Exam Prep | Corporate Organization And The Role Of – Ch.4

Package Title: Godfrey Test Bank

Course Title: Ethics and Business WileyPLUS

Chapter Number 4

Question Type: Multiple Choice

1) Which one of the following statements best describes how incorporating a business has become less restrictive over the last several decades?

a) Corporations have a specific purpose when formed.

b) States have loosened the rules and guidelines for incorporating a business.

c) Competition helps businesses profit.

d) Governments have a vested interest in the goals of corporations.

Title: Chapter 4 Test Bank, Question 1

Difficulty: Easy

Bloomcode: Comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: Corporations can have any purpose or goal they wish without it having been stated when formed and without meeting the needs of the government as the primary purpose.

2) Which one of the following statements completes the sentence? If a corporation goes bankrupt, a stockholder

a) will likely lose the cost of their investment

b) has the right to be paid before creditors

c) can sell their stock shares after the bankruptcy has been completed

d) owes any monies to creditors that the corporation is unable to pay

Title: Chapter 4 Test Bank, Question 2

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: A stockholder is only liable for the monies invested into a corporation.

3) Berle’s shareholder primacy model is best described by which of the following statements?

a) focuses on management functions

b) allows for community input

c) states that profit and investor returns should be the focus of managers

d) addresses employee concerns

Title: Chapter 4 Test Bank, Question 3

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: Shareholders’ returns and a profitable business are the focus of the shareholder primacy model.

4) A CEO of a publicly traded organization who makes decisions that may or may not directly result in profits for the organization may be viewed as

a) a socially concerned executive

b) not focusing on shareholders’ best interests

c) being unlawful

d) spending money to make money

Title: Chapter 4 Test Bank, Question 4

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: The shareholder model calls for business decisions that lead to profits for shareholders.

5) A CEO made a decision that would directly impact shareholders in a positive way by means of more profits. Which one of the following statements best describes the model that the CEO used in this situation?

a) shareholder primacy model

b) stakeholder model

c) utilitarian decision making

d) profitability model

Title: Chapter 4 Test Bank, Question 5

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: The shareholder model calls for business decisions that lead to profits for shareholders.

6) Claudia, the local manager of a large company’s sales office, has been directed to meet with employees to inform them of major company policy changes. These changes will lead to greater profits but may hurt employee morale. This is likely a decision made by an organization with whom in mind?

a) the CEO

b) the shareholders

c) the stakeholders

d) the community

Title: Chapter 4 Test Bank, Question 6

Difficulty: Medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: The shareholder model calls for business decisions that lead to profits for shareholders.

7) A business that considers the impact of all stakeholders does not tend to focus on profits, but rather focuses on how different groups will be impacted. This type of management can lead to which of the following choices? Select all of the options that best apply.

a) lower profits

b) higher costs

c) expedited decisions

d) a more positive reputation

Title: Chapter 4 Test Bank, Question 7

Difficulty: medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: When considering the impact of multiple stakeholders on a decision, it can take longer to make a decision.

8) Patagonia’s founder Yves Chouinard has prioritized preserving the natural environment over profits for his business, ever since he started his first venture. Patagonia decided to use only organic cotton for its clothing production to avoid the use of harmful chemicals and pesticides. The company pledged to donate 1 percent of its sales revenue to environmental organizations, and it encouraged consumers to buy only products that they need. These decisions represent concern for which set of stakeholder groups?

a) shareholders, suppliers, and community

b) government, management, and employees

c) the general public, world society, and creditors

d) future generations, animal species, and the environment

Title: Chapter 4 Test Bank, Question 8

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: Future generations, animals, and the environment can be harmed by chemicals, pesticides, and the degradation of natural resources.

9) Patagonia was the first company to be certified as a B-Corporation in California. B-Corporations identify an intended benefit to society. In this way, investors understand that financial profit is not always the company’s primary objective. An investor who is not concerned about benefiting society might instead choose to purchase stock in which of the following organizations?

a) An investor who is not concerned about benefiting society might purchase stock in a corporation that follows Freedman’s views on the stakeholder model.

b) An investor who is not concerned about benefiting society might purchase stock in a philanthropic enterprise.

c) An investor who is not concerned about benefiting society might purchase stock in a Low-Profit Limited Liability Company.

d) An investor who is not concerned about benefiting society might purchase stock in a corporation that follows Friedman’s shareholder primacy view.

Title: Chapter 4 Test Bank, Question 9

Difficulty: Hard

Bloomcode: Evaluation

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: Friedman’s shareholder primacy view holds that a business should act in the financial interests of its investors, so long as it adheres to laws and societal norms. Low-Profit Limited Liability Companies, philanthropic enterprises, and corporations that follow the stakeholder model temper the maximization of shareholder wealth with benefits to other stakeholder groups.

