When India-born steel tycoon Lakshmi Mittal launched a a dramatic battle in January to take over his company's chief rival, the business community in India was shocked. Not just because it was a bold business proposition but because it also broke the Marwari rules.

Mr. Mittal, India's wealthiest expatriot, belongs to an ethnic group called Marwari that believes it is critical for companies to maintain family ownership. With names like Birla, Jindal and Ruia, Marwari families now control three of the five major steel companies in India and much of the country's trade in tea, textiles, manufacturing, mining and metals. In Marwari companies, children, brothers, sons-in-laws and daughters help run the operations, overseeing separate factories or plotting mergers and acquisitions. But that kind of involvement is becoming increasingly difficult in one of the world's hottest economies.

If, as expected this week, a majority of Luxembourg-based Arcelor SA's shareholders approve Mr. Mittal's bid, he will be left with less than 45 percent of the shares in the combined company after having controlled nearly 90 percent of Mittal Steel Co. The new Arcelor-Mittal, the world's largest steelmaker, will be based in Luxembourg, rather than London where Mr. Mittal lives. Mr. Mittal will have to share the title of chairman and only appoint one-third of the board's 18 seats and three of the seven spots on the management board. It isn't clear what role either of his two children, currently board members in Mittal Steel, will play in the new company.

"We have to put behind our family interest for the interest of the industry and the shareholders at large," he says.

Mr. Mittal's move has already forced India's Marwaris to question whether their traditional way of operating is outdated. India's Marwari industrialists are quickly learning that rapid growth requires access to capital and bankers on Wall Street, London or Hong Kong as well as institutional investors, who want a more transparent company and a more liquid stock.

"There is a fundamental tension," says Sumit Ganguly, Rabindranath Tagore professor of Indian cultures and civilizations, and professor of political science at Indiana University. "On the one hand you want to behave like a respectable, publicly traded company. On the other hand, you want to maintain a degree of family control."

While Marwaris are proud that one of their own has done well, triumphing in a five-month battle for Arcelor, some delicately voice misgivings, saying Mr. Mittal has given away too much. Rahul Bajaj, a Marwari who is chairman of the Pune-based Bajaj Auto Ltd., India's largest scooter maker, monitored Mr. Mittal's moves closely and says not all Marwari families would have accepted the Arcelor deal. "I would never accept a minority position," he says. "All Indian business communities like to have full control, although not always through majority ownership."

Indresh Batra, son-in-law of P.R. Jindal, a Marwari who leads the Jindal Group, one of the largest stainless-steel companies in India, says Mr. Mittal has sacrificed the singular vision that enabled him to grow from one plant in Indonesia to the largest steelmaker in the world. "I think Mittal Steel had a huge advantage the way it was run," he says. "Now, it won't be driven by one person who is entrepreneurial, but a strong board culture."

Others say Mr. Mittal is doing what most of the private companies in India must do. More than half of listed Indian companies are run by families. For the most part, they thrived under protective government policies, which imposed high tariffs on imported goods discouraging foreign competition. But those tariffs have been lifted and India, being one of the fastest growing economies in the world, is attracting foreign investment. Now those family-owned companies, whether they are Marwari, Punjabi, Sindhi or Gujarati, must compete at home with heavily capitalized, well managed companies from around the world. Those that do want to take their companies public and global, need to attract major investors who often don't feel comfortable because those companies lack transparency.

Some of India's large family-owned corporations have largely succeeded in creating a more transparent company and liquid stock. The fast-growing Tata Group, a 138-year-old diversified manufacturing firm in India, is now led by Ratan Tata, a nephew of former leader J.R.D. Tata. The Tatas, who are members of the Parsi community, have minimal ownership in the firm and a more professional, rather than family-oriented approach to corporate governance.

"Clearly, one of the big lessons from the Mittal deal has been that if these companies want to do global acquisitions, they are going to have to change some of their governance standards. They will have to go for more transparent governance standards all around the world. Otherwise, it will not work," says Nirmalya Kumar, a professor of marketing at the London Business School. "In India, they have not spent enough time making the board independent as they have in the U.S."

Mr. Mittal himself plays down any cultural significance in relinquishing control of his steel empire in his bid for Arcelor. He says he is simply doing business and that Marwaris are first and foremost good businessmen. "Coming from Marwari background does not restrict us from being forward-looking," he says. "If you will not be forward-looking and aggressive, you will not be making progress."

The term Marwari comes from the Sanskrit term maru, which means desert, referring to the Thar Desert area of Rajasthan, where Marwari families originated and later fled for lack of jobs. Originally merchants who traded tea and cotton, many of today's Marwari firms still trade or make industrial products. The community is near legend for cultivating some of the wealthiest and most powerful entrepreneurs to come out of India. Many still maintain the tradition of being vegetarians, but have had more trouble maintaining the "simple living" credo as they build immense wealth, and spend millions on weddings, cars and mansions.

Marwaris developed their own rigid business practices such as starting business days with Hindu prayer and ending each day with an accounting of that day's cash flow. The practice, called partha, allowed them to respond quickly to market changes. Another, called modi, was a secret language that other Indians couldn't decipher and was used for trading data and other business records.

Being a member of the Marwari was considered a huge asset in business. They established informal networks, funneling business to each other. Although they preferred to train and hire within their own families, if no relatives were available they favored fellow Marwaris.

Mr. Mittal, the eldest of six children, was born in Sadulpur, a remote city of 80,000 people near Churu in Rajasthan. Mr. Mittal lived with his extended family in a small home with concrete floors and no electricity, or running water. He credited the tough living conditions in the desert for the success of the Marwaris. "The Marwari community has done well historically from generation to generation. In the state of Rajasthan, there are few opportunities as the climate is difficult so people naturally venture out of their state in search of opportunities. They are hard workers and very entrepreneurial. They are builders of the future and are known for their business culture."

While his father, uncles and brothers continued to run the family steel business in India, Mr. Mittal left the country when he was 25 and started a company in Indonesia. It wasn't a matter of bucking Marwari tradition, he says, but of going after opportunities. As he bought companies in Mexico and Trinidad, he found certain Marwari practices untenable. At first, Mr. Mittal practiced a version of partha, but gave it up as his company became too big. "These things are outdated. We do not have a daily accounting system. When my business was small, me with one company, I could get into details," he says.

As the company grew, though, family remained a critical part of the operations. His wife ran the Indonesian operations. Both children work for the company, his daughter Vanisha in purchasing and son Aditya as president and chief financial officer of Mittal Steel. Aditya, 30 years old, accompanied his father to minimills at the age of eight and was one of Mittal Steel's six-member strategy committee, which in the late 1990s plotted mergers and acquisitions.

Aditya, who sees himself as Indian by birth and American by education, said the migration of Marwari from the desert of Rajasthan forced many to take gambles in business, but, now, some are forgetting the value of risk-taking. By clinging to strict traditions of family-only control, they lose touch with the realities of global competition. "The community is becoming too traditional," he says, "and forgetting its past history, which has always been entrepreneurial, daring and forward in times."