# Ownership Insiders and Succession ## Stock ownership beats formal control mechanisms REQ defines insider ownership as shares held by executives, board members **and large private owners (often families)** — everyone who can materially move long-term performance (REQ, Jul 2025, p.96). > [!info] What the portfolios actually look like > **Nordic fund** — management holds 3% of capital on average (1% median); board / family / large private owners **20%** (19% median). CEOs own **104× annual base salary** on average, 10× median. > > **Global fund** — management 2% (0.7% median); board / family 16% (4.8% median). CEOs own **219× annual base salary** on average, 10× median (p.98–99). > > The gap between average and median tells you these are skewed by a few founder-controlled names, not uniformly high. The independent evidence: the 2022 NHH study of 993 Nordic acquirers found insiders own **9.94%** of programmatic acquirers versus **5.05%** and **5.14%** for single and traditional acquirers (p.49). ## The governance argument, inverted The conventional view is that high institutional ownership is better governance. REQ's counter: institutional investors often have a short horizon, rarely take board seats (it would restrict their trading), and grant management freedom without aligned incentives. A **private owner takes the seat**, because they have a generational perspective on the stake. > [!important] The condition, not just the ownership > Ownership must be *bought*, not given — "not given away for free through warrants or options but through investment requirements or long-term incentive plans with appropriate vesting periods." The total value of the stock should significantly exceed annual compensation (p.96). > [!warning] When insider ownership turns negative > A heavily indebted company entering a downturn with a majority owner whose personal wealth sits in the stock: they may **postpone a needed equity raise to avoid dilution**, and management spends the crisis worrying about the capital structure instead of operations. High insider ownership requires checking the governance mechanisms *around* it (p.97). ## Three succession roadmaps REQ finds companies rarely alternate — each has a distinct, readable pattern (p.94–95). 1. **The "forever-CEO."** Founder or co-founder, full board autonomy, large stake, distinctive leadership style. The CEO *is* the investment analysis. Examples in REQ's funds: Mark Leonard at Constellation Software, Gerteric Lindquist at Nibe. 2. **The internal candidate.** A detailed board succession plan with several internal names. The new CEO understands the culture and strategic DNA; strategy and execution don't change. **Most of REQ's holdings.** Per Waldemarsson (Lifco), Niklas Stenberg (Addtech), Johan Andersson (Addnode), Magnus Söderlind (Bergman & Beving, from Lagercrantz), Jörgen Wigh (Lagercrantz, returning from B&B). 3. **External recruitment.** Brings a fresh challenge to strategy — and the risk of changing strategic direction too often. **REQ generally does not observe this in their portfolios.** The CEO here is the "Cultural Executive Officer". The downside of the model is that much of the perceived value creation is tied to one person, so **succession risk is a first-order thing to assess**, not a governance footnote. ## Why it matters Ownership and succession are the two variables that tell you whether the strategy will still exist in fifteen years — which is the only horizon over which any of this pays. Study a company's CEO history and the pattern is usually obvious. ## Related - [[Acquisition-Driven Compounders MOC]] - [[Decentralization Is the Constraint]] - [[The Compounder Screener]] - [[Charlie Munger]]