Crafting and Executing Strategy Concepts and Cases The Quest For Competitive Advantage 21st Edition Thompson Test Bank

Chapter 09 Ethics, Corporate Social Responsibility, Environmental
Sustainability, and Strategy Answer Key
Multiple Choice Questions
1. Ethical principles in business
A. are generally less stringent than the ethical principles for society at large.
B. are generally more stringent than the ethical principles for society at large.
C. are not materially different from ethical principles in general.
D. concern the rules each company's top management and board of directors make about "what is right"
and "what is wrong."
E. deal chiefly with the actions and behaviors required to operate companies in a socially responsible
manner.
Ethical principles in business are not materially different from ethical principles in general. Business
ethics is the application of ethical principles and standards to the actions and decisions of business
organizations and the conduct of their personnel.
AACSB: Ethics
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-01 How the standards of ethical behavior in business are no different from the ethical standards and norms of the
larger society and culture in which a company operates.
Topic: Ethical behavior
2. How do ethical principles apply to businesses?
A. They chiefly deal with the actions and behaviors required to operate companies in a socially
responsible manner.
B. They chiefly deal with the rules each company's top management and board of directors make about
"what is right" and "what is wrong."
C. They are not materially different from ethical principles in general.
D. They are generally less stringent than the ethical principles for society at large.
E. They are generally more stringent than the ethical principles for society at large.
Ethical principles in business are not materially different from ethical principles in general—business
actions have to be judged in the context of society's standards of right and wrong, not with respect to a
special set of ethical standards applicable only to business situations.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
9-1
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3. Ethical principles as they apply to the conduct of personnel and business decisions
A. deal chiefly with standards a company has about what is right and wrong insofar as the conduct of
its business is concerned and about what behaviors are expected of company personnel.
B. deal chiefly with the behaviors that a company's board of directors expects of all company personnel
in both their conduct on the job and off the job.
C. involve the rules a company's top management and board of directors make about "what is right"
D. deal primarily with the company's duty to comply with legal requirements and conform to ethical
norms of society, in general.
E. are generally less stringent than the ethical principles for society at large because it is well
understood that businesses should not be expected to operate any differently than what the law
requires of them.
Ethical principles in business are not materially different from ethical principles in general—business
actions have to be judged in the context of society's standards of right and wrong, not with respect to a
special set of ethical standards applicable only to business situations.
AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
4. Although exposing children to hazardous work and long work hours is unquestionably deplorable,
which of the following, if true, leads to a moral dilemma?
A. Use of adult workers instead leads to higher labor costs.

B. Children are not as efficient as adults in doing physically demanding work.
C. Many child laborers come from poverty-stricken families.
D. Banning child labor increases school attendance.
E. Working children learn independence.
Although exposing children to hazardous work and long work hours is unquestionably deplorable, the
fact remains that poverty-stricken families in many poor countries cannot subsist without the work
efforts of young family members; sending their children to school instead of having them work is not a
realistic option. If such children are not permitted to work (especially those in the 12-to-17 age
group)—due to pressures imposed by activist groups in industrialized nations—they may be forced to
go out on the streets begging or to seek work in parts of the "underground" economy such as drug
trafficking and prostitution.
AACSB: Analytical Thinking

AACSB: Ethics
Blooms: Apply
Learning Objective: 09-02 What drives unethical business strategies and behavior.
Topic: Ethical climate
9-2
5. The results of strategies that cannot pass the test of moral scrutiny often are NOT manifested in
A. sharp drops in stock prices and lower dividends.

B. devastating public relations hits.
C. sizable fines.
D. criminal indictment and convictions of company executives.
E. increased customer loyalty.
Shareholders suffer major damage when a company's unethical behavior is discovered and punished.
Making amends for unethical business conduct is costly, and it takes years to rehabilitate a tarnished
company reputation.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Topic: Code of ethics
6. The contentions that (1) many of the same standards of what's ethical and what's unethical resonate with
peoples of most societies regardless of local traditions and cultural norms and (2) to the extent there is
common moral agreement about right and wrong actions, common ethical standards can be used to
judge the conduct of personnel at companies operating in a variety of country markets and cultural
circumstances, are defining beliefs of which of the following?
A. the school of ethical relativism but not the school of ethical universalism
B. the school of ethical universalism but not the school of ethical relativism
C. integrative social contracts theory but not the school of ethical universalism
D. the school of ethical relativism and the school of ethical universalism
E. the school of ethical relativism but not integrative social contracts theory
According to the school of ethical universalism, the most fundamental conceptions of right and wrong
are universal and transcend culture, society, and religion. Common moral agreement about right and
wrong actions and behaviors across multiple cultures and countries gives rise to universal ethical
standards that apply to members of all societies, all companies, and all businesspeople.
AACSB: Ethics
Blooms: Remember
9-3
7. The school of ethical universalism holds that
A. concepts of right and wrong are not absolute and leave room for deviation from country to country
or circumstance to circumstance.
B. concepts of right and wrong are universal within countries but not across countries and cultures.
C. concepts of right and wrong are governed by the Global Code of Ethical and Social Morality.
D. the most fundamental conceptions of right and wrong are universal and apply to members of all
societies, all companies, and all businesspeople.
E. there are multiple sets of standards concerning what is ethically right or wrong that are universally
applicable to citizens of a country.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
8. According to the school of ethical universalism
A. concepts of what constitute ethical behavior and unethical behavior are dictated by subjectively
provable moral principles but not by objectively provable moral principles.
B. concepts of right and wrong are universal within countries/societies but not across countries or
cultures.
C. concepts of what is ethical and what is unethical are socially determined, leaving room for variation
from country to country or circumstance to circumstance.
D. to the extent there is common moral agreement about right and wrong actions and behaviors across
multiple cultures and countries, there exists a set of universal ethical standards to which all societies
and all individuals can be held accountable.
E. all societies and countries are obligated to apply universally defined ethical principles of right and
wrong as set forth by a global body that formulates the Code of Ethical Behavior for the world.
AACSB: Ethics
Blooms: Remember
9-4
9. Which of the following is true of the school of ethical universalism?
A. They are ethical principles that set forth the traits and behaviors considered virtuous and that a good
person is supposed to believe in and display.
B. They are ethical principles embodied in international law that all societies and countries are obliged
practice.
C. All societies and countries apply essentially the very same set of universally defined ethical
principles of right and wrong in judging the ethical correctness of business behavior.
D. It is mandatory that the standards of what's ethical and what's unethical be applied universally to all
businesses in all countries irrespective of local business traditions and local business norms.
E. The standards of what constitutes ethical and unethical behavior in business situations are partly
universal, but in the main are governed by local business norms.
Common moral agreement about right and wrong actions and behaviors across multiple cultures and
countries gives rise to universal ethical standards that apply to members of all societies, all companies,
and all businesspeople. Thus, adherents of the school of ethical universalism maintain that it is entirely
appropriate to expect all businesspeople to conform to these universal ethical standards.
AACSB: Ethics
Blooms: Understand
10. If one concurs with the school of ethical universalism, then one believes that
A. many basic moral standards travel well across cultures and countries and really do not vary
significantly according to local cultural beliefs, social mores, religious convictions, and/or the
circumstances of the situation.
B. since ethical standards are subjectively determined, each company has a window within which it can
define and implement its own ethical principles of right and wrong.
C. what is deemed right or wrong, fair or unfair, moral or immoral, ethical or unethical in business
situations should be judged in light of local customs and social mores and can legitimately vary
from one culture or nation to another.
D. each country should have some degree of latitude in setting its own ethical standards for judging the
ethical correctness of business actions/behaviors within its borders.
E. concepts of right and wrong as they apply to business behavior are purely based on an individual's
understanding of ethics and differ from person to person.
The strength of ethical universalism is that it draws upon the collective views of multiple societies and
cultures to put some clear boundaries on what constitutes ethical and unethical business behavior,
regardless of the country or culture in which a company's personnel are conducting activities.
AACSB: Ethics
Blooms: Understand
9-5
11. The strength of the beliefs underlying ethical universalism is that
A. ethical universalism recognizes significant variation in basic moral standards according to local
cultural beliefs, local religious beliefs, and social mores.
B. ethical standards are objectively determined by religious and moral experts.
C. what is deemed right or wrong, fair or unfair, moral or immoral, ethical or unethical is (or should
be) grounded in religious doctrine and applied strictly to all business situations.
D. it draws upon the collective views of multiple societies and cultures to put some clear boundaries on
what constitutes ethical business behavior and what constitutes unethical business behavior no
matter what country or culture a company is operating in.
E. it leaves room for thinking that concepts of right and wrong can be varying shades of gray.
With respect to basic moral standards that do not vary significantly according to local cultural beliefs,
traditions, or religious convictions, a multinational company can develop a code of ethics that it applies
more or less evenly across its worldwide operations. It can avoid the slippery slope that comes from
having different ethical standards for different company personnel depending on where in the world
they are working.
AACSB: Ethics
Blooms: Understand
12. The contention that since there are cross-country or cross-cultural differences in ethical standards, it is
appropriate to judge behavior as ethical/unethical in the light of local customs and social mores should
take precedence over a single set of ethical standards or what may be applicable in a company's home
market
A. defines what is meant by ethical relativism.

B. defines what is meant by ethical universalism.
C. is the foundation of a social contract.
D. is the basis for the theory of ethical variation.
E. is the guiding principle for religious and moral standards across countries and cultures.
There are also observable variations from one society to another as to what constitutes ethical or
unethical behavior. Differing religious beliefs, social customs, traditions, core values, and behavioral
norms frequently give rise to different standards about what is fair or unfair, moral or immoral, and
ethically right or wrong.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
9-6
13. The school of ethical relativism holds that
A. what constitutes ethical or unethical conduct should be determined by the religious convictions of
each society or each culture within a country.
B. when there are cross-country or cross-cultural differences in what is deemed ethical or unethical in
business situations, it is appropriate for local moral standards to take precedence over what the
ethical standards may be elsewhere.
C. concepts of right and wrong are always governed by business norms in each country, culture, or
society.
D. concepts of right and wrong are always a function of each individual's own set of values, beliefs,
and ethical convictions.
E. concepts of right and wrong as they apply to business behavior are always absolute and usually
more stringent than universal ethical principles.
The school of ethical relativism holds that differing religious beliefs, customs, and behavioral norms
across countries and cultures give rise to multiple sets of standards concerning what is ethically right or
wrong. These differing standards mean that whether business-related actions are right or wrong depends
on the prevailing local ethical standards.
AACSB: Ethics
Blooms: Remember
14. Which of the following is true of ethical relativism?
A. Concepts of ethically right and ethically wrong are relative across countries and cultures but are
universal within countries or cultures.
B. Individuals and businesses have a basic right to "moral free space" and it is inappropriate to specify
ethically permissible and ethically impermissible actions and behaviors.
C. There are important occasions when local cultural norms and morality and the circumstances of the
situation determine whether certain behaviors are right or wrong, for there are no absolutes when it
comes to business ethics.
D. Concepts of right and wrong as applied to business situations are always a function of each
company's own set of values, beliefs, and ethical convictions (as stated in the company's code of
ethical conduct).
E. Standards of what is ethically right and ethically wrong as applied to business behavior are
determined solely by whatever business norms prevail in a particular company's home country and
are applicable to its operations in all other countries.
Ethical relativism implies that when there are cross-country or cross-cultural differences in ethical
standards, it is appropriate for local ethical standards to take precedence over what the ethical standards
may be in a company's home market. In a world of ethical relativism, there are few absolutes when it
comes to business ethics, and thus few ethical absolutes for consistently judging the ethical correctness
of a company's conduct in various countries and markets.
AACSB: Ethics
Blooms: Remember
9-7
15. If one accepts the tenets of the school of ethical relativism, then which of the following is NOT true?
A. There are multiple sets of ethical standards rather than a single universal set.
B. At least some ethical standards are governed by local norms, religious doctrines, and social customs
rather than by absolute standards of right and wrong.
C. What constitutes ethical or unethical behavior on the part of businesses must in some cases be
judged in the light of local customs and social mores.
D. It is inappropriate to hold businesses accountable for observing a universal set of ethical standards.
E. Ethical standards for businesses are established on the basis of conceptions of right and wrong that
apply to all businesses.
The school of ethical relativism holds that differing religious beliefs, customs, and behavioral norms
across countries and cultures give rise to multiple sets of standards concerning what is ethically right or
wrong. These differing standards mean that whether business-related actions are right or wrong depends
on the prevailing local ethical standards, but not on a largely formed corporate code of ethics.
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
16. Which of the following statements about the ethical relativism school of thinking is FALSE?
A. In a multinational company, application of ethical relativism equates to multiple sets of ethical

