Strategic Management and Business Policy

Strategic Management & Business Policy, 13e (Wheelen/Hunger)
Chapter 3 Ethics and Social Responsibility in Strategic Management
1) The theory of vital responsibility proposes that a private corporation has responsibilities to
society that extend beyond making a profit.
Answer: FALSE
Diff: 3 Page Ref: 72
Topic: Social Responsibilities of Strategic Decision Makers
AACSB: Ethical Reasoning
2) Friedman referred to the social responsibility of business as a "fundamentally subversive

doctrine."
Answer: TRUE
3) Archie Carroll contends that the primary goal of business is profit maximization.
Answer: FALSE
4) Archie Carroll proposes that managers in companies have only a discretionary responsibility.
Answer: FALSE
5) According to Carroll, legal responsibilities are defined by governments in laws that

management is expected to obey.
Answer: TRUE
6) The difference between ethical and discretionary responsibilities is that few people expect an
organization to fulfill ethical responsibilities.
Answer: FALSE
7) Discretionary responsibilities are voluntary obligations a corporation assumes.

Answer: TRUE
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8) Being known as a socially responsible firm may provide a company with social capital, the
goodwill of key stakeholders, that can be used for competitive advantage.
Answer: TRUE
9) A study concerning social responsibility indicates that socially-responsible firms are more
likely to be welcomed into another country.
Answer: TRUE
10) The broader concept of sustainability is closely aligned with Friedman's view of social
responsibility.
Answer: FALSE
11) Corporation stakeholders are all constituencies that are affected by the achievement of the
firm's objectives.
Answer: TRUE
12) In any one strategic decision, the interests of one stakeholder group can conflict with
another.
Answer: TRUE
13) The first step in stakeholder analysis is identifying those who have only an indirect stake in
the corporation.
Answer: FALSE
14) Primary stakeholders have a direct connection with the corporation and have sufficient
bargaining to directly affect corporate activities.
Answer: TRUE
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15) A company may have some stakeholders of which it is only marginally aware.
Answer: TRUE
16) There is no truth to the comment that "business ethics" is an oxymoron.

Answer: TRUE
Topic: Ethical Decision Making
17) Cultural norms and values can guide ethical behavior.

Answer: TRUE
18) "Let the buyer beware" is a traditional saying in free market capitalism.
Answer: TRUE
19) Relationship-based countries tend to be more transparent and have a lower degree of
corruption than do rule-based countries.
Answer: FALSE
20) Cultural relativism is reflected in the statement, "When in Rome, do as the Romans do."
Answer: FALSE
AACSB: Analytic Skills
21) Kohlberg's preconventional level is characterized by a person's adherence to an internal

moral code.
Answer: FALSE
22) Moral relativism could enable a person to justify almost any sort of decision or action, so
long as it is not declared illegal.
Answer: TRUE
AACSB: Reflective Thinking
3
23) According to Kohlberg's levels of moral development, the conventional level is characterized
by considerations of society's laws and norms.
Answer: TRUE
24) Kohlberg places 80 percent of U.S. adults in the principled level of development.
Answer: FALSE
25) A code of ethics denotes how employees should behave on the job.
Answer: TRUE
26) Research indicates that when faced with a question of ethics, managers tend to ignore codes
of ethics and try to solve their dilemma on their own.
Answer: TRUE
27) Law refers to formal codes that permit or forbid certain behaviors and may or may not
enforce ethics or morality.
Answer: TRUE
28) The justice approach to ethics proposes that actions and plans should be judged by their
consequences.
Answer: FALSE
29) A problem with the utilitarian approach to ethics is the difficulty in recognizing all the
benefits and the costs of any particular decision.
Answer: FALSE
4
30) The Golden Rule is the essence of one of Immanuel Kant's approaches to resolving ethical
dilemmas.
Answer: TRUE
31) The concept that proposes private corporations have responsibilities to society that extend
beyond making a profit is known as
A) flexible responsibility.
B) social responsibility.
C) social flexibility.
D) managerial responsibility.
E) Profit maximization
Answer: B
32) Which one of the following is NOT one of the arguments against social responsibility as
used by economist Milton Friedman?
A) Spending money for social responsibility is spending the stockholder's money for a general
social interest.
B) Businesses can actually do very little in terms of social responsibility.
C) Spending money on social responsibility is acting from motives other than economic and
may, in the long-run, cause harm to the very society the firm is trying to help.
D) 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.
E) Through taking on the burden of social costs, the organization becomes less efficient, causing
price increases or postponement of growth.
Answer: B
33) Who said that the social responsibility of business is a "fundamentally subversive doctrine"
and that the one social responsibility of business is "to use its resources and engage in activities
designed to increase its profits so long as it stays with the rules of the game..."?
A) Adam Smith
B) Edward Freeman
C) Archie Carroll
D) William C. Norris
E) Milton Friedman
Answer: E
5
34) Economist Milton Friedman has argued that a business's only responsibility is to
A) maximize profits and stay within the rules of the game.
B) sustain its market share.
C) promote the welfare of society.
D) satisfy its employees.
E) satisfy its customers.
Answer: A
35) According to Carroll, the responsibility that management of a business organization has to
produce goods and services of value to society so that the firm may repay its creditors and
stockholders is called
A) legal responsibilities.
B) ethical responsibilities.
C) financial responsibilities.
D) economic responsibilities.
E) discretionary responsibilities.
Answer: D
36) According to Carroll, the responsibilities defined by government in laws for management to
obey are
Answer: A
37) According to Carroll, the responsibility that management of a business organization assumes
which are purely voluntary obligations are
Answer: E
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38) The term "social responsibility" , according to Carroll, can be viewed as a combination of an
A) organization's ethical and discretionary responsibilities.
B) organization's legal and ethical responsibilities.
C) organization's economic and ethical responsibilities.
D) organization's financial and economic responsibilities.
E) organization's legal and discretionary responsibilities.
Answer: A
39) Carroll's four responsibilities listed in order of priority are

