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

Delmora Bank is considering a policy of engaging more actively with its customers, employees and local communities, believing this will protect its long-term reputation and licence to operate. Critics say the policy distracts from returns to investors. Which statement best reflects the instrumental form of stakeholder theory?

The instrumental view holds that managing stakeholder relationships is worthwhile because it supports long-term performance, reputation and value. This differs from the normative view, which argues stakeholders have moral claims whatever the effect on company results.

  1. AManaging stakeholder relationships is justified because it contributes to long-term corporate performance and valueCorrect
  2. BStakeholders have intrinsic moral rights that must be honoured regardless of the effect on performance
  3. CManagement should only consider stakeholders who hold shares in the company
  4. DThe company should treat all stakeholders as equal in power and interest

Explanation

Instrumental stakeholder theory justifies stakeholder engagement as a means to achieve corporate objectives such as long-term value and reputation. The normative form bases it on moral rights regardless of performance. The other options contradict stakeholder theory or the grid.

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