Category: 

In Finance, what is Significant Influence?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 29 October 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
The mongoose was introduced to Hawaii in order to kill rats, but mongooses hunt in the day, while rats are nocturnal.  more...

December 7 ,  1941 :  Japanese bombers attack Pearl Harbor.  more...

Significant influence is the direct or indirect ability to participate in the processes involved in making financial decisions within a company or other organization. The influence may extend to such matters as opening and closing locations operated by the company, making changes to the operating structure of the business, electing members to the board of directors, or hiring a new executive to fill a vacancy. Often, investors who have a significant amount of equity in the company are able to exert this type of influence.

In many companies, significant influence is created when an individual stockholder holds a large portion of the equity in the business. While opinions vary as to what level of equity stakes must be present before the investor can exert this type of influence, many experts agree that even a twenty percent stake in the corporation is sufficient for this purpose. An investor holding enough shares can effectively create a voting bloc when and as desired, thus preventing any decisions put to the investors at large from being approved and enacted. This is especially true on issues where the investors are already widely divided in their opinions.

Ad

While significant influence may be exerted in a direct manner, such as by using voting privileges to determine the outcome of major decisions, this same influence may be exerted in more subtle ways. For example, an investor with a significant percentage of shares in a company may find it easier to have the ear of the board members and other officers of the company. This higher level of access places the investor in a position to share opinions on matters as far reaching as hiring or firing key executives and managers, opening and closing facilities, or even on matters such as employee benefit packages. While not in a position to make those decisions personally, an investor with significant influence can make their opinions known to those who do have that authority and possibly make a difference in the outcome.

It is important to note that significant influence in and of itself is neither good or bad. At its best, this level of influence can prevent a company from making rash decisions that ultimately damage the operation or reputation of the business. At its worst, significant influence creates a situation where deadlocks prevent the company from moving forward, which in turn is highly likely to minimize the amount of return that all investors receive from the shares in their possession.

Ad

You might also Like

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email