standards.
B. There are few absolutes when it comes to business ethics and thus few ethical absolutes for
consistently judging a company's conduct in various countries and markets.
C. When there are cross-country or cross-cultural differences in ethical standards, it is appropriate for
ethical standards in a company's home market to take precedence over what the local ethical
standards may be.
D. A company that adopts the principle of ethical relativism and holds company personnel to local
ethical standards necessarily assumes that what prevails as local morality is an adequate guide to
ethical behavior.
E. According to the ethical relativism school of thinking, a "one-size-fits-all" template for judging the
ethical appropriateness of business actions and the behaviors of company personnel does not exist.
The underlying thesis of ethical relativism is that whether certain actions or behaviors are ethically right
or wrong depends on the ethical norms of the country or culture in which they take place. For
businesses, this implies that when there are cross-country or cross-cultural differences in ethical
may be in a company's home market.
AACSB: Ethics
Blooms: Understand
9-8
17. According to the advocates of ethical relativism,
A. if the use of underage labor and/or the payment of bribes/kickbacks are acceptable in a particular
culture/society/country, then a case can be made that it is morally correct and ethical for a company
to use these practices in conducting its business activities in that culture/society/country.
B. each company should have the flexibility to set its own standards for deciding whether the use of
underage labor and/or the payment of bribes/kickbacks are ethically acceptable or not.
C. if the use of underage labor and/or the payment of bribes/kickbacks are not legal but locally
acceptable in a particular country, then it is morally correct and ethical for a company to use these
practices in that country.
D. each industry should go by standards established by competitors for deciding whether the use of
underage labor and/or the payment of bribes/kickbacks are ethically acceptable or not.
E. it is very clear that the use of underage labor or the payment of bribes and kickbacks are ethically
impermissible—local customs, behavioral norms, and traditions absolutely cannot be taken into
account.
The underlying thesis of ethical relativism is that whether certain actions or behaviors are ethically right
or wrong depends on the ethical norms of the country or culture in which they take place. For
businesses, this implies that when there are cross-country or cross-cultural differences in ethical
established by competitors.
AACSB: Ethics
Blooms: Understand
Difficulty: 3 Hard
18. A belief in ethical relativism leads to the conclusion that
A. since ethical standards are subjective, it is perfectly appropriate for each company to define and
implement its own ethical principles of right and wrong as concerns the use of underage labor and
the payment of bribes and kickbacks.
B. ethical standards are determined objectively (rather than subjectively).
C. whether the use of underage labor and the payment of bribes/kickbacks should be deemed ethical or
unethical depends on the moral standards, values, and business norms that prevail in particular
cultures, societies, countries, or circumstances.
D. ethical standards are objective and universal—thus whether the use of underage labor and the
payment of bribes and kickbacks should be deemed ethical or unethical is definitely not dependent
on the moral standards, values, and business norms that prevail in particular cultures, societies,
countries, or circumstances.
E. standards of right and wrong are governed by what is legal in a given country—thus whether the use
of underage labor and the payment of bribes and kickbacks are ethical or unethical is governed by
local law.
Ethical relativism gives rise to multiple sets of standards concerning what is ethically right or wrong;
these differing standards mean that whether business-related actions are right or wrong depends on the
prevailing local ethical standards.
AACSB: Ethics
Blooms: Understand
9-9
19. The degree of cross-country variability in paying bribes and kickbacks to grease business transactions
A. violates ethical principles of right and wrong in all countries.

B. is ethically acceptable according to the principle of ethical universalism and ethically unacceptable
according to the principle of ethical relativism.
C. is acceptable to immoral managers but not to amoral managers.
D. is one of the thorniest ethical problems that multinational companies face because paying bribes is
normal and customary in some countries and ethically or legally forbidden in others.
E. is more acceptable in dealing with a company's suppliers than in dealing with a company's
customers.
In many countries it is normal to make payments to prospective customers in order to win or retain their
business. Some people stretch to justify the payment of bribes and kickbacks on grounds that bribing
government officials to get goods through customs or giving kickbacks to customers to retain their
business or win new orders is simply a payment for services rendered, in the same way that people tip
for service at restaurants.
AACSB: Ethics
Blooms: Understand
20. Multinational companies that forbid the payment of bribes and kickbacks in their codes of ethical
conduct and that are serious about enforcing this prohibition
A. are generally advocates of the ethical relativism school of thought.

B. are misguided in their efforts because bribes and kickbacks are really no different from tipping for
service at restaurants as you pay for a service rendered.
C. face a particularly vexing problem of losing business to competitors that have no scruples—an
outcome that penalizes ethical companies and company personnel.
D. are out-of-step with business reality given that the preponderance of company managers are
immoral.
E. are in a distinct minority compared to companies that view the payment of bribes and kickbacks as a
legitimate or permissible practice.
Complying with the company's code of ethical conduct in these countries is very often tantamount to
losing business to competitors that have no such scruples—an outcome that penalizes ethical companies
and ethical company personnel (who may suffer lost sales commissions or bonuses). On the other hand,
the payment of bribes or kickbacks not only undercuts the company's code of ethics but also risks
breaking the law.
AACSB: Ethics
Blooms: Understand
9-10
21. According to the ethical relativism school of thinking,
A. there can be no one-size-fits-all template (set of authentic ethical norms) against which to gauge the
conduct of company personnel, due to cross-cultural differences in ethical standards.
B. a company should have a different set of ethical standards for each country in which it operates.
C. only respected religious experts can provide companies with a higher order moral compass.
D. the best source of ethical standards in each country where the company operates is that country's
adopted Code of Required Ethical Conduct.
E. since there can be no one-size-fits-all set of authentic ethical norms, it is appropriate for each
company to hold company personnel to observing the company's code of ethical conduct.
Companies that forbid the payment of bribes and kickbacks in their codes of ethical conduct and that are
serious about enforcing this prohibition face a particularly vexing problem in countries where bribery
and kickback payments are an entrenched local custom. Complying with the company's code of ethical
conduct in these countries is very often tantamount to losing business to competitors that have no such
scruples—an outcome that penalizes ethical companies and ethical company personnel (who may suffer
lost sales commissions or bonuses).
AACSB: Ethics
Blooms: Understand
22. Which of the following is NOT true about why codes of conduct based on ethical relativism are
ethically dangerous for multinational companies?
A. They create a maze of conflicting ethical standards.

B. They justify conflicting ethical standards for operating in different countries.
C. They establish little moral basis for establishing ethical standards for a company worldwide.
D. They restrict enforcement of ethical standards worldwide.
E. They create standards that mostly relate to ethical codes in a company's home market, which might
trigger compliance issues in the local market.
Codes of conduct based on ethical relativism can be ethically problematic for multinational companies
by creating a maze of conflicting ethical standards. When there are cross-country or cross-cultural
differences in ethical standards, it is appropriate for local ethical standards to take precedence over what
the ethical standards may be in a company's home market.
AACSB: Ethics
Blooms: Understand
9-11
23. Companies that adopt the principle of ethical relativism in providing ethical guidance to company
personnel
A. base their standards of what is ethical and what is unethical in the company's home market.
B. may quickly find themselves on a slippery slope with no higher order moral compass if they operate
in countries where ethical standards vary considerably from country to country.
C. have no fair way to judge the ethical correctness of the conduct of company personnel.
D. have a one-size-fits-all set of ethical standards.
E. end up allowing each company employee to determine what set of ethical standards to observe.
Business leaders who rely upon the principle of ethical relativism to justify conflicting ethical standards
for operating in different countries have little moral basis for establishing or enforcing ethical standards
companywide. Rather, when a company's ethical standards vary from country to country, the clear
message being sent to employees is that the company has no ethical standards or convictions of its own
and prefers to let its standards of ethical right and wrong be governed by the customs and practices of
the countries in which it operates.
AACSB: Ethics
Blooms: Understand
24. The contention that ethical standards should be governed both by (1) a limited number of universal
ethical principles that are widely recognized as putting legitimate ethical boundaries on actions and
behavior in all situations and (2) the circumstances of local cultures, traditions, and shared values that
further prescribe what constitutes ethically permissible behavior and what does not are the basic
principles of
A. the school of ethical relativism.

B. the school of ethical universalism.
C. the global corruption standards published by Transparency International.
D. integrative social contracts theory.
E. the Global Code of Ethical and Social Morality developed by the United Nations.
The integrative social contracts theory suggests that there is a "social contract" by which managers in all
situations have a duty to serve provides that "first-order" universal ethical norms always take
precedence over "second-order" local ethical norms in circumstances where local ethical norms are
more permissive. That is, universal ethical principles based on collective views of multiple cultures
combine to form a "social contract" that all employees in all country markets have a duty to observe.
Within the boundaries of this social contract, there is room for host-country cultures to exert some
influence in setting their own moral and ethical standards. Integrative social contracts theory thus offers
a middle ground between ethical universalism and ethical relativism and can provide managers in
multinational companies with guidance in resolving cross-country ethical differences.
AACSB: Ethics
Blooms: Remember
9-12
25. The contention that ethical standards should reflect the collective views of multiple societies in
establishing a set of universal ethical principles (that are widely recognized as laying legitimacy to
ethical boundaries on actions and behavior in all situations) and in allowing inclusion of a set of
prevailing customary actions of local cultures or groups (with their traditions and shared values), that
further prescribe to what represents ethically permissible behavior and what does not, constitutes the
basic principles of
A. the school of ethical relativism.

B. the school of ethical universalism.
C. integrated social contracts theory.
D. corporate social responsibility.
E. the triple bottom line.
According to integrated social contracts theory, the ethical standards a company should try to uphold are
governed by both (1) a limited number of universal ethical principles that are widely recognized as
putting legitimate ethical boundaries on behaviors in all situations and (2) the circumstances of local
cultures, traditions, and values that further prescribe what constitutes ethically permissible behavior.
AACSB: Ethics
Blooms: Remember
26. According to integrated social contracts theory, the ethical standards a company should try to uphold
A. are governed by the school of ethical universalism.

