Which statement best reflects the distinction between stakeholder theory and shareholder primacy?

Which statement best reflects the distinction between stakeholder theory and shareholder primacy?

• A. Shareholder primacy prioritizes returns to owners; stakeholder theory expands duties to other stakeholders.
• B. Stakeholder theory prioritizes short-term profits for owners.
• C. Shareholder primacy considers community impact as equally important as profits.
• D. There is no difference between the two theories.

Answer: (A)

The main idea tested is who a company owes its responsibilities to: just shareholders or a broader set of stakeholders. Shareholder primacy treats the primary obligation as maximizing returns to owners, focusing on shareholder wealth in the long run. Stakeholder theory argues that the firm affects many groups—employees, customers, suppliers, and the community—and managerial decisions should balance and consider those interests, not just profits for shareholders. The statement that best reflects this distinction says that shareholder primacy prioritizes returns to owners, while stakeholder theory expands duties to other stakeholders. The other options misstate the theories: stakeholder theory is not about prioritizing short-term profits for owners, and shareholder primacy is not described as treating community impact as equally important as profits. There is indeed a difference between the two approaches.

The main idea tested is who a company owes its responsibilities to: just shareholders or a broader set of stakeholders. Shareholder primacy treats the primary obligation as maximizing returns to owners, focusing on shareholder wealth in the long run. Stakeholder theory argues that the firm affects many groups—employees, customers, suppliers, and the community—and managerial decisions should balance and consider those interests, not just profits for shareholders. The statement that best reflects this distinction says that shareholder primacy prioritizes returns to owners, while stakeholder theory expands duties to other stakeholders. The other options misstate the theories: stakeholder theory is not about prioritizing short-term profits for owners, and shareholder primacy is not described as treating community impact as equally important as profits. There is indeed a difference between the two approaches.