The lessons billionaire Mukesh Ambani learned the hard way about the need for prudent succession planning have led him to unusual steps to ensure the continuity of leadership at Reliance Industries Limited, India’s most prized corporate possession.
Power struggles, media trials and frayed family ties: Mukesh Ambani has seen it all in his nearly 40-year stewardship of the Reliance empire. Now, in yet another farsighted move, the patriarch has reportedly instituted a Reliance family council that will play a key role in devolving power to the next generation of the Ambani clan when the time comes.
At 63, Mukesh still has a good 10 years or more left in him to steer the vast conglomerate, founded by his father, the late Dhirubhai Ambani. Even as the RIL courts international investors for its upcoming forays into hybrid retail and 5G telecom, the cost of a potential succession crisis has probably weighed heavily on the mind of Asia’s richest man.
Mukesh Ambani’s Succession Plan for Reliance – A strategy with an eye to the future
Reliance has always been a vertically integrated company with multiple lines of business, from textiles, energy and petrochemicals, to retail and telecom, operating under a single banner. This gives it the enviable ability to cross-subsidize operations across different business verticals; but also creates a complex organizational structure with significant overlap.
Since 2019, Mukesh Ambani has been slowly overhauling this top-heavy hierarchy at RIL to improve governance in line with global standards. Investor expectations, too, would have impacted his thinking in this regard. In Reliance’s new structure, different business verticals will be run like independent businesses. There will be no interdependencies between group companies for raising capital or debt servicing. The Ambani family is also consolidating its ownership in the company.
As group promoter, Ambani held 50.29% Reliance shares as of June 2020, together with his wife Nita and children, Akash, Anant and Isha. Through successive rights issues, the family has been transferring shares between various promoter groups to restructure their individual stakes since at least 2017. These measures are clearly being undertaken with an eye on succession planning, though the company says they are meant to reduce the company’s tax liabilities.
The Chronology of Succession
The chronology of events is unmistakable. In May 2020, Anant Ambani, the youngest of the 3 Ambani children, joined Jio Platforms as additional director. His two older siblings have been on the RIL board since October 2014. Word is that Akash and Isha played a key role in Jio’s landmark $5.7 billion deal with Facebook Inc. Reliance’s rising global stature in recent years would have certainly made succession planning a business imperative for the Ambanis.
Word is that Mukesh Ambani’s children, Akash and Isha, played a key role in Jio’s landmark $5.7 billion deal with Facebook Inc.
Traditionally, succession planning in India has been an insular, closed-door affair with little involvement of those outside the family. Mukesh has sought to democratize the process of succession planning with every member of the family having equal representation. Family councils enable the family members who are not directly associated with the running of the business to have a say in matters related to a family owned business. This enables any decisions to be made with the consensus of all members before they are taken up for implementation by the Board of Directors.
Mukesh Ambani has most probably engaged outside experts to advise him on the succession strategy. Officially, however, the company is not letting on what its contours of the succession plan will eventually look like. A company spokesperson has flatly denied media reports that such a move was on the cards.
Watch: RIL denies speculation about succession plan
No room for acrimony and strife
The ravages of family feuds over right of succession are all too familiar for Mukesh. In 2002, Dhirbuhai Ambani, founder of the vast Reliance empire, died, leaving behind no roadmap for the division of the family’s assets among his four children. What followed was perhaps one of the most bitter power struggles in Indian corporate history, pitting one sibling against another and threatening to tarnish Dhirubhai’s legacy.
Within a year of Dhirubhai’s passing, Mukesh Ambani had prevailed on the Reliance Industries Limited (RIL) board to strip his younger brother of all decision-making powers. Company insiders say that Anil Ambani shot off a letter to the Board demanding that it follow the “highest standards of corporate governance” in matters relating to the running of the company.
Watch: The Ambani Brothers Dispute, 2002
While Anil did not dispute his elder brother’s birth right, he wanted a more substantial role in the company. It was not long before the acrimony between the two spilled over into the public domain. Pained by the turn of events, their mother, Kokilaben Ambani, steadied ship by splitting the company into two before any more damage was done.
Hits and misses in Indian succession planning
With Mukesh Ambani’s succession plan, Reliance is only the latest Indian company to set up a formal framework to manage leadership transition. In 2002, scion of the 123-year old Godrej Group, a Adi Godrej announced that he had instituted a family council to streamline its many business verticals and minimize the scope for future conflict between the would-be successors. Like Reliance, there have been intermittent reports of “differences of opinion” among the incumbents and Gen-Next about the path forward. However, the company claims that the family is committed to working out a mutually acceptable solution, taking into consideration the needs of all stakeholders.
At the TATA Group, all has not been well on the succession planning front. An ugly dispute between two promoter groups has led to the unceremonious ouster of Cyrus Mistry who had taken over from Ratan Tata as Chairman of the Tata Group in 2012. Cyrus Mistry filed an appeal with the National Company Law Tribunal (NCLT), which was again challenged in the Supreme Court.
Watch: Ratan Tata vs Cyrus Mistry – How the battle at Tata Group unfolded
Success planning in Indian family-owned businesses has been a hot button topic in recent years. Being an astute businessman and reportedly a doting father, Mukesh Ambani’s true leadership test will be in addressing the transition for the Reliance Empire in a timely manner that prevents future power struggles, like the one he had with his younger brother in the past.