B. are governed both by a limited number of universal ethical principles and the circumstances of local
cultures, traditions, and shared values.
C. are governed by each country's Code of Required Ethical Conduct, which sets forth that each
individual/group/business/organization has a "social contract" to observe the ethical and moral
standards that the country has adopted.
D. should be determined by the company's moral managers.
E. should be absolute and avoid wiggle room according to the circumstances of the situation.
According to integrated social contracts theory, universal ethical principles based on the collective
views of multiple societies form a "social contract" that all individuals and organizations have a duty to
observe in all situations. Within the boundaries of this social contract, local cultures or groups can
specify what additional actions may or may not be ethically permissible.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
9-13
27. Which of the following regarding integrated social contracts theory is NOT true?
A. Certain universal ethical principles apply in those situations where all societies—those endowed
with rationality and moral knowledge—have a common moral agreement on what is right and
wrong.
B. Within the boundaries of a social contract, local cultures or groups can specify what additional
actions may or may not be ethically permissible.
C. Universal ethical principles or norms leave some "moral free space" for the people in a particular
country (or local culture or even a company) to make specific interpretations of what other actions
may or may not be permissible within the bounds defined by universal ethical principles.
D. Universal ethical norms always take precedence over local ethical norms.
E. Local ethical norms always take precedence over universal ethical norms.
According to integrated social contracts theory, adherence to universal or "first-order" ethical norms
should always take precedence over local or "second-order" norms.
AACSB: Ethics
Blooms: Understand
28. Which one of the following is NOT a key element of integrated social contracts theory?
A. Universal ethical principles apply in those situations where most all societies—endowed with
rationality and moral knowledge—have common moral agreement on what is wrong and thereby put
limits on what actions and behaviors fall inside the boundaries of what is right, and which ones fall
outside.
B. Commonly held views about what is morally right and wrong form a "social contract" (contract with
society) that is binding on all individuals, groups, organizations, and businesses in terms of
establishing the line between ethical and unethical behaviors.
C. Universal ethical principles or norms leave some "moral free space" for the people in a particular
country (or local culture or even a company) to make specific interpretations of what other actions
may or may not be permissible within the bounds defined by universal ethical principles.
D. Universal ethical norms always take precedence over local ethical norms.
E. Integrated social contracts theory rejects the slippery slope of ethical relativism and embraces
ethical universalism.
specify what additional actions may or may not be ethically permissible. The theory integrates concepts
from both ethical universalism and ethical relativism.
AACSB: Ethics
Blooms: Understand
9-14
29. Integrated social contracts theory maintains that
A. there is no such thing as "moral free space"—all ethical standards are determined by societal norms,
and individuals have an implied social contract to live up to these standards.
B. few nations or cultures have common moral agreement on what is ethically right and wrong.
C. there should be no absolute limits put on what actions and behaviors fall inside the boundaries of
what is ethically or morally right and which actions/behaviors fall outside.
D. adherence to universal ethical norms always takes precedence over local ethical norms.
E. ethical relativism should always be adhered to before ethical universalism when dealing within
boundaries of a country's culture and norms.
According to integrated social contracts theory, adherence to universal or "first-order" ethical norms
should always take precedence over local or "second-order" norms.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
30. The strength of integrated social contracts theory is that it
A. correctly recognizes that all soundly reasoned ethical standards are universal.
B. accommodates the best parts of ethical universalism and ethical relativism.
C. puts no absolute limits on what actions and behaviors fall inside the boundaries of what is ethically
or morally right and which actions/behaviors fall outside.
D. recognizes the importance of allowing local ethical norms to always take precedence over universal
ethical norms.
E. recognizes that individuals and businesses have a basic right to "moral free space" and that it is
inappropriate to specify ethically permissible and ethically impermissible actions and behaviors.
The strength of integrated social contracts theory is that it accommodates the best parts of ethical
universalism and ethical relativism: the ethical standards a company should try to uphold are governed
by both (1) a limited number of universal ethical principles that are widely recognized as putting
legitimate ethical boundaries on behaviors in all situations and (2) the circumstances of local cultures,
traditions, and values that further prescribe what constitutes ethically permissible behavior.
AACSB: Ethics
Blooms: Understand
9-15
31. According to integrative social contracts theory, the ethical standards a company should try to uphold
A. are governed by the school of ethical universalism.

B. should be determined by the company's board of directors.
C. should never be absolute but rather always provide some wiggle room according to the
circumstances of the situation.
D. are governed by each country's Code of Required Ethical Conduct, which sets forth that each
individual/group/business/organization has a "social contract" to observe the ethical and moral
standards that the country has adopted.
E. are governed both by (1) a limited number of universal ethical principles that are widely recognized
as putting legitimate ethical boundaries on actions and behavior in all situations and (2) the
circumstances of local cultures, traditions, and shared values that further prescribe what constitutes
ethically permissible behavior and what does not—but universal norms always take precedence over
local ethical norms.
Integrative social contracts theory suggests that there is a "social contract" by which managers in all
situations have a duty to serve provides that "first-order" universal ethical norms always take
precedence over "second-order" local ethical norms in circumstances where local ethical norms are
more permissive. That is, universal ethical principles based on collective views of multiple cultures
combine to form a "social contract" that all employees in all country markets have a duty to observe.
Within the boundaries of this social contract, there is room for host-country cultures to exert some
influence in setting their own moral and ethical standards. Integrative social contracts theory thus offers
a middle ground between ethical universalism and ethical relativism and can provide managers in
multinational companies with guidance in resolving cross-country ethical differences.
AACSB: Ethics
Blooms: Understand
32. The litmus test of a company's code of ethics is
A. the degree to which it is connected to a company's statement of core values.

B. the extent to which it is embraced in crafting strategy and in the day-to-day operations of the
business.
C. the extent to which a company's approach to ethical behavior mirrors the ethical principles for
society at large.
D. based on the rules a company's top management and board of directors make about "what is right"
E. determined by the ethical behaviors expected of company personnel in the course of doing their
jobs.
There's a big difference between having a code of ethics because it is mandated and having ethical
standards that truly provide guidance for a company's strategy and business conduct. For a company to
truly absorb appropriate ethical standards they should reflect in their strategies and day-to-day
operations.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
9-16
33. Which of the following is NOT a key question that senior executives must ask whenever a new strategic
initiative is under review?
A. Would the potential outcome of the proposed action pose a risk of embarrassment?
B. Is what we are proposing to do fully compliant with our code of ethical conduct?
C. Is there anything in the proposed action that could be considered ethically objectionable?
D. Is it apparent that this proposed action is in harmony with our core values?
E. Are any conflicts or concerns evident between the proposed action and our core values?
In companies with a cosmetic approach to ethics, any strategy-ethics linkage stems mainly from a desire
to avoid the risk of embarrassment and possible disciplinary action for approving a strategic initiative
that is deemed by society to be unethical and perhaps illegal.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
34. Senior executives can ensure compliance with the ethical code of conduct by considering whether
A. the proposed action is fully compliant and in harmony with the code of ethical conduct and whether
stakeholders would consider anything ethically objectionable.
B. the code of conduct is rejected by the market and accepted by employees.
C. the code of conduct was accepted by rivals.
D. the creation of the code of conduct should be handled by executives or employees.
E. to eliminate the need to execute a code of conduct at all.
It is up to senior executives to lead the way on compliance with the company's ethical code of conduct.
They can do so by making it a point to consider three sets of questions whenever a new strategic
initiative is under review:
• Is what we are proposing to do fully compliant with our code of ethical conduct? Are there any areas
of ambiguity that may be of concern?
• Is it apparent that this proposed action is in harmony with our code? Are any conflicts or potential
problems evident?
• Is there anything in the proposed action that could be considered ethically objectionable? Would our
customers, employees, suppliers, stockholders, competitors, communities, the SEC, or the media view
this action as ethically objectionable?
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
9-17
35. Unethical managerial behavior tends to be driven by such factors as
A. a lack of training in what is ethical and what is not.

B. overzealous or obsessive pursuit of personal gain, wealth, and other self interests; a company culture
that puts the profitability and good business performance ahead of ethical behavior; and heavy
pressures on company managers to meet or beat performance targets.
C. widespread managerial belief in the ethical relativism school of thinking.
D. widespread managerial belief in the ethical universalism school of thinking.
E. confusing differences between what is ethical behavior in one's personal life and what is ethically
permissible in business.
The three major drivers of unethical strategies and unethical business behavior are (1) faulty oversight,
(2) heavy pressures on managers to meet performance targets, and (3) company cultures that place
profits and performance ahead of ethical behavior.
AACSB: Ethics
Blooms: Understand
36. Which of the following factors does NOT necessarily drive unethical managerial behavior?
A. the pervasiveness of immoral and amoral businesspeople

B. overzealous pursuit of personal gain, wealth, and other selfish interests
C. a company culture that puts the profitability and good business performance ahead of ethical
behavior
D. heavy pressures on company managers to meet or beat earnings targets
E. executive compensation independent of company performance
Company executives often feel pressured to hit financial performance targets because their
compensation depends heavily on the company's performance. Over the last two decades, it has become
fashionable for boards of directors to grant lavish bonuses, stock option awards, and other compensation
benefits to executives for meeting specified performance targets.
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
9-18
37. Which of the following is NOT NECESSARILY a consequence of pursuing a strategy that has
unethical or shady components?
A. sharp drops in the price of company stock

B. devastating public relations and the need for damage control
C. sizable government fines and penalties
D. attracting investors who think the company's industry will grow
E. criminal indictments and convictions of culpable company executives
The consequences of crafting strategies that cannot pass the test of moral scrutiny are manifested in
sharp drops in stock price that cost shareholders billions of dollars, devastating public relations hits,
sizable government fines and penalties, and criminal indictments and convictions of company
executives.
AACSB: Ethics
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 09-03 The costs of business ethics failures.
38. Which of the following would increase the likelihood of ethical lapses as well as poor long-term
company performance?
A. dramatic cuts in research and development expenditures in years when low earnings are reported by
the company
B. increases in research and development expenditures in years when low earnings are reported by the
company
C. executive commitment to implementing strategic suggestions from the board of directors
D. attracting investors who think the company's industry will grow
E. hiring and maintaining a skilled and diverse workforce
Short-termism is the tendency for managers to focus excessively on short-term performance objectives
at the expense of longer-term strategic objectives. It has negative implications for the likelihood of
ethical lapses as well as company performance in the longer run. Companies that decrease spending on
research and development use a short-term approach to profit maximization.
AACSB: Ethics
Blooms: Apply
Difficulty: 3 Hard
9-19
39. Which of the following activities does NOT reflect short termism?
A. decreasing spending on research and development

B. avoiding stock repurchases made to increase earnings-per-share of a company
C. maintaining and hiring critical employees with compensations tied to annual company earnings
D. taking into consideration all tangible future cash flows over intangible brand value appreciation
E. carrying business operations with existing technologies in all markets to cut costs and increase
profits
at the expense of longer-term strategic objectives. It has negative implications for the likelihood of
ethical lapses as well as company performance in the longer run. Firms that engage in stock repurchases
to increase their earnings-per-share usually look for boosting profits in the short term to gain more
investors.
AACSB: Ethics
Blooms: Apply
Difficulty: 3 Hard
40. Short-termism is defined as
A. making assessments of the moral character of a company's managers.

B. the tendency for managers to focus on immediate performance objectives at the expense of longer-
term strategic objectives.
C. assessing the costs and damages to the company's reputation as a result of ethical violations.
D. weighing the short-term costs of regulatory compliance with the long-term costs of noncompliance.
E. assessing the short-term costs of complying with government regulations.
at the expense of longer-term strategic objectives.
AACSB: Ethics
Blooms: Understand
9-20
41. Cultural demands to employ unethical means if circumstances become challenging can prompt
A. otherwise dishonorable people to behave ethically.