10) Costco is viewed as an employee-friendly company. Costco provides its employees with competitive compensation and benefits. The company also prefers to promote from within, providing opportunity for many of its employees and helping to minimize employee turnover. Choose the option below that best describes the stakeholder groups that most benefit from these employment practices.

a) employees, suppliers, and creditors

b) management, employees, and shareholders

c) local communities, employees, and suppliers

d) creditors, local communities, and employees

Title: Chapter 4 Test Bank, Question 10

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: Competitive compensation and benefits are beneficial for employees, as is the opportunity for advancement. Reduced employee turnover allows managers to spend less time training and developing new employees. It also saves money on recruiting and training, increasing the return on investment for the stockholders.

11) Costco has higher weekly sales revenues than its direct competitor Sam’s Club. When a corporation’s revenues are higher than its expenses, there will be a profit in the form of net income. If a Costco store manager reduced store hours and personnel because they felt that the store was too busy, which of the following parties would see the most benefit?

a) customers

b) creditors

c) Sam’s Club

d) suppliers

Title: Chapter 4 Test Bank, Question 11

Difficulty: Hard

Bloomcode: Evaluation

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: Reducing store hours would limit access to customers and cause the store to be even busier while open. Reducing personnel would cause a cutback on employee hours and availability to assist customers. The store’s sales would likely decline, which would mean less revenue for suppliers. Only the store’s competitor could be expected to benefit from this decision.

12) Paul Newman’s business was bequeathed to his foundation, which led to the creation of the first philanthropic enterprise. The charities that receive the contributions would be considered which of the following?

a) The charities are stakeholders of the corporation because it sells the products.

b) The charities are stakeholders of the corporation because its profits flow to the foundation.

c) The charities are stakeholders of the foundation because it owns the corporation.

d) The charities are stakeholders of the foundation because it provides the contributions they receive.

Title: Chapter 4 Test Bank, Question 12

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: The charities are stakeholders of the foundation, which contributes funds to them. Their relationship with the corporation is indirect, and the relationship between the corporation and the foundation is not very relevant for the charities. It could be argued that the charities are indirect stakeholders of the corporation, but they have a much more significant relationship with the foundation.

13) Pranyah’s Paleo Restaurant struggled during the COVID-19 pandemic because it was not able to operate as usual. Regulations, uncertainty, and declining revenues put the owner in a financial bind. Pranyah could close the restaurant so that her employees could file for unemployment and the business could avoid the financial losses that could potentially accrue. This decision to close the restaurant would likely have which one of the following effects?

a) decrease tax revenues and local traffic

b) increase tax revenues and local traffic

c) decrease orders from suppliers and create commercial property vacancies

d) increase orders from suppliers and create commercial property vacancies

Title: Chapter 4 Test Bank, Question 13

Difficulty: Hard

Bloomcode: Evaluation

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: Closing the restaurant would decrease tax revenues due to the lack of profits from the business. Local traffic would likely decline as patrons would not visit the restaurant, even for curbside pickups. Orders from suppliers would cease and the restaurant would be vacant, at least until a new tenant leased the space.

14) Patagonia has pledged to donate 1 percent of its sales revenues to charitable causes. If the company were instead to give 1 percent of each sale back to its customers, this could also be viewed as a benefit to society. Which of these two options could benefit more stakeholder groups?

a) Donating to charitable causes could benefit more stakeholder groups because these charities could serve shareholders, suppliers, and creditors.

b) Donating to charitable causes could benefit more stakeholder groups because these charities could serve the environment, the general public, and the community.

c) Returning money to customers could benefit more stakeholder groups because the customer is the source of all revenue.

d) Returning money to customers would benefit more stakeholder groups because they would purchase more products and shareholders would benefit.

Title: Chapter 4 Test Bank, Question 14

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: Charities could serve various stakeholder groups, including future generations, animal species, the environment, the general public, and the community, but not Patagonia’s shareholders, suppliers, and creditors. Returning 1 percent of sales revenue to customers is not likely to have a significant impact on their purchasing decisions.

15) Which one of the following statements best describes the local community as a stakeholder?

a) The local community earns profits when the business is successful.

b) The local community can be influenced by or can influence the organization’s business activities.

c) The employees likely live in the local community in which the organization operates.

d) Families in the local community live near the organization.

Title: Chapter 4 Test Bank, Question 15

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: The community may be impacted by decisions the business makes, either directly or indirectly, in a small or large way, and the business can also be impacted by community decisions and events.

