Family-run Indian companies retain hold on economy


Tue, Oct 23, 2007 - Page 10

Family-run companies that dominate Indian business have been quick to tap emerging market opportunities, but concerns remain over governance standards, Moody's said yesterday.

Seventeen of the 30 companies on the Mumbai stock exchange's main Sensex index are family-controlled, signaling their powerful hold on the economy, the US-based credit assessor said in a study it conducted with its Indian unit.

Moody's and local firm ICRA examined governance in 32 companies in 16 prominent family-controlled Indian businesses including conglomerates run by the Tata and Birla groups.

"Moody's has observed globally that family-controlled companies can face specific corporate governance challenges," it said, listing fewer checks and balances besides leadership transition risks and conflicting market strategies.

The report said that Indian family companies had responded well to the opportunities available in the fast-growing and liberalizing economy, which is expanding at an annual pace of 9 percent.

"Although Indian corporate governance practices are improving, this largely reflects regulation of listed companies, particularly regarding checks and balances such as composition of the board of directors and the operations of audit committees," said Chetan Modi, Moody's India director.

"Governance issues persist in areas not covered by regulation," Modi said.

He cited indications that "succession planning is not fully deliberated with independent directors."

"There is often insufficient transparency on ownership and control, related-party transactions and the group's overall financial position," Modi said.

The report also noted that despite regulations regarding independent board members, families retain significant control of listed companies, making it difficult to ascertain the "true independence" of directors.