Predictable outcome

Few will have been surprised by the outcome of the Reliance Industries board meeting on Monday. It was already known that the directors of the company had backed the chairman, Mukesh Ambani, in previous face-offs between him and younger brother and vice-chairman Anil.

It has also been evident for the past five weeks that the board has been supine and singularly inactive despite fairly startling disclosures on a variety of vital issues involving large sums of money.

So it should have been expected that the board would rubber-stamp any resolution placed before it for consideration. And this is exactly what happened.

The real significance of Monday's events, therefore, lies in the message from Mukesh Ambani that he is not going to change course on anything other than his (now annulled) sweat equity deal.

With Anil Ambani out of step with him and the board on all the key issues that have cropped up, this can only mean that the feud between the brothers will continue.

This is not to argue that everything that the board approved is open to question. For instance, there is no case for splitting Reliance Industries into two companies simply because the two brothers can't get along.

The company has been functioning as an integrated whole, with forward and backward linkages in its product chain, and there is little logic in disturbing this structure.

Equally, it is hard to argue with the position that the parent company should have a say in the projects being undertaken by its subsidiaries, especially if they are to draw on the parent company's resources, in terms of either money or raw materials""though the different ways in which Reliance Energy and Reliance Infocomm are being treated tell their own story.

Where the board has some explaining to do is on Reliance Infocomm. If it is indeed true that Reliance Industries does not know who the other investors in Infocomm are, and that it has not until now had full access to Infocomm's financial status (despite investing Rs 12,000 crore), these are matters on which any self-respecting board should have asserted itself long ago.

Having failed to do that, the directors have now taken the extraordinary step of rejecting Anil Ambani's proposal that its investment in Infocomm's convertible preference shares be converted at par (logical since the company has taken the bulk of the financial risk).

Instead they have appointed a committee that will decide the conversion price. Given the history of past pricing moves, this can only mean that Reliance Industries will get much less than what its vice-chairman proposed.

Why the company's directors should go along with this, to the detriment of Reliance shareholders, needs some explanation. If the same board simultaneously decides to set up a governance committee, this can only be an eyewash, since the board has chosen to say nothing at all about the conflict of interest between the company and its chairman on Infocomm's ownership issues.

As for the share buyback, the offer is less generous than initially supposed because it is not an open offer to buy shares back at a fixed price, but an enabling resolution that leaves the matter open to discretionary action.

After the first flush of excitement, therefore, the market has been less than enthused and it remains to be seen whether the buyback gambit will deliver the intended result.

Sebi, which has turned a Nelson's eye to the goings-on in the company and done precious little in response to the disclosures of recent weeks, has once again made some noises that are intended to convey the sense that it is not sleeping on the job. But as with the directors of Reliance Industries, no one is fooled.