Ownership Control and Board Governance of Indian Business Groups: Continuity or Change?

This chapter analyzes how the ownership, control, and board governance of Indian business groups have evolved over time against the backdrop of evolving laws and regulations in India. The analysis is based on a panel data of group affiliated and unaffiliated firms for the period 2005–2018 during which the governance reforms that were initiated in the earlier years took root, and several new ones were introduced through revisions of existing regulations and laws. The chapter seeks to answer mainly two questions. First, have the nature of the agency problems pertinent to business groups as manifested in their ownership and control structures fundamentally changed in response to dynamic changes in their institutional environment? Second, have reforms introduced to change the ways in which groups are governed by the board of directors made any impact on the way these groups are actually governed? Contrary to the expectations drawn from the institutionalist perspective that the relevance of business groups that fill institutional voids will wane as markets develop, the analysis in this chapter points to the continued predominance and persistence of Indian business groups within the corporate sector. Several of the groups, such as the Tatas and Birlas, which were established in the pre-independence era, have continued to remain in leadership positions with a handful of large business groups continuing to dominate the sector, irrespective of the changes in the institutional environment. Big groups have become even bigger in terms of their asset base, and changes in the relative positions of groups at the top end of the distribution have been sticky at best even after more than hundred years of their existence and continued entry of new groups from time to time. Within groups, ownership structures have become more concentrated over time, with promoters of almost all groups now having majority control in all the listed firms of the groups. The pervasiveness, persistence, and dominance of promoters in Indian business imply that there is little scope for monitoring internal management by other large block holders.