In In actual Japanese society, how often are second-person pronouns used?, the accepted answer says:
You can either refer to a person by the name like
山田, which is not (particularly) polite, or put a polite affix or a title after it like
山田先生, but which to use depends not only on the relation between you and the person referred to, but also on who you are talking to. Japanese adopts a system called relative honorification (as opposed to absolute honorification used, for example, in Korean). If
山田is your boss with the title
部長within a company, and you are talking with someone within the company, you have to be polite enough to refer to him/her as
(山田)部長(even attaching the polite affix like
山田さんis not polite enough, and is rude). But when you are talking with some outsider, then you have to say
山田, and saying
山田さんwould be impolite to the outsider (and the expression
山田does not become impolite to
Further, in a comment:
It is polite to the outsider for you to do so. It is particularly not impolite to 山田 for you to do so. If you still don't get it, then that is how complex the Japanese honorification system is.
The answers in When should one add さん at the end of a name? don't touch on this problem.
What is it about 「〜さん」 for a third person that makes it rude (or not) to the second person? Using this example, does it place 山田 above the outsider?