The big highlight of Reliance Industries’ (RIL) recently held AGM was the broad succession plan which Mukesh Ambani, chairman and MD of the Reliance Group, shared with his shareholders. He does not want to make the same mistake made by his father, Dhirubhai Ambani made – he left without a will on July 6, 2002, bequeathing a messy separation between his two sons, Mukesh and Anil.
Announcing a three-way division, Mukesh Ambani, just 65, said son Akash will the lead the digital business housed in Jio. Akash’s twin Isha has been designated head of Reliance’s vast retail business, while 27-year old Anant will be in-charge of the group’s energy business. Mukesh Ambani is not retiring and will continue to head the big holding companies like RIL and Jio Platforms; but he has marked out the road ahead for his children.
The first, bitter round
In the case of Dhirubhai Ambani, he deliberately did not leave a will behind as he felt that way the two brothers would remain united. The result was the opposite. After Dhirubhai’s death, Mukesh kept a tight control over the flagship Reliance Industries, while Anil smarted with the feeling he was being ignored. By 2004, it was out in the open when Mukesh disclosed in his famous lines: “There are ownership issues.”
Then followed a decade of bitter feud between the brothers. It ended with mother Kokilaben overseeing a formal family division in 2013 that split the Dhirubhai empire into two groups. It was broadly a 70:30 split in favour of Mukesh, who got all the traditional businesses like oil refining stabled in Reliance Industries, while some of the new businesses like Reliance Energy and Reliance Capital went to Anil Ambani.
The rest is well known. Mukesh has driven the Ambani stake of 47% in RIL, worth Rs 35,000 crore in 2004, to something close to Rs 8 lakh crore today. Anil, on the other hand, failed at most of the businesses he fronted like energy, defense and entertainment. Had the two remained as one group, as the father wanted, would the course of history have been different?
The Ambani split is a classic case of a big family-run business house not being able to make its first generational leap. Family-run businesses, by their very nature, are anathema to corporate capitalism as they represent the old ‘feudal’ mix of ownership and management in one bucket. History shows these businesses are prone to the intrigues of family members; and instead of professional management, they encourage courtiers at high posts.
History as teacher
The history of corporate India is littered with Shakespearean tragedies ranging from no succession plan to badly drafted succession plans. The Raymonds family battle ensued because there was no succession plan. In the first division of assets, the J K Group, built by Kanpur businessmen Juggilal Singhania and Kamlapat Singhania, split into 3 parts in the 1970s –Raymond Woollen Mills, set up in1925, went to Vijaypat Singhania. By 2000, Vijaypat hung up his shoes and handed over his business empire to son, Gautam.
But then something went wrong in the asset division. By 2017, Vijaypat was in court complaining he had been done out of a luxury flat in the redeveloped J K House by son Gautam, and he was forced to stay in a rented apartment. Justice Girish Kulkarni of the Bombay High Court, who was hearing the dispute, remarked: “Such matters should not have reached the courts… These are disputes between a father and son. Try and resolve it amicably.” It never happened.
The Hindujas, a $11 billion London-headquartered group, made their mark in India with 3 listed companies – Ashok Leyland, IndusInd Bank and lubricant company Gulf Oil. The basis of the dispute goes back to 2014 when the 4 Hinduja brothers – Srichand, Gopichand, Prakash and Ashok – signed a letter declaring the assets held by one brother belonged to all the others; and that each of them will appoint the others as their executors.
The dispute was triggered when three of the brothers tried to take control of a bank in Switzerland, the Hinduja Bank, promoted solely by Srichand, using the 2014 letter. There is a cycle in these disputes. When families start as traders or small manufacturers, they stick together like glue and are fiercely loyal to each other. The disputes come with success and when the third or fourth generation demand a piece of the cake. In the case of the Hindujas, the Switzerland-based Hinduja Bank had Shanu Hinduja, Srichand’s daughter as chairperson, and her son Karam who was inducted as CEO, in the eye of the storm.
Having learnt a lesson from the first debacle in the succession story, Mukesh Ambani has started early to create the silos for his heirs. Till capitalism evolves in India to a more ‘corporate’ form, ‘family’ capitalism is here to stay. An old Credit Suisse report of 2018 shows India has the third-largest number of family-owned businesses in the world after Germany and China.Thus, the need for good succession planning, including mentoring into leadership roles, will be an important agenda for some time to come.
MUKESH AMBANI’S SUCCESSION PLAN
Announcing a three-way division, Mukesh Ambani, just 65, said son Akash will lead digital business housed in Jio. Akash’s twin Isha has been designated head of Reliance’s vast retail business, while 27-year-old Anant will be in-charge of the group’s energy business. Mukesh Ambani is not retiring and will continue to head the big holding companies like RIL and Jio Platforms; but he has marked out the road ahead for his children. In the case of Dhirubhai Ambani, he didn’t leave a will behind as he felt that way the two brothers would remain united. The result was opposite. After Dhirubhai’s death, Mukesh kept a tight control over the flagship RIL, while Anil smarted with the feeling he was being ignored