Sucheta Dalal :Ownership control and the battle at Reliance
Sucheta Dalal

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Ownership, control and the battle at Reliance  

Nov 29, 2004

Business and family don’t least not easily’’, wrote an industrialist in Business Week. Last week’s tussle for control over Reliance Industries (RIL) proves this hypothesis all over again. When Dhirubhai Ambani was alive, his sons Mukesh and Anil seemed to complement one another to get the best results. Now, the differences seem glaring.

The abundance of emails and documents leaked to the media last week establish that Mukesh had indeed plotted to concentrate his powers in Reliance Industries and sideline his brother. Anil is naturally hurt and angry. But it must be remembered that Mukesh Ambani, as Chairman of RIL, was already in the driver’s seat.

Anil Ambani has made several allegations against his brother and many of them are spelt out in his dissent note submitted to the Board on October 25. For the moment let’s keep aside the issue of whether or not it is ‘fair’ to sideline Anil Ambani and simply examine the coup. What is abundantly clear is that the Board of Directors support Mukesh Ambani’s decision. Anil’s own letter indicates that at the July 27 board meeting, Item No. 17, which concentrated the Chairman’s powers, was introduced ‘‘through a supplementary agenda’’, but he also admits that it had been discussed by Mukesh with several outside directors and they had gone along with it.

Anil Ambani’s email to Mukesh on July 30 also reveals that the directors were not only aware of the implications of the Item 17, but that ‘‘signatures of several directors were taken on the date of the Board meeting itself on the draft minutes (which is unprecedented in our company)’’.

That is not all. Anil submitted a note of dissent (dated October 25, 2004) and read it out at the next board meeting. And here is what the minutes of the second meeting say: ‘‘After discussions, the Board decided not to accede to the request made by Shri Anil D. Ambani in his letter to keep Item No. 17 of the said minutes in abeyance’’. The letter was noted, taken on record, and the proceedings were confirmed as circulated and tabled.

Interestingly, none of the other family members has come out in the open and sided with either brother. They include Kokilaben Ambani, Hetal and Nikhil Meswani (who are both Executive Directors) and sisters Nina Kothari and Dipti Salgaonkar. Very simply, a coup occurred at the July 27 board meeting, giving sole charge of the Reliance flagship to Mukesh Ambani. The younger Ambani’s angry dissent only caused his objections to be openly rejected by the board and led to a second iteration of Mukesh Ambani’s powers. This is an adequate procedure for a publicly listed company.

Anil alleges that Mukesh’s actions are ‘‘contrary to all norms of corporate governance’’. It seems funny that corporate governance norms should be raised, considering the allegations made against the Reliance empire range from evasion of custom duty, issue of fake/forged shares and fraudulent call termination. But the real question is, would the board of directors have voted any differently if the proposal to ‘‘sideline’’ Anil Ambani were made upfront and not through the Health and Safety Committee? It would only have led to ugly scenes, a court battle and ultimately the very same conclusion.

Some commentators suggest that the Ambanis ought to have settled the succession issue privately. That is possible when there is an amicable settlement. Apparently, Anil Ambani rejected a settlement offer that included substantial cash and management control over Reliance Energy and Reliance Capital.

India has plenty of examples showing that succession issues and the partition of businesses invariably turns ugly. Ratan Tata fought nasty battles to dislodge powerful employee satraps and get control over the Tata Empire. After a few weeks of intense media attention, the boardroom battles were quickly forgotten.

The fracas over the M.P. Birla group succession is stranger still. The Birla Empire was already neatly divided among branches of the founder family. Yet, when M.P. Birla’s widow and sole heir bequeathed her assets to her Chartered Accountant, it has led to an obnoxious court battle. We have seen prolonged and debilitating spats among the Modi brothers and a long vicious war being fought by Manu and Kishore Chhabria. Even the Bajaj battle occasionally spills into the public domain despite efforts to kept it under wraps.

Ironically, Manu Chhabria’s daughters are now bickering over their inheritance. His widow, Vidya Chhabria, obviously prefers peace in her family to the distinction of being one of the world’s most powerful businesswomen. We reliably learn that she has mandated McKinsey & Company (out of Singapore) to find buyers for several Chhabria companies including Shaw Wallace. The deal, we learn, is that Komal Wazir can buy out her mother and sisters if she can muster the funds. Such a deal is possible because Wazir is the only sister who wants to run the business.

Has Mukesh Ambani’s coup really outraged investors and lenders? While the ‘work hard and play hard’ image has made Anil Ambani MTV’s youth icon ahead of Sachin Tendulkar, bankers, investors and board members see things differently. Similarly, top professionals say that good corporate governance also demands stability and clarity over management control. This can happen only if the chairman has absolute responsibility and authority. A Rs 100,000-crore empire cannot be run by squabbling siblings with divergent views, ideas, lifestyles and divided powers.

 In this context, it is useful to look at some American examples. Fairly recently, the Hewlett family, which owns 5.3 per cent of Hewlett Packard, canvassed hard to defeat Carly Fiorina’s plan to acquire Compaq. But she put her job on the line, got shareholder support and retained management control. The Hewletts had to accept the majority verdict. Similarly, in 1985, John Sculley ousted Steve Jobs from iconic Apple Computers, which Jobs had set up from scratch. Jobs made a triumphant return in 1997 and now holds one symbolic share and his innovative genius has helped turn the company around. Clearly, the real issue is not of share ownership, but about management control.

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-- Sucheta Dalal