Family-controlled firms in India face governance issues: Moody’s

Family-controlled firms in India face governance issues: Moody’s

Bangalore: Family-run companies that dominate Indian business have been quick to tap emerging market opportunities, but concerns remain over governance standards, according to Moody’s Investors Service, the US-based global rating agency.

Out of the 30 companies comprising the Bombay Stock Exchange’s main Sensex, 17 are family controlled, implying their powerful hold on the economy, a Moody’s study said on Monday.

Moody’s and its local arm Icra Ltd reviewed 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 oversight safeguards, besides leadership transition risks and conflicting market strategies.

The report said Indian family companies responded well to opportunities in the fast growing and liberalized economy, which is expanding at an annual pace of 9%.

“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," he added.

Family disputes have beset many business groups, with the giant conglomerate Reliance Industries Ltd splitting in 2005 following a bitter feud between the Ambani brothers after the death of their father Dhirubhai three years earlier.