B. increased observance of ethical strategic actions.
C. a moral work climate.
D. clever ways to operate outside established policies to boost profits.
E. company authorization to observe what's right.
When a company's culture spawns an ethically corrupt or amoral work climate, people have a company-
approved license to ignore "what's right" and engage in any behavior or strategy they think they can get
away with. Such cultural norms as "Everyone else does it" and "It is okay to bend the rules to get the job
done" permeate the work environment.
AACSB: Ethics
Blooms: Understand
42. When high ethical principles are deeply ingrained in the corporate culture of a company, culture can
function as a powerful mechanism for all of the following EXCEPT
A. communicating ethical behavioral norms.

B. gaining employee buy-in to the company's moral standards.
C. gaining employee buy-in to the company's business principles.
D. gaining employee buy-in to the company's corporate values.
E. boosting short-termism.
When high ethical principles are deeply ingrained in the corporate culture of a company, culture can
function as a powerful mechanism for communicating ethical behavioral norms and gaining employee
buy-in to the company's moral standards, business principles, and corporate values.
AACSB: Ethics
Blooms: Understand
9-21
43. A company's strategy needs to be ethical because
A. of the dangers that top management will get embarrassed if the company's unethical behavior is
publicly exposed.
B. it is good business and in the best interest of shareholders.
C. everyone is an ethics watchdog and somebody is sure to blow the whistle on the company's
unethical behavior.
D. of the inevitable risks of getting caught and prosecuted by governmental authorities if an unethical
strategy is used.
E. unethical strategies boost long-termism in corporate culture.
There are two reasons why a company's strategy should be ethical: (1) because a strategy that is
unethical is morally wrong and reflects badly on the character of the company and its personnel, and (2)
because an ethical strategy can be good business and serve the self-interest of shareholders.
AACSB: Ethics
Blooms: Understand
44. Which of the following is NOT true regarding the effect of ethical standards on a company's strategy?
A. An unethical strategy reflects badly on the character of the company personnel involved.
B. A strategy that is unethical in whole or in part is morally wrong.
C. Pursuing an unethical strategy damages a company's reputation and can have costly consequences.
D. An ethical strategy is good business and is in the best interest of shareholders.
E. An ethical strategy results in higher employee turnover.
An ethical strategy leads to higher employee morale and lower degrees of employee cynicism leading to
lower employee turnover.
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
9-22
45. Which of the following is NOT a particularly sound or valid reason why a company's strategy should be
ethical?
A. An unethical strategy reflects badly on the character of the company personnel involved.
B. Senior executives fear public embarrassment if caught doing something perceived as unethical.
C. An ethical strategy is in the self-interest of shareholders, partly because an unethical strategy can
damage a company's reputation and partly because unethical behavior can be very costly in terms of
fines and penalties.
D. Customers shun companies known for their shady behavior and ethically upstanding company
personnel are repulsed by a work environment where unethical behavior is condoned.
E. A strategy that is unethical in whole or in part is morally wrong.
In companies with a cosmetic approach to ethics, any strategy-ethics linkage stems mainly from a desire
to avoid the risk of embarrassment and possible disciplinary action for approving a strategic initiative
that is deemed by society to be unethical and perhaps illegal.
AACSB: Ethics
Blooms: Understand
46. The strength of the beliefs underlying the moral case for an ethical strategy relates to all EXCEPT
which of the following?
A. It begins with managers who themselves have strong character (for example, who are honest, have
integrity, and truly care about how they conduct a company's business).
B. It starts with managers who walk the talk in displaying the company's stated values.
C. It involves managers with high ethical principles and standards who are advocates of a corporate
code of ethics and strong ethics compliance and are genuinely committed.
D. It starts with managers who understand there is a big difference between adopting values statements
superficially and truly accepting a company's actual strategy and business conduct.
E. It starts with managers that involve themselves in creating strategies based on risks and loss of
reputation that implementing an unethical strategy can cost.
Ethical strategy making is generally the product of managers who are of strong moral character.
Managers with high ethical principles are usually advocates of a corporate code of ethics and strong
ethics compliance, and they are genuinely committed to upholding corporate values and ethical business
principles.
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
9-23
47. Notions of right and wrong, fair and unfair, moral and immoral, ethical and unethical
A. are governed mainly by religious views held in different geographic regions of the world.
B. are present in all societies, organizations, and individuals.
C. vary enormously from country to country across the world.
D. ultimately depend on the circumstances—nothing is really black or white when it comes to ethical
standards.
E. ultimately depend on a person's own values and beliefs.
Norms to be common to all cultures and societies, and that those norms comprise honesty,
trustworthiness, respecting the rights of others, practicing the Golden Rule, and avoiding unnecessary
harm to workers or to the users of a company's product or service, is the concept of ethical universalism.
AACSB: Ethics
Blooms: Understand
48. Visible costs that are incurred by companies and imposed for ethical wrongdoing include all of the
following EXCEPT
A. government fines and penalties.

B. civil penalties arising from class-action lawsuits or other litigation.
C. lower dividends for shareholders.
D. lower stock prices.
E. legal and investigative costs.
Legal and investigative costs are internal administrative costs incurred by a company involved in
implementing unethical strategies.
AACSB: Ethics
Blooms: Understand
49. Internal administrative costs which are incurred by companies for ethical wrongdoing include all of the
following EXCEPT
A. costs attached to adverse effects on employee productivity.

B. costs of remedial education and ethics training to company personnel.
C. costs incurred in taking corrective actions.
D. administrative costs associated with future compliance.
E. legal and investigative costs.
An adverse effect on employee productivity is an intangible cost to companies involved in ethical
wrongdoing.
AACSB: Ethics
Blooms: Understand
9-24
Difficulty: 1 Easy
50. How does a company's unethical behaviors risk doing direct damage to a company's creditors?
A. It could result in diminished business reputation.

B. It could lead to default on loans due to potential business fallout.
C. It could result in lower stock prices and lower returns.
D. It could lead to shunning by customers.
E. It could make recruiting and retaining talented employees difficult.
Creditors are unnerved by the unethical actions of a borrower because of the potential business fallout
and subsequent risk of default on loans.
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
51. The theory of corporate social responsibility concerns
A. a company's duty to establish socially acceptable core values and to have a strictly enforced code of
ethical conduct.
B. a company's duty to maximize shareholder value.
C. the blending of shareholder interests and employee interests.
D. the company's responsibility to balance between strategic actions to benefit shareholders against the
duty to be a good corporate citizen.
E. top management's responsibility to ensure that the company's actions and decisions are in the best
interest of society at large.
The essence of socially responsible business behavior by businesses is that a company should balance
strategic actions to benefit shareholders against the duty to be a good corporate citizen.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 09-04 The concepts of corporate social responsibility and environmental sustainability and how companies balance
these duties with economic responsibilities to shareholders.
Topic: Corporate Social Responsibility
9-25
52. Which one of the following is NOT a part of the business case for why companies should act in a
socially responsible manner?
A. increased buyer patronage

B. internal benefits such as improved workforce retention and operational efficiency
C. aggressive pursuit of market share, revenues, and profits
D. reduced risk of reputation-damaging incidents
E. shareholder benefits such as increased stock price and financial performance
The exercise of corporate social responsibility is also good business because it can lead to: (1) increased
buyer patronage; (2) reduced risk of reputation-damaging incidents; (3) internal benefits such as
improved efficiency and workforce retention; (4) shareholder benefits, based on apparent correlations
between CSR and stock price and other measures of financial performance. Shareholders are likely to
view the business case for social responsibility as a strong one, even though they certainly have a right
to be concerned about whether the time and money their company spends to carry out its social
responsibility strategy outweigh the benefits and reduce the bottom line by an unjustified amount. CSR
encompasses the pursuit of market share, revenues, profits, etc. to the extent the other principles are not
compromised.
AACSB: Ethics
Blooms: Understand
Difficulty: 3 Hard
53. The essence of socially responsible business behavior is
A. balancing strategic actions to benefit shareholders against the duty to be a good corporate citizen.
B. pursuing actions to keep prices low enough that the company's profits will not be viewed by the
general public as obscenely high or exorbitant.
C. making sizable contributions to political action committees representing the interests of the industry.
D. undertaking actions to balance the interests of all company stakeholders rather than just exclusively
working to protect the interests of shareholders.
E. providing jobs for the local community rather than outsourcing them to low wage labor countries.
The essence of socially responsible business behavior by businesses is that a company should balance
strategic actions to benefit shareholders against the duty to be a good corporate citizen.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
9-26
54. The notion of social responsibility as it applies to businesses is concerned with
A. a company's duty to put the public interest ahead of shareholder interests.

B. societal expectations that all company stakeholders will be treated equally and fairly.
C. a company's duty to establish a loyal workforce.
D. the responsibility that top management has for ensuring that the company's actions and decisions are
in the best interest of stakeholders at large.
E. a company's duty to operate in an honorable manner and provide good working conditions for
employees.
Corporate social responsibility (CSR) refers to a company's duty to operate in an honorable manner,
provide good working conditions for employees, encourage workforce diversity, be a good steward of
the environment, and actively work to better the quality of life in the local communities where it
operates and in society at large.
AACSB: Ethics
Blooms: Remember
55. Which of the following is NOT generally an action for a company to consider in crafting a strategy of
social responsibility?
A. devoting efforts to employ an ethical strategy and observe ethical principles in operating the
business
B. making charitable contributions, donating money and the time of company personnel to community
service endeavors, supporting various worthy organizational causes
C. taking steps to provide suppliers, distributors, and other value chain partners with handsome profit
margins
D. initiating actions to build a workforce that is diverse with respect to gender, race, national origin,
and other aspects that different people bring to the workplace
E. pursuing actions to protect the environment and, in particular, to minimize or eliminate any adverse
impact on the environment stemming from the company's own business activities
Demonstrating social responsibility entails undertaking actions that earn trust and respect from all
stakeholders. These include: operating in an honorable and ethical manner, striving to make the
company a great place to work, demonstrating genuine respect for the environment, and trying to make
a difference in bettering society.
AACSB: Ethics
Blooms: Remember
9-27
56. Which of the following is NOT something a company should usually consider in crafting a strategy of
social responsibility?
A. actions to benefit shareholders such as raising the dividend or boosting the stock price
B. making charitable contributions and supporting community service endeavors and reaching out to
make a difference in the lives of the disadvantaged
C. actions to ensure the company has an ethical strategy and operates honorably and ethically
D. actions that promote good stewardship (by protecting and enhancing) the environment
E. actions to enhance workforce diversity
The underlying thesis is that company managers should display a social conscience in operating the
business and specifically take into account how management decisions and company actions affect the
well-being of employees, local communities, the environment, and society at large.
AACSB: Ethics
Blooms: Remember
57. Good corporate citizens
A. create a democratic workplace whereby the voices of lower-level employees are heard through
representation on the board of directors.
B. go beyond meeting society's expectations for ethical strategies and business behavior by fostering
social benefit and balancing the interests of all.
C. provide work-from-home options to working mothers residing in distant locations.
D. develop and market only products that are "environmentally friendly."
E. identify up-and-coming managers who have a future in local- or state-level politics.
It is every company's duty to operate in an honorable manner, provide good working conditions for
employees, encourage workforce diversity, be a good steward of the environment, and actively work to
better the quality of life in the local communities where it operates and in society at large. The text cites
several examples of corporations that go beyond meeting society's expectations for ethical conduct and
responsible business behavior on the part of corporations that foster social benefit and balance the needs
of multiple stakeholders.
AACSB: Ethics
Blooms: Apply
9-28
58. A company's social responsibility strategy typically comprises all of the following EXCEPT
A. actions to enhance workforce diversity and make the company a great place to work.
B. making charitable contributions and donating money and the time of company personnel to
community service endeavors.
C. actions to protect or enhance the environment.
D. conscious efforts to ensure that all elements of the company's strategy are ethical and that its actions
protect or enhance the environment (beyond what is legally required).
E. actions to keep the company's profits at a reasonable and acceptable level to ensure the company's
products/pricing will not be viewed by the general public as obscenely high or exorbitant.
Corporate social responsibility (CSR) refers to a company's duty to operate in an honorable manner,
provide good working conditions for employees, encourage workforce diversity, be a good steward of
the environment, and actively work to better the quality of life in the local communities where it
operates and in society at large.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
59. Striving to be socially responsible entails touching such bases as
A. what actions to take to moderate workforce diversity and make the company a great place to work.
B. whether to shrink charitable contributions and trim down the time commitment of company
personnel to community service endeavors to increase earnings.
C. what, if any, actions to take to protect or enhance the environment (beyond what is legally required).
D. exerting conscious efforts to ensure that all elements of the company's strategy are executed
diligently.
E. prioritizing stock repurchases over dividends.
Although striving to improve local communities is an important social responsibility initiative, it is
important to prioritize enhancement of internal environments for a healthier workforce would generate
profits that would be used in betterment of society.
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
9-29
60. How do good corporate citizens function?
A. They pursue discretionary activities that contribute to the betterment of society, especially in areas
where government has chosen not to focus its efforts or has fallen short.
B. They are active participants in the political processes.
C. They identify up-and-coming managers who have a future in local- or state-level politics.
D. They create a democratic workplace where the voices of lower-level employees are heard through
representation on the board of directors.
E. They seek to replace government functions with more efficient, market-driven solutions.
Good corporate citizens are socially responsible for meeting legal, ethical and economic responsibilities
imposed by shareholders. They aim at improving standards of communities in which they operate, while
still sustaining profitability for stakeholders.
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
61. The "triple bottom line" refers to what three performance metrics a company should simultaneously
succeed in?
A. economic, social, and environmental

