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ACCA Applied Knowledge · Business and Technology · Stakeholders in business organisations

A board argues that investing in better employee training and supplier relationships, while reducing this year's profit, is consistent with shareholder theory. Which statement gives the strongest justification for this argument?

The strongest justification is that the spending may raise long-term shareholder value, so other stakeholders are served as a means to that end. This is an enlightened shareholder approach, unlike stakeholder theory, which treats their interests as valid in their own right.

  1. AShareholder theory prohibits any spending that reduces current-year profit
  2. BSuch spending may increase long-term shareholder value, so the interests of other groups are served instrumentallyCorrect
  3. CShareholder theory requires equal consideration of employees and suppliers alongside owners

Explanation

An enlightened or instrumental shareholder view treats good treatment of other stakeholders as a means to higher long-term shareholder wealth. The first option overstates the theory, and the third describes a normative stakeholder view where all interests count equally in their own right.

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