16) Employees and managers at Ajax Company have been preparing financial statements to include in their annual report. Which of the following choices identify the direct stakeholders that are likely to be more concerned by the information the annual report and financial statements share about the company’s standing than the indirect stakeholders?

a) investors

b) creditors

c) employees

d) local nonprofits

Title: Chapter 4 Test Bank, Question 16

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: The local nonprofit would likely be considered an indirect stakeholder, and the other options include obvious direct stakeholders that carry more interest in the financial well-being of an organization.

17) Which of the following are considered direct stakeholders of a typical company?

a) customers

b) general public

c) suppliers

d) creditors

Title: Chapter 4 Test Bank, Question 17

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: The general public is considered an indirect stakeholder.

18) Chu’s Shoes is considering expanding its operations by leasing and retrofitting a former shopping center. The closing of the shopping center affected the local community, and thus it welcomes the expansion. Chu’s has also pledged to add 150 new jobs with the expansion. Which one of the following statements best describes the plans of Chu’s Shoes?

a) instrumental stakeholder model

b) shareholder model

c) intrinsic stakeholder model

d) dependent stakeholder model

Title: Chapter 4 Test Bank, Question 18

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: This expansion is likely a win-win situation for the organization and the community. An expansion could mean greater profits for the organization, and the community will win by having more employment opportunities, as well as having an empty space utilized.

19) By law, food products sold in the United States must include a list of ingredients on labels or packaging. Ingredients are listed based on the amount present within the food item. Some manufacturers provided this information prior to it becoming law. By doing this, organizations were using what model when providing ingredient information?

a) stakeholder primacy

b) shareholder perspective

c) instrumental stakeholder

d) intrinsic stakeholder

Title: Chapter 4 Test Bank, Question 19

Difficulty:

Bloomcode:

Min:

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: The intrinsic shareholder model understands that customer-focused decisions have the stakeholders in mind and not just shareholders.

20) Some managers have problems determining which stakeholders to prioritize and when to put more weight on those specific stakeholders’ needs. Select the stakeholder dimensions that managers should use in their analysis.

a) power

b) high-low

c) urgency

d) legitimacy

Title: Chapter 4 Test Bank, Question 20

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance..

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: High-low is the crossover area in the Venn diagram where stakeholders can be more or less of each dimension; it is not a dimension itself.

21) If a stakeholder does not want to be viewed as insignificant to an organization, they need to meet which of the following sets of dimensions?

a) power and urgency

b) urgency and legitimacy

c) power and legitimacy

d) power, urgency, and legitimacy

Title: Chapter 4 Test Bank, Question 21

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: For a stakeholder to be viewed as important and to have weight when it comes to business influence, they must possess all three dimensions.

22) A large community-based organization has been informed of Jones Storage Company’s intention to no longer provide employees with Martin Luther King Jr. Day as a holiday. The organization relies on volunteers to help with community projects and initiatives and is upset by the company’s decision. Jones Storage knows that the media might give the community-based organization additional coverage. Jones managers offer their employees paid work hours to volunteer for community projects. What type of stakeholder does the community-based organization represent?

a) dormant stakeholder

b) demanding stakeholder

c) discretionary stakeholder

d) dangerous stakeholder

Title: Chapter 4 Test Bank, Question 22

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: While the social organization has power, it does not directly have influence on the organization’s decisions.

23) Which one of the following choices is the best example of a discretionary stakeholder?

a) a manager of an organization who wants to increase production and reduce the amount of waste in raw materials

b) an investor in a company who believes that corporate decisions are reducing overall profits

c) a local community group that begins a voluntary initiative to reduce water usage in production processes

d) a customer who writes an online review stating that a business’s product did not perform as expected and that they were disappointed with the purchase

Title: Chapter 4 Test Bank, Question 23

Difficulty: Medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: The community has a legitimate reason (environmental concerns), but they do not have any power to force the business to join the initiative, nor is there urgency.

24) Which of these is the best example of a dominant stakeholder?

a) someone with high power and high legitimacy

b) someone with high urgency and low power

c) someone with low urgency and high legitimacy

d) someone with low legitimacy and low power

Title: Chapter 4 Test Bank, Question 24

Difficulty: Medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: The manager has both legitimacy and power to influence the organization to make changes based on his or her suggestions.

25) Which of these is an example of a demanding stakeholder?

a) A manager of an organization has an idea about how to increase production and reduce the amount of waste in raw materials.

b) An investor in a company feels that the decisions being made are hindering the overall profits for the company.

c) The community in which an organization operates is beginning a voluntary initiative for all businesses and households to reduce their use of water in an effort to push environmental awareness.

d) A customer writes an online review stating that a business’s product did not perform as expected and that they were disappointed with the purchase.

Title: Chapter 4 Test Bank, Question 25

Difficulty: Medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: While the community has a meaningful cause, it is not something that can be forced or required (power) for businesses and households to participate in as whole.

