The feud between the Ambani brothers and similar corporate battles fought over the years serve as a telling metaphor about the nature of Indian capitalism.
The most striking feature of the legal battle between Mukesh and Anil Ambani is that the terms of reference till recently was a private family agreement to divide control over a sprawling business empire that has millions of shareholders. The Ambani family had valid incentives to break up the business group that Dhirubhai Ambani had built from scratch. The growth in the two sets of companies that emerged out of the Ambani separation may not have been possible if Mukesh and Anil Ambani had to fight for space within the same group. It is quite likely decision-making and shareholder confidence would both have been dented. Yet, this does not mean that what happened subsequently can be easily justified in terms of shareholder interest.
Public companies are supposed to be run for the benefit of all shareholders; and corporate boards are supposed to keep this in mind at every moment. There is little in the Ambani dispute to suggest that either the two brothers or, perhaps more importantly, the well-paid boards of the various companies involved, took decisions with shareholder interest as the dominant goal.
The various analyst reports that came out from brokers and investment banks after the Supreme Court judgement on Friday estimate that the earnings per share of Reliance Industries Ltd (RIL) would increase by Rs25-30 because of the ability to sell gas to the Anil Ambani group at the higher price of $4.2 per million British thermal unit (mmBtu). That is why investors bid up the RIL share price in a falling market on Friday. The RIL board should, in fact, have objected to short-changing of public shareholders much earlier. There was no reason why so much money should have been left on the table for the sake of a private family deal. It is such a dereliction of duty that also ensured that not even a single director on both sides asked for the relevant portions of the Ambani family settlement to be made public.
This is a common feature in most corporate battles in India, internecine wars for control within families that have been a running theme through Indian history as well. These have not been wars between two companies for markets (Coca-Cola vs Pepsi, for example) or technology standards (Microsoft vs Netscape). Nor have these been takeover battles fought for the benefit of shareholders and overseen by vigilant boards. Indian corporate battles have been dominated by inter-family disputes and battles of inheritance. What’s worse, successive governments and freelance troubleshooters/troublemakers (depending on your outlook) have often been drawn into corporate battles with mercenary enthusiasm. Anil Ambani’s outbursts against the government were not the most tactically astute at the time because they eventually left him surrounded by many burnt bridges. But these outbursts did remind us of the brute fact that the Indian government has not always behaved like a neutral umpire, preferring to take sides directly through policy changes or intervening indirectly through major institutional investors such as the Life Insurance Corp. of India. Most Indian businessmen know the value of having friends in government and the value of some behind-the-scenes lobbying.
Illustration: Shyamal Banerjee/Mint
But does any of this really matter for a fast-growing economy that has evaded the global recession with great ease and which is vying for a seat at the high table of global power?
Yes, it does.
These are worrisome signs of oligopolistic capitalism, a nexus between big business houses and important corporate groups. India cannot afford to be a fertile field for such tendencies.
There is ample research to show that many developing countries tend to show signs of crony capitalism and then get trapped in middle-income stagnation, losing their market discipline and entrepreneurial zest. South Korea avoided this trap when it reformed its economy after the 1997 Asian crisis by making the economy more open and breaking up the chaebol. Indonesia, meanwhile, has lost its growth impetus because of its failure to wrestle with these issues.
There is no silver bullet for these tendencies. India needs multiple reforms: from more vigilant shareholders to a tough anti-competition law to further decontrol of the economy.
The Supreme Court has done well to ask the government to take a close look at its natural resources policy. It is time we took a hard look at the way other oligopolistic industries are managed and how policies are decided, be it oil or power or telecom or roads.
The upshot: The legal battle between the two Ambani brothers is over. But it leaves us with several important questions about the nature of our economy that affect us as citizens, employees and shareholders. The Ambani feud showed how far India is from liberal capitalism and a free market economy.
What does the long battle between the Ambani brothers tell us about the Indian business scene? Tell us at email@example.com