A) legal, economic, ethical, and discretionary.
B) legal, ethical, discretionary, and economic.
C) economic, legal, ethical, and discretionary.
D) economic, ethical, discretionary, and legal.
E) ethical, economic, legal, and discretionary.
Answer: C
40) Society generally expects firms to work with employees and the company to plan for layoffs.
This is an example of which of Carroll's responsibilities?
A) economic
B) legal
C) justice
D) ethical
E) discretionary
Answer: D
41) Providing day-care centers to employees is an example of which of Carroll's responsibilities?

A) economic
B) legal
C) justice
D) ethical
E) discretionary
Answer: E
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42) Friedman's position on social responsibility
A) proposes that a lack of social responsibility results in increased government regulations.
B) appears to be losing traction with business executives.
C) suggests that a lack of social responsibility reduces a firm's efficiency.
D) explains why firms are using their socially responsibility actions for competitive advantage.
E) mirrors Carroll's position.
Answer: B
43) As societal values evolve, it is likely that the _________ responsibilities of today may
become the _________ responsibilities to tomorrow.
A) economic; ethical.
B) legal; ethical.
C) discretionary; ethical.
D) discretionary; economic.
E) legal; discretionary.
Answer: C
44) Being socially responsibility

A) provides a company with a more positive overall reputation.
B) has opened doors in local communities.
C) has enhanced the company's reputation with consumers.
D) has resulted in cost savings to firms.
E) all of the above.
Answer: E
45) Which of the following is NOT one of the examples provided as an organizational benefit
received from being socially responsible?
A) They can attract outstanding employees who prefer working for a responsible firm.
B) They are more likely to be welcomed into a foreign country.
C) They are more likely to attract capital infusions from investors who view reputable companies
as desirable long-term investment.
D) They are guaranteed to maximize resource productivity and reduce the average payback
period of investment.
E) Their environmental concerns may enable them to charge premium prices and gain brand
loyalty.
Answer: D
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46) According to a recent Harris Poll what percentage of U.S. adults believe that U.S.
corporations owe something to their workers and the communities in which they operate and that
they should sometimes sacrifice some profit for making things better for their workers and
communities?
A) 95%
B) 5%
C) 50%
D) 75 %
E) 25%
Answer: A
47) In order for a business to be sustainable, it must satisfy which of Carroll's responsibilities?
A) economic
B) legal
C) ethical
D) discretionary
E) all of the above
Answer: E
48) The Dow Jones Sustainability Index includes

A) environmental, economic, and quality sustainability.
B) industry, environmental, and economic sustainability.
C) environmental, economic, and social sustainability.
D) ethical, economic, and social sustainability.
E) environmental, ethical, and quality sustainability.
Answer: C
49) The first step in stakeholder analysis is to

A) identify primary stakeholders.
B) monitor what all the stakeholders want.
C) identify the stakeholders with an indirect stake in the corporation.
D) estimate the effect on each stakeholder group from any particular strategic decision.
E) identify the influence of each stakeholder group.
Answer: A
9
50) All of the following are considered primary stakeholders EXCEPT
A) customers.
B) governments.
C) employees.
D) shareholders.
E) creditors.
Answer: B
51) All of the following are considered secondary stakeholders EXCEPT

A) governments.
B) competitors.
C) suppliers.
D) trade associations.
E) activists.
Answer: C
52) Which of the following statements is true concerning secondary stakeholders?