26) Dependent stakeholders lack what dimension to make their needs important to businesses?

a) legitimacy

b) urgency

c) power

d) dependency

Title: Chapter 4 Test Bank, Question 26

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: Dependent stakeholders lack power and need stakeholders with power to have concerns heard.

27) Stakeholders can push the limits of what is legal if they feel they are not being heard. This can sometimes lead to actions that may put others at risk. If this occurs, the stakeholder group may be viewed as which one of the following choices?

a) powerful

b) coercive

c) dangerous

d) demanding

Title: Chapter 4 Test Bank, Question 27

Difficulty: Easy

Bloomcode: Comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: Stakeholders that resort to a form of violence to have their voices and concerns heard are viewed as dangerous stakeholders.

28) When an organization has stakeholders that meet all three dimensions of power, urgency, and legitimacy, these stakeholders have more influence on the business and can impact decisions. Which one of the following choices best applies to these stakeholders?

a) definitive stakeholders

b) dominant stakeholders

c) influential stakeholders

d) powerful stakeholders

Title: Chapter 4 Test Bank, Question 28

Difficulty: Easy

Bloomcode: Comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: Definitive stakeholders have all dimensions needed for businesses to give consideration to their needs.

29) Which one of the following stakeholders is viewed as most important to an organization?

a) dormant

b) discretionary

c) demanding

d) definitive

Title: Chapter 4 Test Bank, Question 29

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: Discretionary stakeholders are viewed as most important to organizations.

30) Businesses were once formed with the sole purpose of filling a specific need and making money. If the firm was no longer needed, it was dissolved. What are the positives of this process?

a) The business owner can begin a new business as they see fit.

b) The employees can find new employment.

c) Businesses have limited goals.

d) The investors receive their share of the assets.

Title: Chapter 4 Test Bank, Question 30

Difficulty: Hard

Bloomcode: Synthesis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: The business owner would need to determine a new business and go through all processes to form the business, which is not ideal. The employees may have a hard time finding new employment, and the investors, while they do receive their share of the assets, no longer have the option to receive any future possible earnings. The benefit of the firm being dissolved is simply that it does not continue if it is not profitable.

31) The Low-Profit Limited Liability Company is not viewed as a legitimate business form by many states in the United States. Which one of the following statements best describes why?

a) The owners of Low-Profit Limited Liability Companies often have bad intentions.

b) Low-Profit Limited Liability Company businesses are not able to expand.

c) Low-Profit Limited Liability Company businesses pay lower taxes.

d) The Low-Profit Limited Liability Company provides limited reports to stakeholders.

Title: Chapter 4 Test Bank, Question 31

Difficulty: Medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: A Low-Profit Limited Liability Company can be viewed as a nonprofit trying to run as a profitable business because they tend to operate for social needs. The low profitability makes it hard to survive without some form of assistance, meaning it is not usually self-sustaining, and they do not provide detailed reports to stakeholders.

32) What is the greatest advantage of a Low-Profit Limited Liability Company that sole proprietors are not able to utilize?

a) limited liability

b) tax benefits

c) investor funding

d) highly profitable

Title: Chapter 4 Test Bank, Question 32

Difficulty: Easy

Bloomcode: Comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: Low-Profit Limited Liability Company business forms are able to take advantage of the limited liability that comes with the formation that is not a benefit for sole proprietorships.

33) An organization that wants to be profitable but also wants to operate with the “greater good” mindset may find what business form to be ideal?

a) Low-Profit Limited Liability Company

b) B-Corporation

c) nonprofit enterprise

d) C-Corp

Title: Chapter 4 Test Bank, Question 33

Difficulty: Easy

Bloomcode: Comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: B-Corporations function to be profitable, but also to benefit society in some manner.

34) If a business were created with the intention of expansion as it becomes more profitable, the best form of business would be

a) B-Corporation

b) C-Corp

c) nonprofit

d) Low-Profit Limited Liability Company

Title: Chapter 4 Test Bank, Question 34

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: C-Corps are formed with the intention of maximizing profits and expanding operations.

35) B-Corporations put emphasis on the following stakeholders except

a) shareholders

b) community

c) government

d) employees

Title: Chapter 4 Test Bank, Question 35

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: B-Corporations operate with employees, community, shareholders, and the environment as their focus. While laws are expected to be followed, responsibility to the government is not a top priority.

36) Tiny Pies wants to create a program that provides a pie to a pediatric patient in the local hospital for every pie sold in the local community. Tiny Pies should consider becoming what type of business form?

a) nonprofit

b) B-Corporation

c) Limited Liability

d) partnership

Title: Chapter 4 Test Bank, Question 36

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: With the idea of providing a socially good program and meeting business goals, a B-Corporation should be considered.

