ACCA Applied Knowledge · Business and Technology · Stakeholders in business organisations
Which of the following best describes the shareholder (proprietary) theory of the firm?
Shareholder theory says management's main duty is to maximise the wealth of the company's owners. Managers are agents of shareholders, so other groups' interests matter mainly where they affect shareholder returns. Balancing all groups' interests describes stakeholder theory instead.
- AThe primary duty of management is to maximise the wealth of the owners of the companyCorrect
- BManagement must balance the interests of all groups affected by the company's activities equally
- CThe company exists mainly to provide employment and support the local community
Explanation
Shareholder theory holds that the company is owned by its shareholders and managers act as their agents to maximise shareholder wealth. The second option describes stakeholder theory. The third is a social objective, not the core of shareholder theory.
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