Influence of Family on Family Business Succession Planning Process: The Reliance Industries Split-up
Introduction
Reliance Industries Limited (RIL) was originally founded by Dhirubhai Ambani (Dhirubhai) and incorporated on May 8th 1973, as Mynylon Limited in the state of Karnataka in south-western India. In 1977, the headquarters of the company was moved to the state of Maharashtra, north of Karnataka, and the name was changed to Reliance Textile Industries Limited. Later, in 1985, the company was again renamed, this time to RIL. During that period, RIL manufactured synthetic blended yarns and fabrics, polyester filament, yarn polyester, staple fiber chemicals and allied products, color TV glass shells, and color TV picture tubes. In November 1977, RIL offered equity shares, for it to be listed on the Bombay Stock Exchange.
Since its initial public offering in 1977, RIL grew rapidly at about 28% annual growth rate in sales and about 32% annual growth rate in net profits over a span of thirty years. The company at the same time followed a backward integration strategy into the production of petrochemicals and the refining of crude oil. RIL grew into diverse operations, extending into the exploration and production of oil and gas as well as the manufacture of petroleum products, polyester products, polyester intermediates, plastics, polymer intermediates, chemicals, and synthetic textiles and fabrics. Since 1998, when the exploration of oil and natural gas in India was opened for private participation, RIL has been a significant player.
Family Management of Reliance Group
In 1986, founder Dhirubhai had a heart attack. As Dhirubhai recuperated, his sons oversaw the day-to-day activities of the company. The elder son, Mukesh Ambani (Mukesh), was involved in managing existing projects and establishing new ventures, whereas Anil Ambani (Anil) handled investments, financial markets (domestic and foreign), and corporate communications. Since 1990, over a span of two decades, with meticulous planning and execution, the brothers took Reliance Industries to great heights.
Mukesh was observed as an implementer of his father’s vision. In 2000, his most remarkable achievement was setting up 27 million tons per annum refinery in Jamnagar in a short span of 36 months. The amount invested in the plant was around INR50 billion.........
Split-up of the Management of Reliance Group
Dhirubhai left no legal will, which made the division of his huge business empire difficult. According to the Hindu Succession Act, Dhirubhai’s widow, Kokilaben, and their children inherited the entire assets of RIL. Three months after Dhirubhai’s demise, all of his four children (two sons and two daughters) signed a deed executed in favor of Kokilaben, granting her permission to handle the affairs of RIL.
The traditional Hindu view of family hierarchy is that when a father dies the eldest son steps into the head-of-the-family role. In fact, one of Mukesh’s spokesmen said, “When the king is alive, there are two princes.........
Division of Reliance Group of Industries
Anil accused Mukesh of delaying Reliance Energy’s large power project in Uttar Pradesh, and of manipulating the media in a campaign of misinformation. Meanwhile, a representative of RIL, noted that if Anil and Mukesh felt there were violations of the agreement, they could ask their mother, Kokilaben, the architect of the deal, to step in and settle the things.
Anil, however, approached the SEBI to resolve the matter based on the SEBI’s jurisdiction over:
1. Policy matters relating to the securities markets;
2. Policy issues relating to the regulation and development of the securities markets and investor protection; and
3.......
Post–Division Situation of Reliance Industries Limited
The markets reacted favorably to the news of the settlement of the ownership issue of the RIL. The Sensex index of the Bombay Stock Exchange rose more than 1%, whereas the shares of RIL rose by almost 5%, to close at INR630.
After one year, Anil’s ADA Group cited various direct violations of the agreement. Even worse, the division of the conglomerate into two separate control groups brought additional issues that the government of India and the SEBI had hoped would have been put to rest. These included transfering the split-off corporate entities from the RIL to the ADA Group through listings on the stock exchanges; unresolved transfers of some smaller but critical assets like Dhirubhai Institute of Information and Communication Technology, Mudra Institute of Communications-Ahmedabad (Mica), and Vimal Textiles; as well as inter-business transactions among the various entities now under two separate control groups, covered under different agreements...........
Assignment Questions
I. What are some reasons for the Reliance Group’s performance before and after the division?
II. What are some implications of not having a succession plan for a family-owned business like the Reliance Group? Discuss.
III. How did Anil’s political relations affect the family business? How did these relations influence conflicts in the family?
IV. ...................
