Certified Financial Management Specialist Practice Exam

What is a key characteristic of stakeholders in the Shareholder Model?

1. They have direct control over company decisions

2. They are acknowledged but lack control

3. They make up the majority of the board members

4. They are involved in daily management

The correct answer is: They are acknowledged but lack control

In the context of the Shareholder Model, the key characteristic of stakeholders is that they are acknowledged by the company, but they lack direct control over decision-making processes. The primary focus of the Shareholder Model is to maximize shareholder value, which generally places shareholders at the center of corporate governance. While stakeholders—including employees, customers, suppliers, and the community—do have interests in the company's operations and performance, they do not possess the authority to influence daily decision-making to the same extent that shareholders do. In this model, shareholders may have voting rights and can influence major corporate decisions, such as electing the board of directors or approving mergers. However, the broader category of stakeholders may provide input or express concerns, but their involvement typically doesn’t translate into direct control over company policies or actions. This understanding helps clarify the distinction between shareholders, who have more formal authority, and other stakeholders, whose interests are considered but who do not directly govern the company.