A) Secondary stakeholders are those who have only an indirect stake in the corporation, but who
are affected by corporate activities.
B) Secondary stakeholders usually include non-governmental organizations (like Greenpeace)
and trade associations.
C) Because the corporation's relationship with each of these stakeholders is usually not covered
by any written or verbal agreement, there is room for misunderstanding.
D) Aside from competitors, secondary stakeholders are not usually monitored by the corporation
in any systematic fashion.
E) all of the above
Answer: E
53) Which of the following companies was cited by the text as an example of a company which
does its best to consider its responsibilities to its primary and secondary stakeholders when
making strategic decisions?
A) McDonald's
B) Johnson & Johnson
C) Maytag
D) Microsoft
E) Enron
Answer: B
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54) The Ethics Resource Center found that the percentage of employees who had engaged in one
or more unethical and/or illegal actions during the past year was
A) less than 1%.
B) 21%.
C) 48%.
D) 76%.
E) over 98%.
Answer: C
55) According to a survey by the Ethics Resource Center, which was not cited as one of the most
common questionable behaviors that employees engage in?
A) cutting corners on quality
B) covering up incidents
C) abusing or lying about sick days
D) surfing the web on company time
E) lying to or deceiving customers
Answer: D
56) As opposed to rule-based countries, relationship-based countries tend to

A) be more transparent and have a higher degree of corruption.
B) be more transparent and have a lower degree of corruption.
C) be less transparent and have a lower degree of corruption.
D) be less transparent and have a higher degree of corruption.
E) have the same transparency and same degree of corruption.
Answer: D
57) Of the six values measured by the Allpot-Vernon-Lindzey Study of Values test, both U.S.
and British executives consistently score highest on ________ values and lowest on ________
values.
A) religious and theoretical; economic and social
B) religious and economic; political and social
C) economic and political; social and religious
D) social and religious; aesthetic and political
E) religious; economic
Answer: C
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58) Rule-based governance
A) is generally found in developing nations.
B) relies on publicly verifiable information.
C) relies on implicit agreement.
D) is inherently nontransparent.
E) requires an investment in time and money to build relationships.
Answer: B
59) Which of the following is one of the most common reasons given by surveyed executives for
bending the rules to attain their objectives?
A) organizational performance required it
B) rules were ambiguous or out of date
C) everyone does it
D) pressure from others
E) all of the above
Answer: E
60) Vice President Sherron Watkins used the ________ analogy to explain why executives at
Enron engaged in unethical and illegal actions.
A) borrowing earnings
B) Napoleon complex
C) Moral relativism
D) Frogs in boiling water
E) all of the above
Answer: D
61) Some people claim that morality is relative to some personal, social, or cultural standard and
that there is no method for deciding whether one decision is better than another. This is called
A) ethical relativity.
B) moral philosophy.
C) comparative ethics.
D) cultural imperialism.
E) moral relativism.
Answer: E
12
62) All of the following reasons provide rationale for unethical behavior EXCEPT
A) the impact of cultural norms and values.
B) differences in values between business people and key stakeholders.
C) ambiguous rules.
D) agreement among stakeholders and business people about what is ethical.
E) difficulty of one group to understand another's actions.
Answer: D
Diff: 3 Page Ref: 79-80
63) All of the following are one of the four types of moral relativism EXCEPT
A) naive relativism.
B) principled relativism.
C) role relativism.
D) social group relativism.
E) cultural relativism.
Answer: B
64) Role relativism is based on the belief that

A) morality is relative to a particular culture.
B) all moral decisions are deeply personal and each person should be allowed to interpret
situations and act on his own moral values
C) social roles carry with them certain obligations.
D) morality is simply a matter of following the norms of an individual's peer group.
E) a decision is legitimate if it is common practice.
Answer: C
65) "When in Rome, do as the Romans do" reflects which type of moral relativism?
A) naive relativism
B) role relativism
C) principled relativism
D) cultural relativism
E) social group relativism
Answer: D
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66) Blindly following orders reflects which type of moral relativism?
A) naive relativism
B) role relativism
C) principled relativism
D) cultural relativism
E) social group relativism
Answer: B
67) According to Kohlberg, the first level of moral development, characterized by concern for
self, is called
A) principled.
B) conventional.
C) essential.
D) preconventional.
E) fundamental.
Answer: D
68) According to Kohlberg, the second level of moral development, characterized by