B. pay, power, and performance
C. planning, execution, and results
D. legal, social, and economical
E. legal, social, and environmental
CSR initiatives undertaken by companies are frequently directed at improving the company's triple
bottom line (TBL)—a reference to three types of performance metrics: economic, social, and
environmental.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
9-30
62. The three dimensions of performance are often referred to in terms of the "three pillars" and include all
of the following EXCEPT
A. a company's efforts to improve the lives of its internal and external stakeholders.
B. the various social initiatives that make up the CSR strategies.
C. a firm's ecological impact and environmental practices.
D. the economic impact (value and costs) that the company has on society.
E. a company's efforts to reduce research and development funding to boost profits.
Reducing research and development funding is often an example of short-termism.
AACSB: Ethics
Blooms: Remember
63. Triple-bottom-line (TBL) reporting is emerging as an important way for companies to
A. conceal their initiatives and accomplishments in the areas of diversity, environment, community,
and ethics to increase profitability.
B. make the results of their CSR strategies apparent to stakeholders and for stakeholders to hold
companies accountable for their impact on society.
C. minimize transparency and facilitate benchmarking CSR efforts across firms and industries.
D. minimize the use of standard reporting frameworks and metrics.
E. attract profit-oriented investors.
Triple-bottom-line reporting is emerging as an increasingly important way for companies to make the
results of their CSR strategies apparent to stakeholders and for stakeholders to hold companies
accountable for their impact on society. The use of standard reporting frameworks and metrics, such as
those developed by the Global Reporting Initiative, promotes greater transparency and facilitates
benchmarking CSR efforts across firms and industries.
AACSB: Ethics
Blooms: Remember
9-31
64. A company's environmental sustainability strategy consists of its deliberate actions to
A. shelter the environmental impacts from the company's resources and competitive capabilities.
B. provide for the defense of natural resources usage within cross-border commitments.
C. moderate assurance for ecological support systems for future generations.
D. guard against ultimate endangerment of the business.
E. operate the business in a manner that promotes the longevity of sustainability effects.
A company's environmental sustainability strategy consists of its deliberate actions to protect the
environment, provide for the longevity of natural resources, maintain ecological support systems for
future generations, and guard against ultimate endangerment of the planet.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
65. An environmental sustainability strategy consists of a company's deliberate actions to
A. operate in an honorable manner, provide good working conditions for employees, and actively work
to enhance the quality of life in the local communities where it operates and in society at large.
B. meet the current needs of customers, suppliers, shareholders, employees, and other stakeholders in a
manner that protects the environment, provides for the longevity of natural resources, maintains
ecological support systems for future generations, and guards against ultimate endangerment of the
planet.
C. protect and enhance natural resources and ecological support systems, taking into account the
current consumption for the current generation.
D. apply universal norms regarding the protection of the environment to its everyday operations and to
function below the levels required by prevailing environmental regulations.
E. balance commonly held views about what constitutes environmentally appropriate actions against its
ability to make a profit.
AACSB: Ethics
Blooms: Understand
9-32
66. Which of the following is NOT something a company should consider in crafting an environmental
sustainability strategy?
A. actions to protect the environment that will guard against the ultimate endangerment of the planet
B. actions to maintain ecological support systems for future generations
C. actions to provide for the longevity of natural resources
D. actions to couple environmental degradation and economic growth
E. actions to contain the adverse effects of greenhouse gases
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
67. What is the function of the Global Reporting Initiative?
A. It promotes greater transparency and facilitates benchmarking CSR efforts across firms and
industries.
B. It promotes and establishes mutual funds investment opportunities comprised of companies that
excel on the basis of the triple bottom line.
C. It promotes greater awareness of the Dow Jones World Index, which comprises companies that are
engaged in environment sustainability.
D. It promotes corporate governance, climate change, and labor practices.
E. It is a nonprofit reporting organization that ranks companies on habitat protection.
The use of standard reporting frameworks and metrics, such as those developed by the Global Reporting
Initiative, promotes greater transparency and facilitates benchmarking CSR efforts across firms and
industries.
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
9-33
68. Which of the following statements regarding a company's CSR and sustainability strategies is FALSE?
A. A company is not demonstrating an adequate degree of social responsibility or endeavoring to be a

model corporate citizen unless it spends 5 percent (or more) of pretax profits on social responsibility
initiatives.
B. Corporate social agendas that address generic social issues may help boost a company's reputation
but are unlikely to improve its competitive strength in the marketplace.
C. Cost savings and improved profitability can be drivers of corporate sustainability strategies.
D. Social responsibility strategies linked to a company's customer value proposition or key value chain
activities may help build competitive advantage.
E. While the strategies and actions of all socially responsible companies have sameness in the sense of
drawing on the same categories of socially responsible behavior, each company's version of being
socially responsible is unique.
future generations, and guard against ultimate endangerment of the planet. There is no definite
percentage of spending involved.
AACSB: Ethics
Blooms: Understand
69. Sourcing a supply from a small, women-owned business is an example of a corporate social
responsibility action to
A. enhance employee well-being.

B. support philanthropy.
C. protect and sustain the environment.
D. ensure honorable and ethical action.
E. promote workforce diversity.
At some companies, the diversity initiative extends to suppliers—sourcing items from small businesses
owned by women or members of ethnic minorities, for example.
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
9-34
70. When a company's social responsibility initiatives become part of the way it operates its business every
day, these initiatives are
A. likely to be fully effective in creating a competitive advantage.

B. normally based on a corporate social agenda.
C. ambiguous and rarely make a difference in the way the company does business.
D. implausible to advance a positive, high-energy workplace environment.
E. heavily dependent on encouraging employee morality.
Unless a company's social responsibility initiatives become part of the way it operates its business every
day, the initiatives are unlikely to catch fire and be fully effective.
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
71. The moral case for why a company should actively promote the betterment of society and act in a
manner benefitting all its stakeholders
A. is based on the principle of treating people fairly and with respect.

B. is based on the conviction that improving the well-being of society ranks higher in priority and is
certainly nobler than making a profit and serving the interests of shareholders.
C. boils down to "it's the right thing to do."
D. rests on the principle that a business is duty bound to fulfill its social contract to serve the interests
of all stakeholders in a business enterprise.
E. is based on the principle that business activities lack real legitimacy and have few socially
redeeming qualities unless and until a company exerts a significant and sincere effort to give
something back to the community.
The moral case for why businesses should act in a manner that benefits all of the company's
stakeholders—not just shareholders—boils down to "It's the right thing to do." Ordinary decency, civic-
mindedness, and contributions to society's wellbeing should be expected of any business.
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
9-35
72. Which of the following is NOT part of the moral case for why a company should actively promote the
betterment of society?
A. Every action a company takes can be interpreted as a statement of what it stands for.
B. Most business leaders can be expected to acknowledge that socially responsible actions and
environmental sustainability are important and that businesses have a duty to be good corporate
citizens.
C. In return for society granting a business a "license to operate" and not be unreasonably restrained in
its pursuit of a fair profit, a business is obligated to act as a responsible citizen and do its fair share
to promote the general welfare.
D. Acting in a socially responsible manner is in the best financial interest of shareholders.
E. Every business has a duty to do what's best for shareholders while operating honorably, provide
good working conditions to employees, and be a good environmental steward.
In today's social and political climate, most business leaders can be expected to acknowledge that
socially responsible actions are important and that businesses have a duty to be good corporate citizens.
But there is a complementary school of thought that business operates on the basis of an implied social
contract with the members of society. Acting in a socially responsible manner might not be always in
the best interests of a shareholder but is morally right way of operating businesses.
AACSB: Ethics
Blooms: Understand
73. The business case for why companies should act in a socially responsible manner includes such reasons
as it
A. generates internal operating benefits (as concerns employee recruiting, workforce retention,
employee morale, and training costs).
B. increases the risk of reputation-damaging incidents.
C. is not in the best interest of shareholders.
D. can lead to decreased buyer patronage.
E. can increase costs and reduce employee retention.
Companies with deservedly good reputations for social responsibility and sustainable business practices
are better able to attract and retain employees, compared to companies with tarnished reputations. Some
employees just feel better about working for a company committed to improving society. This can
contribute to lower turnover and better worker productivity. Other direct and indirect economic benefits
include lower costs for staff recruitment and training.
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
9-36
74. The business case for CSR and environmentally sustainable business practices suggests such actions
could lead to all of the following EXCEPT
A. increased buyer patronage.

B. shorter supply chain.
C. lower costs and enhanced employee recruiting and workforce retention.
D. opportunities for revenue enhancement and best long-term profits for shareholders.
E. reduced risk of reputation-damaging incidents.
A strong visible social responsibility or environmental sustainability strategy gives a company an edge
in appealing to consumers who prefer to do business with companies that are good corporate citizens
thereby increasing buyer patronage.
AACSB: Ethics
Blooms: Understand
Difficulty: 1 Easy
75. Which of the following is NOT a part of the business case for why companies should act in a socially
responsible manner?
A. Every business has a moral duty to be a good corporate citizen.

