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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Conceptual Framework of Corporate Governance

The board of Mehta Pharma Ltd adopts a policy that treats employees, customers, suppliers and the community as parties whose interests the board must weigh, not merely shareholders. Which governance approach does this reflect?

This reflects stakeholder theory, which says a company must consider and balance the interests of all affected groups such as employees, customers, suppliers and the community, rather than serving only shareholders' wealth. It contrasts with shareholder primacy, which treats shareholder returns as the sole objective.

  1. AStakeholder theoryCorrect
  2. BPure shareholder primacy
  3. CAgency cost minimisation only
  4. DManagerial hegemony

Explanation

Stakeholder theory holds that the company should balance the interests of all groups affected by it, not only shareholders. Shareholder primacy focuses solely on owners' wealth, and agency theory addresses owner-manager conflicts, so they do not fit the policy described.

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