Which of the following is not a reasonable way to define shareholder theory -- i.e., not a way that you could phrase the central claim made by the theory?

Question

BlackTom AI · Accepted Answer

To tackle this question, let’s compare each option to the core idea of shareholder theory, which emphasizes maximizing the value or interests of shareholders through corporate decisions.
Option A: "A corporation is owned by its shareholders." This is a basic descriptive claim about ownership, which is consistent with the shareholder view that shareholders are the owners and thus central to the theory. It’s a reasonable way to articulate the theory’s foothold in ownership structure.
Option B: "A corporation should be run in the best interests of its shareholders." This directly states the governing objective attributed to shareholder theory: prioritize shareholder value in decision-making. It aligns with the central claim and is therefore a reasonable formulation.
Option C: "Management should act as a fiduciary of shareholders, and not of other groups." This expresses the fiduciary duty aspect, indicating that managers owe duties to shareholders above other stakeholders when following the theory. While some debates exist about how broad fiduciary duties should be, framing it as a fiduciary to shareholders is a coherent and reasonable way to express the theory’s governance claim.
Option D: "Management should treat shareholders’ interests -- but not the interests of other groups -- as an end." This statement claims that the sole end or ultimate goal is to serve shareholders’ interests, excluding other stakeholders. While shareholder theory emphasizes shareholder value, many interpretations recognize stakeholder considerations or use shareholder value as a means to broader social legitimacy. Framing shareholders’ interests as an exclusive end overstates the theory and ignores common criticisms that managers must balance or consider other groups as well. As a result, this phrasing is not a reasonable or standard way to define shareholder theory, because it unduly narrows the theory to an exclusive end-state and omits the debated nuance about stakeholder balance.
In summary, options A, B, and C capture core or justifiable aspects of shareholder theory as commonly discussed, whereas option D proposes an exclusive end-claims framing that goes beyond the typical or defensible articulation of the theory, making it the least reasonable definition among the choices.

Which of the following is not a reasonable way to define shareholder theory -- i.e., not a way that you could phrase the central claim made by the theory?

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