Reading 34: Corporate Governance- LOS f～ Q1-2

advantages, statements, corporate, following, regarding

LOS f: Explain the social responsibilities of the corporation in a "stakeholder society" and evaluate the advantages and disadvantages of a corporate governance structure based on stakeholder rather than shareholder interests.

Q1. Which of the following statements regarding advantages and disadvantages in a stakeholder society is least accurate?

A) Profits are sacrificed in the short term for increased shareholder wealth in the long-run.

B) Stockholders and creditors may be hesitant to invest fearing that gains must be shared with other stakeholders.

C) Taxes are distributed more equitably under a stakeholder society than a shareholder society.

Q2. Which of the following is NOT representative of a firm in a stakeholder society?

A) Employees are treated fairly and given extra benefits such as child care and extra family time off which makes them feel more secure and part of a community.

B) Because the firm is viewed favorably by the community it is extended tax breaks and favorable terms by creditors and suppliers.

C) Managers of the firm are under greater control by the stakeholders.

[2009] Session 12 - Reading 34: Corporate Governance- LOS f～ Q1-2

Q1. Which of the following statements regarding advantages and disadvantages in a stakeholder society is least accurate?

A) Profits are sacrificed in the short term for increased shareholder wealth in the long-run.

B) Stockholders and creditors may be hesitant to invest fearing that gains must be shared with other stakeholders.

C) Taxes are distributed more equitably under a stakeholder society than a shareholder society.

Correct answer is C)

There is no evidence that taxes are redistributed more equitably under a stakeholder society where management and the board of directors redistribute taxes to the stakeholders versus a shareholder society where elected officials redistribute taxes.

Q2. Which of the following is NOT representative of a firm in a stakeholder society?

A) Employees are treated fairly and given extra benefits such as child care and extra family time off which makes them feel more secure and part of a community.

B) Because the firm is viewed favorably by the community it is extended tax breaks and favorable terms by creditors and suppliers.

C) Managers of the firm are under greater control by the stakeholders.

Correct answer is C)

In a stakeholder society the social responsibilities of the corporation are to treat the employees fairly with respect to salaries, job security, training, child care, exercise facilities, family time off, etc. This results in the firm being viewed favorably by the community thus creditors offer better financing terms and suppliers offer better pricing and credit terms. By attempting to protect the best interests of all stakeholders the managers are left largely unmonitored thus there is less control of the management under a stakeholder society. In a stockholder society management is under greater control and scrutiny by the stockholders to perform well to maintain a high stock price.