'Family-owned cos lack transparency, but can act quickly'
Family-owned companies that form a major part of corporate India are likely to raise corporate governance concerns such as leadership transition and transparency issues, which in turn could give negative credit implications, says a survey jointly ...
By TNN |
MUMBAI: Family-owned companies that form a major part of corporate India are likely to raise corporate governance concerns such as leadership transition and transparency issues, which in turn could give negative credit implications, says a survey jointly conducted by ratings companies Moody’s Investor Service and ICRA.
But there are also positive characteristics of family control, including long-term perspective and an ability to act quickly, with many such companies responding quickly to opportunities in India and abroad, the survey added. The survey covered corporate governance practices of 32 Indian companies in 16 prominent family groups, the joint statement said, while not specifying the companies.
“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 and operations of audit committees ,” said Moody’s India Representative director Chetan Modi, who co-authored the survey’s report , along with ICRA general manager Anjan Ghosh.
Majority of Indian companies are family-run enterprises including top conglomerates such as the Tatas, the Aditya Birla group, the Bajaj group and others. Family-run businesses grew fast in developing countries such as India, as constraints in regulations and need for manufacturing licenses meant large business families alone could operate. Also, with large groups, access to capital was easy.
But with time, succession became an issue. “The lack of board nomination sub committees in many companies suggests that succession planning is not fully deliberated with independent directors,” said ICRA’s Ghosh. “There is often insufficient transparency on ownership/control, related party transactions and the group’s overall financial position,” he added.
But there are also positive characteristics of family control, including long-term perspective and an ability to act quickly, with many such companies responding quickly to opportunities in India and abroad, the survey added. The survey covered corporate governance practices of 32 Indian companies in 16 prominent family groups, the joint statement said, while not specifying the companies.
“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 and operations of audit committees ,” said Moody’s India Representative director Chetan Modi, who co-authored the survey’s report , along with ICRA general manager Anjan Ghosh.
Majority of Indian companies are family-run enterprises including top conglomerates such as the Tatas, the Aditya Birla group, the Bajaj group and others. Family-run businesses grew fast in developing countries such as India, as constraints in regulations and need for manufacturing licenses meant large business families alone could operate. Also, with large groups, access to capital was easy.
But with time, succession became an issue. “The lack of board nomination sub committees in many companies suggests that succession planning is not fully deliberated with independent directors,” said ICRA’s Ghosh. “There is often insufficient transparency on ownership/control, related party transactions and the group’s overall financial position,” he added.
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