CFA Level I Exam · Investors and Other Stakeholders

Stakeholder Groups and Their Interests in a Company

Updated 7 October 2026 · Fact-checked

Stakeholders are all parties affected by or able to affect a company's decisions: shareholders, creditors, managers, employees, directors, customers, suppliers and governments. Each wants something different, such as returns, repayment, pay, safety or tax. To solve exam questions, identify the group, its claim on the firm, and where that claim conflicts with another group's.

Understand Stakeholder Groups and Their Interests

A stakeholder is any person or group with an interest in a company or whose actions can affect it. This is wider than owners. A company needs money, people, inputs, customers and a legal licence to operate, and each of these comes from a different group.

The main groups and what they want:
- Shareholders own the equity. They hold a residual claim: they are paid after everyone else. They want share price growth and dividends, and they accept the most risk.
- Creditors (lenders and bondholders) have a fixed claim: interest and principal on time. They gain nothing extra if the firm does very well, so they care about safety, cash flow and covenants.
- Managers run the company day to day. They want pay, job security, status and a stable firm.
- Directors sit on the board. They oversee managers and are meant to represent shareholders' interests and, more broadly, protect the firm.
- Employees want fair pay, secure jobs, good conditions and benefits such as pensions.
- Customers want quality, fair prices, safe products and service after the sale.
- Suppliers want to be paid on time, steady orders and a lasting relationship.
- Governments and regulators want tax revenue, legal compliance, jobs and public welfare.

Conflicts arise because the claims differ. Shareholders have limited downside but unlimited upside, so they may favour riskier projects. Creditors have capped upside and full downside exposure, so they prefer low risk. Managers may prefer growth, perks or safety over maximising shareholder value, which is the principal-agent problem. Employees want higher pay, which reduces profit available to shareholders.

A useful split is internal stakeholders (shareholders, managers, employees, directors) and external stakeholders (customers, suppliers, creditors, governments and regulators). Questions usually ask you to match a group to its interest, or to spot which two groups conflict.

Key formulas to remember

Order of claims on a firm's cash flows: Creditors (fixed claim) → then shareholders (residual claim); Shareholders are paid only after creditors, so they bear the most risk and have the highest potential reward.
Shareholder vs creditor risk preference: Shareholders: upside unlimited, downside limited → may accept higher risk. Creditors: upside capped at interest and principal → prefer lower risk; This is the usual reason for conflict over risky projects and extra debt.
Principal-agent relationship: Principals (shareholders) → hire agents (managers) → agents may act in own interest; The conflict is managers' self-interest versus owners' wealth maximisation.

How to solve Stakeholder Groups and Their Interests questions

Use this method for any stakeholder question. It works for matching, conflict and governance wording.

1Read the stem and underline the group or groups named, and the action the company takes.
2Write down each group's claim: residual (shareholders), fixed (creditors), pay and security (employees and managers), quality (customers), payment (suppliers), compliance and tax (governments).
3Ask how the action changes risk, cash flow or control for each group.
4Decide who gains and who loses. Higher risk or more debt usually helps shareholders and hurts existing creditors.
5If a manager or director is involved, check whether the issue is a principal-agent conflict.
6Compare the three options and eliminate the two that give a group an interest it does not typically have, such as creditors wanting higher share price growth.
7Choose the option that matches the group's core claim, not a side effect.

Quickest way: Claim-and-direction check

When to use it: Use it when you have about 90 seconds and the question names one group and asks what it wants or who is hurt.

Label the group as owner (residual) or lender (fixed).
Owners favour growth and risk; lenders favour safety and repayment.
Managers and employees favour pay and security; customers favour quality and price; suppliers favour prompt payment; governments favour compliance and tax.
Pick the option that fits the label and drop the rest.

Common mistakes in Stakeholder Groups and Their Interests

Treating shareholders as the only stakeholders.
Finance focuses on maximising equity value, so other groups are forgotten.
Fix: Remember that stakeholders include anyone affected by or able to affect the firm, including creditors, employees, customers, suppliers and governments.
Saying creditors benefit when the firm takes on riskier projects.
Students link higher risk with higher return and forget creditors' payoff is capped.
Fix: Creditors get only interest and principal. More risk raises their chance of loss without raising their payoff.
Believing managers and shareholders always want the same thing.
Managers are seen as working for shareholders, so interests seem aligned.
Fix: Managers may prefer perks, empire building or job safety. This is the agency problem.
Mixing up directors and managers.
Both are described as leading the company.
Fix: Directors oversee and are accountable to shareholders. Managers carry out operations under that oversight.
Assuming governments only want tax.
Tax is the most visible link between firm and state.
Fix: Governments also want legal compliance, employment and public welfare, so they regulate as well as collect revenue.

Worked examples

Example 1

A company announces it will borrow heavily to fund a high-risk expansion. Which group is most likely to object? A. Existing shareholders B. Existing bondholders C. Customers

Show the solution

Identify the action: more debt and a riskier project.
Shareholders have a residual claim with unlimited upside, so they may welcome higher-risk projects with higher expected return.
Bondholders have a fixed claim. Extra debt and risk raise the chance they are not repaid, but their payoff does not rise.
Customers are not directly affected by the financing structure in this stem.
Eliminate A and C. Existing bondholders are the group with downside and no extra upside.

Answer: B. Existing bondholders

Example 2

A manager chooses a lavish corporate jet that reduces profit, even though it adds little to the firm's value. This is best described as: A. A conflict between customers and suppliers B. A principal-agent conflict between managers and shareholders C. A conflict between creditors and governments

Show the solution

Identify the actors: a manager and the firm's owners.
The manager spends owners' money for personal benefit, putting own interest ahead of the owners'.
Shareholders are principals and the manager is their agent, so this is the agency problem.
Customers, suppliers, creditors and governments are not the parties in conflict here.
Eliminate A and C.

Answer: B. A principal-agent conflict between managers and shareholders

Exam tips

Match each group to its core claim first: residual for shareholders, fixed for creditors. Most items reduce to this.
Expect scenario stems about debt, risk, dividends or pay and ask who gains or loses. Trace the effect on each group before reading options.
Each item has three options and one best answer. Choose the group whose core claim is most directly affected by the action in the stem.
Watch for agency wording such as perks, empire building or short-term focus, which signals a manager versus shareholder conflict.
With no penalty for wrong answers, always answer. Eliminate any option that gives a group an interest it does not typically have, then pick the one that matches the core claim of the group affected.

Practice questions from Investors and Other Stakeholders

Stakeholder Groups and Their Interests in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Stakeholder Groups and Their Interests: frequently asked questions

Who are the stakeholders of a company in CFA Level I?

They are shareholders, creditors, managers, employees, directors, customers, suppliers and governments. Each has a different relationship with the firm and a different interest in how it is run.

How do shareholders and creditors differ in their interests?

Shareholders hold a residual claim and can gain without limit, so they may favour riskier, higher-return projects. Creditors have a fixed claim and prefer safety, steady cash flow and protection through covenants.

What is the difference between a stakeholder and a shareholder?

A shareholder is an owner of the company's equity. A stakeholder is any party affected by or able to affect the firm, so shareholders are one type of stakeholder.

Why do stakeholder conflicts matter for corporate governance?

Governance exists to manage conflicts between groups, especially between managers and shareholders and between shareholders and creditors. Boards, disclosure and oversight are tools to balance these interests.