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ACCA Strategic Professional · Strategic Business Leader · Governance scope and approaches

Altair Pharma has a long-standing policy of reporting only to its shareholders, arguing that its sole duty is to maximise shareholder wealth within the law. A new director argues that employees, regulators and communities have claims on the company because they are affected by its actions and can affect its success. Which view of the corporation does the new director's argument represent?

The director is applying stakeholder theory. It says a company owes responsibilities to every group that affects or is affected by its activities, including employees, regulators and communities, rather than only to shareholders, which is the opposite of the shareholder primacy position.

  1. AStakeholder theoryCorrect
  2. BAgency theory
  3. CTransaction cost theory
  4. DShareholder primacy (Friedman) view

Explanation

Stakeholder theory holds that the company has obligations to all groups that affect or are affected by its activities, not only shareholders. Agency theory concerns the owner-manager relationship, and the Friedman view is the shareholder-primacy position the policy already reflects.

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