considerations of society's laws and norms, is called
A) principled.
B) conventional.
C) essential.
D) preconventional.
E) fundamental.
Answer: B
69) According to Kohlberg, the third level of moral development, characterized by a person's
adherence to an internal moral code, is called
A) principled.
B) conventional.
C) essential.
D) preconventional.
E) fundamental.
Answer: A
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70) According to Kohlberg, in what stage of moral development do the majority of people in the
U.S. occupy?
A) principled stage
B) conventional stage
C) essential stage
D) preconventional stage
E) fundamental stage
Answer: B
71) A code of ethics was important for two reasons. The first reason is that it clarifies company
expectations of employee conduct in various situations, and the second reason is
A) to reduce the burden on the judicial system.
B) that it makes clear that the company expects its people to recognize the ethical dimensions in
decision and actions.
C) to promote a high level of societal norms.
D) that it encourages individuals to strive for good citizenship and corporations to contribute
positively to society.
E) that it minimizes the possibility of mandatory regulations.
Answer: B
72) Managers who want to improve ethical behavior should take actions such as
A) communicate the code of ethics in training programs.
B) emphasize the code of ethics in performance appraisal systems.
C) follow a code of ethical behavior themselves.
D) communicate the code of ethics in policies and procedures.
E) all of the above
Answer: E
73) Specific changes reported by CEOs in a survey by the Business Roundtable Institute for
Corporate Ethics included all of the following EXCEPT
A) enhanced internal reporting and communications.
B) ethics hotlines.
C) improved compliance procedures.
D) decreased number of whistleblowers.
E) greater oversight by the board of directors.
Answer: D
15
74) Ethics is defined as
A) formal codes that permit or forbid certain behaviors.
B) a general rule of conduct of personal behavior, based on religious or philosophical grounds.
C) consensually accepted standards of behavior for an occupation, trade, or profession.
D) imposing one's morality upon another.
E) voluntary obligations assumed by an individual or organization.
Answer: C
75) Employees who report illegal or unethical behavior on the part of others are known as
A) stakeholders.
B) whistleblowers.
C) moral relativists.
D) retaliators.
E) outside directors.
Answer: B
76) Which company cancelled contracts with 23 factories that did not meet its child-labor
standards for suppliers?
A) Levi Strauss
B) Gap International
C) Motorola
D) Enron
E) Johnson & Johnson
Answer: B
77) Morality is defined as

Answer: B
16
78) Law is defined as
Answer: A
79) The approach to ethical behavior which proposes that actions and plans should be judged by
their consequences, thus producing the greatest benefit to society with the least harm or the
lowest cost is called
A) individual rights approach.
B) mercantilism approach.
C) utilitarian approach.
D) justice approach.
E) moral imperialism approach.
Answer: C
80) The approach to ethical behavior which proposes that human beings have certain
fundamental rights that should be respected in all decisions, thus avoiding interfering with the
rights of others is called
Answer: A
81) According to the utilitarian approach, the ability to affect the company is known as
A) power.
B) legitimacy.
C) urgency.
D) stability.
E) utility.
Answer: A
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82) According to the utilitarian approach, legal or moral claim on company resources can stand
for
A) power.
B) legitimacy.
C) urgency.
D) utility.
E) stability.
Answer: B
83) The approach to ethical behavior which proposes that decision makers be equitable, fair, and
impartial in the distribution of costs and benefits to individuals and groups is called
Answer: D
84) A problem with the utilitarian approach is

A) that it assumes all countries subscribe to the same definition of "fundamental rights."
B) that it imposes a set of mandatory values and behaviors on all entities in society.
C) that it encourages selfish behavior.
D) that it imposes one's morality upon others and judges them by standards they may or may not
accept.
E) that it is difficult to recognize all the benefits and costs of any particular decision.
Answer: E
85) Which approach to ethical behavior can encourage selfish behavior when a person defines a
personal need or want as a "right"?
A) utilitarian
B) individual rights
C) justice approach
D) categorical imperative
E) moral relativism
Answer: B
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86) People who are similar on relevant dimensions such as job seniority should be treated in the
same way, is an example of
A) compensatory justice.
B) retributive justice.
C) relevant justice.
D) distributive justice.
E) punitive justice.
Answer: D
87) The principle which proposes that punishment should be determined on a proportional basis
to the "crime" is called
Answer: B
88) The principle which argues that wrongs should be compensated in proportion to the offense
suffered is called
Answer: A
89) Issues in affirmative action such as reverse discrimination are examples of conflicts between
A) compensatory and punitive justice.
B) retributive and distributive justice.
C) distributive and compensatory justice.
D) retributive and compensatory justice.
E) punitive and retributive justice.
Answer: C
19
90) According to Cavanagh, using the ________ criterion, to determine if padding an expense
account is ethical or not one would ask if it optimizes the satisfactions of all stakeholders.
A) morality
B) utility
C) rights
D) justice
E) relativism
Answer: B
91) Using the Golden Rule and never treating another human being simply as a means but
always as an end are the categorical imperatives of
A) Archie Carroll.
B) L. Kohlberg.
C) Joseph Badaracco.
D) Immanuel Kant.
E) Milton Friedman.
Answer: D
92) Explain the difference between Milton Friedman's and Archie Carroll's approaches to the
responsibilities of business.
Answer: Both Milton Friedman and Archie Carroll argue their positions based on the impact of
socially responsible actions on a firm's profits. Friedman says that socially responsible actions
hurt a firm's efficiency. Carroll proposes that a lack of social responsibility results in increased
government regulations, which reduce a firm's efficiency. Friedman argues that profit
maximization is the firm's primary responsibility. Carroll argues that firms have economic,
legal, ethical, and discretionary responsibilities.
93) What is stakeholder analysis? List the three-step process.