37) Several requirements must be met to become a B-Lab–certified B-Corporation. Which of the following choices are not among these requirements?

a) meeting performance standards

b) meeting minimum revenue requirements

c) reducing water waste in production processes

d) ensuring the company uses little debt in its funding

Title: Chapter 4 Test Bank, Question 37

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: While a company may choose to do all options listed, performance standards must be met to receive B-Lab certification.

38) Opa’s Organics is a business formed to give 100 percent of its profits to charitable causes. Opa’s wants to maximize profits to provide the most funds possible. With the intention of maximizing profits, Opa’s Organics should operate as which one of the following forms of business?

a) B-Corporation

b) nonprofit

c) C-Corp

d) Low-Profit Limited Liability Company

Title: Chapter 4 Test Bank, Question 38

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: The main goal of C-Corps is to maximize profits.

39) An organization is successful and profitable, but it also has a mission that focuses on giving back to society. Forming a business with such a goal is utilizing the basic purpose of what two forms of business?

a) C-Corp and nonprofit

b) B-Corporation and nonprofit

c) Low-Profit Limited Liability Company and B-Corporation

d) nonprofit and Low-Profit Limited Liability Company

Title: Chapter 4 Test Bank, Question 39

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: This describes a philanthropic enterprise, which is a combination of maximizing profit, being a C-Corp, and having a charitable focus, which also makes it a nonprofit.

40) A business that is formed as a philanthropic enterprise can utilize a tax code that allows for maximization of profits, but it is taxed as a charitable organization. For this to occur, the organization must do which of the following?

a) have several stockholders who determine the charities that receive funds

b) give 100 percent of its profits to charitable causes

c) produce an item that is directly linked to the mission

d) pay employees well above minimum wage

Title: Chapter 4 Test Bank, Question 40

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: One hundred percent of the profits, minus the funds needed for business purposes, must be given to charitable causes.

41) A business organization that serves a specific purpose and is not driven by profit is known as what form of business?

a) Low-Profit Limited Liability Company

b) philanthropic enterprise

c) B-Corporation

d) nonprofit enterprise

Title: Chapter 4 Test Bank, Question 41

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: Nonprofits do not have shareholders and are strictly created for social service functions; they are not driven to maximize profits.

42) UNICEF is a world-wide organization that focuses on the health, safety, and education of children. They depend on donations to support their cause. This is an example of what type of business form?

a) C-Corp

b) philanthropic enterprise

c) nonprofit enterprise

d) B-Corporation

Title: Chapter 4 Test Bank, Question 42

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: UNICEF does not operate for profits; it operates strictly for the social well-being of children, making them a nonprofit enterprise.

43) A dependent stakeholder is one that a company views as having merit to their claim, but they do not have _______, which makes their claims less likely to been viewed as important enough to create change.

a) power

b) urgency

c) legitimacy

d) a voice

Title: Chapter 4 Test Bank, Question 43

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: Dependent stakeholders have urgency and legitimacy in their claims, but they lack the power to make any change within a company. They depend on those who do have power to help them be heard.

44) If stakeholders want to gain ground and find a way to make their voices heard, they may cross the line and act in a manner that is viewed as dangerous. When this is done, it creates a lack of _______ to their cause.

a) power

b) urgency

c) legitimacy

d) trust

Title: Chapter 4 Test Bank, Question 44

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: When stakeholders become dangerous, their legitimacy is lessened if, in order to be heard, they act in what can be an unlawful manner.

45) These stakeholders have the most influence on an organization because they have all the relevant dimensions of a stakeholder.

a) demanding stakeholders

b) dependent stakeholders

c) dominant stakeholders

d) definitive stakeholders

Title: Chapter 4 Test Bank, Question 45

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: Definitive stakeholders have all three dimensions and will be those that are most likely to influence change within a business.

46) If a stakeholder group has a legitimate claim but lacks the power to be taken seriously by an organization, which one of the following choices is the most effective way for that stakeholder group to gain power?

a) Protest by using force or violence toward the company.

b) Contact the media and describe why the company should support their needs.

c) Write a letter to the CEO.

d) Partner with another organization to become a larger group that supports the same claim.

Title: Chapter 4 Test Bank, Question 46

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: Becoming a larger collective group may help give more power and weight to the cause. However, contacting the media and having a larger voice in society as a whole, at least in the community, will likely cause the company to respond in some manner to their claim.

47) A company that puts its products through rigorous testing to ensure product safety for consumers is showing concern for the basic rights of which group?

a) external stakeholders

b) intrinsic stakeholders

c) community stakeholders

d) buying stakeholders

Title: Chapter 4 Test Bank, Question 47

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: The rights of consumers to have safe products is part of the intrinsic stakeholder model.