B. Acting in a socially responsible manner reduces the risk of reputation-damaging incidents.
C. Acting in a socially responsible manner is in the overall best interest of shareholders.
D. To the extent that a company's socially responsible behavior wins applause from consumers and
fortifies its reputation, a company may win additional patronage.
E. Acting in a socially responsible manner can generate internal benefits (as concerns employee
recruiting, workforce retention, employee morale, and training costs).
A moral duty to be a good corporate citizen and act in a socially responsible manner is a part of the
moral case.
AACSB: Ethics
Blooms: Understand
9-37
76. Which of the following is FALSE as it concerns the merits of why acting in a socially responsible
manner is good business?
A. The higher the public profile of a company or brand, the greater the scrutiny of its activities and the
higher the potential for it to become a target for pressure group action.
B. Acting in a socially responsible manner nearly always results in higher profits and a higher stock
price for shareholders.
C. To the extent that a company's socially responsible behavior wins applause from consumers and
D. Some employees feel better about working for a company committed to improving society—a
condition that can contribute to lower turnover and better worker productivity.
E. Companies with deservedly good reputations for contributing time and money to the betterment of
society are better able to attract and retain employees compared to companies with tarnished
reputations.
When CSR and sustainability strategies increase buyer patronage, offer revenue-enhancing
opportunities, lower costs, increase productivity, and reduce the risk of reputation-damaging incidents,
they contribute to the economic value created by a company and improve its profitability. This does not
necessarily mean acting in a socially responsible manner would always bear profits.
AACSB: Ethics
Blooms: Understand
77. Studies done on the correlation of between good corporate behavior and good financial performance
have generally found
A. no correlation.
B. a small positive correlation.
C. a small negative correlation.
D. a large positive correlation.
E. a large negative correlation.
A review of 135 studies indicated there is a positive, but small, correlation between good corporate
behavior and good financial performance; only 2 percent of the studies showed that dedicating corporate
resources to social responsibility harmed the interests of shareholders.
AACSB: Ethics
Blooms: Understand
9-38
78. A multinational automobile manufacturer issues a public statement that the company's vehicle emissions
tests had been falsified to meet environmental compliance standards over recent years using software
specifically designed for that purpose. Following the news, the CEO is replaced, vehicle sales plummet,
and the company's stock price sharply declines. Which of the following has the company incurred?
A. only visible and internal administrative costs

B. visible but not intangible costs
C. visible and intangible costs
D. internal administrative costs but not visible costs
E. internal administrative costs but not intangible costs
The multinational auto manufacturer has incurred intangible costs due to loss of reputation and
credibility, and incurred resulting visible costs due to the sharp declines in customer patronage and
share prices.
AACSB: Ethics
Blooms: Apply
79. A manufacturer and marketer of prescription pharmaceuticals decided to raise the price of its anti-
malaria drug from $15.00 per dose to $750.00 per dose, a price increase of 5,000%. Following a public
outcry, the CEO was forced to resign, the company was forced to retract the price hike, and the
company's stock price sharply declined. Which of the following has the company incurred?

C. internal administrative costs but not intangible costs
E. visible and intangible costs
The pharmaceutical company has incurred intangible costs due to loss of reputation and credibility due
to allegations of price gouging, and incurred resulting visible costs due to the sharp share price decline
and forced departure of its CEO.
AACSB: Ethics
Blooms: Apply
9-39
80. Which of the following companies incurs mainly internal administrative costs due to unethical
practices?
A. Company A loses its customer loyalty by selling low-quality products for a high cost.
B. Company B's tax evasion practices are revealed, leading to a drastic fall in stock prices.
C. Company C incurs penalties of $1.5 billion for discharging toxic wastes into a river.
D. Company D must retrain its employees who are using their Twitter accounts to post workplace
frustrations.
E. Company E pays men higher wages than women while at the same time propagating messages of
equality and fair play.
Company D incurs the internal administrative costs of providing remedial education and ethics training
to company personnel and the costs of taking corrective actions.
AACSB: Ethics
Blooms: Apply
81. A company that sets aside 2 percent of its pre-tax profits to build and then fund a cancer-recovery
facility for teens is an example of a corporate social responsibility action to
A. enhance employee well-being.

B. support philanthropy.
C. protect and sustain the environment.
D. ensure honorable and ethical action.
E. promote workforce diversity.
Companies fulfill their philanthropic obligations by making charitable contributions, supporting
community service endeavors, engaging in broader philanthropic initiatives, and reaching out to make a
difference in the lives of the disadvantaged.
AACSB: Ethics
Blooms: Apply
Difficulty: 1 Easy
9-40
82. A company that promotes carpooling among its employees, has cut its printer-paper usage in half, and
has installed solar panels on its roof is an example of a corporate social responsibility action to
A. promote workforce diversity.

B. ensure the company operates honorably and ethically.
C. support philanthropy and participate in community service.
D. protect and sustain the environment.
E. enhance workplace amenities and employee well-being.
By implementing carpooling and reducing resource use, the company is striving to reduce energy and
material consumption thereby reducing its overall carbon footprint to protect and sustain environment.
AACSB: Ethics
Blooms: Apply
83. Which of the following is an activity a company engages in to enhance the quality of life for its
employees in an attempt to fulfill its corporate social responsibility?
A. It fires suppliers that use child labor.

B. It provides work-at-home opportunities.
C. It donates a percentage of its profits to a national charity.
D. It pays to have litter removed from a state highway.
E. It sells its products at a discounted price in underdeveloped countries.
Numerous companies exert extra effort to enhance the quality of life for their employees at work and at
home. This can include onsite day care, flexible work schedules, workplace exercise facilities, special
leaves for employees to care for sick family members, work-at-home opportunities, career development
programs and education opportunities, special safety programs, and the like.
AACSB: Ethics
Blooms: Apply
9-41
84. Which of the following is most likely to be morally valid from the perspective of ethical relativism?
A. bribing a government official to allow you to transfer gambling winnings to a tax haven
B. performing genital mutilations on nonconsenting female teens
C. employing as laborers children under the age of nine
D. agreeing to a country's policy of prohibiting the education of females
E. bribing a government official in an underdeveloped country to obtain a permit to build a hospital
Codes of conduct based on ethical relativism can be ethically problematic for multinational companies
by creating a maze of conflicting ethical standards. A particularly thorny area facing multinational
companies is the degree of cross-country variability in paying bribes. In many countries in eastern
Europe, Africa, Latin America, and Asia, it is customary to pay bribes to government officials in order
to win a government contract, obtain a license or permit, or facilitate an administrative ruling. Bribing
being "customary" in a locality is thus often cited as a justification for indulging in it.
AACSB: Ethics
Blooms: Apply
85. Which of the following builds a moral case for corporate social responsibility and environmentally
sustainable business practices?
A. Socially responsible actions and sustainable business practices can lower costs and enhance
employee recruiting and workforce retention.
B. Opportunities for revenue enhancement may also come from CSR and environmental sustainability
strategies.
C. Well-conceived CSR strategies and sustainable business practices are in the best long-term interest
of shareholders.
D. A business engages in ordinary decency and civic-mindedness, and contributes to society's well-
being.
E. A strong commitment to socially responsible behavior reduces the risk of reputation-damaging
incidents.
The moral case for why businesses should act in a manner that benefits all of the company's
stakeholders—not just shareholders—boils down to "It's the right thing to do." Ordinary decency, civic-
mindedness, and contributions to society's wellbeing should be expected of any business.
AACSB: Ethics
Blooms: Understand
9-42
86. Following a public outcry, the CEO of a nationwide consumer bank was forced to apologize to and
recompense customers for whom the bank had set up false credit card and auto loan accounts, over
100,000 account managers were terminated, and the company's stock price also sharply declined. Which
of the following did the company incur?

C. internal administrative costs, tangible costs, and intangible costs
E. visible and intangible costs
The bank has incurred intangible costs stemming from its loss of reputation and credibility due to
allegations of falsified accounts, incurred resulting visible costs due to the sharp share price decline,
incurred internal administrative costs due to the forced departure of account managers, and tangible
costs due to the and need to recompense customers whose accounts were falsified.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
87. The business case for why companies should act in a socially responsible manner DOES NOT include
such reasons as
A. generating internal benefits (such as improved employee recruiting, workforce retention, training,
and worker productivity).
B. reducing the risk of reputation-damaging incidents.
C. acting in the best interest of shareholders in terms of increased stock price and financial
performance.
D. increasing buyer patronage and customer loyalty.
E. reducing the triple bottom line.
There are several good business reasons why the exercise of corporate social responsibility is also good
business: (1) Increased buyer patronage; (2) Reducing the risk of reputation-damaging incidents; (3)
Internal benefits such as improved efficiency and workforce retention; (4) Shareholder benefits, based
on apparent correlations between CSR and stock price and other measures of financial performance.
Shareholders are likely to view the business case for social responsibility as a strong one, even though
they certainly have a right to be concerned about whether the time and money their company spends to
carry out its social responsibility strategy outweigh the benefits and reduce the bottom line by an
unjustified amount.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
9-43
88. Which one of the following is NOT a part of the business case for why companies should act in a
socially responsible manner?
A. Every business has a moral duty to be a good corporate citizen.

