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CHAPTER 3 Business Governance, Ethics, and Social Responsibility 125
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True/False Questions d. limited partnerships.
e. businesses incorporated in California.
Please indicate if the following statements are true or
false. 3. The Stanley Works Corporation received con-
siderable public attention because of
1. A key benefit of a sole proprietorship is lim-
ited liability. a. its decision to pay a much higher dividend.
b. its firing of its CEO.
2. Sherron Watkins is a famous whistleblower.
c. its attempt to reincorporate in Bermuda.
3. A limited partner is generally the one who
d. its establishment of a new class of pre-
runs a partnership.
ferred stock.
4. Historically, corporations dominated early e. its new corporate directors.
American commerce.
4. The business judgment rule means that cor-
5. The Wrigley family maintains control of the porate directors must
William Wrigley Corporation by virtue of its
a. always make the right decision.
large holding of class B stock.
b. hold all annual meetings in Florida.
6. The separation of corporate ownership and c. fire CEOs regularly.
control can lead the company to have a d. issue preferred stock.
short-term versus a long-term orientation. e. make decisions in good faith as ordinary
7. Golden parachute agreements involve a new prudent persons.
type of skydiving. 5. Restricted stock payments to top corporate
8. The AFL-CIO is generally supportive of the executives and directors involve
stakeholder model of business governance. a. giving them company stock that cannot
9. Andersen Corporation of Bayport, Min- be sold for many years.
nesota, is a company committed to a societal b. restricting insider trading.
responsibility model of business governance. c. stock option payments.
d. giving company stock only to the CEO.
10. Augusta National Golf Club in Georgia has
e. illegal corporate activity.
recently gotten into trouble for being a major
polluter. 6. CalPERS is an example of
a. an excellent high-technology company.
Multiple-Choice Questions
b. confidentiality agreements.
Choose the best answer. c. a new California university.
1. A good example of the underground econ- d. an important institutional investor.
omy is e. a sole proprietorship.
a. high rates of pay for corporate CEOs. 7. The U.S. Securities and Exchange Commis-
b. proxy proposals by pension funds. sions Rule FD has recently
c. oil drilling by Schlumberger Corporation. a. been repealed.
d. not paying for dental care by providing b. been enforced against the Schering-
the dentist with free legal services. Plough corporation.
e. making a donation to a hospital. c. led to increased short-swing corporate
2. Capital formation is easiest for profits.
d. led to more closed corporate meetings
a. partnerships.
with stock analysts.
b. corporations.
e. led to an increase in the membership of
c. sole proprietorships.
the Federal Reserve Bank.
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