48) C-Corps are required to have some form of corporate social responsibility in their mission and business goals, but this can lead to being viewed as less socially responsible to society. This has become an increasingly important factor for which of the following groups?

a) shareholders

b) regulators

c) local communities

d) employees

Title: Chapter 4 Test Bank, Question 48

Difficulty: Medium

Bloomcode: comprehension

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: Organizations recognize that their reputation beyond high earnings has become an important factor in business responsibility as viewed by external and internal stakeholders.

49) Which one of the following statements is the best way for Patagonia to demonstrate the intrinsic stakeholder model?

a) giving employees unlimited days of vacation

b) allowing customers to send in Patagonia clothing for repair at a minimal cost

c) making products with the lowest-priced raw materials in order to give customers the best possible price

d) selling products online

Title: Chapter 4 Test Bank, Question 49

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: By allowing customers to send products to be repaired at a minimal cost, there is less clothing in landfills and items have a longer useful life.

50) If an organization sets strict expectations as to how its suppliers, employees, and other business partners are expected to function in order to meet organizational standards, they are likely giving high importance to all of the following, EXCEPT

a) employees

b) customers

c) the environment

d) profit

Title: Chapter 4 Test Bank, Question 50

Difficulty: Medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: When businesses set strict standards, they are likely doing so to meet social expectations, and while profits are important, they are not driving business decisions.

51) Business decisions that are socially responsible may also be grounded in which of the following choices?

a) human rights

b) animal rights

c) employee rights

d) shareholder primacy

Title: Chapter 4 Test Bank, Question 51

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: Focusing on stakeholders in a socially responsible manner extends beyond those that are directly linked to the business and beyond environmental goals.

52) When large organizations are successful and set social or charitable goals, many other organizations may jump on board and follow the same guidance. These expectations can become known as which of the following options for businesses of a similar size and function?

a) standards

b) mission

c) footprint

d) responsibility

Title: Chapter 4 Test Bank, Question 52

Difficulty: Medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: When large companies create certain expectations and other businesses follow suit, new standards can be created that become the norm when it comes to business operations.

53) If an investor looks for organizations that provide high returns and payouts to shareholders, they are likely to invest in companies that use what type of model?

a) instrumental stakeholder model

b) profitability model

c) intrinsic stakeholder model

d) shareholder model

Title: Chapter 4 Test Bank, Question 53

Difficulty: Medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: Businesses that make decisions to give investors the greatest return tend to use the shareholder model.

54) If an organization wants to be strategic and profitable, but also sees the value in being responsive to stakeholders, which of the following choices states what the organization should do?

a) Make the company’s mission a priority.

b) Focus on profitability.

c) Connect stakeholder issues to company objectives.

d) Ignore local laws that are inconvenient.

Title: Chapter 4 Test Bank, Question 54

Difficulty: Medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: If a company shifts its focus, this could decrease profitability, which could lead to investors having a decline in confidence. However, investors that appreciate the company’s shift may invest and purchase former investors’ shares.

55) As an employee of an organization, one has the right to a safe working environment. This was not always the case, but it became a standard all organizations in the United States must meet. Following safety regulations leads to a decrease in which of the following choices?

a) profits

b) employee morale

c) managerial competence

d) investor confidence

Title: Chapter 4 Test Bank, Question 55

Difficulty: Hard

Bloomcode: Synthesis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: Being a lawful organization can cost money compared to cutting corners and finding ways to operate at a lower cost. However, these costs must be spent in order to be in compliance, or there is a risk of being fined or having a lawsuit brought against the organization.

56) A local grocery store gives food that is near expiration or nearly past its prime to a homeless shelter and they use it to prepare meals for its visitors. This demonstrates a concern for which kind of stakeholders?

a) customer

b) employee

c) community

d) investor

Title: Chapter 4 Test Bank, Question 56

Difficulty: Medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: Caring for local homeless citizens is an example of a community stakeholder.

57) If a company treats employees well, which of the following choices explain how the company and employee benefit?

a) There is more employee turnover.

b) Talented employees are more likely to stay and become managers.

c) Employees will work hard if they feel they are treated well.

d) All employees will have equal opportunities within the company.

Title: Chapter 4 Test Bank, Question 57

Difficulty: medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: Both the company and employee benefit when employees are treated well regarding pay, benefits, and promotion opportunities. Employees are less likely to leave, will work to achieve the company mission, and will go after management positions to carry on the company’s success.

58) Managers of a social enterprise should base their decisions on which of the following choices?

a) profit

b) corporate mission

c) investors

d) stakeholder needs

Title: Chapter 4 Test Bank, Question 58

Difficulty: Hard

Bloomcode: Synthesis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: The manager may make decisions for any of these, but the company’s mission should be the deciding factor as to which is the main driver for decision making.

