSWER: c 55. Duty-based ethical standards are most likely to derive from a. a corporate ethics code. b. a cost-benefit analysis. c. philosophical reasoning. d. the law. ANSWER: c 56. When adopting duty-based ethics, corporations often demonstrate the duties they owe a. through required government disclosure forms. b. in their mission statements and strategic plans. c. by adopting a corporate religion. d. in the biographies of corporate leaders. ANSWER: b 57. Flo, the manager of Grounds Maintenance Inc., must decide whether to use an herbicide that could be unhealthy to employees using it and to the public once it is on the ground. Flo might lose the client if she refuses to use the herbicide. If Flo analyzes the importance of good health and avoidance of disease to people in making her decision, she is likely using a. religious principles. b. the categorical imperative. c. the principle of rights theory. d. utilitarianism. ANSWER: c 58. Under the principle of rights theory, a key factor in determining whether a business decision is ethical is how that decision a. compares to religious principles. b. affects the rights of others. c. causes consequences that would follow if everyone acted the same way. d. supports the right to make a profit. ANSWER: b 59. Seafood Café Company makes products that can cause severe health problems to those with shellfish allergies. Seafood analyzes the cost of warning people of the risk (which they believe is obvious) and the risk of Page 9 Name : Clas s: Dat e: Chapter 03: Ethics in Business harm to people if no warning is included in advertising and on menus. This analysis most likely is part of a. a duty-based ethics approach. b. corporate social responsibility. c. religious ethical principles. d. outcome-based ethics. ANSWER: d 60. The utilitarian theory of ethics does not require a. a choice among alternatives to produce the maximum societal utility. b. a determination of whom an action will affect. c. an assessment of the effects of alternatives on those affected. d. the acquiring of the means of production by workers. ANSWER: d 61. A cost-benefit analysis is part of a. a duty-based ethics approach. b. corporate social responsibility. c. the principle of rights theory. d. utilitarianism. ANSWER: d 62. Hale, research manager for Investor Fund, Inc., adheres to utilitarian ethics in making business and ethical decisions that involve the actions of the firm. According to this standard, an action is morally correct when it produces the greatest good for a. Hale. b. Investor Fund. c. the fewest people. d. the most people. ANSWER: d 63. When deciding to engage in corporate social responsibility, a key factor when selecting activities is a. how the social activity relates to the business activities of the corporation. b. how much free publicity the corporation will get from the social activity. c. whether the corporation is required to do the social activity by law. d. whether the activity will result in short-term profit increases. ANSWER: a 64. ChemCo Inc. expends funds and takes steps to ensure that all employees are treated fairly and that the environmental impact of the corporation is minimal. This is the concept of a. the moral minimum. b. corporate social responsibility. Page 10 Name : Clas s: Dat e: Chapter 03: Ethics in Business c. the categorical imperative. d. the triple bottom line. ANSWER: b 65. According to the theory of corporate social responsibility, any decision by the management of Precision Processing Corporation should consider how a proposed action may affect only the a. firm’s officers and shareholders. b. firm’s officers, shareholders, and suppliers, as well as the community, or society as a whole. c. firm’s shareholders. d. firm’s suppliers, the community, or society as a whole as well as the news media and local government. ANSWER: b 66. Holdings Corporation, a top-performing company, may be more likely to behave unethically than a less successful company if a. clients and customers focus solely on the firm’s profitability. b. employees feel they are expected to continue performing at a high level. c. the government does not investigate the source of the firm’s success. d. the firm begins to focus on long-run profit maximization. ANSWER: b 67. Cody makes a business decision based on financial outcomes first, and then attempts to argue that it is ethical as well when it may not be. Cody is a. rationalizing his decision. b. questioning his decision. c. using the utilitarian approach. d. using the stakeholder approach. ANSWER: a 68. Caryn is faced with making a business decision. As she thinks about the problem, she feels that there is no easy answer. She continues to think about what is making her uncomfortable about the situation before brainstorming possible solutions. If Caryn is using the IDDR approach to decision making, she is engaged in a. the discussion step. b. the decision step. c. the inquiry