Mgmt 423 Ewu - Test Two

Front 1

What is the name of the economic theory that justified the CEO stock-option practices described in the article?

Back 1

Principal-agent theory

Front 2

Describe the principal-agent theory

Back 2

To incent the agent (CEO) to act in the interest of the principal (shareholder) by providing a type of compensation that gave CEOs a stake in the game similar to that of shareholders, in this case, stock options.

Front 3

Under the Principal-Agent theory, how does the principle of ‘shareholder return’ relate to other stakeholder interests? What stakeholders are most likely to benefit? Which ones may be harmed?

Back 3

The principle of “maximize shareholder returns” tends only to benefit the major shareholders (today, mostly financial fund managers). Small shareholders are often hurt as are customers, employees, and communities.

Front 4

In practice, what kind of ‘shareholder return’ was emphasized by the incentive that stock options gave CEO’s?

Back 4

Increasing share prices

Front 5

How did CEO stock-options contribute to the recent corporate corruption? What are some possible corrections

Back 5

CEOs of major banks and fund managers were incented to make very risky investments and to cash in despite the crash they caused.

Front 6

What is the name and type business of the company that Bogle founded

Back 6

Founder and CEO of the Vanguard Group Inc., the 2nd largest mutual fund

Front 7

What did Bogle think about the Wall Street Banking and investment industries?

Back 7

That by definition they “subtract from the value created by our productive businesses.”

Front 8

What stages did Bogle say that the nation’s economy had passed through over the past two centuries? According to Bogle, what is the current stage and does it add to or subtract from the value created by our productive businesses

Back 8

agricultural, manufacturing, service and financial.

Front 9

How much money did Bogle say was being drained out of the productive US econom yby these industries in:

Back 9

2007 - $500 billion and then in 2008 - $650 billion

Front 10

What did Bogle say is the likely percentage of S&P annual profits generated by the finance sector? How does that compare to the energy, health care, manufacturing, and information technology sectors?

Back 10

33%. Larger than combined profits of energy and health care; 3x as much as manufacturing and IT.

Front 11

Does Bogle suggest that the US economy is healthy and making things that the world will buy or simply trading pieces of paper, swapping stocks and bonds back and forth?

Back 11

Simply trading pieces of paper back and forth.

Front 12

Does Bogle seem to agree with Keynes that the financial markets are like a casino?What does the word, “croupier” mean?

Back 12

Yes. Croupier – someone who collects and pays money at the gaming table

Front 13

Originally corporations (from approximately 1712-1889) were different fromcorporations today. How were they different?

Back 13

Owner were liable, Could not purchase other corporations, Limited to a single purpose, Limited lifetime, Size was limited, For public benefit

Front 14

What was the original purpose of the 14th Amendment? What happened to it

Back 14

To protect the recently freed slaves (13th Amendment); could not be deprived of life, liberty, or property without due process of law.

Front 15

How are corporations different from real people?

Back 15

No feelings, no conscience, no death

Front 16

Define the corporate concept of ‘externalizing costs.’ What are the implications of this concept for the common good?

Back 16

To push the costs off operations or waste onto a third party not directly involved in the transaction. The costs of low prices (jobs sent overseas, pollution, etc.) dumped on public, causing tax money to be spent on repairing the damage rather than on providing needed infrastructure or services

Front 17

In the film, Michael Walker (Executive Director of the Fraser Institute) discussed the implications of the “privatization” of everything. What did he believe that owners would do that justified his reason for believing in such private ownership?

Back 17

Act as stewards of the resource, maintain the resource, be accountable for the resource

Front 18

The earliest forms of corporations date back to

Back 18

India & Ancient Rome

Front 19

How was the Roman Catholic Church of the Middle Ages similar to today’s corporations?

Back 19

It existed as an entity that was more than the sum of its members; therefore giving it life perpetually.

Front 20

What form of business was Andrew Carnegie’s steel industry? What form of business was John D. Rockefeller’s Standard Oil?

Back 20

Limited partnership. Trust.

Front 21

Was the Boston Tea Party similar to the anti-corporate demonstration (the Battle ofSeattle) in Seattle in 1999? Explain.

Back 21

The Boston Tea Party was a protest against a government established monopoly; the Battle of Seattle was a protest against the perceived global monopolies established by governments cooperating on to establish trade policy, monetary policy, etc.

Front 22

. From roughly 1810 to 1900, the Supreme Court and State Courts tended to side with_____, while the state legislatures tended to side with ________.

Back 22

Corporations, collective bargaining and regulation

Front 23

What was the argument made in one of the papers concerning corporations and“unalienable rights”?

Back 23

That corporations are simply another way to organize a business such as a sole proprietorship or partnership; not beings with unalienable rights.

Front 24

In the “Hidden History” article, what are some of the conditions that states placed on corporations in granting their charters?

