Skip to content

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

A listed manufacturer decides to keep a loss-making local factory open for two more years, despite lower short-term profit, because closure would devastate the local community and damage its reputation. Which view of the firm does this decision most clearly reflect?

The decision reflects stakeholder theory. The company accepts lower short-term profit to protect the local community and its reputation, so it is giving weight to a non-shareholder group. A strict shareholder approach would close the loss-making factory to protect owner returns.

  1. AStakeholder theory, because the decision gives weight to the interests of the community as well as shareholdersCorrect
  2. BShareholder theory, because the decision is aimed solely at maximising short-term dividends
  3. CAgency theory, because managers are being monitored by a regulator

Explanation

The decision accepts reduced short-term profit to protect the community, which is a non-shareholder group. This is characteristic of stakeholder theory. Pure shareholder theory would favour closure to avoid losses, and no regulator monitoring is mentioned.

Did you get it right without looking?

One question tells you little. A timed set on Stakeholders in business organisations shows your real accuracy, how long you take and where you lose marks.

Practise Stakeholders in business organisationsFree diagnostic mock

More Stakeholders in business organisations questions