From Overseas Press

No longer all in the family: India Inc steps out

(Agencies)
Updated: 2010-08-16 10:17

Business leaders and politicians tend to retire late in India. The chairman of family-owned conglomerate Mahindra & Mahindra is 86 and has been at the helm since 1963. Prime Minister Manhoman Singh is 77, and his finance minister 74.

Analysts say the new crop of leaders, who grew up in post-reform India, are compelling proof of its growing confidence and ability as an emerging economic powerhouse.

Others say they are an unhappy reminder that family firms, which make up 13 of the 30 firms on Mumbai's blue-chip stock exchange index, are still plagued by weak management and a lack of transparency that hamstring growth and dissuade investors.

In a Bain & Co survey on corporate governance in Indian firms, more than 75 percent of respondents said their board did not discuss CEO succession planning at all; fewer than a fifth had any formal or informal role in planning CEO succession.

"Succession is an issue. Obviously, you worry if someone is being put in place because of family ties rather than competence," said Michiel van Voorst, senior portfolio manager at Robeco in Hong Kong, which has 30 million euros ($38.7 million) of a 700-million-euro fund invested in Indian firms.

"There is a risk factor. We've looked at some family-run companies in India and decided not to invest in them because of the additional layer of uncertainty," he said.

NO CAKEWALK

India has a long history of entrepreneurial ambition driving sectors from steel to software, with Reliance Industries founder Dhirubhai Ambani and mobile tycoon Sunil Mittal representing hope to millions that even a school teacher's son or a small business owner can achieve fame and fortune.

Until 1991, family-run businesses were protected by a "licence raj" that kept foreign firms out. Patriarchs ran their companies like private fiefdoms with little regulatory oversight, much like the politically connected tycoons of Southeast Asia.

In the old days, sons started at the family firm early, working their way through the ranks and waiting in the wings till the patriarch died, with the oldest son usually taking control.

Now, sons and daughters, armed with degrees from top business schools in the West and stints at multinationals, are striding into the boardroom early, confidently drawing up new strategies.

"The context today is very different, and kids also realise they have to earn the right to a seat on the board, that families can hire professional managers if they're not interested," said K. Ramachandran, a professor at the Indian School of Business.

Every heir has it different: 30-something Aditya Mittal, a Wharton school business graduate, worked at Credit Suisse before becoming head of mergers and acquisitions at Mittal Steel, where he was key to the 26-billion-euro takeover in 2006 of Arcelor.

He is now chief financial officer at ArcelorMittal, headed by his father, billionaire Lakshmi Mittal.