Question

Question 1: What is the stakeholder theory of corporate social responsibility?

A. Corporations should maximize profit regardless of how this affects everyone else.

B. Corporations have robust moral obligations to all stakeholder groups and the basis for these obligations is to be found in the obligations that shareholders themselves have to the other stakeholders. However, except for the obligation to shareholders, these are non-fiduciary obligations.

C. The primary moral responsibility of the corporation is to maximizing shareholder value.

D. The corporation has fiduciary duties to all stakeholders, not just to shareholders.

Question 2: According to Stout, what is wrong the “principal-agent” model that underlies the shareholder primacy theory?

A. Shareholders can control the behavior of the corporation (via boards of directors and managers)

B. Shareholders do not own corporations, they are not sole residual claimants, and they cannot control corporate behavior.

C. Shareholders literally own corporations in which they own shares

D. Shareholders are sole residual claimants

Answer 1

Question 1
Answer - (D) The corporation has fiduciary duties to all stakeholders, not just to shareholders.
Reason - While the stakeholder theory holds that corporations have fiduciary responsibility to shareholders, the corporate social responsibility theory in context of all stakeholders posits that, the corporation have fiduciary duties to all stakeholders particularly, pertaining to the society, and not just its shareholders.

Question 2
Answer- (B) Shareholders do not own corporations, they are not sole residual claimants, and they cannot control corporate behavior.
Reason - The owning of corporations, the claim about being sole residual claimants and controlling corporate behaviour are all myths according to Stout. Hence, this is a problem with the "principal-agent" model underlying the shareholder primacy theory.