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

A listed company's directors receive bonuses based on this year's reported profit. They propose cutting research spending sharply, which will raise this year's profit but harm long-term growth. Which conflict does this best illustrate?

It illustrates a conflict between short-term and long-term objectives, driven by managers' personal reward differing from shareholders' interest. Directors gain bonuses from higher current profit, but cutting research harms future growth that shareholders value, so their interests diverge.

  1. AConflict between short-term and long-term objectives, arising from managers' personal interests differing from those of shareholdersCorrect
  2. BConflict between customers and suppliers over pricing
  3. CConflict between government and the company over taxation
  4. DConflict between employees and trade unions over pay bargaining

Explanation

Managers rewarded on short-term profit may act to boost bonuses even though shareholders benefit more from long-term growth. This is a classic agency-type conflict between managers' and owners' time horizons. The other options involve different stakeholder pairs not mentioned in the scenario.

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