'Indian family firms respond well to opportunities'

Family-owned companies dominate the Indian corporate landscape, and positive characteristics of family control can include a long-term perspective and an ability to act quickly, according to a new joint survey on corporate governance by Moody's Investors Service and Icra.

Indian family companies have responded well to the opportunities available in the fast-growing and liberalising economy. However, family control can also raise specific corporate governance concerns - with potentially negative credit implications - that include adaptability, leadership transition, checks and balances, and transparency, says 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," says Chetan Modi, Moody's India representative director and a co-author of the report.

"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," Modi added.

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.

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