B. Acting in a socially responsible manner reduces the risk of reputation-damaging incidents.
C. Acting in a socially responsible manner is in the overall best interest of shareholders.
D. To the extent that a company's socially responsible behavior wins applause from consumers and
E. Acting in a socially responsible manner can generate internal benefits (as concerns employee
recruiting, workforce retention, training, and improved worker productivity).
While moral duty is important, it is not one of several business reasons why the exercise of corporate
social responsibility is also good business, which are: (1) increased buyer patronage; (2) reducing the
risk of reputation-damaging incidents; (3) internal benefits such as improved efficiency and workforce
retention; (4) shareholder benefits, based on apparent correlations between CSR and stock price and
other measures of financial performance. Shareholders are likely to view the business case for social
responsibility as a strong one, even though they certainly have a right to be concerned about whether the
time and money their company spends to carry out its social responsibility strategy outweigh the
benefits and reduce the bottom line by an unjustified amount.
AACSB: Ethics
Blooms: Understand
9-44
89. Which one of the following is false as concerns the merits of why acting in a socially responsible
manner is "good business"?
A. Companies with good reputations for contributing time and money to bettering society are better
able to attract and retain employees compared to companies with tarnished reputations.
B. There is a high correlation between socially responsible behavior that addresses social issues and a
firm's competitive advantage and financial performance.
C. To the extent that a company's socially responsible behavior wins applause from consumers and
D. Operating in a socially responsible manner protects the company from consumer, environmental,
and human rights activist groups that are quick to criticize businesses whose behavior they consider
to be out of line.
E. Well-conceived social responsibility strategies help avoid or preempt legal and regulatory actions
that could prove costly to the company.
The jury is still out on the correlation between CSR and stock price performance and competitive
advantage. Corporate social agendas that address generic social issues may help boost a company's
reputation, but it is still not yet conclusive whether or not they contribute to improving its competitive
strength in the marketplace. For example, a two-year study of leading companies found that improving
environmental compliance and developing environmentally friendly products enhance earnings per
share, profitability, and the likelihood of winning contracts. Also, the stock prices of companies that rate
high on social and environmental performance criteria have been found to perform 35 to 45 percent
better than the average of the 2,500 companies comprising the Dow Jones Global Index. Finally, a
review of some 135 studies indicated there is a positive, but small, correlation between good corporate
AACSB: Ethics
Blooms: Analyze
Difficulty: 3 Hard
Essay Questions
90. What is the difference between ethics and business ethics?
Ethics concerns principles of right or wrong conduct. Business ethics is the application of ethical
principles and standards to the actions and decisions of business organizations and the conduct of their
personnel. However, ethical principles in business are not materially different from ethical principles in
general.
AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
9-45
91. Identify and explain the three schools of thought about ethical standards for companies with
international operations.
The three schools of thought about ethical standards for companies with international operations are:
1. Ethical universalism, which holds that the most fundamental conceptions of right and wrong are
universal and apply to members of all societies, all companies, and all businesspeople.
2. Ethical relativism, which holds that differing religious beliefs, customs, and behavioral norms across
countries and cultures give rise to multiple sets of standards concerning what is ethically right or wrong.
These differing standards mean that whether business-related actions are right or wrong depends on the
prevailing local ethical standards.
3. Integrative social contracts theory, which provides a middle position between the opposing views
of ethical universalism and ethical relativism. According to integrated social contracts theory, universal
ethical principles based on the collective views of multiple societies form a "social contract" that all
individuals and organizations have a duty to observe in all situations. Within the boundaries of this
social contract, local cultures or groups can specify what additional actions may or may not be ethically
permissible.
AACSB: Ethics
Blooms: Understand
92. What are the strengths and weaknesses of the thesis that ethical standards are (or should be) universal?
The strength of ethical universalism is that it draws upon the collective views of multiple societies and
cultures to put some clear boundaries on what constitutes ethical and unethical business behavior,
regardless of the country or culture in which a company's personnel are conducting activities. Thus a
multinational company can develop a code of ethics that it applies more or less evenly across its
worldwide operations. It can avoid the slippery slope that comes from having different ethical standards
for different company personnel depending on where in the world they are working.
Among its weaknesses we can say that, although undoubtedly there are some universal moral
prescriptions, there are also observable variations from one society to another as to what constitutes
ethical or unethical behavior. Indeed, differing religious beliefs, social customs, traditions, core values,
and behavioral norms frequently give rise to different ethical standards. In a world of ethical relativism,
there are few absolutes when it comes to business ethics, and thus few ethical absolutes for consistently
judging the ethical correctness of a company's conduct in various countries and markets.
AACSB: Ethics
Blooms: Understand
Difficulty: 3 Hard
9-46
93. What are the differences between the school of ethical universalism and the school of ethical
relativism?
The two schools of thought differ in how they view differences between nations, and between societies.
Ethical universalism holds that the most fundamental conceptions of right and wrong are universal and
transcend culture, society, and religion. It is focused on avoiding the slippery slope that comes from
having different ethical standards for different company personnel depending on where in the world
they are working.
Although ethical relativism acknowledges that there are some universal moral prescriptions (like being
truthful and trustworthy), it sees significant observable variations from one society to another as to what
constitutes ethical or unethical behavior. This school believes that a "one-size-fits-all" template for
judging the ethical appropriateness of business actions and the behaviors of company personnel is
totally inappropriate.
AACSB: Ethics
Blooms: Understand
Difficulty: 3 Hard
94. What are the strengths and weaknesses of the beliefs and tenets underlying the school of ethical
relativism?
The strength of ethical relativism is in its understanding of cross-country or cross-cultural differences in

ethical standards. It allows for local ethical standards to take precedence over what the ethical standards
may be in a company's home market. In a world of ethical relativism, there are few absolutes when it
comes to business ethics, and thus few ethical absolutes for consistently judging the ethical correctness
of a company's conduct in various countries and markets.
The weakness of ethical relativism is in the slippery slope that comes from having different ethical
standards for different company personnel depending on where in the world they are working. Issues
such as the payment of bribes and kickbacks and even the use of underage labor are often arguably
justified in terms of local social and political conditions. That something happens locally as a norm is
not necessarily a justification.
AACSB: Ethics
Blooms: Understand
Difficulty: 3 Hard
9-47
95. Ethical relativism equates to multiple sets of ethical standards. True or false? Explain your answer.
True, ethical relativism does equate to multiple sets of ethical standards. In fact it holds that a "one-size-
fits-all" template for judging the ethical appropriateness of business actions and the behaviors of
company personnel is totally inappropriate. It advocates multiple sets of ethical standards because it
believes that whether certain actions or behaviors are ethically right or wrong depends on the ethical
norms of the country or culture in which they take place. Multiple sets of ethical standards are inevitable
when it is considered appropriate for local ethical standards to take precedence over what the ethical
standards may be in a company's home market.
AACSB: Ethics
Blooms: Understand
96. What is meant by integrated social contracts theory? What is its contribution to the debate about ethical
standards?
specify what additional actions may or may not be ethically permissible.
In the debate about ethical standards integrative social contracts theory provides a middle position
between the opposing views of ethical universalism and ethical relativism. It believes that the ethical
standards a company should try to uphold are governed by both (1) a limited number of universal
ethical principles that are widely recognized as putting legitimate ethical boundaries on behaviors in all
situations and (2) the circumstances of local cultures, traditions, and values that further prescribe what
constitutes ethically permissible behavior.
AACSB: Ethics
Blooms: Understand
Difficulty: 3 Hard
9-48
97. Explain the difference between ethical universalism and integrated social contracts theory. Which
school of thought is most inclusive? Explain the reasons for your answer.
As per the school of ethical universalism, the most fundamental conceptions of right and wrong are
universal and transcend culture, society, and religion. It gives little space for variations based on local
ethical principles. The integrative social contracts theory provides a middle position between the
opposing views of ethical universalism and ethical relativism. The integrative social contracts theory is
most inclusive as it accommodates the best parts of ethical universalism and ethical relativism. It also
offers managers in multinational companies clear guidance in resolving cross-country ethical
differences: Those parts of the company's code of ethics that involve universal ethical norms must be
enforced worldwide, but within these boundaries there is room for ethical diversity and the opportunity
for host-country cultures to exert some influence over the moral and ethical standards of business units
operating in that country.
AACSB: Ethics
Blooms: Evaluate
98. Discuss briefly what is meant by the terms ethical universalism and ethical relativism. Where does
integrated social contracts theory fit into the debate about ethical standards? Which of the three schools
of thought stands on the strongest ground?
Ethical universalism holds that the most fundamental conceptions of right and wrong are universal and
apply to members of all societies, all companies, and all businesspeople. Ethical relativism holds that
differing religious beliefs, customs, and behavioral norms across countries and cultures give rise to
multiple sets of standards concerning what is ethically right or wrong. These differing standards mean
that whether business-related actions are right or wrong depends on the prevailing local ethical
standards. The integrative social contracts theory provides a middle position between the opposing
views of ethical universalism and ethical relativism.
The integrative social contracts theory stands on the strongest ground as it accommodates the best of the
other two theories. It offers managers in multinational companies clear guidance in resolving cross-
country ethical differences: Those parts of the company's code of ethics that involve universal ethical
norms must be enforced worldwide, but within these boundaries there is room for ethical diversity and
the opportunity for host-country cultures to exert some influence over the moral and ethical standards of
business units operating in that country.
AACSB: Ethics
Blooms: Evaluate
Difficulty: 3 Hard
9-49
99. Does a company have a duty to go beyond legal requirements and conform to the ethical norms of the
societies in which it operates?
A company does have a duty to go beyond legal requirements and conform to the ethical norms of the
societies in which it operates. A broader understanding of the ethical norms is important to understand
rights and wrongs in letter and spirit. Legal regulations dictate only requirements that make actions
lawful, while ethical norms dwell deeper into the complexities of morality that are not always black and
white like the laws. While most company managers are careful to ensure that a company's strategy is
within the bounds of what is legal, evidence indicates they are not always so careful to ensure that all
elements of their strategies and operating activities are within the bounds of what is considered ethical.
The consequences of crafting strategies that cannot pass the test of moral scrutiny are manifested in
sizable fines, devastating public relations hits, sharp drops in stock prices that cost shareholders billions
of dollars, criminal indictments, and convictions of company executives.
AACSB: Ethics
Blooms: Apply
100. What is the case for why business strategies should be ethical?
There are two reasons why a company's strategy should be ethical: (1) because a strategy that is
unethical is morally wrong and reflects badly on the character of the company and its personnel, and (2)
because an ethical strategy can be good business and serve the self-interest of shareholders.
AACSB: Ethics
Blooms: Understand
9-50
101. Apart from "the business of business is business, not ethics" kind of thinking, there are three other
primary factors that contribute to a drive toward unethical business behavior. Identify and explain the
three factors.
Apart from the "business of business is business, not ethics" kind of thinking, the three other main
drivers of unethical business behavior that stand out are:
• Faulty oversight, enabling the unscrupulous pursuit of personal gain and self-interest: People who are
obsessed with wealth accumulation, power, status, and their own self-interest often push ethical
principles aside in their quest for personal gain. Driven by greed and ambition, they exhibit few qualms
in skirting the rules or doing whatever is necessary to achieve their goals.
• Heavy pressures on company managers to meet or beat short-term performance targets. The pressure
to "never miss a quarter"—so as not to upset the expectations of analysts, investors, and creditors—
prompts nearsighted managers to engage in short-term maneuvers to make the numbers, regardless of
whether these moves are really in the best long-term interests of the company.
• A company culture that puts profitability and business performance ahead of ethical behavior. When a
company's culture spawns an ethically corrupt or amoral work climate, people have a company-
approved license to ignore "what's right" and engage in any behavior or strategy they think they can get
away with.
AACSB: Ethics
Blooms: Understand
9-51
102. Identify the three types of business costs of ethical failures. Provide examples for each type of cost.
The three types of business costs of ethical failures are:
Visible Costs:
• Government fines and penalties

• Civil penalties arising from class-action lawsuits and other litigation aimed at punishing the company
for its offense and the harm done to others
• The costs to shareholders in the form of a lower stock price (and possibly lower dividends)
Internal Administrative Costs:
• Legal and investigative costs incurred by the company

