Why investors expect a succession plan at Reliance AGM today

At one stage, the flamboyant Dhirubhai Ambani, RIL’s late promoter and arguably one of the greatest investor wealth creators of modern India, used to hold the company’s AGMs in Mumbai’s iconic Brabourne Stadium. And such was the spectacle value of the event that even in the days before the rise of hundreds of news television channels and thousands of websites, media used to fill a stand by themselves.

RIL’s 45th AGM this year scheduled for Monday, August 29, is unlikely to be anything like the mega jamborees of the past. Nevertheless, it might turn out to be the most crucial one yet in its history. That’s because, apart from critical updates on its plan for subsidiary Reliance Jio Infocomm’s future plans for 5G rollout, there are likely to be insights into an even more significant matter: the most awaited succession plan in the history of corporate India.

Jio was the biggest buyer at the recently concluded auction of 5G spectrum, snapping up about $11 billion worth of airwaves. RIL investors will also be awaiting more details on the company’s pivot to green energy. A ₹75,000 crore investment plan was unveiled at last year’s AGM. In his note to shareholders along with the annual report for FY22, Ambani had said that these investments will start going live and start to scale over the next couple of years. Investors would want to know how and when.

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But by far the most awaited announcement is likely to be a more clearly spelt out succession plan for the ₹17,71,645.33 crore MCap RIL, including details on the future roles to be played by Ambani ‘s children–daughter Isha and sons Akash and Anant.

More so in view of persistent rumours floating around Mukesh Ambani’s health, even though the company has called them “fake news". Some hints were on offer last year, when Akash took over from his father as Chairman of Jio Infocomm. Isha is a director of the retail arm while Anant is said to be tasked with overseeing the legacy petrochem business. However, apart from Akash Ambani’s transition, the other roles are yet to be formally concretised within the organisation structure.

Ambani himself had indicated that some sort of succession plan was in the offing at the company’s Founder’s Day celebrations in December last year, when he commented, “All seniors, myself included, should now yield to the highly competent, extremely committed and incredibly promising young leadership talent at Reliance."

A clearer discussion on the succession roadmap, however, is critical, not only for RIL’s lakhs of retail investors but the broader markets as well. RIL is a pivotal stock in the two top stock market indices in India–the BSE Sensex and the NSE Nifty 50–and accounts for more than 10 per cent of the weight in both indices.

A repeat of what happened after Dhirubhai’s passing–when the absence of a clear succession plan led to a bitter succession battle between brothers Mukesh and Anil Ambani and eventually a split of the empire–could cause turmoil in the broader markets.

Indians in general do not like discussing the eventuality of death and future planning. That is why life insurance penetration in India is still an abysmal 3 per cent. A recent survey found that 73 per cent of respondents were unaware of the concept of a living will, while less than 2 per cent of all registered documents, according to another estimate, happen to be wills.

In the case of family and promoter-run companies too, this is no different. What’s more, Indian investors have seldom pressured promoters on this issue, even in cases where the promoters hold only a small percentage of the company and the majority of the capital has been provided by other investors. Even in RIL, the promoter holding is a little over 49 per cent.

It is even less in some of the other major companies in the Nifty50. Mahindra and Mahindra has a promoter holding of just 18.8 per cent. In Dr Reddy’s it’s just 26.7 per cent, and 25.9 per cent in Kotak Mahindra Bank. Only the two IT majors TCS and Wipro have promoter holdings in excess of 72 per cent. But despite the large stake they have in these businesses, Indian investors, unlike the West, have tended to allow promoters a free hand, not only in running their companies, but in choosing their successors. The right of inheritance is seldom questioned. This needs to change. And perhaps RIL and the Ambanis, as they have done in so many other fields in the past, will once again set the lead for others to follow.

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