India's corporate empires grapple with succession

By Rina Chandran

MUMBAI (Reuters) - For over a century, family-run business empires have held sway in India, but acrimonious succession battles are now turning off foreign investors and prompting Indian corporations to adopt post-dynastic strategies.

With names such as Tata, Birla, Godrej and Reliance, they are some of the biggest players in the world in industries that range from steel to concrete, autos, telecoms and petrochemicals.

Yet some of India's largest conglomerates are still family affairs, much to the chagrin of investors who have seen some family-run companies implode as the founders have died and their children have squabbled over their business empire inheritance.

"Badly-run family firms run the risk of not being able to grow profitably and of scaring off potential investors," said Anjan Ghosh, a general manager at ICRA, a unit of Moody's Investors Service that has studied family firms in India.

As India faces the fallout of the credit crisis and fears of a global recession rise, family-run companies may need to quickly determine how they will handle succession or risk being badly buffeted by a turbulent global economy.

"Especially in the current market environment where access to capital is such an issue, unless you are professionally run and have a succession plan in place, it will be tough," Ghosh added.

Inheritance wars between feuding siblings such as Mukesh and Anil Ambani, the world's fifth and sixth riches people according to Forbes magazine, have tarnished India's allure as a top investment destination, raising risks for investors in a country where corporate legislation and regulation are in their infancy and shareholders largely stand passively on the sidelines.

With families controlling 18 of the 30 firms on the benchmark BSE index, the risks are serious.

Certainly, some family-run companies have made ambitious acquisitions recently and taken on global rivals, while others are drawing up tentative succession plans, hiring professionals in leadership positions, divesting assets, and even surrendering control.

Private equity firms invested more than $14 billion in Indian firms in 2007, while last year foreign funds bought shares in Indian companies worth a record $17.4 billion.

These welcome signs of maturity are lost in the clamor around the squabbling Ambani siblings and other corporate succession battles.

Mukesh, the elder brother, took control of energy and petrochemical giant Reliance Industries Ltd (RELI.BO), India's biggest private sector company after the Ambani empire was split in 2005, three years after its founder Dhirubhai's death.

Anil gained control of mobile services firm Reliance Communications (RLCM.BO), Reliance Capital (RLCP.BO) and other power, infrastructure and entertainment assets.

The two brothers, however, have continued to fight in the full glare of the media.

Recently, a judge at Mumbai's city court that is hearing a gas supply dispute between companies headed by the brothers is reported to have suggested they go back to their mother to settle the matter, rather than fight in court.