step. d. the review step. ANSWER: c 69. In making a business decision, Jin Soo brainstorms possible solutions to his problem and then considers what he should do. If Jin Soo is using the IDDR approach to decision making, he is in the a. the discussion step. Page 11 Name : Clas s: Dat e: Chapter 03: Ethics in Business b. the decision step. c. the inquiry step. d. the review step. ANSWER: a 70. To avoid unethical practices by a foreign supplier, an effective business practice is to a. pay foreign employees at U.S. pay rates. b. have suppliers sign contracts affirming that they will behave ethically. c. routinely monitor the foreign workplaces. d. obtain a legislative decree that the supplier is ethical. ANSWER: c Essay 71. Recreation & Sports Equipment Corporation sells a profit-generating product that is capable of seriously injuring consumers who misuse it in a foreseeable way. They are contemplating adding a warning to the product but that warning will increase the cost of the product and they are worried that it may scare some potential customers who might not buy the product. Thinking about the two main theories of the role of business in society, discuss whether Recreation & Sports Equipment Corporation behaves ethically by continuing to sell the product without warning. ANSWERThere are two primary theories of the role of business in society. First, the historical role of business was to maximize profits. The second theory is that business should : behave as a corporate citizen. As a profit maximizer, Recreation & Sports Equipment Corporation should evaluate this decision to minimize costs and maximize profit to the company. Adding a warning would increase the cost (and decrease the profits) of the product. At the same time, a lawsuit because of injury could be very expensive. It is unclear whether the addition of a warning would result in decreased sales. The decision maker should have a professional analysis done of the financial impacts of the lawsuit as well as lost sales caused by either a lawsuit or the addition of a warning. As a corporate citizen, the company may consider the triple bottom line. There is no information on the “planet” and so that factor won’t enter the analysis. The “profit” analysis will be similar to that in the prior paragraph. The “people” analysis would include the impact on the consumers who might be injured by the foreseeable misuse. Because a warning could prevent this injury (either through more responsible use or by elimination of a sale to the consumer who might misuse the product), the corporate citizen model is likely to result in the addition of a warning. 72. Frances, an executive with GMO Seed & Feed, Inc., has to decide whether to market a product that could offer substantial benefits but might also have potentially serious side effects for a small percentage of users. Using the different ethical philosophies discussed, analyze the decision. ANSWERWhen a corporate executive has to decide whether to market a product that might have undesirable side effects for a small percentage of users but that would be : beneficial for most users, the decision turns on the benefit to the many versus the harm to the few. Of course, all possible precautions should be taken to protect the few. A more specific answer depends on which system of ethics is applied. From a religious duty-based perspective, the answer might be absolute—do not sell the product because some would be harmed, sell the product only to those who would Page 12 Name : Clas s: Dat e: Chapter 03: Ethics in Business not be harmed, or sell the product with clear warnings of the possible harm. Similar conclusions might be reached through a philosophical, “categorical imperative,” dutybased approach, which would consider the result if every corporation chose to sell the product. A principle-of-rights duty-based approach might likewise come to the same conclusions, reasoning that all persons have a right to life, for example, and that the corporation has an ethical duty to respect that right and act accordingly. From a utilitarian perspective, under a cost-benefit analysis, if the product were sold, it could benefit the greatest number of persons—future and current employees, as well as shareholders, and most consumers. If there was “bad” publicity, and it was adverse enough to reduce sales, however, more persons could benefit from the decision not to market the product. Under any of the different corporate social responsibility theories, the decision whether to market the product would acknowledge the firm’s duty to act ethically and be accountable to society. There might be a balancing of the interests of competing stakeholder groups or a shouldering of the responsibility to behave in a socially beneficial way as a good corporate citizen. Of course, the firm would likely have to accept any legal liability that would arise from its sale of the product. Page 13