59) There is a spectrum of stakeholder involvement in business decisions. Which types of firms usually include extensive stakeholder involvement?

a) C-Corps

b) Low-Profit Limited Liability Company

c) nonprofit enterprises

d) B-Corporations

Title: Chapter 4 Test Bank, Question 59

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: The B-Corporation has a focus to be profitable, but also to listen to stakeholders in order to achieve societal goals along with business goals.

60) There is a spectrum of stakeholder involvement in business decisions. On one end, there is extensive involvement. On the other end, there is minimal involvement. What type of firm would fall on the minimal involvement end of the spectrum?

a) C-Corp

b) Low-Profit Limited Liability Company

c) philanthropic enterprise

d) B-Corporation

Title: Chapter 4 Test Bank, Question 60

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: C-Corps tend to get little involvement from stakeholders. The main focus is shareholders and what is best for the profits of the organization in order to maximize returns to investors.

61) Which form of business uses profits funneled from a corporation to a foundation in order to use those profits in a charitable manner?

a) nonprofit enterprise

b) B-Corporation

c) foundation enterprise

d) philanthropic enterprise

Title: Chapter 4 Test Bank, Question 61

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: In order to create a philanthropic enterprise, a foundation must be set up to determine how the profits of a corporation will be distributed to charitable causes.

62) Who decides the ethical guidelines and standards for which company decisions should be based?

a) employees

b) managers

c) CEO

d) investors

Title: Chapter 4 Test Bank, Question 62

Difficulty: Medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: In most cases, a founder or CEO of an organization sets the tone of ethical standards that employees, and even additional stakeholders, are expected to follow when making decisions or fulfilling employment tasks and responsibilities.

63) Today, many firms perceive the government to be involved in business decisions solely based on the fact that the government expects laws to the followed and

a) investors to receive their share of profits

b) taxes to be paid

c) employees to be paid higher than minimal wage

d) businesses to reduce their footprint on the community for which they operate

Title: Chapter 4 Test Bank, Question 63

Difficulty: Hard

Bloomcode: Synthesis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: Governments for the most part are hands-off when it comes to business operations as long as taxes are paid and laws are followed.

64) Costco treating employees well, which leads to higher profits and productivity, can be viewed as caring about what type of stakeholders and using which model?

a) direct and intrinsic

b) indirect and intrinsic

c) direct and instrumental

d) direct and instrumental

Title: Chapter 4 Test Bank, Question 64

Difficulty: Medium

Bloomcode: Application

Min: 1

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: Employees are direct stakeholders and treating them well is an example of using the instrumental stakeholder model.

65) Which one of the following choices best describes how C-Corps communicate with investors and demonstrate shareholder primacy?

a) the annual report and maximized profits

b) social media and company press releases

c) the code of ethics and employee turnover rates

d) the annual report and company press releases

Title: Chapter 4 Test Bank, Question 65

Difficulty: Easy

Bloomcode: Knowledge

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: C-Corps communicate firm goals and how profits will be maximized through business practices within the annual report. This is further demonstrated by profits being maximized, which leads to greater profits for investors.

66) Even if a firm does not follow the intrinsic stakeholder model for doing what is morally right and societally good, stakeholders still have rights. Which of the following choices are examples of stakeholder rights?

a) providing suppliers with payment for their services

b) making sure materials from which products are made are not hazardous to employees or customers

c) communicating with investors as to how the company is doing to meet its business goals

d) giving all employees four weeks paid vacation each year

Title: Chapter 4 Test Bank, Question 66

Difficulty: Medium

Bloomcode: Analysis

Min: 1

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: While it is a benefit to offer four weeks of vacation to employees, it is not an employee right to be given four weeks paid vacation each year.

Question Type: Short Answer

67) What are two specific benefits of the instrumental stakeholder model?

Title: Chapter 4 Test Bank, Question 67

Difficulty: Medium

Bloomcode: Application

Min: 3

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: This model believes that if firms focus on direct stakeholders, such as customers, suppliers, and employees, they will create a win-win situation. There will be higher profits, lower costs, and stakeholders will be satisfied.

68) What are two specific advantages of the intrinsic stakeholder model?

Title: Chapter 4 Test Bank, Question 68

Difficulty: Medium

Bloomcode: Application

Min: 3

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: If a profitable company can use some of its profits and its platform to help societal issues, they can reach well beyond the maximization of profits for stakeholders. They can do what is morally right as well as what is societally good.

69) Describe the main difference between C-Corps and B-Corporations.

Title: Chapter 4 Test Bank, Question 69

Difficulty: Medium

Bloomcode: Analysis

Min: 3

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: C-Corps’ main priority is shareholders and maximizing profits, while B-Corporations want to be profitable and have a social mission to do good. Profits may not be as high as they could potentially be in a B-Corporation due to this. C-Corps put little emphasis on social factors.

