Satyam takes shine off India's family-run corporates

By Rina Chandran and Devidutta Tripathy

MUMBAI (Reuters) - An admission of fraud by the chairman of India's Satyam Computer Services has rocked a deep-rooted faith in the family-run businesses which still dominate much of India's corporate landscape.

About half the top 30 companies on India's benchmark index are controlled by their founding families, traditionally revered by shareholders and employees alike.

That respect took a beating on Wednesday when B. Ramalinga Raju quit and said profits of India's fourth-biggest software exporter had been inflated over several years.

"It's not exactly what India needed now," said Seema Desai, analyst for Asia at risk consultancy Eurasia Group in London. "It is a stark reminder that we need tighter rules."

Shares in New York-listed Satyam, which means "truth" in Sanskrit, slumped nearly 80 percent.

India's family-run firms have held sway for more than a century, with conglomerates such as Tata, Birla and Reliance dominating industries from steel to telecoms.

"We've deified our companies and their chiefs, confused our sense of national pride and given up a healthy scepticism for a don't-ask-don't-tell policy because no one wanted their bubble (to) burst," said Anantha Nageswaran, chief investment officer for Asia-Pacific at Bank Julius Baer in Singapore.

Once depicted in Bollywood films as mini empires with a near feudal system of governance, the opening of the economy in the early 1990s, tighter regulations and greater foreign investor interest have forced family firms to clean up their act.