Deck 6: Who Owns the Corporation?

Question 1

Which case lays the legal foundation for the belief in the primacy of shareholder interests?

A)Miller v.Magline,Inc.
B)SEC v.Transamerica Corporation
C)Dodge v.Ford Motor Corporation
D)Levin v.Mississippi River Corporation

Answer 1

C

Question 2

The Dodge v.Ford case has often been used as the legal foundation for the belief that

A)the firm must place the interests of its shareholders over all other interests.
B)the firm must operate in the interests of all stakeholders.
C)the firm must place the interests of its managers over all other interests.
D)management has very little responsibility to shareholders in day-to-day operations.

Answer 2

A

Question 3

Which of the following does strategic CSR emphasize?

A)Short-term value creation
B)Meeting the needs of all stakeholders
C)Medium to long-term value creation
D)Meeting the needs of primary stakeholders

Answer 3

C

Question 4

As the CEO of a publicly traded company,you decide your firm will no longer issue quarterly earnings reports to shareholders.A legitimate reason for your decision is

A)to emphasize the importance of medium- to long-term value creation.
B)to emphasize the importance of short-term financial strategies.
C)to encourage investors to buy stock in your company.
D)to discourage investors from buying stock in your company.

Question 5

The fact that shareholders have the right to vote at the company's annual general meeting demonstrates that

A)shareholders can influence day-to-day operations of the firm.
B)shareholder democracy is neither strong nor broad.
C)shareholders have direct input on all interests of shareholders.
D)boards of directors will respond to shareholder concerns.

Question 6

An analysis of the history of the corporation,a review of existing legislation,and legal precedent all support to the conclusion that

A)shareholders do not own the firm.
B)shareholders are the owners of the firm.
C)shareholders have the same power as managers of the firm.
D)shareholders must respect the rights of all stakeholders.

Question 7

The Dodge brothers sued Henry Ford because of his decision to

A)pay factory workers a living wage.
B)distribute surplus profit to shareholders in the form of a dividend.
C)reinvest profits in research and development rather than in shareholder dividends.
D)distribute surplus profit to customers in the form of lower prices for cars.

Question 8

The ________ is the notion that shareholders cannot second-guess management decisions.

A)management responsibility doctrine
B)business judgment rule
C)board of directors supremacy
D)limited liability corporation

Question 9

The regular issuance of quarterly earnings reports to shareholders illustrates which of the following?

A)The long-term nature of investing for retirement
B)The importance of stakeholder interests over shareholder interests
C)The growing importance of CSR in business decisions
D)The short-term focus of the economic system

Question 10

The great value of ________ is that it enabled corporations to raise the capital that was needed to finance the infrastructure that fueled the Industrial Revolution.

A)limited liability
B)the stock market
C)centralized management
D)high-frequency stock trades

Question 11

An advantage of the limited liability company (LLC)is that the organization is

A)recognized as an independent entity in the eyes of the law.
B)not recognized as a legal person and therefore cannot be sued.
C)provided tax-exempt status.
D)not liable for its own debts.

Question 12

The combination of high-frequency trading and massive investment funds holding large,but passive,positions is redefining what it means to be a ________.

A)stockbroker
B)manager
C)director
D)shareholder

Question 13

In the early history of corporations,what was the primary purpose of shares?

A)To raise capital and provide a return on that investment
B)To encourage innovation
C)To allow outsiders to control a corporation's major decisions
D)To implement social good by a corporation

Question 14

According to the textbook,the statement,"Shareholders are the owners of corporations" is a ________,not a ________.

A)legal fact; belief
B)belief; legal fact
C)legal fact; principle
D)principle; theory

Question 15

Which of the following is true about shareholders?

A)Shareholders fully own a corporation.
B)Shareholders have a right of possession of a corporation.
C)Shareholder ownership is a social construction.
D)Shareholders have the right of control over a corporation.

Question 16

There is ________ legal precedent for the idea that managers and directors have a fiduciary responsibility to place shareholder interests over the interests of other stakeholders.

A)no
B)weak
C)strong
D)irrefutable

Question 17

For which of the following events would a court intervene in a firm's activities?

A)A management decision to not insure a company's largest warehouse.
B)A management decision to deceive customers about the negative effects of the company's products.
C)A management decision to not invest in eco-friendly materials because they are less profitable.
D)A management decision to not give raises to employees who have been at the company for more than 15 years.

