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2 Companies With Substantial Stocks Held By Management

An owner-operator (shareholders who are also management) is a highly debatable company structure, especially from the perspective of corporate governance.

On one hand, such a structure allows insiders to benefit at the expense of minority shareholders due to their excessive power. Yet, such structures could help align the interest of the operator with minority shareholders, especially since the management’s wealth depends on the long-term success of the company.

Personally, I pay significant attention to owner-operators since the “right” owner-operators can deliver great returns to shareholders. Here, the “right” ones are those that treat their minority shareholders as partners.

Let’s look at two Singapore companies with owner-operator structures.

Sheng Siong

First up is Sheng Siong Group Ltd (SGX: OV8), one of the largest supermarket chains in Singapore with a network of 57 stores that are primarily located in the heartlands of the island, as well as two stores in China. The company was established in 1985 and listed in 2011.

According to its 2018 annual report, Sheng Siong is 48.27% owned by the Lim brothers through various vehicles. Furthermore, the brothers are also key members of the management team, filling roles such as chairman, CEO, and managing director in the company.

Thus, as an owner and operator of Sheng Siong, the family’s interest is well aligned with minority shareholders.

United Overseas Bank

Next is one of our local banks, United Overseas Bank Ltd (SGX: U11). Below is a quick overview of the major shareholders of the bank:

Source: United Overseas Bank’s 2018 Annual Report

The Wee family owns significant stakes in UOB. Also, Wee Ee Cheong is the deputy chairman and chief executive officer of UOB, while Wee Ee Lim in a non-executive director of the company.

Though the total ownership of the Wee family in UOB’s stock is not as significant when compared to the Lim family above, the Wee family still exerts significant power over the company’s long-term direction. Thus, investors should be comfortable with such a business structure before investing in the bank’s stock.

Conclusion

There are pros and cons when investing in a company managed by an owner-operator. Thus, it is important that individual investors assess each situation individually.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommended the stocks of Sheng Siong Group Ltd and United Overseas Bank Ltd.