Corporate governance makes family business run smoothly

Prof R. Narayanaswamy of the Indian Institute of Management of Bangalore said, "With the implementation of corporate governance, especially the family owned business entities could run comfortably and effectively without being listed in the stock exchange",

He was addressing a CEO Forum on Corporate Governance Challenges for Asian Companies" organised by the Institute of Chartered Accountants of Sri Lanka.

He said that many Asians educated in the West are trying to fix problems with imported solutions but it doesn't suit our culture all the time. He said: In the corporate form of business you have to love your shareholders. Prof Narayanaswamy said that the sole proprietaryship companies are less complex and easy to manage than those listed in the stock markets. Hence well-known business entities are not listed.

The owners of companies list in the stock market to raise capital but it is very painful for the original owners. There is nothing good about listing. Sometimes you can raise capital but it comes with a price. The government business nexus is much deeper for example in India what is good for Reliance is good for India, he said. There is no shareholder activism in India therefore it is important to have simple pieces of legislation that they can adhere to, said the Professor.

Prof. Narayanaswamy said that most of the listed companies in India are family owned entities of which 17 out of 30 companies are family owned companies which constitutes 57 per cent of the market capitalisation in the BSF Nifty while in the NSF Nifty 26 out of 50 companies are family owned companies. Therefore, it has also been found that minority shareholders should be well protected, with the implementation of corporate governance, he said. Since most of the companies are family owned the chances of mistakes being made are low , said prof. Narayanaswamy.

He said that in India too there is a severe shortage of talented independent directors as most of the talented independent directors have passed their prime.

He said that most of the well-known companies reward independent directors with bonus and stock options while many of them do not perform their duties. He said that now only a few people are joining the Cost Accountant profession as against thousands earlier. S.G.