Sucheta Dalal :Reliance: the Boardroom coup
Sucheta Dalal

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Reliance: the Boardroom coup  

November 27, 2004

Item No.17: How Anil was sidelined


By Sucheta Dalal


The two Ambani brothers have dropped their shadow boxing and have come out in the open. After the resignation of six directors (all nominees of Reliance Industries Ltd) on the board of Reliance Energy, the fight has reached a new level.

Nobody knows what prompted the mass resignation. The directors are not talking about it and the Ambani brothers are silent. One of the directors, Amitabh Jhunjhunwala, is a close confidant of Anil Ambani while another, Satish Seth, the Chief Executive Officer was always considered closer to Mukesh Ambani. Interestingly, sources say that Anil Ambani is not only the Chairman and Managing Director of Reliance Energy Ltd (REL), but has unprecedented powers even with regard to the parent company’s investment in the energy company. This would suggest that the resignations of RIL nominees on REL have been dictated by the younger Ambani, but it is not clear what he seeks to achieve from the move.

But any action so drastic, which is obviously aimed at changing the top management altogether, cannot happen without a game plan. The fight has clearly gone beyond an amicable settlement. And the secretive Ambani family (which some would say has a lot to hide) seems all set to wash a lot of its dirty linen in public.

For starters, Anil Ambani has been briefing journalists, pointing out to them how there is no official statement from his side. He has also suggested that Mukesh Ambani has initiated the resignations at Reliance Energy. At the same time, all the letters and documents that would explain and help his cause, including his objections to the board resolution of July 27 this year (that gave absolute powers to Mukesh Ambani as Chairman) have been floating around in various sections of the media.

What is equally evident is that Reliance investors are beginning to get worried and this is reflected in the falling prices of Reliance group shares, especially Reliance Energy.

We at the Bhaskar group have perused documents from both sides and attempted to get behind the reason for the outbreak of the fight between the brothers now. Clearly, Anil Ambani feels victimised by older brother and Reliance Chairman Mukesh Ambani and is ready to go public with it. And, that his authority in the group has been curtailed. To an extent, this feeling is understandable. Until Dhirubhai Ambani was alive, decisions were routed through him to keep sibling egos under check. However, Anil clearly finds it unacceptable that Mukesh Ambani as Chairman would have the same authority as their father. He has pointed out in a television interview that Mukesh was only a couple of years older than him. However, Mukesh became Vice Chairman and Managing Director even during Dhirubhai Ambani’s lifetime, providing a clear indicator to the wishes of the patriarch.

The current aggravation is clearly sparked off by the July 27 board meeting, which concentrated powers in the Chairman. We have access to a series of letters and email exchanged between the two brothers, which indicate that Anil Ambani clearly feels that the board resolution was passed surreptitiously and that the import of the resolution was hidden from him, although it was discussed with other board members and key employees. The key point is that the resolution, reiterating the powers of the Chairman was slipped in under a newly constituted ‘Committee of Directors’ called the ‘Health, Safety and Environment Committee’ and as part of a supplementary agenda.

Anil Ambani’s angry objection has been recorded in an email to Mukesh Ambani dated July 29. The email makes it very clear that the problems between the brothers were heading for a confrontation right then and the younger sibling accuses the older brother of not showing the “courtesy of discussing these agenda items with me”. This was followed  up with another email dated July 30 asking Mukesh Ambani to keep the crucial “item no. 17” in abeyance and not disturb the “status quo” without a “full discussion, debate and agreement between us”. He also threatened to write an official dissent. A four-page dissent note was accordingly written on October 25, which articulates all his complaints.

Curiously, although Anil Ambani feels slighted, all corporate observers say that it is only correct that the Chairman should have overriding powers. The Board of Directors of Reliance Industries seems to have decided likewise.

We learn from company sources that Anil Ambani’s letter was read out at the board meeting. The board considered “the letter of Shri Anil Ambani and his dissent to Item No. 17. After discussion, the board decided not to accede to the request of Shri Anil Ambani to keep the item in abeyance”. Clearly, the dissent was noted and recorded but not accepted. The decision also completes the concentration of powers in the hands of the Chairman and Managing Director, duly supported by the Board.

This, coupled with the fact that final control over the bulk of investment companies that own the promoters’ shares in Reliance Industries is also controlled by the Chairman – as was apparently decided by Dhirubhai Ambani during his lifetime – paint a clear picture of who will be in the driver’s seat.

If this seems unfair to a younger sibling who has played an active role in management, it is the way that board “managed”, public limited companies operate. However, since Anil Ambani is clearly unwilling to accept this position, the war between the brothers may continue to be fought through the media, with debilitating disclosures that can only harm the superficial aspects such as the group’s image and market value.

Email: [email protected]

This article first appeared in the Divvya Bhaskar group

-- Sucheta Dalal