Family-owned companies are dominating the country’s corporate landscape, but they still face challenges regarding corporate governance norms such as appointment of successors and transparency in functioning. However, these companies have responded well to the opportunities available in the fast growing and liberalised world of today, said a new joint survey on Indian corporate governance by Moody’s Investors Service and ICRA Ltd. “The lack of board nomination sub-committees in many companies suggests that succession planning is not fully deliberated with independent directors. There is often insufficient transparency on ownership/control, related-party transactions and the group’s financial position,” Anjan Ghosh, ICRA’s general manager and a co-author of the report, said. The report says that these firms have specific characteristics compared to companies with more widespread share ownership. Though family-controlled businesses raise specific corporate governance concerns, they have a long-term perspective and an ability to act quickly. Till just a few years ago, family-owned and controlled businesses dominated the Asian industry by over 80 per cent. Said Chetan Modi, Moody’s India representative director and a co-author of the report, “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.” The report also states that there could be potentially negative credit implications like adaptability, leadership transition, checks and balances, transparency etc. “Also, the prospect remains of higher leverage as families try to maintain control, while implementing their often aggressive growth plans,” Ghosh said. “There are material residual issues regarding checks and balances, but these are generic to corporate India and not isolated to family companies. For example, the lack of activist shareholders and a business and cultural environment that does not permit hostile mergers and acquisitions. Furthermore, important governance issues persist in areas not covered by regulation,” added Modi. The report also noted that despite regulations regarding independent board directors, families retain significant control over listed companies. As such, the difficulty in ascertaining the true independence of directors is a big corporate governance challenge. The survey covered certain corporate governance practices of 32 Indian companies in 16 prominent family groups, covering a broad cross-section of Indian industry. The survey covered 32 companies in 16 prominent family groups, covering a broad cross-section of Indian industry. Besides the top three corporate houses (the Tatas, the Birlas and the Ambanis), the survey also included companies belonging to Godrej, Vedanta, Wipro, Essar, Bharti, TVS and Muruguppa groups among others.
