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Is blood thicker Than Water? Appraising Adequacy of Indian Corporate Governance Framework For Family Based Companies: A Case Study On Satyam Computers

Sapovadia, Vrajlal (2010): Is blood thicker Than Water? Appraising Adequacy of Indian Corporate Governance Framework For Family Based Companies: A Case Study On Satyam Computers. Published in: ICFAI , Vol. 1, No. 1 (2010)

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Abstract

One third of the Indian companies are controlled by one or another family members in concert. In recent past corporate governance crisis is surfaced in few family controlled business houses. We studied financial & market performance of 44 top Indian companies listed in Forbes Global 2000, which includes 19 family controlled companies. We compared financial & market performance of family based companies with the non-family based companies. It is observed that family based business have higher revenue and profit generating capabilities, but we observed greater fall in market value of their securities during 2008.

Our research identified companies, which faced corporate governance problem. It is found that one third of the family based companies have corporate governance problems. Our investigation shows that in spite of strong corporate governance framework & series of legislation in India, top management violates governance norms either to favor family members or due to jealousy amongst sibling. It is found that there is lack of supervision and inefficiency in prosecuting violators. We investigated in detail the recent serious governance failure at India’s 4th largest IT firm, Satyam Computers Services Limited and reasons of such large magnitude failure of checks & balances in action. We have used primary & secondary data to substantiate the conclusion using appropriate research techniques. The research is useful to the policy makers in designing & implementing corporate governance framework in general & special to family based companies.

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