70) Discuss the process that the B-Lab requires if an organization wishes to become certified and how this compares to forming a C-Corp.

Title: Chapter 4 Test Bank, Question 70

Difficulty: Medium

Bloomcode: Analysis

Min: 5

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: The requirements for the B-Lab certification are that an organization must have a profit maximization goal, while also having a socially good or environmental mission—a focus on shareholders and stakeholders. Businesses must also have an annual fee that is based on revenues, submit a bi-annual B Impact Report, meet performance standards, and make the B Impact Report public. A C-Corp, while having intensive paperwork, is less strict in its formation. A C-Corp needs to file its name, be assigned a tax ID, and ensure the legal entity is in place with the filing of the letter of incorporation. From there, the oversight and regular reporting are completed for the benefit of the investors.

71) In your opinion, what is more important to focus on when businesses make decisions: profit maximization or stakeholders’ interests? Explain your reasoning.

Title: Chapter 4 Test Bank, Question 71

Difficulty: Hard

Bloomcode: Evaluation

Min: 5

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: The students’ answers will vary. Those that focus on profit maximization should discuss how a business has an obligation to stakeholders that have invested in the company. Stakeholders also expect a reasonable return on their investments and have the idea that all business decisions have this in mind. Those that focus on stakeholders’ interests should discuss decisions being made with multiple groups in mind, such as customers, suppliers, investors, and the community.

72) What are three important differences between the shareholder model and the stakeholder model?

Title: Chapter 4 Test Bank, Question 72

Difficulty: Medium

Bloomcode: Analysis

Min: 3

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: The main difference between the two models is who is being considered when decisions are made. The shareholder primacy model focuses on shareholders and giving them the largest return on their money. The stakeholder model gives more concern to all stakeholders and may not have maximizing profits solely for stockholders at the forefront of business decisions.

73) Explain the difference between a dormant stakeholder, discretionary stakeholder, and demanding stakeholder. In your opinion, which stakeholder does an organization give more concern about their needs? Explain.

Title: Chapter 4 Test Bank, Question 73

Difficulty: Hard

Bloomcode: Analysis

Min: 5

AACSB: Ethics

Learning Objective: LO 4.2 Classify an organization’s stakeholders according to

their characteristics and importance.

Section Reference: Sec: 4.2 Stakeholder Characteristics and Importance

Solution: A dormant stakeholder has power to influence the organization but does not have the urgency or legitimacy. The discretionary stakeholder has legitimacy in its needs, but it does not have the power or urgency to influence the organization. The demanding stakeholder has urgency, but does not have the power for legitimacy to influence the organization. Depending on the student’s view of what is important, they could view any of these as the most important. They should state their case and be able to provide a reasonable argument as to why they feel power, urgency, or legitimacy is most influential.

74) Why would an organization be formed as a philanthropic enterprise? What is the intention of the individual(s) who form such a business?

Title: Chapter 4 Test Bank, Question 74

Difficulty: Medium

Bloomcode: Analysis

Min: 5

AACSB: Ethics

Learning Objective: LO 4.3 Compare the advantages/disadvantages of emerging business forms and models, such as B-Corporations and triple LLCs.

Section Reference: Sec: 4.3 Alternative Organizational Forms to Improve Stakeholder Management

Solution: An organization that wants to operate as a C-Corp when it comes to profits and size but also wants to give back for the greater good of all by providing 100 percent of the profits to charitable causes would have good reasons to form a philanthropic enterprise. There is usually a foundation that makes the business decisions, so there is no one person who is profiting from the business’s success. Instead, the more money the business makes, the more they can help charitable causes. The individual(s) that forms such a business is not out to make lots of money for himself or herself or for stockholders. They truly have an outward focus to help society, but the business must be successful to do meet such goals.

75) Discuss the stakeholder model and the difference between direct and indirect stakeholders. Why should organizations care about both indirect and direct stakeholders?

Title: Chapter 4 Test Bank, Question 75

Difficulty: Medium

Bloomcode: Analysis

Min: 5

AACSB: Ethics

Learning Objective: LO 4.1 Explain the difference between the shareholder primacy model and the stakeholder perspective.

Section Reference: Sec: 4.1 Shareholders Versus Stakeholders: For Whom Do Managers Manage?

Solution: The stakeholder model focuses on those that are impacted by a business’s operations and decisions. There are direct stakeholders, which are impacted more significantly and directly by the organization, and indirect stakeholders, which are generally less impacted by the organization. Direct stakeholders include customers, creditors, suppliers, and employees. Indirect stakeholders include the environment, community, society, and government. Organizations should care about direct and indirect stakeholders because they both can have different expectations and both can have positive or negative reactions to business decisions. Negative reactions could hurt the business in a number of ways.