Mukesh Ambani’s RIL succession plan: Carefully crafted but not over yet
Plan seeks to address governance woes that plagued Reliance two decades ago after Dhirubhai Ambani's demise
To the outside world, the succession plan may seem to be a meticulously orchestrated move with Reliance Industries Chairman Mukesh Ambani’s three children being appointed to the board of the company. But, for all practical reasons, it is a work in progress.
Ambani's 46th annual general meeting announcement showcased a succession plan that appears remarkably smooth and well-considered and may serve as a template for family-run enterprises. Analysts tracking the company have welcomed the transition. A total of 32 have given a positive recommendation out of 40 analysts. Brokerage firms CLSA, Jeffries, and Nomura have taken note of the family’s next generation getting a board seat, while Citi has remained neutral on Reliance and expects more stake sales in certain business entities.
The infamous feud
The appointment of Isha, Akash, and Anant Ambani as non-executive directors has been met with shareholder approval, including an extension of Mukesh Ambani's term as Chairman and Managing Director for another five years. His wife, Nita Ambani, has stepped down but remains a permanent invitee to board meetings, highlighting a thoughtfully coordinated family involvement that deviates from the woes of governance issues that plagued the company two decades ago after the demise of its founder, Dhirubhai Ambani. However, there is always the possibility of certain questions about whether the family members should have been given key roles, raising corporate governance issues. But what will separate the wheat from the chaff will be the performance of each of the businesses the siblings have been entrusted with.
The late Ambani did not leave a will, resulting in his wife Kokilaben mediating between the feuding siblings, Mukesh and Anil Ambani. Mukesh Ambani retained control over the flagship petrochemicals business, refining and oil, and later diversified into retail and telecommunications with ventures like Reliance Retail and Reliance Jio. On the other hand, Anil Ambani got the newer businesses like telecom, power, and financial services, which were part of the Reliance Anil Dhirubhai Ambani Group (Reliance ADAG).
The division was based on a formula Kokilaben and the family advisors worked out and implemented in 2005. Since then, the fortunes of the two sons have not been consistent. Mukesh Ambani's ventures, especially in petrochemicals and telecommunications, have been incredibly successful, making him one of the richest individuals in the world. Anil Ambani's businesses, on the other hand, have faced financial difficulties, leading to significant losses and debt.
Questions on governance
While Mukesh Ambani’s succession plan, even though he has not named any successor so far, has taken care of how much each of them will own in the parent company. Each of the five key Ambani family members — Mukesh, Nita, and their three children — hold 0.12 per cent of the company directly, with further stakes in a holding company. All of them together, along with related entities, hold 50.39 per cent in Reliance Industries, including Kokilaben Ambani’s stake of 0.24 per cent.
This move, although democratic, opens up questions on the governance of a conglomerate valued at over $100 billion.
In terms of operational roles, each Ambani scion has been involved in different business sectors — Akash in telecom, Isha in retail, and Anant in new energy. This raises the possibility that each of them may continue to operate these businesses independently, forgoing the need for a single successor.
Each of these businesses is in various stages of development. Some of them are at near-maturity levels, while others, especially retail, have a bright future but need a steady and experienced hand as it is a tough sector to crack. The new energy sector will have the Adanis’ ambitious plan to contend with.
As the younger Ambanis deal with the tricky issues of a shared inheritance, their decisions could change what it means to run a family business in the 21st century.
Here are some notable examples of industrial and business houses which have witnessed turbulent family feuds over succession:
Ambassador Cars (Hindustan Motors) – The iconic Ambassador brand, once a symbol of prestige and power in India, faced a steady decline. While poor succession planning wasn't the only factor, disagreements within the Birla family, who owned Hindustan Motors, did contribute to the company's downfall. The brand eventually sold off its Ambassador line to Peugeot.
Dhoot Family (Videocon) – While it could be more accurate to say the business 'failed' solely due to poor succession planning, the Dhoot family did face a succession crisis. Coupled with poor business decisions and financial management, this has been a challenge for the conglomerate. The company went into insolvency proceedings, with large debts accumulating over the years.
Modi Group – The sprawling business empire Rai Bahadur Gujarmal Modi set up faced challenges when the next generation took over. Disputes among family members led to the break-up and weakening of the conglomerate, affecting its longevity and competitiveness.
Raymond Group – While not a failure, the Singhania family, which owns Raymond, has had public spats regarding succession and control of the family fortune, affecting the group's image and leading to questions about its future stability.
Wadia Group – Though not a failure, the Wadia Group also experienced internal family disputes, affecting its Bombay Dyeing unit. Nusli Wadia took over the reins from his father Neville Wadia but faced challenges in grooming successors, resulting in uncertainties about the company's future.
Murugappa Group – The Chennai-based conglomerate with a valuation of Rs 74,200 crore was embroiled in a contentious dispute among its extended family members. This feud mainly centred around Valli Arunachalam, the daughter of the late MV Murugappan, who had been demanding a seat on the company's board — a demand that was met with resistance from other family members. The group's diverse interests range from banking to other sectors, and it has operations in 40 countries across six continents, employing over 73,000 people. Recently, the family announced that an agreement had been reached to settle the long-standing feud among its members. The settlement involves the family branch of the late MV Murugappan, which includes Valli Arunachalam and Vellachi Murugappan, and the other factions within the family. Although the exact terms of the agreement have not been disclosed due to confidentiality reasons, the development marks a significant turning point in the family’s internal disputes.