BBM Business Ethics and Corporate Governance 2 — Questions and Answers
Question 1: The concept of 'stakeholder theory' in business ethics argues that companies should be managed in the interests of:
- Only shareholders and investors
- Only company executives and managers
- All parties affected by the company's operations (Correct answer)
- Only the local government and regulators
Correct answer: All parties affected by the company's operations
Stakeholder theory, developed by R. Edward Freeman, holds that businesses should consider the interests of all stakeholders — employees, customers, suppliers, communities, and shareholders.
Question 2: Which of the following is an example of an 'inside director' on a corporate board?
- An independent academic serving on the audit committee
- A retired government official appointed for compliance oversight
- The company's own Chief Executive Officer serving on the board (Correct answer)
- A representative from a major institutional investor
Correct answer: The company's own Chief Executive Officer serving on the board
An inside director is a board member who is also an employee or officer of the company, such as the CEO or CFO, unlike outside (independent) directors.
Question 3: Insider trading refers to buying or selling securities based on:
- Publicly available analyst reports
- Material non-public information about a company (Correct answer)
- Historical stock price trends
- Recommendations from licensed brokers
Correct answer: Material non-public information about a company
Insider trading occurs when someone trades a company's securities using material information not yet available to the public, which is illegal and undermines market integrity.
Question 4: Which body in the United States is primarily responsible for enforcing federal securities laws and regulating the securities industry?
- Federal Reserve Board (FRB)
- Securities and Exchange Commission (SEC) (Correct answer)
- Financial Industry Regulatory Authority (FINRA)
- Department of Commerce
Correct answer: Securities and Exchange Commission (SEC)
The Securities and Exchange Commission (SEC) is the primary U.S. federal agency responsible for enforcing securities laws and protecting investors from fraud.
Question 5: In business ethics, 'greenwashing' refers to:
- Legitimate environmental sustainability programs implemented by a corporation
- Misleading claims by a company about the environmental benefits of its products or practices (Correct answer)
- Government programs that fund green energy initiatives
- The practice of using recycled materials in manufacturing
Correct answer: Misleading claims by a company about the environmental benefits of its products or practices
Greenwashing is a deceptive marketing practice where a company overstates or falsely claims environmental benefits to improve its public image without making meaningful sustainability changes.
Question 6: The 'triple bottom line' framework in business ethics evaluates corporate performance based on which three dimensions?
- Profitability, market share, and brand value
- People, planet, and profit (Correct answer)
- Revenue, costs, and net income
- Employees, customers, and investors
Correct answer: People, planet, and profit
The triple bottom line, coined by John Elkington, measures business performance across social (people), environmental (planet), and financial (profit) dimensions.
Question 7: A company's code of ethics primarily serves to:
- Set employee salary benchmarks and compensation structures
- Define standards of conduct and guide employee decision-making (Correct answer)
- Outline the company's marketing strategy and brand values
- Establish procedures for mergers and acquisitions
Correct answer: Define standards of conduct and guide employee decision-making
A code of ethics establishes the organization's values and behavioral standards, helping employees recognize ethical dilemmas and make decisions consistent with company principles.
BBM Business Ethics and Corporate Governance 2
The concept of 'stakeholder theory' in business ethics argues that companies should be managed in the interests of: