About half the top 30 companies on the BSE Sensex 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 per cent.

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 skepticism 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.

For millions of Indians, entrepreneurs such as Reliance Industries founder Dhirubhai Ambani and mobile tycoon Sunil Mittal represented hope that even a school teacher's son or a small business owner could achieve wealth and fame.

But many family firms still battle issues such as nepotism, mismanagement, weak boards and a lack of transparency.

Long-drawn out succession battles such as the standoff between the Ambani brothers and the public spats among the Birlas as well as the Bajajs have taken off some their sheen.

CLEANER ACCOUNTS

IT companies such as Tata Consultancy Services, Wipro, Infosys Technologies as well as Satyam were deemed shining examples of India's liberalisation, with their manicured campuses, Western-style cafeterias and contracts with Formula One motor racing teams and soccer authority FIFA.

"There was an expectation that these newer companies will have better systems, cleaner accounts compared to older companies with their more complex cross-holdings," said Eurasia's Desai.

India's $50-billion IT industry had grown at a scorching pace on the back of outsourcing demand from Western firms. Now, in addition to the economic crisis which has already slowed their growth, they will come under greater scrutiny.

"It's going to impact the outsourcing industry. Customers are going to get concerned about offshoring firms in India," said Sudin Apte, country head of research firm Forrester.

Some saw little risk of similar problems among other companies.

"There is no need to extrapolate Satyam to any other enterprise in the country -- it's just not possible that this level of misstatement will be there in a widespread manner", said Shailesh Haribhakti, executive chairman at BDO Haribhakti, a Mumbai-based management services firm.

Yet others said Satyam raised more general issues about India's corporate governance.

"This raises serious doubts about the involvement of auditors and independent directors in the workings of a company," said Amar Ambani, vice president of research at brokerage India Infoline.

"While it would be wrong to paint all companies with the same brush, in an already dull and bearish economic environment such events can have a prolonged impact on trade and sentiment."

The Confederation of Indian Industry (CII) said it was shocked by Raju's admissions but felt it would be inappropriate to question the general governance standards of other companies.

One possibility is that Satyam could provide an impetus for regulatory change.