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

A listed company's directors reject a proposal to close a profitable but polluting plant, saying the law is met and their duty is only to maximise shareholder wealth. A minority shareholder group argues the plant harms the local community and reputation. Which statement is most accurate?

The directors are applying shareholder theory, focusing on owner wealth within the law, while the shareholder group is using stakeholder theory by raising community harm and long-term reputational risk. Legality alone does not make the directors' position a stakeholder one.

  1. AThe directors' stance is consistent with shareholder theory, while the group's argument draws on stakeholder theory and long-term reputational riskCorrect
  2. BThe directors' stance is consistent with stakeholder theory because the plant is legal
  3. CThe group's argument is consistent with pure shareholder theory because it concerns reputation only
  4. DBoth parties are applying stakeholder theory but disagree on weighting

Explanation

Directors focus on owner wealth within the law, which is the shareholder view. The group raises effects on the community, a stakeholder concern, supported by a reputational risk argument. Legal compliance alone does not make a stance stakeholder-based.

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