Back 24

limited lifetime, corporations terminated if exceeded charter, limited to one purpose, owners were liable, could not own other corporations, political and charitable contributions not allowed

Front 25

What does the phrase “scaled voting” mean for corporate governance?

Back 25

One person, one vote; large and small shareholders had equal voting power

Front 26

During the Civil War period, corporations paid people for a role similar to today’s lobbyists. They were called?

Back 26

Borers

Front 27

In the case 1886 of Santa Clara County vs. Southern Pacific Railroad (14th Amendment interpretation), is there any doubt that the Supreme Court granted corporations “personhood”?

Back 27

There is some indication that it was a clerical error

Front 28

What did Korten say about the relationship of money to wealth?

Back 28

Money is not wealth; it is a chit that enables buying things. The making of money often destroys wealth. He indicated forms of real wealth are such things as natural resources, as killed workforce, a safe and stable society, an effective/honest government, etc

Front 29

What are “finance capital” and “finance capitalism”?

Back 29

Making money out of money without making anything useful; trading rather than producing

Front 30

Name two other forms of capital

Back 30

1. natural
2. human

Front 31

Do increases in share prices necessarily reflect an increase in productive capacity or output?

Back 31

No, since it is often accomplished by cutting cost, jobs, etc. and manipulation of financial reports.

Front 32

In order to increase share prices as financial markets demand, what is an example of corporations depleting:
1. natural capital

2. human capital

3. social capital

4. institutional capital

Back 32

1. strip mining, dumping toxic waste

2. poor working conditions, low wages

3. union busting, relocating plants

4. corrupting government for favorable policies

Front 33

How did the Malaysian Forest Minister propose to increase Malaysia’s wealth?

Back 33

To cut down its forests, sell the wood, put the profits in the bank so it could earn interest.

Front 34

According to Korten, does an increase in GDP necessarily indicate an increase in our well being? What are some specific examples when this may not be the case.

Back 34

No. Children buying cigarettes, divorces, security devices, environmental clean ups, etc.

Front 35

Are our political leaders able to assess the economic health of the nation using stock market increases and GDP growth as indicators of economic success? Canthey confidently predict that more jobs and increased wages will follow?

Back 35

No, they can only predict that the rich are getting richer.

Front 36

What does Korten suggest as alternatives to the global capitalist economy (name two)?

Back 36

Market economy and democracy (particularly in corporations)

Front 37

What organization calculates the GDP?

Back 37

Bureau of Economic Analysis, US Department of Commerce

Front 38

How do they do it? What kind of information is involved?

Back 38

They do calculations based on some 10,000 streams of data that describe recent economic activity in the US

Front 39

Why are security measures protecting GDP data so strict?

Back 39

A premature unveiling or leak of the data would put world markets in turmoil

Front 40

Why is GDP seen as a problematic way to measure a sustainable economy?

Back 40

Because the GDP measures activities that may overburden the planet, deplete natural resources beyond recovery, and pollute the planet past the tipping point.

Front 41

Does the conventional view of the GDP equate GDP growth to how well the country and its citizens are doing? Why do many see that as misleading?

Back 41

It is common for citizens and politicians to equate growth of GDP with the well being of the country. It is misleading since it does not reveal a skewed distribution of wealth and increasing gap between rich and poor, it counts the value of cleaning up disasters, it counts destructive behaviors, it masks health problems arising from the activities, and itdoes not show growing unemployment, etc

Front 42

What would Adam Smith think about a measurement that indicates that the wealth of the nation is growing when other measurements show that most people are getting poorer

Back 42

It is an indication of monopolistic forces; that it is not a free market

Front 43

Simon Kuznets, who invented many of the indicators that now include the GDP, was concerned from the start that the GDP might be mistaken for what?

Back 43

its citizens well-being.

Front 44

How would GDP be a better measurement if it were calculated on the median income rather than on the average income?

Back 44

Using the average income as a basis for the calculation is distorted by top earners and corporate profits; consequently masks extreme wage inequalities.

Front 45

How is the GDP compared to the dashboard on an automobile?

Back 45

It is like having only a speedometer on your dashboard.

Front 46

What are some of the metrics being proposed for a better “dashboard?”

Back 46

*health stats

*education

*environment

*wealth distribution inequity

*political engagement

*quantification of natural resources (fuel gauge)

Front 47

What statistical bias likely exists in the GDP measurement concerning public-sector benefits (i.e. the common good)?

Back 47

Public benefits and common good are undervalued leading to inadequate investment in such things as infrastructure, crime prevention, etc

Front 48

What distinction does the article make between people’s feelings of satisfaction in making money versus enjoyment or happiness? What policy options does that difference imply for government economic policy and the measurement of national progress?

Back 48

Increased wealth gives people a sense of satisfaction, but more money does not give us more happiness or enjoyment according to survey data. This presents government with the choice of two different policy alternatives;

1) Is national progress a matter of increasing the number of very rich people, or

2) Is it about getting as many people as possible into the middle class?