How sibling rivalry could potentially destroy shareholder value.
NNoted academic Gurcharan Das, author of India Unbound, argues that “rather than rising with the help of the state, India is in many ways rising despite the state”, adding that the entrepreneur “is clearly at the centre of India’s success story”. One of those success stories has been the late Dhirubhai Ambani, possibly one of the greatest entrepreneurs of the 20th century.
Reliance Group, the business empire Ambani built, is today worth US$125 billion, making his two sons the fifth and sixth richest men on the planet. Since their father’s passing in 2002, the sons have been at odds with each other, carrying out a lengthy public battle that ended with the splitting of the family business into two main groups. Mukesh, the elder of the two brothers, now controls Reliance Industries, while Anil, the younger brother, is at the helm of Reliance Capital, Communications and Energy. Ironically, both sons made sure to feature biographies of their late father on their websites, praising his legacy and including quotes from him, such as: “We bet on people.”
Media reports covered the brothers’ disputes as early as November 2004, which finally ended in a truce brokered by their mother, Kokilaben. The truce resulted in the complete split of the Reliance Group between the male siblings in 2006. Prior to the truce, Anil had sent the Reliance Group’s corporate governance committee a 500-page document highlighting flaws within the group under the chairmanship of his brother, citing a “deep concern that RIL has failed to adhere to the highest standards of corporate governance, transparency and disclosure”. He also requested that
“appropriate steps” be taken in the interest of the shareholders. Anil, who ultimately won control of the energy business unit, had opposed his elder brother’s post-split plan to set up power plants in the Maharashtra and Gujarat free-zone projects, effectively putting the projects on hold due to India’s lack of sufficient power supplies. Anil had previously taken his brother to the High Court in Mumbai for another clash concerning the price at which Reliance Industries would sell current and future gas supplies to his group. Yet, these disputes look like minor disagreements compared to the current disagreement that is arousing the interest of the world’s media and business communities.
In a Cain-and-Able-like example of sibling rivalry involving tens of billions of dollars, the latest episode in this once-admired family business came this summer when Mukesh threatened to invoke a clause that he claims gives him the right of first refusal in the transfer of any Reliance shares, as stated in the 2005 truce allowing him to scupper a deal that would see his younger brother merge Reliance Communications with South Africa’s MTN Group. The deal would effectively put Anil in control of a giant worldwide communications conglomerate valued at US$70 billion, potentially allowing him to break into the rank of the richest five people in the world.
Sadly, it seems to the outside observer that ego rather than shareholder’s interest plays a significant role in the ways in which the brothers are conducting their business. In a country that is still plagued by illiteracy, malnutrition and poverty, little else would justify Mukesh building a 60-storey house costing US$2 billion. Anil’s admiration for celebrities goes beyond marriage and friendship and has recently extended into potentially pumping US$1 billion into Steven Spielberg’s DreamWorks Studios, a risky venture that fails to account for Hollywood’s declining profits but would see Anil rubbing shoulders with the likes of George Clooney and Brad Pitt.
At a time when Indian businessmen have been making positive headlines around the world, such as Ratan Tata’s recent purchase of carmakers Land Rover and Jaguar and Lakshmi Mittal’s takeover of Arcelor, the Ambani brothers have been the stuff of ridicule by the world press. A recent LEX column in the Financial Times noted: “My ebitda is bigger than yours. Is this what the latest spat between the two Ambani brothers boils down to?”
For a firm whose profits account for 10 per cent of the entire corporate sector of India and whose revenues are equivalent to 3.5 per cent of its GDP, the perpetual spats between the two brothers could potentially have ramifications across all sectors in the country. Should they be left to their own accord or should the state step in?
This story is still an inspiring one, but for all the wrong reasons. It allows others to draw lessons on what to avoid to make sure a business that was built with blood, sweat and tears does not fall victim to excesses, ego and sibling rivalry. The late giant of an entrepreneur Dhirubhai Ambani, who once proudly proclaimed that he bet on people, almost certainly always won. Sadly, one bet he seems to have lost is that on his sons.
This article was originally published in MONEYworks on August 2008. (PDF Download)