CEA Stakeholder Rights & Responsibilities 2 — Questions and Answers
Question 1: A company discovers that a product defect could harm customers but fixing it will cost millions. Under stakeholder ethics, what is the primary obligation?
- Disclose the defect and initiate a recall (Correct answer)
- Weigh costs against probability of harm before acting
- Notify only major institutional shareholders
- Defer to legal counsel before taking any action
Correct answer: Disclose the defect and initiate a recall
Stakeholder ethics requires prioritizing customer safety over financial considerations when a known harm exists.
Question 2: Which principle holds that stakeholders have the right to participate in decisions that substantially affect their interests?
- Shareholder primacy
- Stakeholder engagement (Correct answer)
- Fiduciary duty
- Agency theory
Correct answer: Stakeholder engagement
Stakeholder engagement is the principle that those affected by corporate decisions have a right to meaningful participation in those decisions.
Question 3: An employee whistleblower reports ethical violations internally but management ignores the concern. What is the employee's ethical responsibility next?
- Accept management's decision and move on
- Escalate through available channels, including external regulators if necessary (Correct answer)
- Leak information to the media immediately
- Resign without further action
Correct answer: Escalate through available channels, including external regulators if necessary
When internal channels fail, escalating to external oversight bodies is the ethically appropriate next step to protect broader stakeholder interests.
Question 4: The concept of 'legitimate stakeholder claims' suggests that a stakeholder's claim is valid when it is:
- Backed by significant financial investment
- Legally enforceable in court
- Based on a recognized legal, moral, or contractual basis (Correct answer)
- Supported by a majority of other stakeholders
Correct answer: Based on a recognized legal, moral, or contractual basis
A legitimate claim arises from legal rights, moral standing, or contractual relationships — not merely from power or financial position.
Question 5: A supplier discovers that a buyer company is using its products in ways that violate environmental regulations. What is the supplier's stakeholder responsibility?
- Continue supplying as long as their own operations are legal
- Raise the concern with the buyer and consider contract termination if unresolved (Correct answer)
- Report the buyer to regulators without prior notice
- Ignore it since responsibility lies solely with the buyer
Correct answer: Raise the concern with the buyer and consider contract termination if unresolved
Suppliers have an ethical responsibility to address misuse of their products and may need to cease the relationship if violations continue.
Question 6: In Freeman's stakeholder theory, which group is considered a primary stakeholder?
- Media organizations
- Competitors
- Employees (Correct answer)
- Government lobbyists
Correct answer: Employees
Primary stakeholders — including employees, customers, suppliers, and investors — have direct transactional relationships with the firm.
Question 7: When a company's interests conflict with community stakeholder interests, an ethical resolution process should first:
- Prioritize shareholder returns as the legal obligation
- Identify the nature and severity of each stakeholder's interests (Correct answer)
- Hold a public vote among all affected parties
- Defer the decision until conflict resolves naturally
Correct answer: Identify the nature and severity of each stakeholder's interests
Ethical conflict resolution begins with understanding and mapping each stakeholder's interests and the magnitude of impact before seeking solutions.
CEA Stakeholder Rights & Responsibilities 2
A company discovers that a product defect could harm customers but fixing it will cost millions.
Under stakeholder ethics, what is the primary obligation?