Answer: Stakeholder analysis is the identification and evaluation of corporate stakeholders. The
first step of the process is to identify the primary stakeholders (those who have a direct
connection with the corporation and who have sufficient bargaining power to directly affect
corporate activities). The second step is to identify the secondary stakeholders (those who have
only an indirect stake in the corporation, but who are also affected by corporate activities). The
third step is to estimate the effect on each stakeholder group from any particular strategic
decision.
20
94) Discuss some reasons for unethical behavior by business people.
Answer: There are a number of reasons proposed for the unethical behavior by business people.
It may be that the involved people are not even aware that they are doing something
questionable. There is no worldwide standard of conduct for business people. Cultural norms
and values vary between countries and even between different geographic regions and ethnic
groups within a country.
Another possible reason for what is often perceived to be unethical behavior lies in differences in
values between business people and key stakeholders. Some business people may believe profit
maximization is the key goal of their firm, whereas concerned interest groups may have other
priorities. This difference in values can make it difficult for one group of people to understand
another's actions.
95) What is moral relativism?

Answer: Moral relativism claims that morality is relative to some personal, social, or cultural
standard and that there is no method for deciding whether one decision is better than another.
Moral relativism could enable a person to justify almost any sort of decision or action, so long as
it is not declared illegal.
96) Discuss Kohlberg's levels of moral development.

Answer: Kohlberg proposes that a person progresses through three levels of moral development.
The first level is preconventional. This level is characterized by a concern for self. The second
level is the conventional which is characterized by consideration of society's laws and norms.
The principled level is the third. This level is characterized by a person's adherence to an
internal moral code. The individual at this level looks beyond norms or laws to find universal
values or principles.
97) Discuss the three basic approaches to ethical behavior.

Answer: The three basic approaches to ethical behavior are the utilitarian approach, the
individual rights approach, and the justice approach. The utilitarian approach proposes that
actions and plans should be judged by their consequences. People should therefore behave in
such a way that will produce the greatest benefit to society and produce the least harm or the
lowest cost. The individual rights approach proposes that human beings have certain
fundamental rights that should be respected in all decisions. The justice approach proposes that
decision makers be equitable, fair, and impartial in the distribution of costs and benefits to
individuals and groups.
21

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Strategic Management & Business Policy, 13e (Wheelen/Hunger)

Chapter 3 Ethics and Social Responsibility in Strategic Management

2) Friedman referred to the social responsibility of business as a "fundamentally subversive

5) According to Carroll, legal responsibilities are defined by governments in laws that

7) Discretionary responsibilities are voluntary obligations a corporation assumes.

16) There is no truth to the comment that "business ethics" is an oxymoron.

17) Cultural norms and values can guide ethical behavior.

21) Kohlberg's preconventional level is characterized by a person's adherence to an internal

39) Carroll's four responsibilities listed in order of priority are

41) Providing day-care centers to employees is an example of which of Carroll's responsibilities?

44) Being socially responsibility

48) The Dow Jones Sustainability Index includes

49) The first step in stakeholder analysis is to

51) All of the following are considered secondary stakeholders EXCEPT

52) Which of the following statements is true concerning secondary stakeholders?

56) As opposed to rule-based countries, relationship-based countries tend to

64) Role relativism is based on the belief that

68) According to Kohlberg, the second level of moral development, characterized by

77) Morality is defined as

84) A problem with the utilitarian approach is

93) What is stakeholder analysis? List the three-step process.

95) What is moral relativism?

96) Discuss Kohlberg's levels of moral development.

97) Discuss the three basic approaches to ethical behavior.

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