The influential British weekly “The Economist”, in its latest issue dated August 2, has sought to trigger hornet’s nest by calling top tycoon Mukesh Ambani’s Reliance Industries Ltd (RIL) a “rotten role model for corporate India”, insisting, “When it comes to governance this secretive and politically powerful private empire is not a national champion but an embarrassment”. The title of the comment itself is enough to raise eye-brows: “An unloved billionaire: Why Mukesh Ambani, India’s richest man, needs to reform his empire.”
Saying that “Reliance is a patriarchy with a lightweight board”, the article insists, “Although a listed firm, it makes payments equivalent to a quarter of its pre-tax profits to related entities, mainly privately held by the Ambani family. Its ultimate ownership and beneficiaries are obscured by a mesh of holding vehicles that India’s securities regulator says it does not fully understand. The regulator accuses the firm of making illegal gains from trading derivatives linked to its own subsidiary’s shares (an accusation Reliance is contesting). Some foreign investors, put off by the lack of transparency, shy away.”
Coming to Reliance’s relationship with the government, the Economist calls it “even more troubling”, especially when “anti-corruption campaigners claim Ambani is the power behind the throne of India’s political leaders”. It adds, “Politicians, officials and regulators say Reliance has unusual clout. Reliance denies these claims. Meanwhile, the national auditor is investigating a telecoms-spectrum auction the firm won.”
The change the way Reliance was being run took place in 2010, believes the powerful weekly, when Ambani bid for Lyondell Basell, a global chemicals giant. “The deal would have both made Reliance a killing and forced it to modernise its governance, but it fell through. Since then the company’s culture has become even more personalised. In June Ambani’s wife joined the board. In July Reliance took control of a big broadcaster, which will provide Ambani with a platform for his views, should he choose to use it that way”, the article declares.
The Economist says, Ambani’s belief that Reliance “does not need to reform” is “wrong for two reasons”. The first reason is that “India’s economy is opening up, and the firms most exposed to global competition—tech giants, for instance—have the world-class governance and open cultures needed to command the trust of counterparties, investors and clients, to attract talent and to foster innovation. Asia’s best multinationals, such as Samsung and Lenovo, have had to make painful reforms to stay competitive.”
As for Reliance, it “operates in the more opaque parts of the economy, such as infrastructure, that are trapped in a time warp of barons and scandals”. But to revive India’s growth rate, “Narendra Modi, the new prime minister, will probably expose these sectors to a blast of competition and investment from abroad. The more open the economy, the more of a liability Reliance’s opacity and bad reputation will become”, the article underlines.
And the second reason is, Indian society is turning against its tycoons. “Independent institutions such as the Supreme Court, the national auditor and the central bank are on the warpath against crony capitalism. The electorate is incensed by corruption. Modi may be beholden to the businessmen who bankrolled him, but the voters want him to tackle cronyism. In this climate, Reliance’s power makes it vulnerable. Already, officials are raising awkward questions about its gasfields”, says the Economist.
Sharply contrasting Mukesh Ambani with Dhirubhai Ambani, his father and founder of RIL, the Economist says, “Whereas Dhirubhai Ambani was mobbed by adoring crowds, Mukesh, protected by gunmen, is criticised on Twitter. Pervasive mistrust is dangerous for any firm.” It gives examples to suggest what may happen: “In the early 20th century Americans demanded that big businesses such as Standard Oil be broken up; today, Mexico’s richest man, Carlos Slim, is under pressure to shrink his empire.”
Pointing towards how Dhirubhai built the RIL, the article says, in the liberalized atmosphere ushered in, in 1991, he “fought his way up from a menial job in Yemen through Mumbai’s heaving tenements to the top of Indian business. Socialist dogma and meddling officials were his foes, charm and cunning his tools. He managed to run rings around the country’s stifling rules. Dhirubhai’s tactics appalled India’s establishment. But he marshalled resources to create industrial facilities of the kind every economy needs, including one of the world’s biggest refineries in Gujarat, his birthplace.”
Advising Ambani “to reform his firm”, the Economist says, he should “simplify its ownership and appoint as directors global heavyweights with reputations to lose who can subject Reliance to scrutiny”, adding, “To avoid conflicts of interest Ambani could merge his private businesses into Reliance, on terms that are fair to minority shareholders.” It wants him to “publish details of Reliance executives’ meetings with politicians and officials”, adding, he should “sell its media assets”, and by doing this “he would lose something in personal and political power but gain more through the opportunity to build a more global and more admired business”.
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