• The costs of providing remedial education and ethics training to company personnel
• The costs of taking corrective actions
• Administrative costs associated with ensuring future compliance
Intangible or Less Visible Costs:
• Customer defections
• Loss of reputation
• Lost employee morale and higher degrees of employee cynicism
• Higher employee turnover
• Higher recruiting costs and difficulty in attracting talented employees
• Adverse effects on employee productivity
• The costs of complying with often harsher government regulations
AACSB: Ethics
Blooms: Understand
Difficulty: 3 Hard
103. Sustainability is a term used in various ways, but most often it concerns a firm's relationship to the
environment and its use of natural resources. Define the term from a company's business practices and
strategy perspective.
From a company's business practices perspective, sustainability means those practices that are capable
of meeting the needs of the present without compromising the ability to meet the needs of the future.
Many companies have also begun to incorporate a consideration of environmental sustainability into
their strategy. So from a company's business strategy perspective, sustainability entails deliberate and
concerted actions to operate businesses in a manner that protects natural resources and ecological
support systems, guards against outcomes that will ultimately endanger the planet, and is therefore
sustainable for centuries.
AACSB: Ethics
Blooms: Understand
9-52
104. Identify the five good reasons (actions) companies can choose in crafting social responsibility
initiatives, environmental sustainability, and a good corporate citizenship strategy.
The five good actions companies can choose in crafting social responsibility initiatives, environmental
sustainability, and a good corporate citizenship strategy are:
• Striving to employ an ethical strategy and observe ethical principles in operating the business.
• Making charitable contributions, supporting community service endeavors, engaging in broader
philanthropic initiatives, and reaching out to make a difference in the lives of the disadvantaged.
• Taking actions to protect the environment and, in particular, to minimize or eliminate any adverse
impact on the environment stemming from the company's own business activities.
• Creating a work environment that enhances the quality of life for employees.
• Building a diverse workforce with respect to gender, race, national origin, and other aspects that
different people bring to the workplace.
AACSB: Ethics
Blooms: Understand
105. Define and discuss the programs commonly included under a company's corporate social responsibility
strategy.
Corporate responsibility programs commonly include the following elements:
• Striving to employ an ethical strategy and observe ethical principles in operating the business.
• Making charitable contributions, supporting community service endeavors, engaging in broader
philanthropic initiatives, and reaching out to make a difference in the lives of the disadvantaged.
• Taking actions to protect the environment and, in particular, to minimize or eliminate any adverse
impact on the environment stemming from the company's own business activities.
• Creating a work environment that enhances the quality of life for employees.
• Building a diverse workforce with respect to gender, race, national origin, and other aspects that
different people bring to the workplace.
AACSB: Ethics
Blooms: Understand
9-53
106. Explain how environmental sustainability strategies go about improving a company's "Triple-P"
performance—people, planet, and profit. Why is it important for strategy-makers to find points of
intersection between society and the company's ability to execute value chain activities or better serve
customer needs?
At the center of the triple bottom line is a company's responsibility to stakeholders rather than
shareholders. Stakeholders include anyone who might be affected by a company's practices, from
workers to people in neighboring communities. Actions that need to be taken to get the three P's right
are:
• People: Be responsible for how you affect your employees and people in the wider communities with
which you deal directly or via your products. Keep their interests at the very forefront.
• Planet: Be responsible for creating a healthy environment by fostering sustainable environmental
practices. Reduce waste, conserve energy, and maintain environmentally safe manufacturing processes.
• Profit: Work harmoniously in your social and environmental settings. Include costs of pollution,
worker displacement, and other factors in profit calculations.
It important for strategy-makers to find points of intersection between society and the company's ability
to execute value chain activities or better serve customer needs because:
• Such actions can lead to increased buyer patronage.
• A strong commitment to socially responsible behavior reduces the risk of reputation-damaging
incidents.
• Socially responsible actions and sustainable business practices can lower costs and enhance employee
recruiting and workforce retention.
• Opportunities for revenue enhancement may also come from CSR and environmental sustainability
strategies.
• Well-conceived CSR strategies and sustainable business practices are in the best long-term interest of
shareholders.
AACSB: Ethics
Blooms: Understand
Difficulty: 3 Hard
9-54
107. What is the essence of the moral case for why a company should engage in socially responsible actions
and environmentally sustainable business practices?
The essence of the business case for why a company should engage in socially responsible actions and
environmentally sustainable business practices boils down to "It's the right thing to do." Ordinary
decency, civic-mindedness, and contributions to society's wellbeing should be expected of any business.
In today's social and political climate, most business leaders can be expected to acknowledge that
socially responsible actions are important and that businesses have a duty to be good corporate citizens.
But there is a complementary school of thought that business operates on the basis of an implied social
contract with the members of society. According to this contract, society grants a business the right to
conduct its business affairs and agrees not to unreasonably restrain its pursuit of a fair profit for the
goods or services it sells. In return for this "license to operate," a business is obligated to act as a
responsible citizen, do its fair share to promote the general welfare, and avoid doing any harm. Such a
view clearly puts a moral burden on a company to operate honorably, provide good working conditions
to employees, be a good environmental steward, and display good corporate citizenship.
AACSB: Ethics
Blooms: Understand
108. What is the essence of the business case for why a company should engage in socially responsible
actions and environmentally sustainable business practices?
The essence of the business case for why a company should engage in socially responsible actions and
environmentally sustainable business practices lies in the fact that such engagement can improve
business reputations and operational efficiency while also reducing their risk exposure and encouraging
loyalty and innovation. Broadly speaking the following are the benefits:
• increased buyer patronage

• reduction in the risk of reputation-damaging incidents
• lowered costs and enhanced employee recruitment and workforce retention
• opportunities for revenue enhancement
• long-term benefits for shareholders
AACSB: Ethics
Blooms: Understand
9-55
109. How do socially responsible actions and sustainable business practices lower costs related to human
resources in a company?
Socially responsible actions and sustainable business practices can lower costs and enhance employee
recruiting and workforce retention. Companies with deservedly good reputations for social
responsibility and sustainable business practices are better able to attract and retain employees,
compared to companies with tarnished reputations. Some employees just feel better about working for a
company committed to improving society. This can contribute to lower turnover and better worker
productivity. Other direct and indirect economic benefits include lower costs for staff recruitment and
training.
AACSB: Ethics
Blooms: Understand
110. Why are well-conceived CSR strategies and sustainable business practices considered in the best long-
term interest of shareholders?
When CSR and sustainability strategies increase buyer patronage, offer revenue-enhancing
opportunities, lower costs, increase productivity, and reduce the risk of reputation-damaging incidents,
they contribute to the economic value created by a company and improve its profitability. Furthermore,
socially responsible business behavior helps avoid or preempt legal and regulatory actions that could
prove costly and otherwise burdensome. In some cases, it is possible to craft corporate social
responsibility strategies that contribute to competitive advantage and, at the same time, deliver greater
value to society.
AACSB: Ethics
Blooms: Understand
9-56
111. Explain the key tenets of the concept of environmental sustainability. How does striving for
environmental sustainability impact strategic initiatives involving a company's shareholders, its
employees, and the environment?
Environmental sustainability involves deliberate actions to protect the environment, provide for the
longevity of natural resources, maintain ecological support systems for future generations, and guard
against the ultimate endangerment of the planet. Sustainability initiatives undertaken by companies are
directed at improving the company's triple bottom line—its performance on economic, environment,
and social metrics. Strategic initiatives include: (1) reengineering internal processes to improve a
company's overall performance on sustainability measures; (2) packaging redesign for products to
conserve natural resources and reduce the volume of consumer waste; (3) sourcing from suppliers that
practice sustainable farm management; and (4) addressing societal needs of consumers in developing
countries.
AACSB: Ethics
Blooms: Understand
112. Explain and provide examples of how companies committed to environmental sustainability are able to
address society's concerns about protecting the environment, while lowering costs and/or creating value
for customers.
Sometimes, cost savings and improved profitability are drivers of corporate sustainability strategies.
That is, social responsibility strategies linked to a customer value proposition or to key value chain
activities may also help build competitive advantage. Examples include emphasizing local procurement,
establishing a foundation for humane animal husbandry, running vehicles on biofuels, using only
biodegradable cleaning products, and pursuing responsible waste management policies at Whole Foods
Markets.
AACSB: Ethics
Blooms: Apply
9-57
113. Explain what is meant by "sustainable business practices" and using that explanation, provide three
examples of companies that pursue sustainability strategies.
Sustainable business practices are those that meet the needs of the present without compromising the
ability to meet the needs of the future. Examples include: (1) Unilever's special low-rate financing for
tomato suppliers choosing to switch to water-conserving irrigation systems and training programs in
India that have allowed contract cucumber growers to reduce pesticide use by 90 percent, while
improving yields by 78 percent; (2) Nike's sustainability initiatives that have reduced energy
consumption by 24 percent, emissions by 21 percent, water consumption by 13 percent, waste by 35
percent and chemical usage by 20 percent between 2010 and 2015; and Procter & Gamble's Swiffer
cleaning system, a product that was designed with reduction of energy and water use in mind.
AACSB: Ethics
Blooms: Apply
114. Under what circumstances should a company endeavor to be socially responsible in its actions and
conduct?
There are several good business reasons why the exercise of corporate social responsibility is also good
business: (1) increased buyer patronage; (2) reducing the risk of reputation-damaging incidents; (3)
internal benefits such as improved efficiency and workforce retention; (4) shareholder benefits, based
on apparent correlations between CSR and stock price and other measures of financial performance.
Shareholders are likely to view the business case for social responsibility as a strong one, even though
they certainly have a right to be concerned about whether the time and money their company spends to
carry out its social responsibility strategy outweigh the benefits and reduce the bottom line by an
unjustified amount.
AACSB: Ethics
Blooms: Apply
9-58
115. Does a high correlation exist between a company's social responsibility and its competitive advantage
and financial performance?
The jury is still out on the correlation between CSR and stock price performance and competitive
advantage. Corporate social agendas that address generic social issues may help boost a company's
reputation, but it is still not yet conclusive whether or not they contribute to improving its competitive
strength in the marketplace. For example, a two-year study of leading companies found that improving
environmental compliance and developing environmentally friendly products enhance earnings per
share, profitability, and the likelihood of winning contracts. Also, the stock prices of companies that rate
highest on social and environmental performance criteria have been found to perform 35 to 45 percent
better than the average of the 2,500 companies comprising the Dow Jones Global Index, Finally, a
review of some 135 studies indicated there is a positive, but small, correlation between good corporate
AACSB: Ethics
Blooms: Understand
Difficulty: 3 Hard
9-59

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Chapter 09 Ethics, Corporate Social Responsibility, Environmental

Sustainability, and Strategy Answer Key

Multiple Choice Questions

1. Ethical principles in business

2. How do ethical principles apply to businesses?

A. Use of adult workers instead leads to higher labor costs.

AACSB: Analytical Thinking

A. sharp drops in stock prices and lower dividends.

8. According to the school of ethical universalism

A. defines what is meant by ethical relativism.

14. Which of the following is true of ethical relativism?

A. In a multinational company, application of ethical relativism equates to multiple sets of ethical

18. A belief in ethical relativism leads to the conclusion that

A. violates ethical principles of right and wrong in all countries.

A. are generally advocates of the ethical relativism school of thought.

A. They create a maze of conflicting ethical standards.

A. the school of ethical relativism.

A. the school of ethical relativism.

A. are governed by the school of ethical universalism.

30. The strength of integrated social contracts theory is that it

A. are governed by the school of ethical universalism.

32. The litmus test of a company's code of ethics is

A. the degree to which it is connected to a company's statement of core values.

A. a lack of training in what is ethical and what is not.

A. the pervasiveness of immoral and amoral businesspeople

A. sharp drops in the price of company stock

A. decreasing spending on research and development

40. Short-termism is defined as

A. making assessments of the moral character of a company's managers.

A. otherwise dishonorable people to behave ethically.

A. communicating ethical behavioral norms.

A. government fines and penalties.

A. costs attached to adverse effects on employee productivity.

A. It could result in diminished business reputation.

51. The theory of corporate social responsibility concerns

A. increased buyer patronage

53. The essence of socially responsible business behavior is

A. a company's duty to put the public interest ahead of shareholder interests.

57. Good corporate citizens

59. Striving to be socially responsible entails touching such bases as

A. economic, social, and environmental

63. Triple-bottom-line (TBL) reporting is emerging as an important way for companies to

65. An environmental sustainability strategy consists of a company's deliberate actions to

67. What is the function of the Global Reporting Initiative?

A. A company is not demonstrating an adequate degree of social responsibility or endeavoring to be a

A. enhance employee well-being.

A. likely to be fully effective in creating a competitive advantage.

A. is based on the principle of treating people fairly and with respect.

A. increased buyer patronage.

A. Every business has a moral duty to be a good corporate citizen.

A. only visible and internal administrative costs

A. only visible and internal administrative costs

A. enhance employee well-being.

A. promote workforce diversity.

A. It fires suppliers that use child labor.

A. only visible and internal administrative costs

A. Every business has a moral duty to be a good corporate citizen.

90. What is the difference between ethics and business ethics?

The strength of ethical relativism is in its understanding of cross-country or cross-cultural differences in

The three types of business costs of ethical failures are:

• Government fines and penalties

Internal Administrative Costs:

• Legal and investigative costs incurred by the company