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When Indian-born steel tycoon Lakshmi Mittal launched 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 traditionally believes it's 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 often 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% of the shares in the combined company after having controlled nearly 90% of Mittal Steel Co. The new Arcelor-Mittal, the world's largest steelmaker, will be headquartered 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's not 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 Mittal's move has already forced India's Marwaris to question whether their traditional way of operating is outdated.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, 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. These ideas butt heads."

While Marwaris are proud that one of their own has triumphed in a five-month battle for Arcelor, some delicately voice misgivings. Rahul Bajaj, a Marwari who is chairman of the Pune-based Bajaj Auto Ltd., India's largest scooter maker, 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." He suspects that Mr. Mittal may have agreed to the deal because he believes he will still effectively retain control. Although Mr. Mittal doesn't have majority ownership, the rest of the holdings are diversified with few shareholders controlling more than 3%.

Indresh Batra, son-in-law of P.R. Jindal, a Marwari who leads a division of the OP Jindal Group, one of India's largest stainless steel companies, says Mr. Mittal has sacrificed the singular vision that enabled him to build the world's largest steelmaker. "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 Marwaris or not, 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. Mr. Tata took the Tata Motors Ltd. division, the largest auto maker in India with revenue of $5.5 billion, public with a New York Stock Exchange listing in 2004 to raise capital for acquisitions of other car companies and to create a better known brand to market vehicles globally.

"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," said Nirmalya Kumar, a professor of marketing at London Business School.

Mr. Mittal himself downplays 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.

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, 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.

As a Bengali boy growing up in Calcutta in the 1960s, Mr. Ganguly, the Indiana professor, remembers wealthy Marwari children arriving to school in air-conditioned Chevrolet Impalas. Many huge mansions in his neighborhood, originally built and owned by the British, were bought by Marwari industrialists. Today, a magazine called "Marwar" has as its motto, "They are powerful; They are Rich; They have lavish lifestyles; They are India's most affluent community from Rajasthan."

Marwaris developed their own rigid practices such as starting business days with Hindu prayer and ending 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 business records.

Being a member of the Marwari community was considered a huge asset in business. They established sprawling 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. "They look out for each other," says Vikram Kochar, a Marwari who runs Universal Metals Inc., a New York-based metals trading firm, with his father. "They will be cutthroat," he says, trying to outsell each other, but then loaning each other money or offering competitors products to sell. "At the end of the day, they won't let their competitors go out of business."

Mr. Mittal, the eldest of six children, was born in Sadulpur, a remote city of 80,000 people in Rajasthan. Mr. Mittal lived with his extended family in a small home with concrete floors and no electricity, or running water. As a boy, he hauled water from the wells. His father, Mohan, like many others, left the family behind for five years while he went to Calcutta to find work and ended up as partner in a small steel company. Once established, he sent for his family, eventually bringing his children into the business. Lakshmi started when he was 17, attending college in the morning and working first in the postal department of the family company and then in the purchasing department.

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. "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 critical. 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 8 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 Marwaris from the desert forced many to take gambles, but, now, some are forgetting the value of risk and losing 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."