Indian family businesses: Governance begins at home

India's family enterprises must get the basics right if they are to remain a force in the economy

- TULSI JAYAKUMAR

A recent working paper from the Institute of Labor Economics (IZA) (shorturl.at/C8hdg) reaffirms the outsized role that family business groups play in shaping India Inc. It found that even as overall market concentration in India has declined, the top 25 family business groups still accounted for 11-15% of the country's GDP in 2020. Regulatory measures like the Companies Act of 2013 and the Companies (Restriction on Number of Layers) Rules, 2017, were designed to curb excessive complexity. Yet, while these rules aim to check concentration, they overlook a more critical issue: governance. As the paper notes, family business groups, regardless of size, often share a common design principle: intricate "interconnected governance structures" that consolidate control through concentrated ownership. These structures may make business continuity easier in the short run, but unless carefully stewarded, they risk entrenching poor decision-making, succession disputes and opaque accountability.