Question 18

The business judgment rule is important because it reflects the principle that ________,not _________,have the greatest latitude to run companies.

A)shareholders; company directors
B)company directors; shareholders
C)managers; company directors
D)shareholders; managers

Question 19

How did the introduction of limited liability for firms change the focus of firms?

A)Profit became the primary purpose.
B)Social good became the primary purpose.
C)Innovation becamse the primary purpose.
D)The introduction of limited liability did not change firms' focus.

Question 20

To encourage long-term thinking across all aspects of operations,firms like Unilever

A)began issuing quarterly earnings guidance.
B)stopped issuing quarterly earnings guidance.
C)began issuing monthly earnings reports.
D)stopped issuing annual earnings reports.

Question 21

Carl Icahn,a major institutional investor who has had public battles with the management of firms such as Netflix and Apple,is considered which type of activist investor?

A)Impact activist
B)Professional activist
C)Social activist
D)Takeover activist

Question 22

The ________ benefits of socially responsive investing mean that such investments can affect the investor's feelings.

A)utilitarian
B)expressive
C)emotional
D)social Impact

Question 23

How has the definition of what it means to be a shareholder changed over the history of the corporation?

Question 24

The textbook identifies which of the following as a factor driving the professionalization of the socially responsible investing (SRI)industry?

A)The 2015 publication of the United Nations' Principles for Responsible Investment (UNPRI)
B)The 1919 Michigan Supreme Court decision in Dodge v.Ford Motor Co.
C)The 1880 New Hampshire Supreme Court decision in Charlestown Boot & Shoe Co.v.Dunsmore
D)The growth of exchange-traded funds (ETFs)

Question 25

Which of the following is an example of a program that would be a good fit for social impact bonds (SIBs)?

A)Promoting high school graduation
B)Supporting healthful lifestyle choices
C)Reducing prisoner recidivism
D)All of the above are examples.

Question 26

Analyze the following statement: "Shareholder ownership of firms is a social construction." What does this statement mean,and what are the implications for CSR?

Question 27

Why is the question of ownership central to the CSR debate? In your answer,provide specific examples of how ownership impacts CSR issues.

Question 28

Existing securities are traded on the primary market.

Question 29

A limited liability company is,in the eyes of the law,a person.

Question 30

Shareholders definitively own the corporation in which they invest.

Question 31

Social impact bonds (SIBs)are designed to

A)allow investors to invest in congruence with their religious faiths and beliefs.
B)allow investors to invest in environmentally responsible companies.
C)shift the risk of social program successes or failures from taxpayers to private investors.
D)allow investors to divest from companies that are not socially responsible.

Question 32

Values-based investing,which in its broadest definition includes making investments along religious faiths and beliefs,has existed since which century?

A)1500s
B)1600s
C)1700s
D)1800s

Question 33

The mutual fund industry began offering socially responsible investing (SRI)products in which decade?

A)1930s
B)1950s
C)1970s
D)1990s

Question 34

The 1880 New Hampshire Supreme Court decision in Charlestown Boot & Shoe Co.v.Dunsmore set a legal precedent for

A)stakeholder theory.
B)the business judgment rule.
C)shareholder autonomy.
D)limited liability.

Question 35

The textbook identifies which of the following as a factor driving the professionalization of the socially responsible investing (SRI)industry?

A)A commitment to a market return on investment
B)Strong evidence that SRI funds advance the causes in which investors believe
C)A growing number of investors who are concerned about the natural environment
D)Increased religiosity of investors

Question 36

US courts often intervene in the business decisions of a firm to ensure that the firm is both maximizing profits and doing social good.

Question 37

A share is a legal contract between the investor and the firm.

Question 38

In the event that a shareholder resolution is passed by a majority at a company's annual general meeting (AGM),in most cases the company is obliged to

A)take action immediately.
B)create a plan for implementation of the idea and present it to shareholders.
C)consider the proposal at its next board meeting.
D)do nothing.

Question 39

Would you think twice about investing in a "sin fund" if historical returns showed greater growth potential than SRI funds? What is the justification for your decision?

Question 40

Since their inception in the United States,corporations have all been limited liability.

Question 41

Would you invest in social impact bonds (SIBs)? Why or why not?