Certified Financial Management Specialist Practice Exam

Who primarily holds the control in the Shareholder Model?

1. Only the company executives

2. The board of directors and shareholders

3. Employees and management

4. Government regulators

The correct answer is: The board of directors and shareholders

In the Shareholder Model, control is primarily held by the board of directors and shareholders. This model emphasizes that the primary purpose of a corporation is to maximize shareholder wealth. Shareholders, as the owners of the company, have the ultimate decision-making authority exercised through their votes on certain matters, such as the election of board members, approval of major corporate transactions, and changes to the corporate charter. The board of directors acts on behalf of the shareholders and is responsible for overseeing the management of the company. They are tasked with ensuring that the company is managed in a way that aligns with the interests of the shareholders, thereby facilitating strategic decisions and policies that can lead to higher profitability and increased shareholder value. In this model, while company executives and management play a crucial role in day-to-day operations and implementing the strategies decided by the board, they ultimately report to the board of directors, which is accountable to the shareholders. This structure highlights the centrality of shareholders in corporate governance and decision-making processes, distinguishing it from other models where different groups might have significant influence or control. The other entities listed, such as employees, management, and government regulators, do not hold primary control under this model. Their roles are complementary but do not overshadow the authority of the