Solutions and Test Bank For Legal Environment of Business Part 3

68) Steve Templeton, the CEO of Rolland Motor Company, is contemplating the shutdown of a plant in Kantron. The plant has been unprofitable for some time now, and there is increasing pressure from shareholders to shut it down so as to balance the loss being incurred by the shareholders. But closing the plant would be a blow to the employees as they will lose their jobs, and the local suppliers will lose a major buyer. There is also fear that the sudden closing of the plant will have an adverse effect on the community of Kantron, as the plant is one of the main sources of employment for the locals. Steve Templeton considered all these factors before making a decision on the fate of the plant. If Steve Templeton decides not to close the plant in Kantron, what business social responsibility will Steve Templeton be achieving? A) moral minimum B) corporate citizenship C) maximizing profits D) stakeholder interest Answer: D 69) Steve Templeton, the CEO of Rolland Motor Company, is contemplating the shutdown of a plant in Kantron. The plant has been unprofitable for some time now, and there is increasing pressure from shareholders to shut it down so as to balance the loss being incurred by the shareholders. But closing the plant would be a blow to the employees as they will lose their jobs, and the local suppliers will lose a major buyer. There is also fear that the sudden closing of the plant will have an adverse effect on the community of Kantron, as the plant is one of the main sources of employment for the locals. Steve Templeton considered all these factors before making a decision on the fate of the plant. If Steve Templeton decides to close the plant in Kantron, what important business social responsibility will Steve Templeton accomplish? A) moral minimum B) corporate citizenship C) maximizing profits D) stakeholder interest Answer: C 70) Sinbad Cola, a soft drink manufacturer, opened a plant in Buron. The waste from the plant was released into the Buron Sea, which was situated a mile away from the plant. Releasing the wastes into the sea resulted in water pollution and groundwater contamination. The water pollution in turn negatively affected Buron's fishing business. Sinbad Cola compensated for this by bringing the contamination levels down with additional filters and paying for the damages to the local fisheries. Which theory of business social responsibility did Sinbad Cola comply with when it compensated for its harmful waste disposal methods? A) moral minimum B) stakeholder interest C) corporate citizenship D) maximizing profits Answer: A 71) ULab Inc., a biotechnology firm, lost one of its offices in a fire. The employees did not have a fire drill, and the 10-story building had no fire escape. This resulted in many employees being hospitalized for physical injuries, burns, and toxic smoke inhalation. What important social responsibility theory did ULab neglect by not having a fire drill for its employees and not installing a fire exit? A) corporate citizenship B) moral minimum C) stakeholder interest D) maximizing profits Answer: B 72) ________ is a social responsibility theory of business according to which a corporation must consider the effects that its actions have on persons other than its shareholders. A) Corporate citizenship B) Maximizing profits C) Moral minimum D) Stakeholder interest Answer: D 73) What does "corporate citizenship" as a social responsibility theory in business imply? A) Businesses are responsible for helping to solve social problems that they did little, if anything, to cause. B) Businesses owe a duty to take actions that increase profits for shareholders. C) Businesses have a responsibility solely to their stakeholders and strive to maximize their well-being. D) Businesses are obliged to consider the effects of their actions on persons other than their shareholders. Answer: A 74) Conch Corporation, a global oil and gas company, plans to open a subsidized postsecondary vocational school in the town of Cristen, where one of its offices is situated. The plan is put to vote and then approved despite some objection from shareholders. The school is being opened in collaboration with the local government. Its objective is to help the youth of the neighborhood, especially dropouts, learn a vocational skill. What social responsibility theory describes Conch Corporation's move to open the school? A) moral minimum B) maximizing profits C) corporate citizenship D) stakeholder interest Answer: C 75) In the past, many business decisions were based solely on a cost—benefit analysis and how they affected the bottom line. However, the realization that such decisions made by businesses have far-reaching effects on society has led to the development of ________. A) the theories of the social responsibility of business B) the Securities and Exchange Commission C) the Uniform Sentencing Guidelines D) Kantian ethics Answer: A 76) Which of these is NOT a theory of the social responsibility of business? A) maximize profits B) moral minimum C) stakeholder interest D) collective bargaining Answer: A 77) Under the maximize profits theory of the social responsibility of business, businesses should be primarily concerned with the interests of ________. A) its workers B) the members of the communities in which the business operates C) its shareholders D) taxpayers Answer: C 78) The theory of corporate social responsibility that would hold that so long as a business avoids or corrects the social injury it causes, it has met its duty of social responsibility is the ________. A) mini-max theory B) moral minimum theory C) super-max theory D) maximize profits theory Answer: B 79) The corporate social responsibility theory that argues that businesses have a responsibility to not just "do well," but also "do good" is the ________. A) corporate citizenship theory B) moral minimum theory C) stakeholder interest theory D) maximize profits theory Answer: A 80) The ________ theory of social responsibility compels a corporation to correct the social injury it causes. A) moral minimum B) maximizing profits C) corporate citizenship D) stakeholder interest Answer: A 81) The legislative and judicial branches of government have established laws that