Lec 4

Question 1

What is shareholder primacy?

Answer 1

A corporate governance theory that holds that the primary objective of a corporation is to maximize the value and returns for its shareholders. This theory asserts that the interests of shareholders should take precedence over the interests of other stakeholders, such as employees, customers, suppliers, and the community

Question 2

What are the three core assumptions used to defend the shareholder approach?

Answer 2

1. Shareholders own corporations
2. Shareholders are the residual claimants of a corporation
3. Shareholders are principals who hire directors/managers to act as their agents

Each of these assumptions is mistaken

Question 3

What does the stakeholder approach say managers should do?

Answer 3

• Managers must take the interests of different stakeholders into account when engaging in decision-making. Treat each stakeholder with respect.