Sucheta Dalal :Breaking the revered code of silence
Sucheta Dalal

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Breaking the revered code of silence  

May 2, 2005


I am with the minority when it comes to corporate governance issues,’’ said Anil Ambani. He also claimed that the interests of ‘‘20 lakh investors, are and will always remain paramount for me,’’ We don’t know if he really believes what he says, but Anil Ambani attracts a degree of sympathy as the ‘wronged’ sibling, who is apparently being ousted from the family business.

Especially because Mukesh Ambani has been so studiously low-profile that he is virtually unknown to those who have no dealings with Reliance. At the same time, the younger Ambani seems to be working overtime to alienate potential support groups.


For instance, the fact that BJP politicians, including Pramod Mahajan, may have owned a lucrative chunk of shares in Reliance Infocomm was headline material and it hogged public attention. But the reports caused great consternation in the political class. In India, the license-quota raj has meant that industry has to do business with politicians. And the Ambani clan had made a fine art out of cultivating and balancing political equations under every political regime.


Its relationships have cut across political lines and encompassed India’s great bureaucracy and media. But it was understood that business would always strictly adhere to the ‘‘code of Omerta’’ — the code of silence.


Businessmen and stock brokers who have broken this code, usually paid a price. Anil Ambani may not be worried about retribution, but he has alienated a vast swathe of the political class because his people are widely seen as having leaked the names of politicians in the Reliance Infocomm saga.


If that were not enough, the Anil Ambani camp is also suspected of having embarrassed an industrialist and a banker in their fusillade against Mukesh. In a letter to Mukesh Ambani on January 3, Anil Ambani has picked out for attack a piece of conversation (allegedly out of context), between banker Uday Kotak and Mukesh Ambani’s confidant Anand Jain, where the latter supposedly claimed that Reliance could easily call an Extraordinary General Meeting and have Anil Ambani thrown out.


Anil then goes on to claim that industrialist Anand Mahindra too was aware of this conversation. The letter, which made headline news in a national daily last week, nearly four months after it was written seems set to alienate another swathe of business associates. This letter is also seen as have been leaked by the Anil camp.


The Code of Omerta was broken again. Worse, the action of releasing the letter to the press has badly hurt a banker’s reputation by raising questions about his ability to keep confidences. Corporate India is shocked. Bankers, industrialists and even financial intermediaries told me that they intend to stay far away from this ‘dirty war’. Vicious family disputes leading to splits are a routine occurrence in India, as are corporate wars; and bankers and accountants are often forced to pick sides and stick with them. But never have friendly mediators or interlocutors been dragged into the muck or targetted.


More importantly, Anil Ambani himself knows that it is not easy to knock him out of the Reliance Industries’ (RIL) board of directors. Around five years ago, he and Mukesh were made permanent directors of RIL by amending the Articles of Association. Amending this to remove Anil would require a 75 per cent vote by the shareholders (voting and present), which is a tall order.


At best, if the war escalates, Anil may be removed as Vice-Chairman and Managing Director. By Anil’s own reckoning (his statement: ‘‘It’s a different kind of cricket match going on. It’s Reliance 11 versus Anil Ambani’’) he does not have the support of a single board member in RIL or Indian Petrochemical Corporation — not even among government nominees. And his outburst before the media against board members has probably eliminated any chance of winning them over.


At the board meeting too, Anil Ambani objected to the re-appointment of H.S. Kohli (a whole-time member) on the grounds that he was over 70 and Reliance needed new blood. Ironically, most of the board, barring the Ambani brothers and cousins Hital and Nikhil Meswani, are above 70 and they are were all close associates of Dhirubhai Ambani, whose name Anil never fails to invoke.


Investment analysts also point to other inconsistencies in his stand. Take, for instance, his repeated objection to the share buyback programme of RIL. Instead, Anil Ambani wants RIL to hand out higher dividends and bonus shares to investors. A fund manager tells me that in 1995 he had asked Anil at an analysts’ meet why Reliance couldn’t reward shareholders with higher dividends. Anil’s answer was that shareholders must look for market appreciation rather than higher dividends. He also said by ploughing income back into business expansion, the company would better benefit investor interest.


A decade later, he is singing a different tune and demanding higher dividend and bonus shares. As for substantial issues, does Reliance Energy Ltd (REL), which is under Anil Ambani’s management, have them too? Reliable sources say there were some differences with the auditor, before the accounts were finalised. There is also expected to be a change in auditors, but the company insists it is only because PriceWaterHouse does not want to do joint audits anymore.


Whatever the outcome, it is safe to bet that Mukesh Ambani and his team will be watching like a hawk to check if REL has followed the highest standards of accounting and governance, claimed by his sibling, especially as RIL is the promoter of REL.


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-- Sucheta Dalal