An overwhelming majority of India’s biggest companies have been started by entrepreneurs and have grown through capabilities honed within the family tree. Moving down the scale, smaller businesses tend to keep it in the family even more as a means of preserving managerial talent to acquire scale. A large chunk of Asian business also operates this way. And they are not exactly an endangered species in the US and Europe.
This model of capitalism, though, tends to limit the managerial pool in the economy. Earlier this year, the Securities and Exchange Board of India (Sebi) made it voluntary for the top 500 companies by market capitalisation to name two unrelated persons as chairman and managing director or CEO. Sebi had found compliance was poor in the four years given to India’s biggest companies to switch to the new boardroom structure. Some of these companies are government-owned and face the same issue over finding suitable candidates. This talent shortage is also felt when Indian businesses go headhunting abroad. This is also true of expatriate managers of Indian origin, who find it difficult to adjust to the regulatory structure and the business environment back home.
Both of these are changing. India is catching up on corporate governance and an entire new crop of entrepreneurs is emerging in the digital economy. By lowering entry barriers, technology could keep the Indian economy supplied with the managers it will need.