University of Dayton

PHL 313

CHAPTER 6

Multiple-Choice Questions

1)Milton Friedman argues that the justification for permitting stockholders to hire corporate executives is that an executive is an agent serving the interests of:

1. 1. Society
   2. The stockholders
   3. The common good
   4. Social welfare
   5. Themselves

2. Friedman argues that the corporate executive should avoid:
   1. Spending someone else’s money for a social interest
   2. Spending his or her own money for a social interest
   3. Having social interests outside of business
   4. Using money earned from business to fund social causes
   5. Having opinions about social justice issues

3. According to Friedman, the relationship between a corporate executive and a stockholder is a relationship of:
   1. Agent to principal
   2. Principal to agent
   3. Agent to executive
   4. Executive to agent
   5. Boss to employee

4. In the context of Stone’s discussion of arguments about the social responsibility of business, the argument that the management of a corporation promises the shareholders that it will maximize the shareholders’ profits and therefore cannot spend resources on other concerns is called the:
   1. Agency argument
   2. Role argument
   3. Promissory argument
   4. Polestar argument
   5. Responsibility argument

5. Stone contends that the debate over corporate social responsibility often ignores a truth about human behavior, namely, that we generally expect human beings to act in a way calculated to:
   1. Maximize profits
   2. Benefit only themselves
   3. Consider all stakeholders
   4. Benefit others
   5. Benefit no one

6. French says that when we say a corporation has an intention to do something, we are:
   1. Using shorthand, because really only persons can have intentions
   2. Speaking literally, because a corporation can really have an intention
   3. Talking nonsense, because that sentence makes no literal sense
   4. Being unfair, because we are holding a corporation responsible
   5. Being dishonest, because we are not holding the individual persons responsible

7. What is a CID structure?
   1. A corporation’s responsibility flow chart and rules for decision making
   2. A corporation’s ethical codes and guidelines
   3. Governmental regulations that corporations must obey
   4. A philosophical theory that defines ethical corporate action
   5. Standards that a corporation must live up to in order to be a responsible agent

8. French thinks that the CID structure is important because it helps us determine:
   1. Whether a corporation is making a profit or not
   2. Whether a group of people is really a corporation
   3. Which executives to hold responsible for fraud
   4. Whether a corporation is just or unjust
   5. Whether a corporation is acting, or just some individuals

9. R. Edward Freeman argues in favor of the ethical responsibility of the modern corporation in terms of:
   1. Shareholders
   2. Profit maximization
   3. Stakeholders
   4. Employee governance
   5. Legal regulations

10. R. Edward Freeman argues that externalities, moral hazards, and monopoly power have led to more control of corporate decisions by:
    1. Capitalist values, like money-making
    2. Socialist values, like collectivity
    3. Internal stakeholders, like employees
    4. Internal controls, like boards of directors
    5. Outside forces, like the government

11. Arrow insists that Milton Friedman’s profit-maximization arguments could only work in a world of:
    1. Rampant exploitation
    2. Monopoly power
    3. Voluntary contracts
    4. Minimal market transparency
    5. Perfectly moral agents

12. Arrow argues that business might well improve its efficiency through the adoption of:

1. 1. A professional ethical code
   2. An employee charter
   3. A sales manifesto
   4. A business plan
   5. A shareholder theory

13. Why does Parker think that Berle’s 1932 book is relevant now?
    1. Berle predicted that there would be a financial crash in 2008.
    2. Berle thought that controls on the free market would prevent crashes like those in 1929 and 2008.
    3. Berle thought that financial crashes like those in 1929 and 2008 are inevitable.
    4. Berle argued for a completely free market, agreeing with Friedman.
    5. Berle wanted to break down the corporate system and create more small businesses.

14. Marcoux thinks that the idea of corporate social responsibility is:
    1. Basically compatible with capitalism
    2. Basically hostile toward capitalism
    3. An important step toward a better society
    4. An ethical foundation for capitalism
    5. The only possible way to bring ethics into business

15. What is the “equity capital” problem that Marcoux mentions?
    1. If corporate law is too restrictive, businesses cannot serve the greater good.
    2. If businesses consider the interests of all stakeholders, their profits may go down.
    3. If businesses consider only the short-term interests of shareholders, the health of the company may be compromised.
    4. If businesses consider the interests of all stakeholders, their employees may be exploited.
    5. If businesses consider the interests of all stakeholders, the value of shares will go down.

True/False Questions

1. Business ethics was first developed in the nineteenth century.

2. Milton Friedman thinks that businesses should spend their money to bring about the greatest good for society.

3. Friedman argues that businesspeople are like agents for stockholders.

4. Stone finds the so-called promissory argument to be both widespread and persuasive.

5. Freeman argues in favor of a stakeholder theory of the modern corporation.

6. A stakeholder is a group or individual who benefits from or is harmed by corporate actions.