enforce the ________ of social responsibility for corporations. A) stakeholder interest B) maximizing profits C) corporate citizenship D) moral minimum Answer: D 82) The ________ theory of social responsibility states that a corporation must consider the effects its actions have on persons other than its shareholders. A) moral minimum B) maximizing profits C) corporate citizenship D) stakeholder interest Answer: D 83) The ________ theory of social responsibility requires corporations to solve social problems, including ones it did little, if anything, to cause. A) corporate citizenship B) maximizing profits C) moral minimum D) stakeholder interest Answer: A 84) The ________ Act enacted by Congress in 2002 requires public companies to adopt codes of ethics and establishes criminal penalties for companies that partake in violations. A) Glass-Steagall B) Sarbanes-Oxley C) False Claims D) Business Norms Answer: B 85) Section 406 of the ________ Act requires a public company to disclose whether it has adopted a code of ethics for senior financial officers. A) Smoot-Hawley B) Taft-Hartley C) Wright-Patterson D) Sarbanes-Oxley Answer: D 86) The traditional view of social responsibility of business emphasized maximizing profits for employees rather than shareholders. Answer: FALSE 87) The moral minimum theory emphasizes correcting social injuries caused by a business. Answer: TRUE 88) The moral minimum theory emphasizes making a profit even while causing harm to others. Answer: FALSE 89) There are no specific governmental laws endorsing the moral minimum of social responsibility for corporations. Answer: FALSE 90) The stakeholder interest theory compels a corporation to consider the effects of its actions specifically on shareholders. Answer: FALSE 91) The corporate citizenship theory contends that corporations have to promote the same social goals as individual members of the society. Answer: TRUE 92) Section 406 of the Sarbanes-Oxley Act requires a public company to disclose whether it has adopted a code of ethics for senior financial officers. Answer: TRUE 93) Give an account of the social responsibility of businesses. List its four main theories. Answer: Businesses do not operate in a vacuum. Decisions made by businesses have farreaching effects on society. In the past, many business decisions were based solely on a costbenefit analysis and how they affected the bottom line. Such decisions, however, may cause negative externalities for others. Social responsibility requires corporations and businesses to act with awareness of the consequences and impact that their decisions will have on others. Thus, corporations and businesses are considered to owe some degree of responsibility for their actions. The four theories of the social responsibility of business are maximize profits, moral minimum, stakeholder interest, and corporate citizenship. 94) What is the moral minimum theory in the social responsibility of businesses? Answer: Some proponents of corporate social responsibility argue that a corporation's duty is to make a profit while avoiding causing harm to others. This theory of social responsibility is called the moral minimum. Under this theory, as long as a business avoids or corrects the social injury it causes, it has met its duty of social responsibility. The legislative and judicial branches of government have established laws that enforce the moral minimum of social responsibility for corporations. 95) Describe the maximize profits theory of the social responsibility of business and identify the Nobel Prize-winning economist from the University of Chicago who advocated this theory. Answer: The maximize profits theory is the traditional view of the social responsibility of business. This theory calls on businesses to maximize profits for its shareholders. This view, which dominated business and the law during the 19th century, holds that the interests of other constituencies (e.g., employees, suppliers, residents of the communities in which businesses are located) are not important in and of themselves. Milton Friedman, who won the Nobel Prize in economics when he taught at the University of Chicago, advocated the theory of maximizing profits for shareholders. Friedman asserted that in a free society, "there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception and fraud." 96) Which of the following is a characteristic of a public benefit corporation? A) It is a not-for-profit corporation. B) Its mission is purely to maximize profit. C) One of its purposes is to generate benefits for society. D) It is owned by the Federal government. Answer: C 97) Which of the following is NOT another term for a public benefit corporation? A) benefit corporation B) B corp. C) PB&J corp. D) social purpose corporation Answer: C 98) Which of these statements is true with regards to public benefit corporations? A) Most states have enacted legislation that permits public benefit corporations. B) To date, only one state has enacted legislation allowing for public benefit corporations. C) Public benefits corporations are only chartered by the Federal government. D) Most states have not enacted legislation that permits public benefit corporations. Answer: A 99) Which of these would NOT be considered a typical specific public benefit purpose of a public benefit corporation? A) reducing the company's carbon footprint B) engaging in sustainability efforts C) maximizing shareholder value D) giving 25 percent of its profits to charity Answer: C 100) Which of these entities has chosen to conduct its business as a public benefit corporation? A) Salvation Army B) United States Postal Service C) Federal Reserve Bank D) Ben and Jerry's Answer: C 101) By law, the directors and officers of a public benefit corporation may act differently than directors and officers of a traditional corporation. Describe this difference. Answer: When making corporate decisions, the officers and directors of a traditional corporation are primarily concerned with the interests of the corporation's shareholders. By contrast, the officers and directors of a public benefit corporation may consider stakeholders other than shareholders when making corporate decisions. These other stakeholders may include employees, customers, suppliers, and the community.