FROM BUSINESS WORLD OF 8 AUGUST 2006
Brand value destruction
Ever since
Dhirubhai Ambani launched the biggest ever share issue in the early 1980s,
Reliance has been India’s most valuable brand. Initially, the company was
better known for its shares than its products. But Dhirubhai treated his
shareholders extremely well. Reliance became the darling stock of the Indian
investor. He was prepared to buy more Reliance shares whenever they were
offered. As a result, Dhirubhai was freed of the tyranny of government financial
institutions and banks, and could expand his business as fast as he liked. That
is how he made Reliance India’s biggest company. In a short-lived fit of
liberalism, the government gave Reliance a licence to refine mineral oil in
competition with its own cosseted corporations. Dhirubhai built a huge refinery,
and left all other Indians behind – until the rise of information technology.
It is striking
how assiduously the sons of Dhirubhai have striven to diminish the brand value
of Reliance. If people had been given an association test ten years ago, in
response to ‘Reliance’ they would have said, “The sky is the limit.” Today,
they are likely to say, “No strife is as bitter as fraternal strife.”
It started two
years ago when Mukesh and Anil could no longer work together and – at least
according to Anil – Mukesh began to undermine Anil’s position. After enduring
the situation for some months, Anil went public with the tensions and
differences. He used the media to put pressure on Mukesh. He did not abuse
Mukesh; he just made public those moves that put Mukesh in bad light. He went
to the high and mighty and put his case before them. They were embarrassed, and
told both brothers to compromise. So did their mother, perhaps with greater
effect. Finally, both listened. They agreed on an arbitrator, and under his
surveillance, divided up the Reliance empire.
The division
kept the hydrocarbon core of Reliance intact and gave it to Mukesh; assets –
some businesses, some shares, some cash – were cobbled together to pay Anil his
share. It has been a fair division. It has been done without disturbing the
business much. And it has disentangled the assets so as to minimize the
interdependence between the two kingdoms.
Except in one
respect. The land and assets related to the 10GW power plant Reliance planned
to build in Uttar Pradesh went to Anil. But the gas offshore Godavari, which
was supposed to fuel that plant, went to Mukesh. Mukesh is not keen to sell the
gas to his brother’s plant. The Directorate General of Hydrocarbons has ruled
against the agreement to sell the gas. It has thus in effect helped out Mukesh.
How the fortunes
have changed! There was a time not many years ago when the Ambanis dominated
governments; whatever was in their interest, governments did it. No one knew
how they worked, but everyone believed the government was in their pocket. When
I was in the government, bureaucrats talked freely about which politician or
bureaucrat was an Ambani man. Today, it is the Ambani brothers who seem to be
taking politicians’ help in what should be a domestic quarrel.
This is not good
for Reliance – the businesses that constitute the old Reliance. And it is not
good for the Ambani brothers. Having used the media so successfully in securing
a fair division, Anil may feel otherwise. But conflict always carries risks; if
he discounts the expected gains for the risks, fraternal conflict is not good
for his empire either.
The breakdown of
the gas supply agreement may seem unfair to him, but actually, it is good for
Anil as well. It held potential for friction, which could have gone on for 30
years; by that time, the Ambani brothers would have been old men, waiting to
hand over their empires to the next generation. And for what? Generating
electricity to sell to the bankrupt UP State Electricity Board would be a mug’s
game.
Hence in my
view, the Ambani brothers must go their separate ways, and take care not to get
into each other’s way for some time. In a sense, all big industrialists compete
with one another – for capital, land, economic space. And they have worked out
implicit rules of combat. Under the licence-permit Raj, there was keen rivalry
between the Tatas and the Birlas. But even in those days, Freddy Mehta once
told me, the Birlas never tried to stop a licence going to the Tatas. The
Ambani brothers should also work out rules of gentlemanly engagement.
That will leave
Anil out of the very large area in which Reliance Industries is present or
which it is about to enter; he will have to think of new areas. But he is
bright enough to do that, and entrepreneurial enough to make it a success. It
is only a matter of getting the brother out of his gunsight, and concentrating
instead on the future India, which offers a much larger target.
